John Fletcher

Addressing some of the Issues of Sustainable Investment

(development of an impact model for WWF-UNEP)

John Fletcher

The study

Approached in December 2008 to build a new model to help advise on sustainable tourism investment in coastal areas (WWF)

Met to discuss and agreed that it should not be a “new model” but a “new approach”.

The models we already have are far more accurate than the data we use

to drive them!

Define Sustainable Investment for the purpose of this study

Sustainable investment can be in:

• sustainable development;• reducing the rate of consumption of natural

resources;• reducing GHG emissions;• technologies to remove Carbon from the

atmosphere;• reducing the need to travel

Working DefinitionIncreases to the capital stock that will:

• drive the destination towards optimising its use of local natural resources;

• reduce the incremental negative environmental and social impacts associated with increased productive capacity and;

• enhance local socio-economic effects.

Review of economic impact models

• Ad Hoc Multiplier models;

• Input-Output Models;

• Computable General Equilibrium Models

Choice of model• Ad hoc models were considered partial and too

subjective in construction;

• CGE Models were considered to be strong and accurate with sufficient data availability but too complex for online development;

• Input-Output models were considered sufficiently reliable and robust enough for online development.

Model Structure

• The structure of the model is based on an I-O Model, and an environmental matrix (to capture upstream environmental impacts and expresses them as GHG emissions, Acid Rain Precursors, Occupational injuries and deaths, biodiversity etc);

• The model also attempts a socio-economic module even though somewhat limited to indicators such as local labour content, skill levels;

• The model is importantly subject to an auto-regressive forecasting module that estimates likely future impacts.

In 1992…

The model we built gave results that looked like this….

In 1999…

The model we built gave results that looked like this….

To keep the data entry simple..

We looked at the level of aggregation to be used…

AggregationTested various aggregation levels starting with 48

x48 I-O matrices for a wide range of countries:– OECD– Industrialised– Agricultural– Extractive

With a wide range of income levels – high, middle and low income countries.

The effects of aggregation• Output/income multipliers calculated for all

countries at 48, 25, 24, 23, 19, 16 and 13 sector levels of aggregation;

• Optimum aggregation was between the 23 and 16 sector levels, but even at the 13 sector level the errors introduced were less than 5% in the vast majority of cases.

Agriculture, Hunting, Forestry and Fishing Output Multipliers, Brazil

1.96

1.965

1.97

1.975

1.98

1.985

1.99

1.995

2

2.005

2.01

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Agriculture, Hunting, Forestry and Fishing Output Multipliers, China

1.97

1.975

1.98

1.985

1.99

1.995

2

2.005

2.01

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Agriculture, Hunting, Forestry and Fishing Output Multipliers, Germany

2.012

2.014

2.016

2.018

2.02

2.022

2.024

2.026

2.028

2.03

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Agriculture, Hunting, Forestry and Fishing Output Multipliers, UK

2.185

2.19

2.195

2.2

2.205

2.21

2.215

2.22

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Construction Sector Output Multipliers, Australia

2.14

2.145

2.15

2.155

2.16

2.165

2.17

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Construction Sector Output Multipliers, Japan

2.12

2.14

2.16

2.18

2.2

2.22

2.24

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Construction Sector Output Multipliers, USA

1.97

1.975

1.98

1.985

1.99

1.995

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Distributive Trade Output Multipliers, France

1.6

1.605

1.61

1.615

1.62

1.625

1.63

1.635

1.64

1.645

1.65

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Distributive Trade Output Multipliers, Inodenesia

1.686

1.688

1.69

1.692

1.694

1.696

1.698

1.7

1.702

1.704

1.706

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Hotel & Restaurant Output Multipliers for Australia

2.23

2.24

2.25

2.26

2.27

2.28

2.29

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Hotel & Restaurant Output Multipliers, Brazil

2.12

2.13

2.14

2.15

2.16

2.17

2.18

2.19

2.2

Original Agg 1 Agg 2 Agg 3 Agg 4 Agg 5 Agg 6

Schematic Diagram

Input-Output Model

Environmental Matrix

Forecasting Module

Socio-economic Module

Private Sector Businesses

Public Sector Officials

Guidelines and sustainability checklist

Investment Appraisal

1

2 3

Output:Benchmarking & Forecasts

Input:Expenditure, Employment,Size, etc

Output:EconomicEnvironmental socio-economic results

Input:Tourist arrivals,

expenditure, employment by

sector, etc

The Investor’s Interface (1)• The role that this has is still under discussion;

• Use the Inter-American Development Bank (GSTC) Scorecard system to “lock out” unsustainable investors, or;

• Use it as a way of driving investors to be more aware of sustainability

• Access to the site will give them impact and average performance benchmark indicators for the sector that is relevant to their proposed investment.

Private Sector Interface (2)• The crucial interface – this is what fuels the

model;

• Requires engagement of the private sector;

• Rewards engagement with benchmark and performance indicators (min, mean and max economic, environmental, business) for their sector.

Types of benchmarks/indicators

• Hotels…RevPAR, Energy (Kw) per guest night, energy costs as % of total costs, occupancy rates, marketing as % of total costs etc., etc.

• Restaurants…Sales per cover…energy costs as % of total, sales per employee, marketing costs as % of total…etc.

• Retail….sales per sq.mtr, sales per employee, energy costs as % of total costs, etc,. Etc.

Public Sector Interface (3)• Provides an overview of investment and tourism

activity/development;

• Requires engagement in the form of providing tourist data (spend and visits) as well as control totals for each sector (such as employment);

• Creates a planning and sustainability culture.

Online model needs to be…

• Easily maintained and managed;

• Reconciliation checks;

• Secure/confidential;

• Localised (language and questions);

• Keep same structure.