Hartmann Flashcards
Tragedy Of the Commons
“Every individual has an incentive to consume a resource but at the expense of every other individual - with no way to exclude anyone from consuming”
How to escape the Tragedy of the Commons?
1) Centrally Enforced Solutions 2) Privatization 3) Governing the commons
1) Centrally Enforced Solutions
Price the externality e.g. access fee total to the externality caused; Set limits on quantities per individual
Require: non-corrupt authority, knowing payoff function, political decision making
2) Privatization
Rights with exclusive use BUT might postpone and not solve problem AND some commons (atmosphere, water) are impossible to privatize
3) Governing the commons
Clear boundaries, balance of costs and benefits, reliable monitoring of shared resource
Regulation and Compliance
Public Policy denotes plan by government officials to achieve some broad purpose
Three divisions when Regulations are needed
1) Market Failure 2) Negative Externality 3) Natural Monopoly
1) Market Failure
Inability of market to adjust prices to the true costs of a firms behavior e.g. no incentive to spend money on emissions control or build up recycling infrastructure
2) Negative Externality
Manufacturer gives rise to unplanned costs borne by consumers, competitors, communities e.g. greenhouse gasses that cause global warming
3) Natural Monopoly
Concentration of Market is acquired by a few firms
Types of Regulations
1) Environmental Regulation 2) Market-based mechanisms 3) Information Disclosure 4) EU corporate sustainability reporting directive 5) Supply Chain due diligence regulation
1) Environmental Regulation
Standards that prescribe allowed levels of pollution - government controls compliance
2) Market-based mechanisms
Regulations that use incentives to reduce environmental impacts e.g. taxes, tradable permits, subsidies
3) Information Disclosure
Mandates public disclosure such as GHG emissions or wastes - “regulation by embarrassment”
4) EU corporate sustainability reporting directives
Non-Financial-Reporting Directive vs Corporate Sustainability Reporting Directive
Non-Financial Reporting Directive
When will it enter into force?
2018
To which firms will it apply?
Large companies of public interest > 500 employees
What do firms need to report?
Environment. Protection, Social Responsibility and Treatment of Employees, Respect for Human Rights, Anti-Corruption, Diversity on Company
Is there third party assurance?
Non mandatory in most countries
How do firms need to report?
Part of annual report - online, PDF
Corporate Sustainability Reporting Directive
When will it enter to force?
2023
To which firms will it apply?
Companies meeting 2of3 criteria: - 250 employees and/or 40M Turnover and/or 20M total Assets
What do firms need to report?
Double materiality impact (ON & OF the Firm) process to select material topics for stakeholders, forward looking information and information relating to intangibles, reporting in line with sustainable finance disclosure regulation and EU taxonomy regulation
Is there third party assurance?
Mandatory: - Integration in Auditors report, - Involvement in key audit partner, - scope to include EU Taxonomy and process to identify key relevant information
How do firms need to report?
Part of management report, Electronic format in accordance with ESEF regulation
5) Supply Chain Due diligence regulation
Supply-Chain Due diligence Act (DE) vs Supply Chain Due Diligence Act (EU)
Supply Chain Due Diligence Act (DE)
When will it enter into force?
2023
To which firms will it apply?
Companies with more than 3.000 FTE (full-time-equivalent) 2023, companies with more than 1.000 FTE 2024 ~ 4.500 companies in Germany
What do firms need to comply with?
Human rights preservation, Minamata Convention on Mercury, Stockholm convention on persistent organic pollutants, extension to tier-n if necessary
What are consequences for non-compliance?
Fines (painful), Exclusion from public tenders
Supply Chain Due Diligence Act EU
When will it enter into force?
TBD - to be determined
To which firms will it apply?
Large EU limited liability companies ~ 500 FTE, smaller l.l.companies operating in high impact sectors (~250FTE) ~17.000 companies in the EU
What do firms need to comply with?
Human rights preservation, pollution prevention, alignment with Paris agreement across entire supply chain
What are consequences for non-compliance?
Fines, Criminal Liability, Exclusion from public tenders
Benefits of Regulations
Emissions of nearly all pollutants dropped since 1970
air, water and health quality improved, jobs were created
