Piloting Oiconomy Pricing : First experiences of producers applying full cost sustainability assessment of products

The Oiconomy Pricing approach provides an innovative way of measuring and communicating (un)sustainability of products. It expresses (un)sustainability in a virtual monetary unit, the ‘Eco Social Cost Unit’ (ESCU). As closely as possible, the ESCU score of a product equals the externalities, which can also be described as hidden preventative costs. In the context of product sustainability assessment, these are the costs that need to be spent to avoid any damage to the environment or society that the product causes during its entire lifecycle. This paper presents the result of a pilot project with three companies operating in global value chains, applying the Oiconomy Sustainability Assessment Tool. The project encouraged end-producer companies and their value chain partners to calculate the hidden preventative costs and jointly implement sustainable solutions. This article presents the results of these calculations for the three cases, the experiences of the companies and the implications for the market introduction of the tool

Oiconomy Pricing - Real price of cocoa liquor from single origin beans, Sierra Leone

Tradin Organic is a Dutch B2B company, which sources, distributes, and processes organic food ingredients to the international food market. Within its wide product portfolio, the case is single origin, organic cocoa liquor, from cocoa beans which are cultivated by smallholder farmers, located in Sierra Leone. The cocoa beans are bought in from the smallholder farmers and processed in a factory owned by Tradin Organic and stationed in The Netherlands. Tradin Organic has several impact programs aimed at to improving the environmental and social sustainability of the cocoa supplychain but has not yet quantified the externalities associated with the product

Oiconomy Pricing - Real price of cocoa liquor from single origin beans, Sierra Leone

Tradin Organic is a Dutch B2B company, which sources, distributes, and processes organic food ingredients to the international food market. Within its wide product portfolio, the case is single origin, organic cocoa liquor, from cocoa beans which are cultivated by smallholder farmers, located in Sierra Leone. The cocoa beans are bought in from the smallholder farmers and processed in a factory owned by Tradin Organic and stationed in The Netherlands. Tradin Organic has several impact programs aimed at to improving the environmental and social sustainability of the cocoa supplychain but has not yet quantified the externalities associated with the product

Quantification of corruption in preventative cost-based S-LCA: a contribution to the Oiconomy project

Purpose: Corruption is one of the key social aspects, heavily impacting all three Planet-, People- and Prosperity sustainability pillars and is therefore essential to be included in S-LCA. The objective of this article is to consider the available options to quantify corruption in preventative cost-based S-LCA, and to make a first proposal for quantification. Methods: Literature was investigated on potential S-LCA assessment methods of corruption. To date, such literature is hardly available, so more generally, S-LCA methods were assessed on described concepts and ideas, and assessed on five criteria. Following this, using the obtained conclusions and ideas, a proposal for the quantification of corruption for the preventative cost-based Oiconomy system was developed, following the five-step Oiconomy method (Croes and Vermeulen in J Clean Prod 102:178–187, 2015). Results and discussion: Based on some examples, Dreyer et al. (Int J Life Cycle Assess 15(3):247–259, 2010) argue that various social aspects, including corruption, are better assessed by companies’ preventative efforts than by their impact. Therefore, modifying a method developed by Dreyer et al. (Int J Life Cycle Assess 15(3):247–259, 2010), an indicator is proposed provided by the product of the marginal preventative costs and the quality of a companies’ preventative governance. For the aspect of corruption, the internationally accepted target is “zero tolerance.” Literature shows that the ultimate business choice under pressure of corruption is “not doing the business.” Because profitability is the main driver for companies, refraining from the business is proposed as the marginal preventative measure, and the related profit as the maximum quantitative indicator for S-LCA. For the risk factor, a technique is proposed based on scoring a company’s governance quality by checking the four Plan-Do-Check-Act effort classes of common risk-based certification standards’ criteria. Conclusions: Our assessment shows a definite need for the inclusion of the aspect of corruption in S-LCA, but no options for a reasonably certain assessment are available for the aspect of corruption in impact-based S-LCA, also suitable for the preventative cost-based Oiconomy system. However, based on literature-derived ideas and principles, for the Oiconomy system, we could propose both a performance reference point and marginal preventative costs as a quantitative measure for corruption. The proposed measure is not paying the bribe, but the proposed indicator is a governance quality-dependent fraction of the consequentially lost profit margin. Consequences, limitations and possible objections to our proposed methods are discussed

The assessment of positive impacts in LCA of products

Purpose: The objective of this paper is to open a discussion on the implications and challenges of including positive impacts in LCAs of products and to propose a set of criteria for their inclusion in LCA in general and in the Oiconomy system in particular. Methods: Using the existing literature, guided by the recent reviews by Di Cesare et al. (2018), Petti et al. (2016), and Ekener-Petersen et al. (Int J Life Cycle Assess 23(3):1–13, 2016) and our own experience and logic, we assess ethical and practical issues, shortcomings, potential inconsistencies, and problems of inclusion of positive impacts and propose criteria for inclusion of positive impacts in LCA. Results: Discussed in relation to the inclusion of positive impacts in LCA are the conflicting descriptive and prescriptive character of LCA, the inclusion of internalities, considering “absence of negative impacts” as positive, measuring by status or by change and the therewith involved temporal scope, moral consequences of comparing positive and negative impacts to different stakeholder groups, the requirement of a capacity-raising character and maintenance of a positive impact, rebound effects, R&D, background and foreground data on positive impacts, and the inclusion of employment and product utilities as positive impacts. Based on this assessment, we propose a set of criteria for the assessment of positive impacts in life cycle assessment in general and especially of positive contributions in the “Oiconomy system”. Conclusions: This study demonstrates several serious ethical and practical issues and challenges related to inclusion of positive impacts in LCA. An especially difficult question is how to interpret the economic concepts of “externalities” and “internalities” in relation to LCA. A special definition of in- and externalities for LCA purposes is proposed. The importance of a “capacity-raising” character of a positive impact is demonstrated, but also some of the difficulties of distinguishing capacity raising from maintaining the current status. Important outcomes are that for a consistent LCA, inclusion of most internalities and absence of negative impacts must be dissuaded, which also applies to employment and wages unless without a range of additional criteria. Great caution must be taken with inclusion of product utilities, comparing the positives for one stakeholder group with the negatives for another and mixing measurement by status with measurement by change

Comprehensive life cycle assessment by transferring of preventative costs in the supply chain of products. A first draft of the Oiconomy system

A major part of global unsustainability is embedded in consumption and the processes involved in the lifecycle of products, but there is currently no comprehensive and objective method for product sustainability measurement, including both environmental and social issues. This requires a life cycle approach. Current life cycle assessment (LCA) systems, developed to compare environmental performance of products and production alternatives, have many shortcomings if used to comprehensively measure product sustainability. The most important shortcomings are: the lack of a measuring standard, the top-down approach, the weighting of different issues, the very laborious procedures of addressing specific supply chains, limitation to environmental aspects, the very complex nature of impact based data, and difficult database maintenance. This article presents a new type of “bottom-up” and “product-specific LCA” for the comprehensive measurement of the hidden environmental and social costs of products. Every supply chain actor collects the upstream supply chain hidden costs, calculates and adds its own contribution and transfers the result to the next link by means of a monetary unit, the “Eco Social Cost Unit” (ESCU). Every ESCU allocation is the product of a quantitative factor for an issue and a price factor. The uniform measurement of the quantitative factor, their transfer through the supply chain, and the creation of a self learning database of the price factors is achieved by means of a standard. The price factor represents the marginal preventative costs for the relative impact category of sustainability issues. For initial determination of the price factor this article extends the EcoCost/Value ratio system, developed by Vogtländer et al., to social issues, discusses implications of the system, its principles, advantages, research challenges and limitations and proposes system boundaries for application of the system and future research contributions to the project

In search of income reference points for SLCA using a country level sustainability benchmark (part 2): fair minimum wage. A contribution to the Oiconomy project

Purpose: This paper is part 2 of our twin articles on income reference points for social life cycle assessment (SLCA). The purpose of this article is to provide a well-founded fair minimum wage standard, which enables the determination of the preventative costs for the impact category of unfair prices for labour in preventative costs-based SLCA. Methods: A five-step procedure was followed, comprising of (1) definition of the impact category and characterization factor, (2) a literature survey on standards and practices on fixing of minimum and living wages, (3) our proposal of a fair minimum wage based on the principles set in ILO conventions, the $2 World Bank moderate poverty line and a country level benchmark, (4) a literature study on current sub-fair wages and (5) a proposal of how to use the findings. For justification of the results, the results were compared with other systems and tested the sensitivity of the results to changes in the composition of the benchmark group of countries. Results and discussion: Because literature showed that an absolute minimum wage is only suited for the lowest-income countries and relative minimum wage only for higher income countries, this paper proposes a relative system, bottom cutoff by an adjusted absolute minimum wage. The mean proportion of the minimum wage of the gross national income (GNI) per capita in a benchmark group of the top 20$2 (PPP) poverty line. The proposed relative system, based on 2011 data, is 44.4 % of a country’s GNI per capita and the proposed absolute minimum wage is $1547 (PPP) per year and$0.830 (PPP) per hour. Conclusions: A well-founded set of fair minimum wage targets is proposed for 183 countries to be used in SLCA and beyond. We also propose to use the difference between actual payment and a target determined according to the here presented methods as the measure in preventative costs-based LCA, such as the EcoCost system and the Oiconomy system

In search of income reference points for SLCA using a country level sustainability benchmark (part 1): fair inequality. A contribution to the Oiconomy project

Purpose: This paper is part 1 of our twin articles on income reference points for Social Life Cycle Assessment (SLCA). Preventative costs based LCA systems, such as the EcoCost system and the Oiconomy system, need targets (performance reference points) to determine the marginal preventative costs, the costs of the most expensive measure that globally needs to be employed to reach the target. To extend the EcoCost system for social issues, targets are required for issues like fair wages and fair inequality of wages, issues for which no agreed standard, no effect level or target exists. One way of setting targets is to take best practices as benchmark, e.g. the practices of a group of best performing countries. The purpose of this part 1 article is to first develop a well-founded benchmark group of the 20 % best performing countries and thereafter propose a well-founded target for the issue of inequality for preventative costs based SLCA, which can also serve as performance reference point for SLCA in general and for other uses. In part 2, for the same purposes and using the same benchmark group, we propose targets for fair minimum wages for every country. Methods: A benchmark group of countries for the setting of targets was determined by an assessment of available country performance indicators, based on 5 criteria. Thereafter, we derived a proposal for a maximum inequality ratio based on existing democratically determined inequality ratios in the benchmark group. Results and discussion: The Sustainable Society Index–Human Wellbeing proved the best indicator for a country benchmark for preventative cost-based SLCA. Using the average of maximum democratically determined income differences in a benchmark group of countries determined by this index, a performance reference point for SLCA for the issue of fair inequality was derived and proposed, resulting in a maximum ratio of income differences for governmental institutions of 14.1, for government ruled companies of 18.3 and for industry of a factor 23.8. Conclusions: It proved possible to derive a target for maximum inequality of wages, based on democratic choices in a benchmark group of the 20 % best performing countries. The target for governmental institutions may be called objective, and proposed augmentations for government ruled companies and industry, though value choices, seem reasonable for the consumer who requires prevention of all possible harm as consequence of his purchase choices and who, as a voter, contributes to governmental standards

In search of income reference points for SLCA using a country level sustainability benchmark (part 1): fair inequality. A contribution to the Oiconomy project

Purpose: This paper is part 1 of our twin articles on income reference points for Social Life Cycle Assessment (SLCA). Preventative costs based LCA systems, such as the EcoCost system and the Oiconomy system, need targets (performance reference points) to determine the marginal preventative costs, the costs of the most expensive measure that globally needs to be employed to reach the target. To extend the EcoCost system for social issues, targets are required for issues like fair wages and fair inequality of wages, issues for which no agreed standard, no effect level or target exists. One way of setting targets is to take best practices as benchmark, e.g. the practices of a group of best performing countries. The purpose of this part 1 article is to first develop a well-founded benchmark group of the 20 % best performing countries and thereafter propose a well-founded target for the issue of inequality for preventative costs based SLCA, which can also serve as performance reference point for SLCA in general and for other uses. In part 2, for the same purposes and using the same benchmark group, we propose targets for fair minimum wages for every country. Methods: A benchmark group of countries for the setting of targets was determined by an assessment of available country performance indicators, based on 5 criteria. Thereafter, we derived a proposal for a maximum inequality ratio based on existing democratically determined inequality ratios in the benchmark group. Results and discussion: The Sustainable Society Index–Human Wellbeing proved the best indicator for a country benchmark for preventative cost-based SLCA. Using the average of maximum democratically determined income differences in a benchmark group of countries determined by this index, a performance reference point for SLCA for the issue of fair inequality was derived and proposed, resulting in a maximum ratio of income differences for governmental institutions of 14.1, for government ruled companies of 18.3 and for industry of a factor 23.8. Conclusions: It proved possible to derive a target for maximum inequality of wages, based on democratic choices in a benchmark group of the 20 % best performing countries. The target for governmental institutions may be called objective, and proposed augmentations for government ruled companies and industry, though value choices, seem reasonable for the consumer who requires prevention of all possible harm as consequence of his purchase choices and who, as a voter, contributes to governmental standards