When neither exit nor voice is ineffective, as is often the case with local governments, reporting and measurement that ESG offers as a governance mechanism can be invaluable.
A debate has been raging, of late, regarding whether ESG is about ethical standards and values or about operations and the ultimate economic welfare of the entity being considered. My friend, Bob Eccles, has argued that ESG is more about operations, even if one keeps values constant, especially in the government sector. This may sound like an esoteric debate, but it is an important one. Opponents of ESG on the right tend to interpret mission statements such as “public good” and “common interest” as reflective of social justice values. Defenders of ESG highlight operational efficiency and risk management (or lack thereof) of governments and the consequent impact on long run citizen welfare.
Ironically, ESG, focused on operations and services, is far more important in the governmental rather than the private sector, as I have written about before. Most of the traditional channels of demanding accountability from leaders entrusted with vast financial resources are usually absent or ineffectual in the governmental sector.
For instance, it is hard or even impossible to take a short position on sovereign bonds and hence bet on the predicted underperformance of the government. There is no stock price to serve as a rough gauge of managerial incompetence. Hostile takeovers by shareholder activists are not possible as votes, even in a so-called democratic system, have been gerrymandered and captured in elaborate ways. Many countries do not have an independent auditor to call out their shenanigans and myopic use of tax revenues. Once you leave the developed world, it is even hard to get data on environmental and social indicators of citizen welfare as jurisdictions have neither the dedicated resources nor the political will to gather such data.
You could argue that citizens will eventually migrate out of the country or municipality. That is great in theory but virtually impossible in practice, especially when alternate job opportunities outside that region are unavailable or unattractive. Migration of labor, even for skilled workers, is caught up in rules and regulations that are openly protectionist. Why does it take a lifetime and more for a skilled Indian worker to get a US green card for instance? If anything, more and more rural workers pour into megacities such as Mumbai in the developing world seeking economic opportunities.
In essence, when neither exit nor voice (democratic participation) is an option, reporting and measurement that ESG offers as a governance mechanism can be invaluable. To illustrate these ideas, let me pick on my hometown, Mumbai, India. As I write this, I learned that the city-state of Singapore just appointed a Chief Sustainability Officer (CSO). His job definition seems a bit narrower than what I would have liked and is focused exclusively on green efforts. Consider a thought experiment where Mumbai appointed a CSO whose agenda is focused on delivering the UN’s Sustainable Development Goals (SDGs) for the city.
India has signed up to the achievement of the 17 SDG goals set by the United Nations which include: (1) no poverty; (2) zero hunger; (3) good health and well-being; (4) quality education; (5) gender equality; (6) clean water and sanitation; (7) affordable and clean energy; (8) decent work and economic growth; (9) industry innovation and infrastructure; (10) reduced inequalities; (11) sustainable cities and communities; (12) responsible consumption and production; (13) climate action; (14) life below water; (15) life on land; (16) peace, strong and institutions; and (17) partnership for the goals.
NITI Aayog, a government body, has constructed an SDG India Index spanning 13 out of 17 SDGs (leaving out Goals 12, 13, 14 and 17). The Index tracks the progress of all the states on a set of 62 national indicators.
I found these somewhat high-level and abstract. I would have preferred indicators at the local level, especially for rapidly urbanizing areas of India. To me, how India manages urbanization would be critical to its success in meeting most of its national and state level SDG goals. Moreover, I believe most change to be effective has to be local. Citizens have greater financial and emotional skin in the game and are likely to push harder for improvements at the micro level.
I have attempted to translate these broad country level SDGs to the specific context of Mumbai. Before I begin, I want to caution the reader that I found it quite difficult to get reliable data on Mumbai for this piece. I do not have the resources to personally verify the data I cite. Nonetheless, I have spent the first 24 years of my life in the city, and I visit the place twice a year. Hence, the data I cite do not seem off-base to me, based on my lived experience.
Here is a tentative sketch of what the CSO’s agenda and aspirational targets could look like, organized under E, S and G. These goals aim to improve operations and services in the city. Social justice may be a happy side-effect but one does not have to even appeal to “values” as opposed to the value of the GDP, investing in the human capital that adds to such GDP and the consequent positive consequences on foreign direct investment and the tax revenues that addressing these goals might fetch in the future.
Environmental (E) goals
· Air quality: the AQI (air quality index) during my visit last week, on a good day, was in the 200s and on a bad day in the 300s. AQI above 100 is considered harmful. It is probably fair to say that Mumbai is pretty much always in the top 20 of the world’s most polluted cities. According to the World Health Organization, “Air pollution is a risk for all-cause mortality as well as specific diseases. The specific disease outcomes most strongly linked with exposure to air pollution include stroke, ischaemic heart disease, chronic obstructive pulmonary disease, lung cancer, pneumonia, and cataract. The chief contributors to this state of affairs are construction and vehicular traffic. Can we bring the average AQI down by half in a decade? The relevant SDGs here are #3 (Good Health and Well-being) and #11 (Sustainable Cities and Communities).
The air quality issue invariable raises the question of coal as a source of fuel touching on SDG #7 (Affordable and Clean Energy) and SDG #13 (Climate Action). Yes, 95% of Mumbai’s power comes from burning coal. I want to defer the energy mix question to a separate piece with the observation that the West sometimes does not fully appreciate the difficulty of trading off day to day living in the less developed parts of the world with the objective of giving up on fossil fuels. If we were to ban coal and dirty diesel or petrol in Mumbai tomorrow, how will the average Joe get to work or cook food or wash clothes?
· Sewage treatment and disposal: Of the 2,700 to 3,000 million liters of sewage released every day, only around 1226 million liters per day is reportedly treated before it is released into the Arabian Sea. The rest of the sewage presumably flows into the ocean untreated. Can we ensure that all sewage is completely treated in a decade? Pure Earth notes that “Untreated sewage poses a major risk to human health since it contains waterborne pathogens that can cause serious human illness and destroys aquatic ecosystems, threatening human livelihoods.” Clearly an issue related to SDG #3, SDG #6 (Clean Water and Sanitation), and SDG #14 (Life Below Water).
· Waste management relates to SDG #3, SDG #6, SDG #11, #12 (Responsible Production and Consumption), SDG #14, and SDG #15 (Life On Land): Mumbai reportedly generates 41 tons of plastic per day. Of all the Indian cities, Mumbai leads in terms of the risk of plastic escaping from the environment into the ecosystem in general and the food chain in particular. Mumbai generates 11,000 tons of garbage a day. Around 80% of the waste goes to landfills that are unfortunately located next to residential areas, which have become uninhabitable.
A report of the Maharashtra Pollution Control Board notes that the “leachates generated from the dumping ground are not collected properly and untreated leachate directly finding its way to creek/sea.” The Central Pollution Control Board lays out clear guidelines for how waste and landfills should be managed. Can we ensure that all waste is completely treated in manner consistent with the Central Pollution Control Board’s recommendations in a decade?
· Sea level rise [(SDG #11 and SDG #13 [Climate Action]): The risk posed by sea level rise is arguably way into the future as urgent issues such as the ones listed above need to be addressed in the short term. Nevertheless, by 2050, one analysis estimates that around 998 buildings and 24 kilometers of road length will be affected by potential sea-level rise by 2050, and approximately 2,490 buildings and a road length of 126 kilometers will be affected by potential sea-level rise during a high tide in Mumbai. Cyclones on the west coast of India, where Mumbai is located, have reportedly increased by 52% over the last four decades. Extreme rains causing floods have reportedly seen a threefold rise since the 1950s.
· Heat waves [(SDG #3, SDG #11, and SDG #13)]: A World Bank report claims that India is among the first countries that will experience heat waves that surpass the ability of humans to tolerate such heat levels. Mumbai fishermen have reported significant loss of income on account of lower fish volumes in the adjoining Arabian Sea on account of heat waves. Around a fourth of Mumbai’s workers reportedly walk to work. Mumbai is naturally a humid city. Needless to say, extreme heat will make such pedestrian commutes hard. There is perhaps no easy answer to these long term trends other than adaptation.
Social (S) goals
· Income and wealth inequality (SDG #1 [No Poverty], SDG #2 [Zero Hunger], SDG #4 [Quality Education], SDG #5 [Gender Equality], SDG #8 [Decent Work and Economic Growth], and SDG #10 [Reduced Inequalities]): In India, the richest 1% of the population owns a staggering 73% of the nation’s wealth, as per Oxfam. Mumbai is reportedly the 12th richest city in the world, based on estimates on private wealth, defined as all their assets (property, cash, equities, business interests) minus liabilities. Government wealth is not included in these numbers. Simultaneously, 60% of the city’s population is estimated to be living in slums.
· Migration into Mumbai (SDGs #1, 2, 3, 5, 6, 8, 10, and 11): The Greater Mumbai region had around 12.8 million people as per the 1991 census. I left India in 1992. The last official census numbers I could find pertain to 2011 when the analogous population was 16.7 million people. That works out to an annual compounded rate of 2.72%. Because census data are gathered every decade, I presume 2021 census was perhaps postponed on account of Covid. Extrapolating that rate of growth to 2022, my guess is that the population now stands at 23 million. By 2032, a decade from now, the population will be around 30 million. Does the city have the infrastructure to supply water, housing, sewage disposal for 30 million people?
· Housing: Although there is huge unmet demand for low cost housing, there is no supply as builders construct high end and upscale housing that remains unsold because the average citizen cannot afford such housing. Some data claims that it will take 32 years of income to buy a house in Mumbai. I think this number understates reality.
For instance, buying a three bedroom apartment, an aspirational dream for most residents, in Mumbai’s Badlapur area (which was beyond even the boonies when I was growing up and is a 2 hour car ride to Churchgate in downtown Mumbai) is priced at Rs 23 lakh (2.3 million rupees) and fetch you around 487 square feet of carpet area space. A 35-year-old relative of mine, who was born in Mumbai, lives with his mother and has an undergraduate degree in commerce.
He would love to own such an apartment. He earns around two lakhs a year (0.2 million rupees) but that income is barely enough to get by. Even if that relative somehow managed to save 5% of his income every year (or 10,000 rupees) and invested that away at yields of 6% per annum, he would need to save for 45 years to afford the 23 lakh rupee apartment. I have, of course, assumed zero inflation in apartment prices for 45 years. To make matters worse, this relative has paid around four lakh rupees to an unscrupulous builder who has since vanished.
The per capita living space in Greater Mumbai is among the lowest at 4 to 6 sq meters or between 43 to 65 square feet. By way of comparison, the per capita living space in cramped New York City is 543 square feet. Part of the problem is an arcane “FSI” (floor space index) rule that severely restricts how tall buildings can go. Clearly, growing upwards by adding floors to buildings is the only answer.
About 79% of people comprising 1.1 million households in Mumbai city stay in slums while 1.4% of households continue to occupy 12% of dilapidated housing in the form of “cessed buildings” and “chawls” (community housing with shared toilets) as per the draft report of the Mumbai Metropolitan Regional Plan for 2016-2036, based on the 2011 Census. Many of them have no access to sewage and drainage facilities. Can the CSO work towards elimination of the FSI rule and target a slum free Mumbai in 10-20 years?
· Healthcare (SDG #3): Mumbai, perhaps among the best resourced public health systems in India, is sadly woefully inadequate. According to Praja.org a non-profit, 50 plus percent of the city’s health budget is not spent. Sixty two percent of the vacancies of medical personnel and thirty percent of vacancies of primary health care in municipal hospitals in 2019 were unfilled. Four of the five deaths in the city are caused by non-communicable diseases such as diabetes, cancer, heart and respiratory diseases yet policies to prevent such non communicable diseases are absent or ineffective. Out of total pregnant women registered for ante-natal care, 54% were reportedly anemic in 2019-20.
· Access to toilets (SDGs #3, #6, and #11) : Forty-two percent of homes in Mumbai have no toilets. Three in 10 houses do not even have a water tap inside the premises. It is worth noting that 41.7 per cent of Mumbai’s population still depend on community toilets. As per a sanitation survey done by Mumbai-based NGO named Apnalaya, the ratio of people using one toilet seat is 145 in Shivaji Nagar of Govandi area of Mumbai. What would it take to aspire for one toilet per home in Mumbai?
· Commute time and public transportation (SDG #8, #9 [Industry, Innovation and Infrastructure], and #11): Research from IDC suggests that around 700,000 people enter the city every day. Among the labor force fortunate enough to commute by car, the average commute on Mumbai’s major routes is longer than an hour, more than double the averages of Singapore, Hong Kong and New York.
The Comprehensive Mobility Plan of Greater Mumbai, published in 2016, suggests that the majority in Greater Mumbai (about 46%) walk for various purposes and the rest use other modes of commuting such as train, bus, metro or auto rickshaws. A marginal (10.9%), use other type of private mode of transport. Local trains are the major mode of transportation (43% of surveyed commuters use them). Over 26% use public buses as their main mode of transportation and a significant number of journeys are made by metro, rickshaws, cars and two wheelers.
Conditions in the local trains, the most popular mode of transport, can be difficult, if not inhuman, at times. The average commuter faces “super-dense crushed load” conditions, with up to 16 commuters per square meter of train space.
The Comprehensive Mobility Plan of Greater Mumbai lists at least nine contributing factors: (i) unceasing immigration to the city as the compound annual growth rate of population is about 1.61%; (ii) massive growth in private vehicle ownership; (iii) inadequate to non-existent access of footpaths for pedestrian access; (iv) casual approach of road users in observing driving rules, adhering to safety precautions and regulations; (v) massive difficulty in acquiring parking space; (vi) encroachments on pedestrian and road space by shops and informal hawking activity; (vii) difficulties at intersections on account of high traffic and pedestrian traffic volumes, improper geometrics, uncontrolled, sub optimal traffic signal design and coordination; (viii) difficulty for a commuter to integrate suburban/ metro/ and monorail stations access and schedules; and (ix) difficulties in traffic management such as traffic signal optimization, traffic simulation, signalization of intersections, issues with the Area Traffic Control system, one-way streets, turn restrictions, and locations of U-turns.
Improving the quality of the commute is an elusive but worthwhile aspirational goal for our hypothetical CSO to consider.
· Food and hunger: (SDG 2 and #12): Reports suggest around 7 million kilograms of food are thrown away uneaten every day in Mumbai. A report suggests that as much as 72.6 percent of the solid waste generated and disposed of in Mumbai consists of food waste. Officials report that around half a million people go hungry every day although NGOs suspect that number is higher. As many as 20% of the vulnerable households reported food insecurity. One in five households reported that one person at home had to skip a meal or sleep without eating in the month preceding the survey. One hopes that the 2030 goal of reducing food wastage by half by 2030 can be accomplished in Mumbai.
Governance (G) goals:
· Poor governance (All SDGs but the foundational one is SDG #16 [Peace, Justice and Strong Institutions]): The non-profit, Mumbai First, states that Mumbai’s poor governance is attributable to populism in politics, identity politics, the influence of the underworld, corruption, institutional fragmentation, and lack of citizen participation. The local municipal authority has little autonomy, and local development planning and land use regulation is usually dictated by the state of Maharashtra, where Mumbai city is based.
The E and S goals are deeply intertwined with G in Mumbai. Addressing G would involve democratic decentralization of power, empowering citizens to participate more in governance, strengthening the authority of the local government, the domination of the state government in the city’s administration and the need to cut through the clutter of agencies and institutions to establish who is indeed in charge of specific aspects of Mumbai’s governance.
What about resources?
Mumbai reportedly contributes 6.16% of the Indian GDP and accounts for 25% of industrial production, 70% of Indian maritime trade and 70% of capital transactions to the Indian economy. The city of Mumbai’s budget is estimated to be around 46,000 crore Rupees (460 billion Rupees or approximately $5.6 billion at today’s exchange rates). This is tiny relative to New York City’s budget of around $100 billion.
It is difficult for me to estimate the cost of addressing these SDG goals for Mumbai but the $5.6 billion currently being spent seems inadequate. Of course, this raises serious questions about the extent of public and private participation (SDG #17) needed to even begin to address these goals. On top of that, one has to wonder what percentage of the existing budget itself is wasted through graft, corruption, and incompetence.
These are formidable goals potentially way beyond the remit of our imaginary CSO for Mumbai. Indeed, we may need the Prime Minister of India to intervene and mobilize resources to address these goals.
However, to circle back to the earlier point of the article, ESG can be all about operations, delivery of services and products, actionable goals and KPIs (key performance indicators) that will lead to long term value (for a company) or long-term welfare and greater tax revenues and GDP for a governmental entity. This is especially compelling when neither exit nor voice (democratic participation) is effective, as is often the case with local governments. ESG can be a governance mechanism via reporting and measurement. One does not have to appeal to “values” at all to make a case for ESG.