Competitive Sustainability Index: New Metrics for EU Competitiveness for an Economy in Transition
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8 December 2022 - The publication of the first edition of the Competitive Sustainability Index (CSI) has been welcomed by Paolo Gentiloni, European Commissioner for the Economy, as a ground-breaking new approach to measuring the EU’s competitive sustainability performance, the EU’s strategy for global leadership in the sustainability transition.
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As the EU faces an unprecedented set of interconnected crises, the tool offers a resilient and forward-looking way to assess the most effective approach to the integration of sustainability imperatives in the European Semester and its many related industrial, innovation, trade, competition and fiscal policies, as well as its environmental and social policies.
What does it show?
Key findings indicate of this new, integrated and powerful measure of long-term competitiveness are that:
- Member State leaders in the different elements of the new CSI are also frequently the global ‘best in class’. This means that while there is little uniformity across the EU, the common capacity to deliver sustainable competitive outcomes can be achieved by leading Member States engaging in innovative new jointly developed approaches.
- Stable, rights-based and publicly accountable governance is fundamental to the creation of the most successfully innovating, sustainable and competitive EU economies.
- Strong competitive performance in the ‘green’ transition does not require compromise in the social dimension – indeed when linked to governance performance and innovation, this can underpin that success.
- The basis for more globally competitive performance through innovation is emerging in most of the key economic ecosystems and sits at the core of the transition to climate neutrality.
How is it different?
Unique in its framework and combination of data, the CSI has been developed by the University of Cambridge Institute for Sustainability Leadership (CISL), funded by Breakthrough Energy, benefits from technical analytical support by Cambridge Econometrics, and is the fruit of an intense collaboration with many other organisations and stakeholders over the past two years.
The CSI is the first index to develop metrics to measure competitiveness in the context of the transition to a smart, green, climate neutral economy, addressing immediate needs for resource resilience and energy security as well as social equity, stability, public legitimacy and material prosperity.
Incorporating newly available data from the ECB and Eurostat that draws on the EU Taxonomy to assess economic performance in all the key innovation ecosystems as well as the economy more widely, and endorsed in its theoretical framework and statistical coherence by a thorough audit by the JRC, the CSI offers the first holistic picture of how countries perform when environmental, social and governance (ESG) factors are also properly incorporated into economic strategy.
The results offer a more resilient, fuller and more dynamic view of competitiveness in the context of the accelerating sustainability transition. This picture draws attention to the attractiveness of investments in dynamic economies whose productivity and GDP improvements are driven by industrial value chain innovation embedded in social needs, stable and publicly accountable governance and within scientifically recognised environmental boundaries.
What does this mean for the EU?
Key implications for policy emerging from this first edition of the CSI are:
- The EU should enhance and target investment and innovation to significantly improve its performance on the six key ecosystems analysed if it is to retain its leadership in the global cleantech race to achieve a net zero emissions economy.
- In terms of the EU’s overall approach to the transition to sustainability, the institutional framework developed by the EU and the European Semester process is one that provides a strong basis for doing this, not least as it also seeks to integrate the two dimensions where the CSI indicates that performance is weaker.
- Having some dedicated funding to ensure capacity building in critical areas of public administration could increase countries’ performance on governance framework conditions potentially resulting on enhanced competitive sustainability results.
- Having a public spending target for competitively sustainable R&I, enshrined in legally-binding EU law -such as a reformed Stability and Growth Pact- could ensure that competitively sustainable research and innovation (R&I) is deployed at the scale that is required.
- The potential of collaborative learning on R&I in these areas into groups of countries with similar structural conditions, and likewise to target the work and funds of the Directorate-General for Structural Reform Support.
- EU countries (in particular smaller ones) should leverage CSI data to pick a limited number of innovation ecosystems where they have the highest potential to lead in the near future, and prioritise R&I investments on those ecosystems. This approach should ideally be aligned with country’s ongoing ‘smart specialisation’ process.
- There are several areas of EU public policy where these insights are relevant and which are addressed in the European Semester process. The CSI could be used as a monitoring tool for the European Green Deal overall.
- The improved and more granular collection and analysis of taxonomy-related data by Eurostat and ECB will enable better performance assessment by the CSI but also other indices and processes. Rapid progress on the valuation of natural capital is also important for improved measurement of environmental performance.
The CSI is a first attempt to offer an integrated approach to measuring competitiveness in the transition to sustainability. It already demonstrates that it is both possible and offers a more holistic perspective than approaches that do not seek to do this and are therefore partial in their insights and conclusions. It will benefit from further scrutiny, use and application, as well as the development of metrics and data sources by others which will strengthen its approach and outputs. A second edition envisaged for 2023 and more thereafter will seek to incorporate changes that reflect this.
In the meantime, the richness of the picture presented and inspiration for new policy thinking or opportunities for collaboration, learning and investment in the EU are already an important step forward. Much like the sustainability transition itself, the CSI will succeed through innovation and experimentation, with a clear long-term goal to drive its thinking and activities.
Acknowledgements
The Index development benefited from the input of some leading experts through a series of interviews and two working groups. Experts having contributed to this work include:
José Luis Blasco (Acciona), Ann Mettler, Julia Reinaud (Breakthrough Energy), Jules Besnainou, Yoachim Haynes, Chris Sworder (Cleantech Group), Sean Kidney (Climate Bonds Initiative), Astrid Ladefoged, Stephen White (European Commission – DG ENVI), Christine Mayer, Monika Wozowczyk (European Commission – Eurostat), Paolo Casini, Olivia Riera-Lamiroy (European Commission – DG GROW), Sabine Prevost (European Commission – DG RTD), Lucia Alessi, Michaela Saisana,(European Commission – JRC Ispra), Aliki Georgakaki, Anna Kuokkanen (European Commission – JRC Petten), Yann Ménière (European Patent Office), Giulia Genuardi (ENEL), Simon Bennet, Jean-Baptiste Le Marois (International Energy Agency), Susana Franco, James Wilson (Orkestra – Basque Institute of Competitiveness), Andy Gebhardt (Solability), Nicola Cantore (UNIDO), Hugo Hollanders (UNU-MERIT Maastricht University), Rita Ramalho (World Bank)