The Securities and Exchange Commission SEC regulates the securities markets and is tasked with protecting investors against mismanagement and fraud.
Ideally, these types of regulations also encourage more investment and help protect the stability of financial services companies. This does not always work, as the financial crisis of demonstrated.
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The SEC had relaxed the net capital requirement for major investment banks, allowing them to carry significantly more debt than what they had in equity. When the housing bubble imploded, the excess debt became toxic and banks started to fail. There's a fine line between over and underregulation, where overregulation hampers innovation and underregulation can lead to widespread mismanagement. Other types of regulation do not benefit financial services or asset management at all but are intended to protect other interests outside of the corporate world.
Environmental regulations are a common example of this.
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The Environmental Protection Agency EPA often requires a company or industry to upgrade equipment and to use more expensive processes to reduce environmental impact. These types of regulations often have a ripple effect, causing tumult in the stock market and overall instability in the financial sector as the regulations take effect. Companies often try to shift their increased costs to their consumers or customers, which is another reason why environmental regulations are often controversial.
Government regulation has also been used in the past to save businesses that would otherwise not survive.
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This type of government intervention is typically frowned upon in the U. The government plays the role of moderator between brokerage firms and consumers.
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Too much regulation can stifle innovation and drive up costs, while too little can lead to mismanagement, corruption, and collapse. This makes it difficult to determine the exact impact government regulation will have in the financial services sector, but that impact is typically far-reaching and long-lasting.
Second, any level of sugarcane expansion under Bonsucro VSS adoption shifts expansion toward managed lands, thus sparing the direct conversion of high carbon density natural ecosystems Fig. However, the net environmental gain of implementing the Bonsucro environmental VSS criteria would surely be less than gross gains presented here due to the indirect land use change impacts of adopting and complying with the criteria. Expansion of sugarcane into existing managed lands would push some existing agricultural production into available natural lands. S9 and Table S1. This potential displacement of other crop and pasture land could have a substantial environmental cost, particularly if these displaced land uses are not held to similarly rigorous VSS criteria 33 , Coordination across VSS for different commodities, in addition to the larger physical and policy landscape, will be important to minimize unintended consequences from unequal enforcement of standards.
However, even without such coordination, leakage effects could be reduced if the Bonsucro VSS were to adopt a more aggressive yield indicator e.
We also found that only complying with individual criteria of the Bonsucro VSS, rather than all environmental criteria, results in unintended detrimental environmental outcomes SI Appendix , Fig. Understanding the potential synergies and trade-offs across multiple environmental outcomes when producers only comply with select criteria should be a focus of future research and is an important consideration in the future improvement of VSS design and implementation.
While we showed large potential benefits of the global adoption of the Bonsucro VSS, the rate of incremental gain in environmental benefits per unit of Bonsucro uptake varies widely depending on the targeting strategy Fig. This indicates that most of the environmental benefit generated under the Bonsucro-compliant doubling scenario is attributed to a relatively small amount of sugarcane production area.
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The efficiency of targeting land that generates the most benefit per unit area is a critical insight for those stakeholders who support adoption of VSS as an effective way to reduce the impact of agricultural production on the environment versus those who only base VSS impacts on market adoption. Many VSS supporters track progress based on the total area of production enrolled under VSS rather than a quality adjusted measure of uptake.
Similar targets have been set by major corporate buyers of sugarcane. However, such production-based targets ignore the tendency for most early adaptors to be in places where VSS compliance is most readily achieved, not necessarily those that can generate the most environmental benefit per area. In other words, focusing on quantity of uptake rather than quality of uptake could mean much less new environmental benefit from incremental adoption of the standards. Therefore, environmentally effective incremental adoption of VSS requires targeting of production areas that are underperforming relative to the VSS criteria To do this, incentives for VSS adoption e.
Determining these costs is a key future research priority that has implications for VSS and land-use policy, generally. For example, we found large regional differences in the ability to comply with Bonsucro VSS criteria Fig. Reducing or eliminating sugarcane production in such noncomplaint regions e. How to meet environmental standards while not imposing undue social and economic burdens remains an important open question.
We demonstrate the potential of Bonsucro—one of the largest and fastest growing global voluntary sustainability standards VSS —to reduce eutrophication, water use, greenhouse gas emissions, and natural ecosystem conversion. A better understanding of the potential large-scale sustainability outcomes associated with VSS adoption is vital to determining the optimal contribution that VSS, as part of a portfolio of sustainability policy mechanisms, can make to national and global sustainability commitments and development goals e.
VSS or other sustainability policies for commodity production can use the analytical framework presented here for design and assessment of specific indicators, identification of leverage points, exploration of incentives for widespread adoption, and insight into potential leakage and other indirect market effects. For example, this framework could be adapted to define goals for how much adoption or market penetration is needed to have impact beyond the local level. This approach also provides a logical framework for integrating the assessment of environmental standards with social and economic factors, a key next step and priority research area in sustainability science.
Our framework also presents the opportunity for the agriculture VSS community to rigorously reassess standard design in a more explicit outcome-based and forward-looking way. It is important to separate standards from their implementing mechanism. The standards i. The implementation mechanism can be demand-led or market or governmental regulation. Therefore, standard design is paramount to defining what outcomes can be expected from a VSS certification or a law.
Such information could improve standard efficacy and illustrate the potential value from supporting its adoption. The Bonsucro VSS is unique among existing agriculture VSS schemes in that it uses a performance or metric-based approach to standard design that leverages basic agronomic and conservation principles that could be readily adapted to many commodity sectors. A more common approach to standard design, often described as practice-based, tends to have less explicit, more relative to baseline conditions and directional criteria and associated indicators.
Moreover, Bonsucro strives to enhance both production intensification and reduced extensification by setting standards to promote production efficiency and reduce natural land conversion. Better understanding of how these design choices affect the environment and adoption patterns can inform the broader private and public-sector debate on the utility of VSS in driving the achievement of sustainable development goals VSS of the Bonsucro design potentially offer an effective mechanism to manage commodity supply reliability risks, reduce environmental impacts, and meet the growing consumer preference for sustainable products regardless of state actions to increase product sustainability.
These strategies can be adjusted to avoid increasing procurement from areas where complying with VSS will remain a challenge until best practices can be scaled and innovations introduced such that compliance is achievable. Commodity sourcing strategies can also seek to increase procurement in areas where compliance is readily achievable and may also drive greater productivity with a smaller environmental footprint.
Moreover, we illustrate the need for VSS, or any land-use policy, to be evaluated within the context of the larger physical and policy landscape.
VSS can ultimately only be effective if they complement other landscape-wide efforts. Our results suggest that the realization of the potential environmental benefits of VSS schemes will depend on i accounting for and limiting indirect effects that could undermine direct environmental benefits and ii effective intervention to bring current production areas that are underperforming relative to the Bonsucro VSS environmental criteria.
Thorough assessment of the costs of VSS adoption and the incentives is needed to drive adoption for farmers, buyers, and customers. Future research is needed to improve understanding of the explicit economic cost e. To attain such targeting may require leveraging diverse policy and incentive instruments, including public and private financing mechanisms, regulatory controls, and institutions to mitigate up-front economic barriers to compliance and increase benefits to producers and value chain actors of certification in these areas.
This analysis provides a first step toward a more comprehensive understanding of the role of VSS in driving a global transition toward sustainable agriculture. The spatially explicit sugarcane yield and extent data used in this analysis are originally based on data from ref. These data were computed with national, state, and county level agricultural census statistics from the period to and distributed to a 5-arc minute spatial resolution based on satellite observations of global cropland area. We used the reference time period of to since it predates the initiation of the Bonsucro sustainability standard and thus allowed an unbiased evaluation of the potential environmental benefits of standard implementation.
Our yield maps give a multiyear average to account for differences between higher yielding first and lower yielding ratoon crop cycles The multiyear average also reduces the impact of year-to-year variation due to weather. These are the same yield data used by Bonsucro to define yield targets for global sugarcane production and thus enable a focus on the impacts of the policy SI Appendix , Text S1. Empirically derived yield models were developed for rain-fed and irrigated sugarcane production using a nonlinear least squares algorithm to fit climate-response curves to yield distributions by climate zone SI Appendix , Text S2.
We next developed nutrient-response curves that explicitly consider soil quality and current rates of nitrogen and phosphorus fertilization using a combination of the best available data to calculate actual, optimum, and excess nutrient application rates SI Appendix , Texts S3 and S4. We finally utilized the Liebig law of the minimum to estimate the combined effects of water, nitrogen, and phosphorus inputs on yield SI Appendix , Texts S3 and S4.
We utilized outputs from our global modeling to calculate a global map of sugarcane production in terms of percent deviation from compliance across the full set of environmental criteria considered SI Appendix , Text S5. We evaluated the potential impacts of the Bonsucro sustainability standard by considering a hypothetical future of doubled sugarcane production.
We then compared a business-as-usual BAU scenario against a Bonsucro BON scenario in which all sugarcane production shifts to compliant with the full Bonsucro environmental criteria considered Table 1 , allowing the evaluation of the direct potential environmental benefits of large-scale uptake of Bonsucro sustainability standards SI Appendix , Text S6.
We quantified the sensitivity of our global model to four key model inputs: i estimated sugarcane yields, ii estimated nutrient demand, iii estimated irrigation demand, and iv estimated carbon stocks. The funders had no role in study design, data collection, or analysis, decision to publish, or preparation of the manuscript. Author contributions: W. This article contains supporting information online at www. NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.
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