Environmental groups challenge McKinsey report

In a recent report on Reducing Emissions from Deforestation and Degradation (REDD), McKinsey consultants recommend that government officials in Papua New Guinea take energy- and cost-saving measures that some groups think will threaten the survival of subsistence farmers living in rainforest environments. Greenpeace, the UK Rainforest Foundation and the European Bank for Reconstruction and Development made for strange bedfellows this week when each of the three condemned the firm's suggestions as fundamentally flawed.

Greenpeace published a counter-report to McKinsey's REDD advice, calling the firm "a bad influence on rainforest nations around the world." McKinsey's suggestions are flawed, the environmental group argues, because the energy-saving measures they recommend will actually lead to increasingly rapid deforestation. Local governance issues—like the plight of subsistence farmers in potential future logging sites—are ignored by the firm, Greenpeace says, which instead seeks protections/concessions for large logging corporations. Greenpeace cites previous McKinsey recommendations in Guyana and the Democratic Republic of Congo; in those countries, the group says, McKinsey advice "allowed logging to increase to 20 times its current rate" (in Guyana) and "proposed at least an additional 10 million hectares given as logging concessions" (in DRC).

World rainforests at risk.

At the heart of the matter are some classic McKinsey "cost curves," straightforward models that predict, well, costs—in this case, the energy saved by implementing McKinsey's REDD measures. In their report, Greenpeace cited University College London researchers who suggest that these types of models don't accurately predict trends in energy. The EU bank also got in on the act here; Reuters says that the Bank issued a report stating that it was McKinsey's focus on government, not the private sector, which limited the value of these particular McKinsey models.

A major concern for all of the critical parties here is that McKinsey's private sector experts shouldn't be advising public sector clients on issues that exceed the scope of pure economics, regardless of whether or not their data is accurate. A few weeks back, I expressed a similar concern when McKinsey released a guide on rebuilding Haiti; the difference between these situations is that this time the firm is giving the government of Papua New Guinea (and others) actual advice, not just publishing thought pieces on situations from which it is professionally insulated.

When challenged on the relevance of its recommendations to governments, the firm gave flimsy replies that will only serve to back up critical objections about its public sector endeavors. "Anyone who sat down with a real policy decision-maker would quickly identify many other factors that they need to take into account before introducing a new law," said Per-Anders Enkvist, McKinsey partner, on the key factors the firm left out of its report. "You cannot mechanically translate any abatement cost curve into policy implications," he continued. When confronted directly about the accuracy of the latest cost curve models, Reuters says that Enkvist suggested that "pilot projects were needed to establish the exact costs."

Translation: No rational government would take our suggestions literally! (Or, in Reuters' words: "McKinsey said its estimates should not be taken out of context because they missed out lots of additional factors that governments would consider before making decisions.")

Simon Counsell of the Rainforest Foundation begs to differ. "Governments do tend to take these studies literally, and they will rarely have the expertise to unpick them," he said, echoing Greenpeace's "bad influence" mantra.

So what should it be? Is McKinsey's advice invaluable despite the setting, or should they stick to the private sector when making their world-famous recommendations?

For more information:
Reuters
Bloomberg
Greenpeace: McKinsey's 'bad influence' over rainforest nations around the world

Photo: Olivier Asselin, AP