The Negative and Positive Lists

According to my Professor Friend; governance, business, financing and even living life can be easily simplified by just following “positive” and “negative” lists.

He says that sometimes just negative list can be good enough.

Negative list can include several actions that you should shun away or say a “no-no”. Many of the items in the negative lists could well arise due to understanding of risks, keeping with traditions and culture and safeguarding the reputation. Such a list may sound as simple “do’s” and “don’ts”

The positive lists may include actions one wants to commit due to influence of good practices and governance, understanding of the civic responsibilities and duties, for mutual respect. The items in the positive list are often guided by peers and role models you admire.

After listening to Professor, I searched on the web and found hundreds of resources on do’s and don’ts. Some of the don’ts were

Don’t drink more than one peg of whiskey at one time, especially when you are driving home
Never drink alone
Think many times before you sign a legal document
Do not open any new initiative without knowing how to close
Never tell your problems to anyone…as 20% don’t care, and 80% are glad that you have them!!

On the positive list I found examples like

Be compassionate
Spend some percentage of your income for social cause
Plant at least 10 trees in a year and take good care of them

Professor said that this was not  what he exactly meant by a positive and negative list in governance, business and financing.

He said that he was referring to a list of exclusions that you declare and follow in your business and regulations.

Positive list is generally not mandatory unless specified while the negative lists are often under scan and non-compliance may lead to punitive actions or you may face risk to reputation.

“I know what you mean Professor”. I exclaimed. “Do you mean exclusion is the list of diseases not covered in the insurance that is often written in a small font? Many times Insurance agents don’t tell the buyers what is excluded in the insurance policy – they only mention what is included in the medical cover or give you a “positive” list”. That kind of negative list is always important to me given my precarious conditions of health.

I gave another example of list of goods that do not attract customs duty (positive list) and those that do (negative list). Before I started thinking of more examples, Professor stopped me and said

“Dr Modak, This is all fine, but I think you will not understand the power of negative or exclusion list unless I give examples in environmental and social (E&S) governance”

Professor was right as my knowledge was limited to only issues in E&S Governance.

First, Professor flashed me schedules under EIA Notification in India that list projects that require environmental clearance (EC) and list of projects where EC  is exempted. Honestly, I did not know whether to call these schedules as a positive or a negative list as it depended on who you are – a proponent or a regulator.

At the outset, I wonder how these schedules are defined. I always argue and will continue to argue that deciding projects in these schedules should be a scientific process and perhaps be subjected to environmental impact assessment as these lists affect our Gross Ecological Product (GEP).

Unfortunately, these schedules are often an outcome of political decisions, vested interests, ignorance and adamant behavior of the bureaucrats. Scientific opinions have hardly any value. I have no doubt that this country is soon going to realize the “costs” of removing EC requirements for renewable projects. They are certainly not benign as many think.

Well, I didn’t feel much positive about such list of schedules.

I told Professor that these schedules have challenges of  ambiguity and perverse definition of thresholds. In Hawaii when EIA was required for hotels having 100 rooms and above, until amended, hotels built in Hawaii had 99 rooms.

Professor smiled. He cited more such examples.

Professor then moved to the negative list approach in financing. He cited the impressive exclusion list by International Finance Corporation (IFC).

This exclusion list essentially defines types of projects that IFC will not finance and would not allow its borrower intermediaries to finance. The exclusion or negative list includes

Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements,
Production or trade in weapons and ammunition,
Production or trade in alcoholic beverages (excluding beer and wine).
Production or trade in tobacco.
Gambling, casinos and equivalent enterprises.
Trade in wildlife or wildlife products regulated under CITES and so on including no finance to Drift net fishing in the marine environment using nets in excess of 2.5 km.

There are several more such exclusions

I did not like the idea of specifying 2.5 km for drift net fishing, basis Hawaii experience,  but I was happy to note that IFC did not exclude beer and wine. However the decision was strange to me as production of 1 L of wine requires 800 Liters of water and 1 L of beer requires 150 Liters as compared to 1 L of spirit that consumes only 114 Liters. Perhaps, team at IFC had more wine and beer drinkers.

Further IFC’s exclusion does not define what an alcoholic beverage means, According to WHO “a beverage over a certain % of alcohol by volume is defined as an alcoholic beverage and the precent is to be defined in the country”.  Another definition of alcoholic beverage is that “a potable (meaning drinkable) liquid containing ethyl alcohol or ethanol of 0.5 percent or more by volume’. Well, as I started looking at every item in IFC’s exclusion list, I discovered that I could by some way or other get out of these exclusions – if I want to.

Professor understood what I was trying to say, so he cited an important note in the IFC exclusion list that said that

“A reasonableness test will be applied when the activities of the project company would have a significant development impact but circumstances of the country require adjustment to the Exclusion List”

Wow, I understood then the “optics” of having an exclusion list of responsible financing institutions.

Professor then gave examples of positive lists e.g., criteria for expenditures under green bonds  See Framework for Sovereign Green Bonds Government of India, 2022.

Here the positive list for eligible expenditures or projects follows the following principles:

• Encourages energy efficiency in resource utilization
• Reduces carbon emissions and greenhouse gases
• Promotes climate resilience and/or adaptation
• Values and improves natural ecosystems and biodiversity especially in accordance with SDG principles

Given these broad principles I realized that I could theoretically “fit” any kind of expenditure under Green bonds and tie up with a smart verifier.

Professor smiled again.

Well Dr Modak, meet me tomorrow in my office. You will see another application of negative and positive lists in day to day life.

When I reached Professor’s office next day, I saw on the wall, two large A2 size charts. One chart listed things what Professor liked (positive) and things that he hated (negative). Every visitor to Professor’s office would never miss these two charts stuck on the wall and think before making any proposition to the Professor.

I liked that “coffee” was listed in the positive and in the negative “don’t want to be in any committee” was written in a large and red font.  But the most fascinating was the note written in smaller font and in italics at the bottom that said “These charts of positives and negatives are reviewed and updated depending on circumstances on a regular basis”

Sure, there is nothing absolutely positive or negative but still, the positive and negative lists can justify your decisions in governance, business, financing and even in living life. Looks like thats what matters!