Economists have started (at long last!) to grapple with the concept of sustainability, to question the way in which our national accounts are assessed, in order to value our natural resources, and to contemplate new market instruments to encourage changes in human behaviour.

Prime Minister, Commissioners, ladies and gentlemen, I think I must have taken leave of my senses when I accepted the invitation to speak at this gathering. At a distance of some six months it is easy to accept almost anything, but how many of you in this room know that feeling which creeps over you when, as the time approaches, you realise you have taken on a task that you cannot fulfil? You can't back out of it; nor can you claim you have contracted some obscure ecological virus which prevents your attendance, and conveniently prevents you plummeting noisily into all the enormous elephant traps with which this particular piece of country is strewn! All you can do is to explain, as frankly as possible, why you care enough about the issues to risk being accused of exaggerating the problems, of being excessively gloomy, or of getting your facts wrong.

I happen to believe we live in dangerous times, and I think it worth listening carefully to all those intelligent observers of the natural environment who are increasingly speaking with one, agitated voice. The difficulty, of course, is that to the vast majority of lay observers everything seems to function perfectly happily in our immediate environment. On the whole, we cannot smell, feel, hear or sense anything particularly wrong with the world about us. We have only the scientists' word to go by - and, people will say, they have got it wrong in the past, haven't they? And anyway, when all is said and done, Nature's capacity to heal itself is infinite and we must not be panicked into hasty action.

Unlike the obvious threat of a nuclear holocaust, the environmental threats we face are far from clear. And yet I believe they are only too real and that, to put it simply, if we don't manage to work out a sensible and far-sighted agenda for action at the Rio de Janeiro summit in June, then we will be sacrificing the future survival of our grandchildren and great-grandchildren for short-term gain. But I don't really need to tell all of you that!

There is little doubt that your Commission's report, in 1987, was the single most important document of the decade on this subject, bringing the phrase 'sustainable development' into all our vocabularies. It is therefore highly significant that you have chosen to meet again now, in the run-up to the Rio conference, and I shall be fascinated to see the outcome of your deliberations.

There have certainly been some welcome changes in the last five years. Industry has begun to realise that more and more people not only care about their environment but will put their money where their principles are. This has led to the realisation (at long last!) that using energy and raw materials less profligately results in increased profitability as well as a cleaner world. Equally, more and more businesses are, to their credit, coming to recognise the crucial role they must play in the progress towards sustainable development. Instead of being seen purely as generators of environmental problems, they are beginning to see themselves, correctly, as essential participants in generating solutions.

Economists have started (at long last!) to grapple with the concept of sustainability, to question the way in which our national accounts are assessed, in order to value our natural resources, and to contemplate new market instruments to encourage changes in human behaviour.

At the same time, there has been a huge surge in public concern about the environment, often expressed in support for non-governmental organisations, not just in the rich industrialised countries, but in Eastern Europe and the Third World.

This in turn has helped to put pressure on the politicians, nearly all of whom seem to have turned a greener shade of pale since 1987! Many still have a long way to go in realising exactly what genuinely sustainable development will eventually mean in economic terms, but we can all welcome the acceleration in the use of development aid and international agreements (such as the Montreal Protocol) to give substance to sustainable development and help protect the Earth's natural life support systems.

Your Commission also pointed out the crucial importance of democracy and individual participation in achieving a more sustainable world. Since 1987, we have seen momentous changes in Eastern Europe. But no less important is the shift towards elected and accountable government elsewhere in Africa, Latin America and South East Asia.

Of course, there are those who are inclined to compare today's developments with an earlier phase of environmental awareness in the late Sixties and early Seventies (with the cynical implication that today's will be equally short-lived!). I would remind them of one overwhelmingly important difference: the scientific case underpinning the Environment Movement 20 years ago was decidedly patchy and invariably controversial, resting as much on bold hypothesis as on hard-nosed empirical evidence. Now, I happen to be a firm believer in the precautionary principle - recognising that the systems which keep our Earth habitable are extremely complex and may operate in ways beyond human understanding. But the last 20 years have seen a welcome reduction in the margins of uncertainty. There is now almost total consensus within the international scientific community, as represented by the Intergovernmental Panel on Climate Change, that emissions of greenhouse gases are changing our climate. The ozone hole is a proven fact. The best biologists in the world agree that the world's biological riches - biodiversity, to use today's phrase - are being eroded at an unprecedented and alarming rate. Misuse of land is threatening local climate, water flow and ecological stability over large areas and wasting irreplaceable assets of soil. We are undoubtedly in the midst of an ecological crisis, even though there is uncertainty about the precise way in which it will develop and the speed of that development.

It is, of course, as I said earlier, difficult to accept this existence of problems which we cannot see. Equally, it is easy to suggest that the threat is somehow being exaggerated. But the gravity of the situation was spelled out in the recent report of the Royal Society and the US National Academy of Sciences - the first issued jointly by the two leading scientific societies of the English-speaking world - and I quote: "The future of our planet is in the balance. Sustainable development can be achieved, but only if irreversible degradation of the environment can be halted in time." They set out with great cogency their reasons for thinking this way. Again I quote: "Unrestrained resource consumption for energy production and other uses, especially if the developing world strives to achieve living standards based on the same levels of consumption as the developed world, could lead to catastrophic outcomes for the global environment." What could be clearer or more authoritative than that?

Going on to address the underlying problem of population growth, the report's authors point out that the percentage of global population that will live in the Third World will increase from 77% today to 84% in 2020. Similarly, the World Health Organisation has recently stated that the most immediate problems relate to ill health and death caused by biological agents in water, food, air and soil. They point out that millions, mostly children, die every year as a direct result of a contaminated or polluted environment.

None of these bodies is known for its tendency to exaggerate, rather the reverse. This makes it all the more amazing that so many people still prefer to turn their backs on the signs of planetary stress that are by now indisputable. The issues raised are never going to be comfortable subjects for polite conversation. (Apart from anything else, they always make you sound so gloomy - and I'd much rather make people feel happy!) But I think we have to ask ourselves, firstly, whether we can continue to ignore the prospect of a virtual doubling of the world's population somewhere approaching 10 billion - by 2050? Secondly, can we look forward to any kind of real security as the global gap between rich and poor continues to widen? If we compare the per capita wealth of Europe with China, or India, the ratio in 1890 was two to one. By 1940, that ratio was 40:1, today it is 70:1. With these statistics in mind, is it really any wonder that the 'South' are approaching the Rio conference event with open economic demands? For them, it is essentially a conference about development and justice.

I do not want to add to the controversy over cause and effect with respect to the Third World's problems. Suffice it to say that I don't, in all logic, see how any society can hope to improve its lot when population growth regularly exceeds economic growth. The factors which will reduce population growth are, by now, easily identified: a standard of healthcare that makes family planning viable, increased female literacy, reduced infant mortality, and access to clean water. Achieving them, of course, is more difficult - but perhaps two simple truths need to be writ large over the portals of every international gathering about the environment: we will not slow the birth rate much until we find ways of addressing poverty. And we will not protect the environment until we address the issues of population growth and poverty in the same breath. I do wish that these simple and incontestable truths could find greater prominence on the Rio agenda. Sadly, it seems that certain delegations are determined to prevent discussion of population growth. In so doing, of course, they deny everyone else the opportunity for constructive discussion of policies which would address the environment, poverty and population growth together, rather than in isolation.

I can well understand why your report called for huge increases in the rates of economic growth in the Third World. But the rigour that informed your analysis of just how unsustainable the world economy is today seemed, if I may say so, rather to desert you in your prescriptions for finding an appropriate way out of this all-encompassing dilemma. Is it really wise to call for such rapid growth until we can be certain that the growth which emerges will both serve the people most in need and (in your much used and much abused words) "not compromise the rights of future generations to meet their own needs"?

It is now widely accepted by economists that Gross National Product is merely a reasonably good indicator of the overall level of a nation's economic activity. It is a thoroughly misleading indicator of national well-being, let alone sustainability. We clearly need some measure of "green GNP", which calculates the nation's output after deducting the depreciation on nature's capital. No business can afford to operate by eating into its capital, and in this respect nations are no different. It's encouraging that several countries are now proposing 'green GNP' measures, or some other alternative indicators. But much more effort is needed in evaluating and promoting such concepts and I do most profoundly hope that this will feature large in your report to the Rio conference.

All the evidence from the environmental disasters of previous generations shows that the problems were often identified at a relatively early stage, but that nothing was actually done until they affected the economic interests of a nation state looking at the value of the lost crops resulting from the erosion. We can look at the costs of preventing floods from sea level rise. We can look at air pollution damage to buildings, crops and forests. When we do these things, the results are often startling. I am told by Professor David Pearce and his colleagues at University College, London, that Mexico may be losing as much as 15% of its GNP through pollution and resource degradation. Even Germany could be losing 4% of its GNP, amounting to many billions of dollars, simply because of pollution. But the hardest thing in political terms, of course, is to persuade people that paying attention to the long-term capital assets of our natural environment is worthwhile, or possible, or even necessary, during a recession or when you are faced with famine and grinding poverty. It takes vision and, above all, courage to speak the truth.

Vision and courage are perhaps the two qualities which we would most like to see in evidence at the Rio Conference, but I have to say that it is not, on the whole, entirely surprising that many developing countries seem to be approaching the Conference with cynical, if not jaundiced, eyes. I speak with the inbuilt cultural bias of a resident in a northern developed country, but it seems that there are at least three strands which we need to recognise.

The first is that politicians and scientists of the developed world have been preaching 'environmentalism' for over 20 years, yet the world environment has continued to deteriorate overall, especially because of the pollution generated by those same countries. We are primarily responsible for the ozone hole and the greenhouse effect, and developing countries know this, and they expect us to show that we mean what we say by abating our own pollution, and especially that which goes beyond our own locality and becomes an international problem.

Secondly, they expect that we will at least remove the barriers in the world economic and trading system that make sustainable development in the Third World more difficult. They expect us to reverse the net flow of wealth which, contrary to popular opinion, has been going from south to north for most of the years of the past decade. They expect more liberal trading relationships that will allow products with added value to come from the developing world to the developed countries, and they seek an end to over-subsidisation, particularly of agriculture, so that their own products have more chance of competing in the world market.

Thirdly, they expect us to share the best technology, so that the world really works together to achieve environmentally-sound development.

In passing, I do just wonder why, in the light of all the challenges we face, we can't get away from unhelpful accusations, and sensitivity, over what is referred to as 'eco-colonialism' and 'neo-imperialism' and recognise each other's strengths and weaknesses? Why can't we pool our resources and tackle the unfolding crisis together? Can't we accept, at this crucial stage in the world's history, that we need to deploy the best talents from wherever they are located to where they are so urgently needed? The North has accumulated managerial and technological experience and skills which could and should be utilised in the South. At the same time, our poverty of spirit in the North needs renewing and enriching from the great reserves of insight and understanding in the South. Can we not also accept that the South has considerable justification for seeking to extract the best possible price for a commitment to the conservation and sustainable use of its own natural resources?

We shall have to wait and see how much will emerge from the Rio conference. The challenge is simply enormous, but we can at least derive a certain amount of encouragement from the recent reports on the preparations. There appears to have been real progress on the Declaration of Rights and Obligations, on Agenda 21, and on the institutions question. I have also heard that the NGOs have been providing impressive support to the European delegations.

Nevertheless, great problems remain. UNCED is but a step in a process, as was your report. That process is confronting the major challenge of our age, namely how our growing numbers and technological power can live in harmony with the natural world. Intertwined in this great debate are a number of difficult issues of management, government and science. The East-West agenda has happily changed. The North-South agenda has replaced it in importance. All governments have to come to terms with this. As is so often the case, progress will only come from a combination of resources and political will.

If the political will exists there is still time in the next few weeks for Rio to become a landmark in North-South understanding and cooperation, instituting a long-term process on a note of determined optimism. In the meantime, I hope I may be excused for returning to what I consider to be first principles.

For what it is worth, I have argued for many years the importance of the concept of stewardship in resolving some of our ecological dilemmas. For me, stewardship operates at two levels; firstly, at the level of good housekeeping: living thriftily, saving energy, repairing, re-using and recycling, not wanting by not wasting, accepting personal responsibility and so on.

Secondly, it also operates at a level which recognises that we are as much a part of the living world as it is part of us. Good stewardship celebrates the beauty and diversity of the natural world. We should not, I believe, just be "managing the Earth's resources more efficiently" (relying on a traditional utilitarian ethic), but seeking to live in balance with the rest of creation, even if we cannot discern any direct and immediate material benefit to ourselves in that process.

This, of course, points to the need for a fundamental shift in attitudes. We have all been taught to think in a linear way; with a beginning, a middle and an end. Linearity is the concept we use to devise industrial processes in terms of inputs, processes and outputs, with waste and pollution as unintended (and, until recently, little considered) outputs. The solution to pollution is still, all too often, dilution. Our linear way of thinking has been a triumph in the relative short-term. But now, with the doubling of world population in prospect, with increasing demands for a higher and higher material standard of living, and with the added need to strive for sustainability, we must surely start to think again.

We must, in fact, get back to Nature - not in any romanticised, drop-out, "under the greenwood tree" sort of way, but through the application of both science and philosophy. From very different perspectives, both disciplines teach us that the reality of the natural world within which we live is not linear, but essentially circular. There is no such thing as 'waste' or even 'pollution' in the natural interaction of different species within their own eco-systems. This is still understood - indeed, lived out in practice - by those whom we so patronisingly describe as 'primitive'. As we thrash around with various theoretical definitions of the sustainability of today's economic orthodoxy - and some alternative (as yet undefined) models of progress - it remains a sobering experience to encounter sustainability in action amongst tribal people, without any great fanfares or the assistance of voluminous reports.

Again (and I say this only to ward off those who might be inclined to misrepresent my respect for the traditional wisdom and stewardship of tribal people), I am not advocating any kind of mass return to a 'hunter-gatherer' society. But the real challenge, as I see it, is to find the right blend of dynamic Western systems in all their purposeful linearity, with the closed loop circularity of the natural world. In effect, to combine modern science with traditional wisdom. The quiet revolution in photovoltaic solar cell technology may provide a good model of what can be achieved. Village communities in the semi-arid tropics - some of the most fragile environments on each - can now be provided with a non-polluting source of electricity to drive the five great liberators of development (cooking stoves, refrigerators, water pumps, radios and electric lights). They release villagers, and especially women, from the tragic necessity to mortgage their future, for example by destroying the soil, in gathering fuel wood, and by running ever greater hazards of disease for themselves and their children in their search for surface water. At the same time we must get away from the idea that this is somehow a "second best" option in comparison to the Northern model.

There are enormous benefits to be gained by making the best of advanced technologies - particularly in using resources more efficiently - not just in the developing world but in the developed world, too. In the United Kingdom it is estimated that energy demand could be reduced by at least 20% immediately, simply through the application of existing technologies, and that efficiency improvements of 30% could achieved over the next 20 years from new technology in areas such as lighting, heating and transport.

There is now a pressing need to encourage the developing countries to introduce the right kinds of industrial structures and processes, and seek to deploy the technical wisdom of the private sector in meeting these challenges. We must also recognise that much of the wealth that will fund these developments in the Third World will inevitably have to come from the private sector.

Governments can provide the right atmosphere, infrastructure and economic incentives, and the security that a firm needs if it is to invest. Creating the right incentive is perhaps the most important of these factors. Once they are in place a new and creative energy is released. Positive incentives are important in enabling those companies which find the best environmental solutions to prosper in the market place, but so too are the dis-incentives which can be brought into effect through determined application of the 'polluter pays' principle against those who squander environmental assets or create pollution.

No speech about business and the environment would be complete without the now statutory reference to the proverbial 'level playing field'. In today's shrinking world, this is something that can only be created by governments working together. My concern is that the levelness of the playing field sometimes seems to be given more consideration than the level at which the field itself is situated. To be levelling must be upwards, not downwards! And all the factors need to be considered when setting standards, otherwise we run the risk of solving one problem at the expense of creating or increasing another elsewhere.

Tragically, too many so-called solutions to environmental problems miss their mark because they fail to recognise the nature of the societies which have to put them into effect. Unless there is a really critical analysis of the roles of the different components of these societies - women as well as men, and young as well as old - there is every risk that the proposals will be unworkable, the development assistance projects will be on the wrong scale, and the communities will be left with inappropriate, imposed technology that they cannot operate.

In southern India, where I was in February, the simple act of giving people tenure over the land they work day in and day out, and secure access to water, has not only transformed the quality of their lives, but is also giving them an incentive to rehabilitate their environment. This simple formula of meeting basic needs, empowering communities and safe-guarding the environment - Primary Environmental Care - not only works; it is where the solution to everything else starts. Environment, much like charity, really does begin at home.

Things may be starting to improve but the world is already littered with corroding bulldozers and mechanised farm implements, paid for by development aid yet unworkable under the circumstances of life in rural communities. Starting with people, analysing their needs, taking account of their culture and traditional practices, making certain that the roles of all sectors of the community are understood and, above all, asking people to frame their own, local, environmental goals are all pre-requisites to satisfactory solutions. This is not an approach which makes headlines, or reputations - quite the reverse in fact - but it does provide the long-term gains which are the very essence of sustainability. It also undermines bureaucratic and, if we are honest, sometimes corrupt, power bases which have benefited so much from the "top down" approach.

Establishing people as stakeholders in their own future sounds so simple, but millions still have no such stakes nor the responsibility that flows from the conferring of them. To have a stake in one's environment is to have an incentive or reason to protect it. I sincerely hope that the UNCED Declaration of Principles will make these points quite explicitly.

Of course, nothing in life is ever straightforward. Simple formulae hide complex conflicts. Somehow, a balance has to be struck between the opposite faces of the coin - between advantage and disadvantage. In the industrialised North we shall have to come to terms with the fact there is much that can be done by improving access to markets, ensuring fairer pricing for commodities, and facilitating the flow of new capital and sophisticated technology to the South through private enterprise. But that is unlikely to be sufficient in itself. "Justice" is the cry rising up from the South, not charity, let alone aid for aid's sake. If we insulate ourselves from that cry, we cut ourselves off from the reality of life for a very significant proportion of humanity. But justice, in fairness, also requires greater accountability and improved independent management in the South - and that is something with which the southern half of the world will have to come to terms - or we shall get nowhere.

Such open-mindedness cuts both ways. Rightly, I believe, the British Government has taken the lead in making a much more explicit linkage between aid flows and the establishment and maintenance of democracy, as well as compliance with international conventions on human rights. Here there is encouraging news. As I said earlier, democracy is starting to flower in previously barren lands. This is not, as such, a triumph of capitalism over communism, but rather a triumph of those who live with incentives over those who have had precious few. Of itself, the market system is not always enough, for markets do not in themselves result in equity. They have failings that governments sometimes have to intervene to address, working both alone and together. But unless the human spirit is first unshackled, environmental protection and development will remain just a dream for many.

Above all, I hope, the Rio conference will set the context in which such issues can be debated and, hopefully, resolved. We all know that there are reciprocal obligations and expectations, North and South, that should be set against each other. What we have not yet comprehended is that sustainability can only be achieved by all of us working together, and that the noble but always rather forlorn humanitarian rhetoric about "one world", has now become an inexorable ecological reality. Hard though it may be to grasp, there is today a very thin line between apparent altruism and realpolitik.

I offer these thoughts precisely because I know how hard it is for politicians in office to utter them! There will certainly be both winners and losers. But so many of the things that need to be done are, ultimately, components of a virtuous circle, in which everyone wins; that I think all but the most short-sighted have good reasons for wanting to be involved in the process.

Commissioners, your Chairman, speaking in Cambridge last year, argued with eloquence that a new triad should be recognised: environment, plus development, plus democracy. The challenge of Rio is to see how that triad can be put into effect. A first requirement will be a stronger commitment by one and all to create a balance, within nations, between nations and between generations."