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Australia
in the Context of a Sustainable Asia: Kofi Annan has stated: 'Good governance at the local, national and international levels is perhaps the single most important factor in promoting development and advancing the course of peace.' The Melbourne forum focused on how Asian and Australian businesses can contribute to sustainability by adopting modes of corporate governance that judiciously balance economic, environmental and social factors. The first part of this Summary deals with issues raised by the speakers. The second part summarises key questions and comments made during panel discussions.
The central theme of the 2002 World Summit on Sustainable Development (WSSD) in Johannesburg was the alleviation of poverty through sustainable development. There were three formal outcomes: the Johannesburg Declaration on Sustainable Development; a Plan of Implementation; and, a large number of voluntary partnership initiatives called 'Type Twos'. The Johannesburg Declaration reaffirmed commitments to sustainable development, the UN Charter, international law and multilateralism. The Summit's Plan of Implementation has as its priorities: eradicating poverty; changing unsustainable patterns of consumption and production; enhancing corporate accountability, environmental and social responsibility; and, protecting and managing the natural resource base of economic and social development.
Voluntary initiatives are the preferred option for corporate governance. Each country has a duty to ensure that its statutory authorities and office holders, as well as the private sector, obey the rules of good governance—those countries who do not practice good governance and observe the rule of law will miss out as business will not invest in them. In terms of accountability, governments are asked to ensure the completion of the UN Convention against Corruption. There remains a considerable degree of crossover, duplication and conflict about governance of key issues such as trade and international law. The plan calls for improved coordination of such matters.
The World Summit was a watershed for the recognition of business as a positive contributor to sustainable development. Business is learning the important lesson of being an active participant in the shaping of international policy around sustainability issues—those areas associated with the intersection of economic, social and environmental factors, overlain by the politics of the self-interest of nations. Business has a key role in ensuring sustainability. Achieving sustainability does not mean economic growth must cease. Business can contribute greatly by developing and promoting products and services which facilitate sustainability. However, unless financial returns on these products are justified, investment will be limited. Sustainability does not mean compromise. A very important dimension of successful environmental programs is the development of win-win, non-compromising solutions for all parties concerned. Effective environmental sustainability initiatives should be financially viable for commercial corporations, generate overall benefits for the country, and improve the quality of life for humanity.
Governments, through appropriate partnerships, can empower communities to deal with environmental problems. The interrelationships between communities and the ecological systems on which they depend need to be widely understood to support rational and effective decision-making. Building capacity through science and environmental education has a key role here. Many governments and NGOs have been sceptical about working with the private sector, worrying about being labelled as 'endorsing a commercial product'. If they show courage and open-mindedness, governments, private sector organisations and NGOs can engage in constructive dialogue and formulate policies for the promotion of products that will benefit both the environment and economic development. The private sector must show willingness to invest into the future. It should not be afraid to invest in R&D and undertake ventures that may not bring immediate profits, but should bring good returns in the long run. Pioneering private enterprises can create innovative products and capture untapped opportunities.
Society expects business to be in there for the long haul as a positive contributor to everyone's economic, social and environmental wellbeing. But, no company can operate sustainably in the absence of sound civic governance; this governance includes recognising the rights and aspirations of local people. Transparent and reliable government processes are essential for trade, investment, economic growth and sustainable development. Access to international markets no longer depends just on price, quality and timely delivery, but also on a company's reputation in the areas of environment and social responsibility and on the sustainability attributes of its products and services. Development must take place through governance that follows these principles: interdependency and diversity; a setting of check and balances; countervailing powers to prevent domination of one group over another; transparency and accountability; and, fair rules that ensure a level playing field. One notable WSSD outcome was widespread recognition and acceptance of the Global Reporting Initiative's (GRI) 2002 Sustainability Reporting Guidelines. Global investors want companies to produce environmental or sustainability reports in order to give confidence that these risks and responsibilities are properly managed. The Australian Framework for Public Environmental Reporting has raised the level of discussion and understanding in Australia of this type of reporting.
Countries also have different philosophies, agendas and preferred approaches on how to address sustainable development issues. For example, the Europeans tend to favour command and control policies and regulatory measures. Such differences exist even within countries, not just between countries or blocks of countries. This presents corporations with a complex economic and social environment to operate within. China, the Group of 77, the European Union, Scandinavia and Central European countries generally favour multilateralism in dealing with global issues. The United States, Japan and Australia are inclined towards the unilateral approach. The prevailing policy ideology, the Washington Consensus, embraces policy ingredients that include fiscal discipline, fewer subsidies, tax reform, competitive exchange rates and trade liberalisation. To be inclusive of sustainability, adjustments are needed. For example, fiscal discipline needs to accommodate cyclical aspects and sustainability issues (recognising that the market fails to internalise social and environmental externalities). Trade liberalisation may have a long-term adverse impacts due to the fragmentation of markets by poor infrastructure or local middlemen. The key question is how far and deep government’s intervention in the economy is justified—within a range that stretches from full command economy to full liberalised economy. Each country has to find its own equilibrium level. Hence, proper governance becomes a high priority. In coming decades, Asia has the potential of becoming the engine of global growth. However, it also has the potential of becoming the leader of unsustainable development and environmental destruction. So, it is of strategic importance that the message of the World Summit is fully understood, endorsed and implemented in Asia. This needs an enabling global environment that promotes fair rather than free trade, and a Global Consensus rather than a Washington Consensus. Business must engage in this whole intellectual debate. To engage effectively, it must have a proper understanding of sustainable development. Business must defend its good practices, but condemn the indefensible. Business reputation, built upon good economic, social and environmental performance, is paramount in getting others to appreciate its views. Appropriate business leadership and partnerships with government provide a much more cost effective approach to economising resources and reducing the ecological footprint of business than do command and control methods. Many of the greatest challenges to sustainability come from many industrial practices failing to factor in their cost to the environment. Market signals could be adjusted to remedy this.
Globalisation and global governance—we have moved from a bipolar world (governments and NGOs) to a tripartite world of governments, business and civil society working in partnership on sustainable development. Poverty eradication—the market is emerging as a powerful tool whereby societies can realise development objectives. Fair access to opportunity in the marketplace can narrow the gap between citizens in high- and low-income countries. Sustainable production and consumption—eco-efficiency is helping deliver goods and services with less resources, waste and pollution, and benefiting the environment and the bottom-line. Sustainable consumption is more difficult; reducing consumption and changing consumption patterns is a slow process. Health of ecosystems—knowledge of the world's ecosystems is still limited and there are major uncertainties related to their resilience. Energy and climate change—carbon emissions into the atmosphere will no longer be free; this will happen irrespective of the Kyoto Protocol. What will the future energy infrastructure look like? Renewable energy sources are unlikely to add significant new capacity in the next 20–25 years. Society wants: Access to energy, at Affordable prices, with an Acceptable impact. In addition, business wants a fourth A: Adequate returns on its investments. The role of innovation and technology—Intellectual Property Rights (IPRs) are crucial for risk-taking investments in new technologies and products. As a main agent of innovation and technologies, business must remain active in this debate. Accountability and reporting—today's society is an information society where 'everyone knows everything about you all the time'. The value of brands is growing, and so is the risk of damage to a company's reputation. There is growing demand for corporate accountability.
Eco-efficiency has a proven track
record and has been defined as 'creating more value with less impact'.
Business is implementing eco-efficiency in five major ways: It seems, from indexes like the Dow Jones Sustainability Index and others, that companies that focus on sustainable development outperform their peers. They are more in tune with market trends and society, faster to change and better managed. Financial markets are key in the pursuit of sustainable development because they hold the scorecard, allocate and price capital, provide risk coverage, and price risks. If markets do not understand and reward sustainable behaviour, progress will be slow. The Australian Environment Industry Action Agenda aims to increase the Australian Environment Industry from $8 billion per year (in 1999) to $40 billion, by 2008. The industry is strongly positioned to deliver solutions, particularly in Asia—it is innovative, motivated, competitive and local.
Sustainability for business is essentially about doing business today as if you intend to be around tomorrow. Winning companies manage expansion successfully. Sustainability companies explore the knowledge boundary looking for opportunities that provide profitable outcomes and that also add environmental, social and economic value. Corporate social responsibility integrates social responsibilities with shareholder value. Sustainability is an overarching term for linking together the complete set of economic, environmental and social issues into a process which generates profitability and value-adding on each bottom line. Sustainability sorts through the many opportunities and risks which come out of the dark as activities expand. It tells us to look for outcomes that deliver positive results on all three bottom lines simultaneously—at all levels of society. This is particularly important for companies—even more so in environments where government institutions are weak. If all companies in Asia adopted sustainability performance, the task of creating an prosperous, but sustainable, Asia would be much easier. Where civil society is weaker, the impact of such corporations would be to reduce the loading on civil systems that are, themselves, still emerging.
Nearly one in three Asians is poor—surviving on less than one dollar a day. The existence of agricultural subsidies in developed countries is morally, socially, economically and environmentally wrong; these reduce opportunities for the poor in developing countries to obtain better prices for their agricultural commodities. Trade can be a strategic vehicle to reduce poverty in Asia. The impacts of non-OECD economies are growing—particularly those of China, Indonesia, India. Wider regional cooperation will become an important element in raising Asian economic welfare. Asian countries are, more and more, selling and buying commodities within the Asian market. This is causing structural changes in the economies of developing Asian nations. Improved market access to developed economies will improve the economic structures of developing countries and significantly reduce poverty. It is important that Asia should be proactively engaged in changing unsustainable patterns of consumption and production. The World Summit emphasised the need for diversity and multilateralism in approaches to development. Asia is a region with exceptional diversity, but one that is poorly governed. Fundamentally, the sustainability debate is about the socioeconomic decisions taken through political institutions. Environmental outcomes result from socioeconomic decisions. Achieving sustainability depends upon the consistency of decision making.
Capacity building is one of the micro-level activities in which businesses can engage. A product's quality is directly dependent on the quality of the organisation and people producing it. Institutional strengthening and resource allocation are key organisational considerations. Accountability, transparency and effectiveness, taken together, mean one thing: making absolutely sure that what has been invested in poverty alleviation improves the standard of living and alleviates the hardship of the poor. Managing the tensions of equity is vital. It is important to acknowledge, though hard to articulate politically and correctly, that there is a need to cater for self-interest in business and in individual decisions taken as human beings. Part of the challenge of sustainability is to make the people who may miss out today feel that they have not lost everything and that they can come along slowly.
Renewable energy has a place, but current renewable technologies are unable to provide the energy amounts required. Australia, working with Mexico and APEC members of the Energy Working Group, is identifying impediments to energy supply in developing countries and investigating ways to increase their uptake of alternative fuels. The total number of cars, truck and buses in Asia is doubling every seven years, producing more air pollution, fossil fuel consumption and traffic jams, and increasing respiratory diseases. Between 1999 and 2020, energy use in developed countries is expected to increase 29 per cent; in the developing countries of Asia, the estimated increase is 129 per cent—with China as the fastest growing consumer.
International actions through conventions and protocols, such as the Kyoto Protocol, should have a strong basis in sound science, and be continually reviewed to ensure the relevant connection between cause, effect and remediation. The critical issue about the Kyoto Protocol is not its contribution to climate environmental benefits. Rather, it would bind nation states to taxes and policy powers that could cripple economies. Australia is vulnerable to the consequences of climate change—for example, coral bleaching on the Great Barrier Reef and a marked decline in rainfall in south-west Western Australia. Rising seas are a very real concern for Pacific Island countries. Consequently, Australia is taking greenhouse action at home and encouraging action abroad in both developed and undeveloped nations.
Australia's oceans partnerships with Asian neighbours aim to link and build capacity among coastal communities, coral reef organisations and industries to ensure healthy and long-term sustainable livelihoods from well-managed coral reefs and fisheries. Better management of coral reefs was supported by many countries, in particular Indonesia and Thailand.
A nation’s wish to profit from its resources cannot be at the expense of those most affected by resource development. Equally though, local people cannot expect to reap all the economic benefits of such development. One of the inherent problems of mining is that, while the benefits are widely disbursed, the physical and social impacts are largely local. The business case for sustainable mineral development is simple. In turbulent times, the best security for long-life mineral investments is public, particularly local, support. An investment in a sustainable mining operation should give rise to a range of local economic activities that might endure when the mineral deposit is depleted. Australian mining companies are putting their operations on a sustainable basis by improving corporate governance in support of better performance. Investors need to know that governments and their institutions are prepared to match these efforts by maintaining their own standards of responsibility.
Some issues related to sustainability are not amenable to technology solutions—for example, the erosion of human rights. Also, technology wrongly used may damage the environment. It can create economic exploitation, waste resources and destroy local cultures. As the rural to urban drift speeds up, there is a huge need for technology to alleviate living conditions and provide basic needs for the poor. For this, public sector reform is needed—and this raises the whole question of affordability. Barriers to the effective use of technology include poor education levels; weak institutions and decisions being made at the wrong level of competence (both in governments and in the private sector); weak enforcement of legislation; and, last but not least, corruption. Perhaps the biggest barrier to sustainability in the Asia-Pacific region is weak, inept and corrupt governments. Other barriers, regionally and globally, include the geopolitics of power. Many still believe that 'might is right'. Formal global institutions perceived as existing to reinforce these views need to be challenged in constructive ways. Also, huge sunk costs and vested interests remain barriers, as does lack of innovation in funding sustainable development technologies. In Japan, government and business have continued efforts to develop sustainable technologies—in particular, since 1997, when the Kyoto Protocol was signed. The government has passed laws and published strategies to promote technological improvements to cope with global warming. Investment priorities need to match the reality of the sustainable development challenge. Part of that challenge, with respect to the private sector, will be a need for better governance and disclosure. While the economies of some developing countries, particularly those in Asia, are growing rapidly, most of these countries do not have sufficient financial resources or the technology to pursue sustainable development. Developed countries, including Australia and Japan, have to seriously consider mechanisms to effectively transfer appropriate environmental technologies to developing countries. Technology needs to deliver two things to people—security and social identity. If it can do so, it can be used to help with progress towards a future sustainable Asia—one where many more Asian people can share in the wealth of the region.
If Australia is to lead the world in environment and sustainability, what can be done to accelerate the involvement of the mainstream providers of capital to catalyse more investment in sustainable development in Asia? We must prove to the investment community that sustainable development research is going to generate returns. If the benefits are identified, it will be easier for the investment community to put the investment dollars in. Forward-looking governments—the Australian government for one—can lead by providing national frameworks where private companies work in partnership with NGOs and other industry colleagues. A major issue is the incompatibility of criteria used by different sustainability indices. It is not easy for companies to know exactly what is required. Financial markets are approaching sustainability from two angles. One is risk. Companies focused on sustainable development seem to be lower risks. The other is opportunity. About 50 per cent of all the managed investment funds in the US are now socially or environmentally screened, and that is increasing fast. Financial markets are catching up, as well, because they are managing money from pension funds that take a long-term view.
The biggest achievement is that there was an agreement. The conference was not dominated by the powerful. It really reflected a world of diversity that requires a multilateral way to agreements. The frustration is that a lot of speeches were made, people talked the talk more than they walked the walk. Also, the multilateral system did not manage to really integrate business and civil society into the proceedings. It is time to move away from very large UN summits and to break the problems down into more manageable pieces—trying to do everything all together is very often difficult.
There is no suggestion that the problem of addressing atmospheric climate change will be fixed by meeting the Kyoto Protocol numbers. It is the start of an adventure in which we know nothing about the outcome. The US feels it will be economically disadvantaged if it signs Protocol. We will never get a 'one-Kyoto' world. We may get a 'non-Kyoto' part and a 'Kyoto part'. Many are looking at the possible emergence of a new approach between those 'inside Kyoto' and those 'outside Kyoto'—an approach working towards achieving some compatibility between these two factions.
We have to recognise is that a lot of so-called intangibles can bring value to the company. It is a matter of whether they bring value tomorrow or three days after tomorrow. We have to believe that those intangibles are actually long-term financial assets to the company. They are investments that actually have returns.
When Japan started concentrating on whether to ratify the Kyoto Protocol, the assumption was that more nuclear power would be used. But, public distrust of nuclear power plants has been growing. This could increase power generation costs, because of the oil needed as a replacement.
We have to clear the economic, environmental and social hurdles. The most difficult task is managing the socioeconomic impact, the social hurdle. It is an unequal triple bottom line though. If you do not clear the economic hurdle, you do not do the project.
The challenge of our times is time frames. We have various places where the natural resources and biodiversity do not have the time to wait for us while we take the time that we might need to get our institutions into shape. At the moment, each dollar spent in Asia on strengthening institutions would be a dollar better spent than one spent on technology hardware. Our greatest difficulty is that, in many parts of Asia, leaders, for various political reasons, are not forthright about how weak our institutions are. How do we leverage the appropriate funds? We have an immense environmental challenge. But, the issue is: how do we spend money to essentially get people to live better, have economic growth—and then deliver on all this. Ultimately, it comes down to who pays for what? Clean air does not come free. It is a socioeconomic decision. I am not sure it is just money. I think it is a lot about governance and the direction in which we use money.
No, it is the responsibility of governments and the responsibility of corporations to follow the rules. An international regulatory approach—corporate governance on an international scale—is fraught with problems and could well infringe the sovereignty of individual nations. We already have international business bodies, such as the ICC and the World Business Council for Sustainable Development. We do not need another world body.
The fact that business was there and able to participate—the tragedy would have been if business had not been at Johannesburg. Business needs to be involved. Ninety per cent of the money that is needed to solve the problems of sanitation, water and energy is going to come from private investment; only a tenth is going to come from overseas development aid.
It is critical, absolutely. Just as surely as night follows day, those indigenous groups, those local groups and those women's groups will be involved. The involvement of local government and local communities at the summit was also worthwhile—the connection of local government and local communities is significant.
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