Funding PNG into our League

March 19, 2012 1 Comment

Edited version published in Sudney Morning Herald 19 March 2012

Belden Namah’s shenanigans at Sydney’s casino tempts at least two observations: $800,000 is a lot of money for a minister of an impoverished nation to have ‘on account’ at our ‘ask no questions’ casino; and one such casino is probably enough here.

But let’s shift our eyes a little further north and take a rare look at Papua New Guinea itself. We need to engage more deeply than our quick self-esteeming trips up the Kokoda Track. I’d like to suggest one step that Australia could take that may have more promise than all of its manifest policy failures over the last 30 years.

Papua New Guinea should not be anywhere near as destitute as it has become. It has remarkable natural assets, a rich and powerful neighbour, and an already significant income that is about to double through its nation-changing PNG-LNG natural gas project.

Yet its entrenched and indefensible corruption leaves its national coffers empty. No longer the quaint ‘Land of the Unexpected’, it has become the ‘Land of the Expectedly Corrupt’. In short meetings with PNG ministers, I have witnessed that culture first hand. In spending a very little time there, I have seen some of its effects: driving on one-year-old roads that have been washed away because the selected tenderer didn’t bother much with the roadbase or drainage.

Australians should give a toss about this corruption. PNG was of course an Australian protectorate until its independence in 1975, and in part its troubles are our legacy, though it is long past the time that PNG politicians can avoid their responsibilities by laying blame here or anywhere else.

More importantly, Australia is PNG’s biggest donor, and they our biggest recipient.  In 2011, Australia spent $482.3m on PNG aid last year, directed towards admirable education, health, law enforcement and transport investments.

This funds a healthy bureaucracy in Port Moresby, an array of white 4WDs and some small successes. But it doesn’t go far because Port Moresby is chronically expensive to live in, cars cost over $10,000 to insure between thefts and trashings, and little gets out to the regions where it is needed.

While much has been achieved, money has been wasted year after year because of Australia’s policy of ‘respecting sovereignty’ and so not interfering with its governance. In other words, it’s half a billion dollars a year, with no strings attached. We’re happy to say “Piss it up against the wall if you want to”, and for the most part the PNG government happily do.

When representatives from Norway’s sovereign wealth fund came to consider spending $1 billion to preserve PNG’s at-risk forests, they couldn’t believe what they found. From long years on the teat of Australian and UNDP aid, there was neither accountability nor responsibility. They challenged Australia’s policy but were given the ‘respect sovereignty’ line. They wouldn’t risk their money, and the opportunity was lost.

It remains an opportunity lost, because corruption and instability are by-words of PNG governance.

Four competing systems of ethics operate in PNG. The population is 95% Christian. There is a democracy ostensibly based on western traditions with an independent judiciary and press. But there is also the responsibility to look after clan, and a traditional ethic loosely akin to ‘never look a gift horse in the mouth’. In any competing circumstance, the last two win by a long shot.

PNG is our nearest neighbour, yet we neglect its troubles to engage in global sorties that are more ‘strategic’ for our alliances and more ‘exciting’ for our policy makers.

There is a lot that can and should be done, but I would like to wave the flag for one idea that would increase awareness of PNG’s plight in Australia, shine a torch on and so improve PNG’s governance, and at the same time invigorate a nation.

Australia should use a small part of its $483m annual aid budget to fund a PNG rugby league team in our NRL. Have it play in our competition. Have our teams, and the media, see Port Moresby once a fortnight. They’d be very interested in what they found there.

The more there are well-governed local PNG institutions to look up to and aspire to, the better. Under the NRL, a PNG-based team would be one, joining others such as the national superannuation fund NasFund. Their examples are greatly needed to counterbalance PNG’s politics.

Unlike most other PNG institutions, though, this would be one that the PNG people would care deeply about. Rugby League is their national sport. It is the game that the kids play in every park and yard. They are good at it. Our NRL teams are the posters they have on their walls; our NRL players their sporting heroes.

When an Australian team tours there, it is a national event. When one of their own pulls on an NRL jersey – Marcus Bai or Adrian Lam – that becomes the favoured team.

Nonetheless, the PNG Rugby League is a transient body that last went broke in 2004. It gets some help from the NRL, but not enough to become a worthy opponent in rugby league’s slightly underwhelming ‘Four Nations’ tournament.

There are some good people supporting PNG’s NRL bid – Phil Gould in particular – but it is not a commercial proposition. For the same reason that the Pacific Island nations are sadly excluded from rugby union’s Super XV competition – there aren’t enough Foxtel subscribers.

With a clear public benefit, and no commercial case, government must step in. The NRL would administer the funds more effectively than AusAID, while remaining accountable to the Australian government. The benchmark for success in PNG is not high, and the NRL would comfortably exceed it.

Obviously, the PNG team should have no ties to PNG’s own government. There is no need for such a tie, and it would put the team at risk of being entwined with those who have let PNG down. While its administration should equally obviously include PNG nationals, the team should be totally governed by the NRL. At first, at least.

Roles in the PNG team administration would be highly prized in PNG’s ‘big man’ culture, and great pressure will be brought to bear on the NRL for PNG ‘names’ to have a seat at the table. Very few would be a constructive addition.

It’s time we heard stories from PNG other than ones of relentless environmental damage, power struggles, corruption and violence. Having a PNG team in our NRL would be an engagement from which many other good things may flow.

Filed under ESG, Governance, Networks, People, Policy Tagged with , , , , , ,

The ESG Story

March 12, 2012 Leave a comment

Why ESG now

Sustainability is a dreadful word. It originated as business’s answer to the global policy push to sustainable development – leaving future generations with the same or better opportunities as past ones. But this morphed into ‘corporate sustainability’, was abused to mean ‘sustainability of the corporate’, then petered out into a morass of acronyms and general suspicion of do-gooders wanting to take the oomph out of capitalism.

So let’s ignore the word, and focus instead on what it offers in 2012, and why. Quite a few interesting strands of investment theory, corporate governance and industrial history come together, with sometimes surprising results.

In recent years, the financial community has sidestepped the S-word by introducing “ESG” – the environmental, social and governance or ‘non-financial’ performance factors of a firm. And investors are becoming increasingly impressed by these factors, and their revealed impact on financial importance.

Firms need healthy markets

The value of good corporate governance is relatively well understood. You wouldn’t want to invest in a company that gave you little comfort that it would spend your money wisely and accountably. The company may destroy value, in the parlance. In this case, your cash.

But what if the company was risking or destroying value elsewhere? What if it were running down social or environmental capital? What if it were relying on those ‘externalities’ to underwrite its own business model?

That might not concern the company’s shareholders, if they had only that single identity. But they don’t. They may hold shares in other companies that may in turn depend on that social and environmental capital. As individuals or institutions, they may see their paid taxes being spent to protect or restore social and environmental capital. As individuals, they may themselves benefit from that capital, or acknowledge that their families depend on it, and will do so for generations.

BP’s 2010 Deepwater Horizon disaster in the Gulf of Mexico is an extreme example of an all too frequent case. Incalculable social and environmental harm has been ‘rounded down’ to BP’s $20 billion compensation fund, its $3.2 billion clean-up costs, and its $60 billion loss of equity. Could an investor have predicted such losses? Perhaps not. But they could have known that BP oil refineries had accumulated 760 “egregious wilful citations” from the US health and safety authority in the 3 years prior. Quite a lot. The rest of the US industry, together, had only one.[1]

In fact, with a little thought, most companies realise that they themselves depend on the health of the economies, societies and ecologies in which they operate. People don’t buy much in broke, anarchist desolation, however good a backdrop for Mad Max 5 it may be. In the long run, if you overly rely on cheap social and environmental externalities, you run down your own markets.

Firms that support healthy markets, do better

Investors are taking a closer look at such risks. Repeated analyses are showing that a company that manages its social and environmental issues well outperforms the market, all else being equal. So across portfolios, funds that take these factors into account outperform their peers.[2]

Institutional investors are very comfortable with this. They take a portfolio-wide view: if a company creates no real value by ‘winning’ only at the expense of another, then there is no net gain to their portfolio. Accordingly, they are demanding more information on firms’ ESG performance.[3]

Governments are also comfortable with this. They take a similar economy-wide view: if a company ‘wins’ only by not paying for a public or environmental good, then society has to pick up the tab. Accordingly, they are reviewing corporations law to clarify that directors should take social and environmental issues into account in their decisions.[4] As well, most legislation since 1992 has had ‘sustainable development’ in its objectives clause, so that those who partner with or supply to a government entity may have to show that they are supporting that objective.

Employees are also comfortable with this. As well as employees, they are investors, citizens and consumers. Ideally, they could align the interests of these split personas. If they’re too far out of whack, it’s awkward – the famed BBQ test might be failed. Accordingly, companies that transfer costs to others – notably tobacco companies – have to pay far more than market rates for people to work for them.

Objections have been overcome

Among each of these stakeholders, there have been strong reactionary voices to what they see as “the imposition of irrelevant responsibilities”. It hasn’t been the shrill calls of external do-gooders that have silenced these doubts; rather it’s the business case being repeatedly proven. By better managing social and environmental issues, risks are being avoided, and opportunities are being taken.

Reactionary investors relied on financial theory to argue that imposing any ESG constraint would limit the investment universe, and so necessarily reduce returns. Cannier investors were happy to limit their investment universe by preferring good managers. Investors that incorporate ESG factors well also see lower risk for the same returns.[5]

Reactionary directors (or those claiming to talk for them) claimed it was their legal duty to maximise the profitability of the firm, so that considering ESG factors may breach that duty. Lawyers quickly replied that in fact their duty was to the best interests of the company as a whole, and that included future shareholders. Further, that while directors should use their business judgement to determine what to do about social and environmental issues, ignoring them may be extremely poor risk management, possibly in breach of their duties.

Some conservative think-tanks spent energy in the 1990s attempting to influence public policy against the consideration of social and environmental issues by corporates. They have been singularly unsuccessful since, as noted above, it is the free market which has decided to incorporate ESG factors, not governments.

Some employees have felt constrained from engaging on social and environmental issues, or have actively rejected the notion as a distraction from their core business, which is hard enough already.  But, once they’ve seen that management will support sensible initiatives, employees at all levels have been among the strongest advocates of social and environmental engagement. With tacit or explicit approval, they can sensibly apply their firm’s resources to relevant social and environmental issues, to benefit the firm, the issue and their own professional development.

Curiously, CEOs have been among the quickest employees to accept the value of ESG efforts. Their responsibility includes looking over the horizon to the emerging business environment, and they can see how social and environmental issues are constraining their firms, and providing it with opportunities. Compared with middle managers, they are more likely to be good systems thinkers – to see how one thing leads to another – and also have the freedom to consider and act on those second-, third- and fourth-order effects over a longer time frame.

Intangibles link ESG to financial performance

The evidence shows that wise social and environmental engagement pays the firm financial dividends. Employee engagement is one of many connecting rods. What are the others, and how do they work?

In 1999, McKinsey & Co analysed international equity markets to show that, of a firm’s market value, an average of 55% represented the market’s evaluation of the firm’s core intangible assets, with the remainder being an evaluation of the firm’s physical assets and financial performance, its continuing NPAT and cash-flows. The figure varied between industries, being as low as 20% for capital-heavy industries such as mining, and 80%+ for service industries such as media and banking.[6]

These intangible assets are not simply existing IP and contracts, though they are part. They are four: the firm’s brand and relationships, and the productivity and innovation capacity of their people. These four deliver future financial performance, which is of course of more interest to investors than past performance.

More recent studies show that, as our economies become more service-based, the average value of the non-physical assets has risen from 17% in 1975, to 68% in 1995[7], to 81% in 2009. This is what happens in maturing economies, where physical goods are commodified, consumers seek brands, services and experiences, and firms depend more than ever on their people to deliver.

Most CFOs readily accept these figures. It’s then not a stretch to suggest that wise engagement on social and environmental issues can bolster reputations and relationships, and help drive an innovative and productive corporate culture.

Reputation or brand? Yes, solid social and environmental performance helps qualify a firm for more opportunities and a lower cost of capital, attract customers, and be an employer of choice.

Relationships? Yes, engaging on significant social and environmental issues with governments and other firms creates new relationships and strengthens existing ones. As it does personal relationships within the firm. In both cases, there is time to build understanding and appreciation, outside the pressures of purely commercial transactions.

Innovation? Yes, ESG engagement means looking at new problems, from different perspectives. The solving technology is never far away. ESG provides the financial rationale and will. New products, services and markets follow.

And people? Yes, this is the strongest driver. People are satisfied with their job if it gives them a decent income, friends at work and some professional development. But if they’re contributing and developing in other ways, then their productivity and capabilities increase.

What firms do matters

From an historical perspective, a firm’s enlightened ESG engagement and people’s reactions to it make sense.

For better or worse, firms and their markets are the way societies now organise their most powerful productive forces – it’s the way we get things done. If, for whatever reason, we have a social or environmental problem, there is no way it will be resolved without firms being part of the solution.

Firms demand a lot from their employees, and of course give a lot in return. It can be an all-encompassing relationship. If people feel that that relationship is working on the social or environmental issues that matter to them (or at least it’s not against them), then they invest more of themselves in that relationship.

These are growing expectations. Consider Maslow’s hierarchy of needs. Once we have basic physical needs and safety in place, we want to belong, and to gain confidence and respect. At the peak of that hierarchy is creativity, problem solving and, dare one say it, morality.

As a society, we are well aware that social and environmental problems exist, always have and always will. Having invested enormous amounts in education and social stability, what we have now though are many more tools to deal with those issues (and perhaps create more) – innovations in technology, information, and business models.

With these tools, NGOs, governments, customers, investors, employees and future employees expect firms to do something about those issues that concern them. Those firms that do so have been very pleasantly surprised. No less a student of corporate strategy as Michael Porter has documented how they have benefited, and the competitive advantage they have earned.[8]

Deciding what to do

If expectations are building for your firm’s ESG performance, and there are benefits from your doing so, what should you do?

It’s not an easy question, for the number of ESG issues that are relevant to your firm are numerous. Research firms that rate the ESG performance of listed companies keep track of over 1200 different metrics, everything from the independence and diversity of boards, to gigalitres of water, to freedom of association. The most prominent voluntary reporting standard, the Global Reporting Initiative, makes do with 130. Some of these might be relevant, some not.

What matters to your firm are the issues that have a potentially material effect on its business or intangibles. That’s a list still too long to be actionable. Consider then issues your firm can influence, drawing on its particular assets and capabilities. It helps that your people are interested, more so that an action supports your existing corporate priorities. We’re getting closer. The answers won’t be obvious, but there are ways of working them out.[9]

One such way is a valuation tool that can calculate the value at risk from ESG issues, and the potential financial returns from any particular action to address them. If there’s a public good or ‘externality’ your firm relies on, cost it in to your business model and see how exposed that model may be. There are rigorous approaches, but they’re available.

ESG, sustainability, CSR, ‘internalising the externalities’. Call it what you will. It’s worth a closer look.

[1] http://www.iwatchnews.org/2010/05/17/2672/renegade-refiner-osha-says-bp-has-%E2%80%9Csystemic-safety-problem%E2%80%9D, accessed on 7 March 2012. That statistic rang alarm bells among some ESG-led investors, but not enough. Simillarly, the ESG research firm Innovest rang alarm bells on AAA investments laid over ‘ninja’ (no income, no job, no asset) loans, 9 months before the emperor’s clothes came off in Sept 2008.

[2] Morningstar, Australian fund performance over 1, 3, 5 and 7 years to 30 June 2011.

[3] Through the Principles of Responsible Investment, the Equator Principles, the Carbon Disclosure Project, the Water Disclosure, the Enhanced Analytics Initiative, and myriad other investor-led calls for disclosure.

[4] In the UK, this is now a positive obligation under the Companies Act.

[5] Super funds are a special case here. Their trustees recognise 1) that they’re investing for their beneficiaries over 10-40 year timeframes, and 2) that super contributions are mandated by society through the voice of its legislature. It makes sense then that super fund investments take into account the longer-term social and environmental effects of their investments.

[6] Bruckner, McLean, Taylor et al, ‘What is the market telling you about your strategy’, McKinsey Quarterly, 1999.

[7] Ocean Tomo (2010), “Intangible Asset Market Value Study”

[8] Porter ME and Kramer MR, ‘Strategy and Society: the link between competitive advantage and corporate social responsibility’, Harvard Business Review, Dec 2006.

[9] Dowse J, ‘Measuring sustainability’, Keeping Good Companies, Sept 2006.

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Durban: A polite shuffle in the right direction, no more than we could hope for.

December 12, 2011 Leave a comment

It is indeed good news from Durban that all the world’s governments have “agreed to agree”. For the first time, nations rich and poor have said they would agree to legal binding commitments to reduce greenhouse gas emissions. The developing world (India, China etc) have never so agreed before. These things are really something, to be sure.

My joy though is modest. Here are three basic concerns:

  • Countries have “agreed to agree” only. The target date for agreement is 2015. Who is to say that governments, particularly the US, will agree then. We’ve been down this road before: negotiated agreements that are not ratified by governments.
  • If we do agree, it’s for 2020 targets, rather than any immediate progressive reductions. What those targets are, and what happens if they aren’t met, will be the subject of the next four years’ debate. (Death by a thousand cuts. You’d almost prefer the Blues Brothers’ brake method—“strong stuff” applied to the accelerator pedal, guaranteeing a thrilling van chase down to a spectacular jetty crash. [Note to 2GB celebrants of ignorance: that was a joke. Not my best, but practice passes the time, as my 80 y.o. music teacher used to say. A socio-economic-ecological crash would not be a good thing, even if it did render shockjocks finally irrelevant.])
  • The meeting is exultant that it has for the first time linked the targets to scientific evidence of the need for action. Here is the clause which does that:

“To launch a workplan on enhancing mitigation ambition to identify and to explore options for a range of actions that can close the ambition gap with a view to ensuring the highest possible mitigation efforts by all Parties.”

Fills you with confidence, no?

So it seems we’re continuing to run with the Paul Gilding Great Disruption script: we’ll act, but only after we’ve lost the Great Barrier Reef and seen the very real suffering of millions. When even Nick Minchin agrees that things aren’t quite the way they were under Menzies and the Queen. The action will be something to see, real world-changing stuff because the US and China will be competing in the new rather than the old economy, but such a shame for what and who we’ve lost.

What of Australia? Australia is said to have sided with the US, Canada and others, against Europe and the developing world, in opposing anything stronger. As with the recently-passed carbon price scheme, this confirms our position as ‘acting under duress, not leading’.

Can you imagine the government’s pain had their actually been a global agreement? Our policy is for 15-25% reductions by 2020 to kick in with a global agreement, rather than the current 5% reduction for which the carbon price scheme is now set. The government would have had to recalibrate the scheme for a much tougher target. Now, if that is to happen, it won’t be before 2015, in the term of the next government. Much will be made of it by Mr Abbott and Ms Gillard. It will hard to believe either of their spin.

All that said, the direction remains clear, and is compatible with the 2020 commitments that countries have been making since Copenhagen. The stronger a country prepares for its 2020 cuts, the better shape it will be, in technology and in economic wherewithal, to serve the globe’s needs in reducing emissions. Countries everywhere will be looking for skills and technologies. The start Australia has made, albeit modest, has set the ball rolling for us to join other innovative developed economies – China, the US and Europe – in delivering them. With a bit of luck, when the world no longer needs our coal and gas, we’ll have something else to sell.

Josh Dowse,  12-Dec-11

Filed under Climate Change, Innovation, Land, water, food, energy, Policy

Carbon another pane in the glass?

October 5, 2011 Leave a comment

As published in Business Spectator 29 September 2011

It’s hard to think of a product that we see more of every day, and think so little about. Yet it seems to be a highly relevant case of another Australian manufacturing industry that is close to the end of its tether. We’ll buy and use a lot more glass in the future, but making it here may be harder and harder.

I was invited to speak at the annual industry conference, Ausfenex 2011, at the sustainability hub of Jupiters Casino. The set up was a 2-on-2 debate, ox-style (short-Oxford) on ‘whether the carbon tax would be good for the industry’.  Five minutes each. Go crazy.

Our speakers, for the affirmative, went hard on facts, logic and the future. The negative went hard on rhetoric and fear: “every screw, every nail, every tile, every brick, every pane will be more expensive”. We got smashed.

Actually, that’s a bit hard on the negative. Tennant Reed from AIG broadly supported pricing carbon, but had problems with the supposed price (too high), timing (too soon), and compensation (not enough). Graeme Wolfe from HIA blamed the lack of government facts for his stirring fact-free call-to-the-barricades. The feeling in the room of 500+ seemed to be that it’s potentially a good thing, but not now, and certainly not from this mob.

Not now, especially. The industry knows that the carbon price will add only cents not dollars to the cost of a window. They know that international competition is their real issue. But whether the carbon price is large or small, right or wrong, it feels like a nail in the coffin driven by a hopeless political culture. That’s why the debate is emotional. It just feels like they’re putting the boot in.

For like so many other real-economy industries, the glass sector is doing it tough. The design, sales, marketing, distribution and installation sections are all hurting from a building sector in the doldrums. A rebound might come, but no one’s talking about it yet. Manufacturing though is fighting on like the limbless Monty Python knight. Major players such as Viridian (a subsidiary of CSR), G.James and Australian Glass Group, down to the smallest local manufacturers, are all feeling the pressure.

 There is strong international competition from Taiwan, Vietnam and Indonesia. But the frowns really appear at any mention of China. It’s not hard not to see why, looking at their advantages in domestic market base, regulatory and labour costs, building sector growth, other glass-using manufacturing, and effective industry policies.

The big differences are China’s energy and currency policies. While China might be making its energy generation more efficient, introducing renewables and closing down high-emission coal-fired plants (while of course building many more new-generation ones), it can afford to subsidise energy costs to underpin its manufacturing. And while the Aussie dollar is the plaything of speculative trading that likes a safe proxy for commodities, and has doubled against the US dollar in the past 10 years. China’s is tied ruthlessly to the US dollar. If it floated, it would be 40% more valuable, and it would be game on in glass again.

And what a game it could be, for the future of glass is bright indeed. Both domestic and commercial occupiers want more glass for their buildings than they ever have before, as a proportion of the building envelope. By some estimates, external-wall glass areas in a domestic project home have risen from 25% of floor area to 40%, and up to 140% for an architect-designed home.

That’s impressive, because if the average insulation value of Australian walls and ceilings is R3.2, standard single-glazed glass comes in at R0.33. Despite that drawback, more glass is being demanded because we have smarter glazing available: insulated, laminated, curved, toughened, annealed, light-sensitive and reflective – whatever’s needed to help buildings be more energy-efficient and more habitable.

The demand for that more energy-efficient, higher-value glass will only rise: energy use in residential and commercial buildings make up 25% of Australian emissions, and glass has a strong role to play in reducing that figure. Accordingly, the industry claims to have invested $400million in the last 3 years in plants that can produce more and more energy-efficient glass. That investment is now very much at risk.

The other growing global market is related to this story. How may glass panels has a coal-fired power station? How many has a solar array? Solar energy is a small but rapidly growing market for glass. Currently, it is just 2.5% of the international market, but that’s still 150 million square metres of production. The demand is anticipated to double in the next two years, and double again in the two years after that. With the cost of solar power now reaching grid-parity with coal, it won’t be looking back. But the panels will be made overseas.

It would be a sad irony if the Australian glass manufacturing industry went the way of our solar one – watching that growth from a distance – but that seems to be the case. All this technology here, all these people, all this sun – yet again we have to send our designs to ‘the world’s factory’, and bring their realisations back. Once again we should think of Zhengrong Shi, the graduate of UNSW and Australian citizen who become China’s richest man making solar PV panels that we weren’t interested in.

While I can understand that China is making most of the new solar industries, and also becoming a world leader in design, I still can’t get over the fact that Germany leads the world’s PV solar technologies. In a thermal heat map of the globe, Germany shivers in a band of pale blue, while Australia covers itself in searing red. They dig coal and catch whatever sunlight they can. We just dig.

One distributor of German glass at the exhibition was dumbfounded by the high cost of glass windows and frames in Australia compared to Europe. Labour costs in Germany are no lower than here, so other factors are at play: the larger European market, very different industry policies, determination to leverage higher investment in public education into high-value high-margin manufacturing. And the currency, again. While China pegs its currency to the weak US dollar, Germany pegs its to the economic gloom of Europe.

There are no easy solutions here. As in other industries, part of the answer lies in being less concerned with where a product is made, and more about why people might want it. For glass, that keeps the design, engineering, marketing, sales, distribution and installation teams busy enough if good enough.

Another part is to chase the markets that might be there. One exhibitor tried, as an experiment, to advertise direct to the renovation market for the first time. They couldn’t believe the response. Someone had forgotten that although there are 150,000 new homes built in Australia each year, there will be $35 billion in home renovations in 2011 (which would seem to equate to 300,000 projects), according to the Construction Forecasting Council, and that figure may double in 5 years. Consumers control their renovations, and may be more inclined to ‘buy Australian’ than commercial and home builders, for whom cost is the issue, with function some distance behind, and source a lightyear behind that. After all, not even the Department of Climate Change itself could get its builder to buy Australian for its new Canberra headquarters.

Australia will always have a glass industry, just as it will always have a beer industry. But if we want to own its production, or manufacture more of the stuff here, then our community through our parliament would have to change some pretty fundamental economic policies. That will be expensive, and involve other trade and industry complications. We may well decide it’s worth the cost. At the moment, though, as with so many other things, we can’t decide which is the lesser of two evils, nor how to leverage our current mining windfalls into longer-term prosperity.

Josh Dowse works on sustainability business and investment.

* For the record, the debate was split: equal numbers shifted from undecided to either for or against the carbon price. But the clear majority remained against. I can only hope that they and they undecideds left a little more accepting of the need for a carbon price than they did coming in!

Filed under Climate Change, ESG, Innovation Tagged with , , , , , , , , , , ,

People: social capital, News, supply chain, women

August 10, 2011 1 Comment

And why not step into the fire? The Economist has again raised the low number of women on corporate boards. It looks at quotas and mentoring, before settling on the bigger issue: “In most rich countries sexism and the lack of role models are no longer the main obstacle to women’s careers. Children are. Most women take career breaks to look after them. … Such choices should be respected. But they make it harder for women to gain the experience necessary to make it to the very top. What is more, big companies … want a boss who has worked in more than one country. Such foreign postings disrupt families; many women turn them down. Many also prefer not to prolong their working day by networking after hours.” To aspire to leadership in the corporate system is a 70+ hour, 50-week commitment. All or nothing. Facing such an unreasonable choice, there should be enormous respect for women who take either option, not to mention those who hang on tight for both. But the choice simply shouldn’t be so unreasonable. “Wise firms will strive to remove barriers for women,” the wise paper says.

Something never really rang true to me about an annual ‘audit’ of factory working standards in Vietnam or Bangladesh through an afternoon’s visit by a youthful merchant of hope with an on-line accounting degree from the Uni of Mid-West Utopia. Oxfam UK has a lot more experience than this black duck on the issue, having seen tricks such as “the national anthem being played as a signal for underage workers to go out the back of a factory as the auditor comes in the front; software that shows how to keep double books …; unregistered workers sliding down a chute into an unauthorised factory beneath the one slated for audit”. Balanced scorecards through the supply chain and mature industrial relations and HR management skills will be more effective, and a sound investment.

“What goes around comes around”, tweeted independent guardians and observers of News International, with more melody than usual. An amazing story that has far from played out. It’s another stark reminder that ESG and sustainability issues reach far beyond low-emission light globes. A business model that relies on the abuse of someone else’s rights is not sustainable. As ESG analysis matures, those investors and employees who have a choice start to drift away from the corporate culture and governance practices that allow such abuse.

Is social capital declining or just changing places? Robert Putnam’s pathbreaking book Bowling Alone argued that in the 25 years to 2000, attendance at club meetings had fallen 58%, family dinners 43% and having friends over 35%. If FaceTwitLinkia provides more social interactions, does it offer the social capital that researchers have consistently found delivers resilience and innovation in communities and companies? In the meantime, employee volunteering is now a permanent fixture in CSR strategies, having now increased 150% in the US over the last decade to reach 1/3 of all US corporations. Well-directed volunteering or, more beneficially, engagement on non-immediate projects on social or environmental issues, foster working relationships across the firm: are extremely valuable when immediate, commercial projects are launched.

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Innovation: efficiency finance, Google, geothermal, the loo

August 9, 2011 Leave a comment

We all know the barriers to investing in energy efficiency (EE): upfront costs, uncertain savings, uncertain payback periods, EE not a budget priority, no managerial capacity, limitations on external financing, split incentives, operational interruptions, lack of multi-plasma offsets etc. The EDF in the US has provided a handy guide to Efficiency Services Agreements and other means to overcome these barriers. An investment fund finances the energy efficiency kit, then draws its payments from the energy supplier under an agreed savings plan. Neat. Top

Having been moderately successful in its first round of ventures, Google has embarked on its next –clean energy innovation – helpfully setting out its thinking here. Using McKinsey data and analytics, Google looks at clean energy’s potential for the US economy and sees lots to like, which must be welcome news for anyone else looking at the US economy. Given a free hand, new technologies would add 1.1 million jobs and $155 billion to GDP each year to 2030, while reducing household energy costs by $942 and oil consumption by 1.1 billion barrels. Emissions would also fall. If matched by sensible policies (that old big “if” again), the GDP and job benefits would both increase by a further 55-75%. Top

Hybrid power plants offer heavy emission reductions, and will be more likely with the carbon price in place. The latest probability is for coal-fired plants to tap into the geothermal energy that typically lies at relatively shallow levels beneath coal. Energy is generated by burning coal to turn water to steam, which then drives the turbines. Pre-heating the water with geothermal energy could add 12% to the plant’s efficiency – that’s a real step-change in performance. The Liddell power station in the Hunter Valley already does the same thing with solar. Geothermal would be cheaper and more stable. Top

It’s hard to imagine the amount of energy innovation and policy going on if you’re listening to the Australian polimedia. Every day it comes in waves. Take Friday 5 August, the first day of the latest market meltdown, as a random day. News comes of Nissan’s electric car that feeds energy back into the home, of Obama’s package to double US car MPG standards by 2025 (saving its economy 1.6 trillion when it’s most needed), of Indonesia’s $16 billion geothermals plan, of the UK’s expectation to reach 21TWh of tidal power by 2025, of the use of salt-based energy storage for solar thermal plants that can store power for 24 hours and deliver it to grid. Top

“No innovation in the past 200 years has done more to save lives and improve health than the sanitation revolution triggered by invention of the toilet,” says the Gates Foundation rep in her speech at AfricaSan, the third African Conference on Sanitation and Hygiene. “But it did not go far enough. It only reached one-third of the world. What we need are new approaches. New ideas. In short, we need to reinvent the toilet.” The Foundation is offering $42 million in grants to come up with a better loo. “Not only is using the world’s precious water resources to transport human waste not a smart solution, it has simply proven to be too expensive for much of the world”. Shovel suppliers need not apply.

Filed under Innovation Tagged with , , ,

Colbert and the amazing fracosaurus!

August 4, 2011 1 Comment

How not to do it! Fracking is not a pleasant word in sound or meaning. It may well spell the end of coal seam gas exploration in NSW. Original exploration rights never contemplated such risks. No amount of stakeholder engagement would remove those risks, but the Canadian gas drilling company Talisman has tried hard. Cited in the US for 143 environmental violations, why not issue a colouring book for the kids? The Colbert Report drilled it brilliantly. Triple Pundit blog takes a more earnest look.

Filed under Land, water, food, energy, People Tagged with , , ,

Time to import the UK’s climate

August 1, 2011 3 Comments

I’m exceedingly concerned that the amount of good sense coming from the UK in recent days will overturn my natural, well-honed and heartfelt antipodean prejudices. Ashes aside, it’s a climate I could well appreciate.

First, we all saw the performance of the UK House of Commons as David Cameron withstood a 2 ½ hour, 139-question grilling. Rapiers and respect at 2 paces. Question time not playtime. Hauling an arrogant press to account. Chipping decay off a cosy polimedia.

Next, Giles Parkinson interviews Sir Richard Lambert in Climate Spectator.Lambert headed the UK Confederation of Business Industry in 2006, a group that “was being torn asunder by differing views on climate change”.  He brought together 17 companies from all sectors, who concluded that the world was changing and that regulation of greenhouse gases was inevitable. Over to Lambert:

“‘We’re not evangelists, and we are not scientists, but we are paid to understand and manage risk. And they said we think it is a significant risk and we need to mitigate it. We are also paid to understand opportunities and we think a shift to low-carbon economy will create opportunities.’ And the most efficient way of reducing emissions, the taskforce found, was establishing a price on carbon. And the most efficient way to do that was cap and trade.”

Understand and manage risk? Understand opportunities? Yes, that’s what this is all about.

“Lambert was concerned that the conclusion might have caused some of the 200,000 member companies to resign, but it actually had the opposite effect – it attracted more companies. The CBI has since been supportive of the carbon pricing policies; the UK industry considers itself to be in competition with Germany – and of course economies in east Asia and elsewhere – to develop opportunities in the low carbon economy.

“Lambert also made some interesting points about so-called carbon leakage, noting that fears had been overplayed. ‘Business is worried about these things and they want a level playing field.’ But he said the most successful manufacturing economy in the world is Germany. ‘They sell massive amounts of goods around the world, and they have a carbon price.’”

Oh, and Lambert’s final word?  “As for the science, and the prognostications of Lord Monckton, Lambert said he was definitely an export. ‘Nobody in the UK has heard of him,’ he said.”

And third, we have this exchange last month between a UK business lobby group, the Corporate Leaders Group on Climate Change, and the responsible UK minister. Remember that David Cameron’s Tories had gone to the last election with a greener policy than the Labour Party, and that a bipartisan UK has committed to reducing emissions by 50% by 2025 and by 80% by 2050, has had a price on carbon since 2006, and has triggered wholesale changes in its energy generation and transmission businesses.

The business lobby included Shell, Tesco, EDF Energy, Lloyds Bank, Philips and Unilever – far from a ratbag fringe – and it wasn’t happy. It wanted the UK government to do more. Its fear? That the UK was being left behind by Germany and China in the opportunities of the lower-carbon economy.

The response of the Energy and Climate Change Secretary, Chris Huhne? Full agreement – that further green policies will help bolster UK GDP, enhance economic competitiveness and protect British firms from future oil shocks. He said that the UK would enjoy an annual increase in GDP growth rates of 0.8% if the EU moved to a reduction target of 30 percent by 2020.

Yes, the UK economy is very different to Australia’s. As is its politics.

Yet many would like Australia’s economy to offer more options for tomorrow’s workers and graduates than resources and finance. Many more would like the current strength of these sectors, driven almost wholly by the emerging wealth of China and India rather than by some miraculous national foresight (compulsory superannuation aside), to underwrite a broader, stronger Australian economy, rather than entrench a narrow and ultimately weaker one.

Reserve Bank Governor Glenn Steven said it this week. “As I am sure people are sick of hearing me say, Australia is in the midst of a once-in-a-century event in our terms of trade. I won’t recite the facts yet again. Suffice to say that this is, at least potentially, the biggest gift the global economy has handed Australia since the gold rush of the 1850s.”

There is $394 billion in resource investment underway – that’s investment to extract more resources, not the value of the resources extracted. Amazingly, the minerals boom is only just beginning.

It’s up to us what we do with it. To guide us, perhaps we should go back to the 1850s, and look more to a nice afternoon tea than to the Tea Party. Cuppa anyone?

Filed under Climate Change, People, Policy Tagged with , , , , ,

The Australian – A step too far?

August 1, 2011 1 Comment

For reasons best known to its editors, The Australian has been crusading against climate science and policy since 2006. That’s the year when the Stern Review (to which I was a very small contributor) and Al Gore’s movie came out, and the drought made it seem like they had a point. The other critical shift in that year was News International’s dramatic change of mind in the UK, with The Sun coming up with a front page along the lines of: “We were wrong on climate change! Turn to page xx for a 16 page lift-out on how we can all do our bit .” When it did, it left The Oz as the only newpaper in the Murdoch stable that questioned the science on climate change. Sydney’s Daily Telegraph was at the time supportive of climate action. It has since been taken over by The Australian‘s former editor, and adopted the anti-climate line.

Over the years, there has been countless instances of misinformation and bias in The Australian‘s reporting. The aphorism “Never let the facts get in the way of a good story” has applied throughout. Not content with its opinion pages being the sole preserve of climate sceptics, The Oz has allowed the lead pages of its “Inquirer” section to be handed over to the anti-climate action lobby The extent to which it will knowingly mislead the public is beyond alarming, and well into the depressing. 

On the climate issue, The Australian leads the charge against objectivity. The latest of its deliberate inaccuracies is clearly documented in this blog: http://scienceblogs.com/deltoid/2011/07/the_australians_war_on_science_67.php. The Oz contacted a scientist to comment on sea level rises, then deliberately misquoted him, then got a non-scientist to agree with the misquote. Why that paper holds its agenda is anyone’s guess, but it’s pretty clear that it has one.  

Just thought you’d like to know. We’re really struggling when respected newspapers are playing at this level.

Filed under Climate Change, Networks, Policy

Carbon Price – Time for action

July 29, 2011 Leave a comment

Draft legislation was released yesterday, on a tight timetable, with submissions due on 22 August.

Here is our review of the pending Carbon Price scheme. We offer more detailed analysis for particular firms and investors, and in particular assistance in preparing submissions to the government if appropriate, and in engaging with staff and other stakeholders on the real impact of this Scheme, to your business and so for them.

Although Dowse CSP works mainly on broader sustainability and ESG approaches, the carbon price is the elephant in the room at the moment. A carbon price was the focus of my Masters degree back in 2001, and I’ve been following the permutations closely ever since.

Although my bias is that the carbon price is the right way to go nationally, and its effect very positive on average, each firm will experience it differently, and needs an objective view and a clear articulation of that impact. That is hard to find in the press at the moment.

I look forward to your thoughts.

Filed under Brand, Climate Change, ESG, Innovation, Policy

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