SUSTAINABILITY

1
CHAPTER 9
SUSTAINABILITY
2
Outline
3
(No Transcript)
4
Sustainable Development ?

• 1987 World Commission on Environment and
  Development (The Brundtland Commission)
• Our Common Future Coined the term Sustainable
  Development
• Development that meets the needs of the present
  without compromising the ability of future
  generations to meet their own needs

5
Social and Environmental Sustainability
Source Dunphy, Griffiths Benn (2007)
6
A Planet Under Threat means

• the population explosion
• the natural limits to non-renewable resources
• over-exploitation of renewable resources
• growing ecotoxicity, threats from nuclear,
  biological and chemical technologies
  catastrophes

• reduced species diversity
• incentive systems encouraging waste and pollution
• environmental warming
• extreme differences in income
• lack of a systemic global view

7
Predicted Social Impacts Associated with
increases in average Global Temperature
8
Stern Report (2006) The Economics of Climate
Change
Source Stern Review The Economics of Climate
Change Fig. 1.4 (20068)
9
The Cost of Inaction?

• From Finsia Industry Opinion Poll
• Q The UK's Stern Report in 2006 found that
  "doing nothing to stop global warming will prove
  far more costly to the global economy than taking
  measures in the next 10 to 15 years to fight it".
  To what extent do you agree or disagree with
  these findings?
• A 89 Finsia members surveyed agreed with the
  finding from the UKs Stern Report.

10
Trends Cause Discontinuities and Changes
11
What Can Be Done?

• The Norwegian Pension Fund invests its nation's
  oil revenue for the wellbeing of future
  generations. With about 460 billion under
  management, it is one of the world's biggest
  investors. It also has a strong ethical charter,
  and that's what has led to its decision to
  withdraw its 1 billion investment from Rio
  Tinto.
• Australian Institute of Superannuation Trustees
  released a ground-breaking report on super funds
  and climate change. Carbon Counts 2008 The
  Carbon Footprints of Australian Superannuation
  Investment Managers
• By "carbon optimising" the ASX 200
  (overweighting companies that are carbon
  efficient in each sector and underweighting
  carbon-intensive companies), carbon efficiency
  could be improved by 42 per cent without
  sacrificing returns.
• http//business.smh.com.au/business/climate-change
  -the-new-challenge-for-super-fund-returns-20080912
  -4fgz.html

12
Automotive Manufacturers Climate ChangeImpact
of increased CO2 measures on profits (EBIT)
Source SAM Research, Changing Drivers Study,
October 2003
13
Share price development of Toyota and GMOctober
2003 October 2005 (indexed)
2004
2005
2003
14
Different transport systems/different
vehicles/different engines/different energy

• There are currently around 32 million cars in
  China. However the rate of car ownership is low
  at only 25 per 1000 population. If ownership grew
  to the world average of 120 cars per 1000 then
  there would be 156 million cars, an increase of
  124 million.
• If the rate of ownership grew to the American
  level of 700 per 1000 then China would have 910
  million cars, an increase of 878 million cars
  which is 128 million more cars then currently
  exist on the whole planet.

15

• The Future of Urban Transport ?

16
MODEL ELEMENT POTENTIAL DRIVERS POTENTIAL DRIVERS
Operating Costs Emissions Trading Reporting Purchase costs of any additional carbon allowances required, over and above allocation. Exposure to electricity costs. Other costs associated with trading, reporting and compliance.
Operating Costs Emissions Reduction Additional (or reduced) operating costs as a result of carbon mitigation. N.B. in many cases, investing energy efficiency achieves a net reduction in operating costs.
Operating Costs Other Buildings compliance costs. Transport costs (longer term). Potential additional costs associated with supply chain risk due to weather exposure (some reported problems already for instance in
17
Framework for Assessing Company Climate Change

• Company Exposure
• Development of Greenhouse gas emissions
• inventory, both direct and indirect (electricity)
  
• emissions for key business units.
• Greenhouse gas Key Performance Indicators
• - Product intensity ( CO2-2/unit of product)
• - Op cost sensitivity ( CO2-e/ operating
  costs)
• - Equity exposure, through investments
• - Past exposure
• - Future exposure

Understanding the Risk

• Value Chain Exposure
• missions' associated with supply product
• chain, e.g. transport, energy intensive outputs
• Differential exposure from Annex-1 non-Annex-1
• suppliers

• Investment Decisions
• Considerations of liability
• in investment decision
• Purchasing Policies
• Hedging positions
• Scenario Analysis

• Competitor Exposure
• Competitor exposure
• Substitute exposure
• Opportunities

• Abatement Opportunities
• Identification of abatement opportunities
• Development of marginal cost curve for abatement
• Supply chain potential

Managing the Risk
18
GREENHOUSE GAS CHEMICAL FORMULA PRE-INDUSTRIAL CONCENTRATION (ppbv) CONCENTRATION IN 1984 (ppbv) MAJOR ANTHROPOGENIC SOURCES
Carbon dioxide CO2 278,000 358,000 Fossil fuel combustion land-use conversion Cement manufacture
Methane CH4 700 1721 Fossil fuels Rice paddles Waste dumps Livestock
Nitrous oxide N2O 275 311 Fertilizer use Industrial processes Combustion
CFC-12 CCI2F2 0 0.503 Liquid coolants/ refrigerants Foams
HCFC-22 CHCLF2 0 0.105 Production of aluminium
Sulfur hexafluoride SF6 0 0.032 Dielectric fluid
19
SECTOR WEATHER RELATER RISK WEATHER RELATER RISK REGULATORY RELATED RISK POTENTIAL OPPORTUNITIES
Short term Long term
Property construction Higher insurance costs Higher insurance costs or inability to get insurance Decrease in asset value due to changes in flood levels or poor energy performance Increased construction costs due to changes to building codes Minimum energy performance standards Inclusion of energy intensive construction materials into ETS Growth market for energy efficiency/management products and services Growth market for energy efficient construction materials Property energy performance used as differentiation to attract key clients
Transport infrastructure Increased maintenance insurance costs due to increased storms flooding Increased construction costs due to changes in civil engineering standards Minimum energy transport performance standards Inclusion of aviation in fuel and airline industry in ETS New water infrastructure Alternative fuels
Tourism tourism related Destruction of major tourism attractions Destruction of major tourism attractions Increased in tropical diseases impacting attractiveness as destination
Retail consumer discretionary Increased volatility in earnings of weather exposed or season dependent products due to increased weather variability As for short term Compulsory energy performance standards for consumer Growth in demand for energy efficient consumer goods
General Increased business interruption due to extreme weather events As for short term Need to include ETS related assets and liabilities in financial accounts Increased electricity price
20
Business Drivers
21
Barriers to Sustainability
22
Corporate Hall of Shame 2007
23
Corporate Hall of Shame 2007
24
Emerging Business Values

• The broader role of corporations in society lies
  in understanding the
• interdependence between economic growth, social
  development and
• environmental protection
• Gail Kelly, CEO Westpac, 20 February, 2008.
• CSR is rational, enlightened and self-interested
  business behaviour
• Westpac, 200615.
• Sustainability is here to stay or we may not
  be.
• Niall Fitzgerald, CEO Unilever
• Climate change has focused our attention on
  sustainability issues
• generally and, as an industry, we need to better
  reconcile the
• incentives that drive short-term profits with the
  risks to our economy
• over the long-term.
• Stephen Harrison AO, Interim CEO, FinsiaTip of
  the Iceberg Report 2006.

25
Kofi Annan Launches UNEP FI Principles at NYSE
2006
26
UNEP Finance Initiative
27
UNEP Finance Initiative Principles of
Responsible InvestmentAustralian Financial
Institution Signatories

• Asset Owners Investment Managers
• ARIA (Australian Reward Investment Alliance) AMP
  Capital Investors
• AustralianSuper Australian Ethical Investment
  Ltd.
• CARE Super BT Financial Group
• Catholic Superannuation Fund Colonial First
  State
• CBUS Superannuation Scheme Drapac
• Christian Super Five Oceans Asset Management
• ESSSuper Foresters ANA Mutual
• Hesta Super Indian Ocean Rim
• Local Government Superannuation Scheme Portfolio
  Partners
• Local Super
• Statewide Superannuation Trust
• UniSuper
• VicSuper
• Vision Super

28
Fiduciary Duties
29
Institutional Investor Voting 2000-2003
30
Evolving CSR Standards Architecture
Source Allouche (2006). Corporate Social
Responsibility Concept, Accountability and
Reporting.
31
Corporate Strategies to Deliver Value to Society
32
The Phase Model
Rejection Non-responsiveness Compliance Ef
ficiency Strategic proactivity The sustaining
corporation
From Dunphy, D. , Griffiths, A. and Benn, S.,
Organisational Change for Corporate
Sustainability, Routledge, London and New York,
2003 revised edition 2007)
33
Model of Sustainable Value
Adapted from Hart and Milstein 2003
34
Growth of SRI Investment Assets in Australia
2000- 2006
Source Ethical Investment Association (EIA) 2006
SRI Benchmarking Survey
35
Blending Economic and Social Value
Source Jed Emerson (2006)(See www.blendedvalue.or
g)