Transcript ICG chapter 9 - Amazon Web Services

CHAPTER 9
SUSTAINABILITY
Outline
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”
Social and Environmental Sustainability
Source: Dunphy, Griffiths & Benn (2007)
A Planet Under Threat means:
 the population explosion
 reduced species diversity
 the natural limits to nonrenewable resources
 incentive systems encouraging
waste and pollution
 over-exploitation of renewable
resources
 environmental warming
 extreme differences in income
 growing ecotoxicity, threats
from nuclear, biological and
chemical technologies &
catastrophes
 lack of a systemic global view
Predicted Social Impacts Associated with increases in average
Global Temperature
Stern Report (2006) The Economics of Climate
Change
Local and global feedbacks i.e.:
Changes in the clouds, the water content
Of the atmosphere and the amount of
Sunlight reflected by sea ice (albedo)
Land use change
PHYSICAL CHANGES
IN CLIMATE
Rising Atmospheric
Greenhouses
GAS
CONCENTRATION
Emissions
( Measured in
CO2 equivalent)
RADIACTIVE
FORCING
(Change in
energy balance)
Rising
Atmospheric
Temperatures
•Rising Global Mean
Surface Temperatures
(GMT)
Rising Sea Levels
Rising
Ocean
Temperatures
(Lagged)
Changes in rainfall variability
and seasonality
Changing Patterns of Natural
Climate variability
Melting of Ice Sheets, Sea -Ice
and Land Glaciers
Feedbacks including a possible reduction in
The efficiency of the land and oceans to absorb
Carbon dioxide emissions and increased natural
Releases of methane
Source: Stern Review: The Economics of Climate Change :Fig. 1.4 (2006:8)
Impacts on
Physical,
Biological
and
Human
systems
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 UK’s Stern Report.
Trends Cause Discontinuities and Changes
TRENDS
Ecological
Economical
• Interconnectivity
• Deregulation
• Accountability
• Innovation speed
• Global Trade
• Access (information, capital)
• Ageing structure
• Instability of ecological
systems
• Climate Change
• Biodiversity
• Scarcity of natural
resources (water,
energy, soil)
Socio-cultural
• Transparency
• Healthy living
• Ageing population
• Demographic changes
• Social tensions
• Urbanization
Discontinuities / Challenges
Sector / Issue / Markets
Sector Challenges
Source: SAM Research AG “Presentation for Ethos Conference 210609
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-forsuper-fund-returns-20080912-4fgz.html
Automotive Manufacturers & Climate Change
Impact of increased CO2 measures on profits (EBIT)
12
Toyota
8
Renault
4
Honda
Daimler C.
0
VW
-4
BMW
-8
GM
Ford
-12
Source: SAM Research, Changing Drivers Study, October 2003
Nissan
Share price development of Toyota and GM
October 2003 – October 2005 (indexed)
2003
2004
2005
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.
The Future of Urban Transport ?
MODEL ELEMENT
Operating Costs
POTENTIAL DRIVERS
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.
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.
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
Framework for
Assessing Company
Climate Change
Understanding the Risk
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
Value Chain Exposure
Investment Decisions:
•Considerations of liability
in investment decision
•Purchasing Policies
•Hedging positions
•Scenario Analysis
•missions' associated with supply & product
chain, e.g. transport, energy intensive outputs;
•Differential exposure from Annex-1 & non-Annex-1
suppliers
Competitor Exposure
•Competitor exposure
•Substitute exposure
•Opportunities
Abatement Opportunities:
Managing the Risk
•Identification of abatement opportunities
•Development of marginal cost curve for abatement
•Supply chain potential
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
SECTOR
WEATHER RELATER RISK
Short – term
REGULATORY
RELATED RISK
POTENTIAL
OPPORTUNITIES
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
Business Drivers
Ethics
 Employee values & beliefs
 Corporate governance
Codes
 “Extended producer responsibility”
 Management & reporting standards
Reputation
 Market sensitivity to environmental & social issues
 Global transparency due to electronic media
Materiality
 Linkage of sustainability performance to shareholder value
 Opportunities for growth of new products & services
Barriers to Sustainability
Adoption
 Sustainability is seen as “fuzzy” and not relevant to the
company’s primary business mission
 The business case for adopting sustainability cannot easily
be reduced to monetary terms
 Commitment to sustainability, transparency, and disclosure
may exceed “comfort zone”
Practice
 Sustainability is viewed as a traditional compliance issue,
rather than an innovation opportunity
 Lack of accepted standards complicates the measurement of
progress toward sustainability
 Trade-off decisions are more difficult under the broad scope
of the “triple bottom line”
Corporate Hall of Shame 2007
The Nominees
Coca-Cola, for draining local water supplies in drought prone areas in India, allowing harassment of workers fighting for
labor rights in Colombia, undermining public confidence in local water utilities, and falsely promoting itself as a socially
responsible corporation.
ExxonMobil, for refusing to pay $4.5 billion in damages from the 1989 Exxon Valdez oil spill and spending millions to
delay action on global warming, including funding “junk science” to confuse the issue.
Ford, for awful fuel efficiency and pollution ratings, blocking government efforts to improve auto emissions, thwarting
efforts by workers to unionize, and paying its CEO $28 million (for only four months of work) as they plan to cut 30,000 jobs.
Halliburton, the nation’s leading war profiteer, for grossly under-delivering—and shortchanging our troops—on more
than $20 billion in lucrative government contracts and for planning to move its headquarters to Dubai, enabling them to shirk paying
their full share of U.S. taxes.
Corporate Hall of Shame 2007
Kimberly-Clark, for using the same tree fiber suppliers — after years of denial — for its tissues that have contributed to
the destruction of the world’s remaining ancient forests in North America.
Merck, for keeping Vioxx on the shelves for four years after learning that the pain medication was causing heart attacks,
heavy-handed political tactics, and fighting government efforts in Thailand to allow generic versions of AIDS medications.
Nestlé, for numerous abuses — including use of child labor on cocoa farms, skirting responsibility for its role in the obesity
epidemic, and draining community water supplies for its bottled water products.
Wal-Mart, for failing to support its workers, who live close to the poverty line and often are not covered by the
corporation’s health plan, for displacing local businesses and for massive claims of sexual discrimination.
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, 2006:15.
‘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, Finsia:‘Tip of the Iceberg Report’ 2006.
Kofi Annan Launches UNEP FI Principles at NYSE 2006
UNEP Finance Initiative
UNEP Finance Initiative: Principles of Responsible
Investment
Australian Financial Institution Signatories
Asset Owners
Investment Managers
ARIA (Australian Reward Investment Alliance)
AustralianSuper
CARE Super
Catholic Superannuation Fund
CBUS Superannuation Scheme
Christian Super
ESSSuper
Hesta Super
Local Government Superannuation Scheme
Local Super
Statewide Superannuation Trust
UniSuper
VicSuper
Vision Super
AMP Capital Investors
Australian Ethical Investment Ltd.
BT Financial Group
Colonial First State
Drapac
Five Oceans Asset Management
Foresters ANA Mutual
Indian Ocean Rim
Portfolio Partners
Fiduciary Duties
KEY FIDUCIARY DUTIES
DUTY TO ACT
PRUDENTLY
DUTY TO ACT FOR
A PROPER CAUSE
Carry out the items
Of the trust
Act in the best interests
of the beneficiaries as
a whole
Act with care, skill and
Diligence regarding
Someone else’s
investment
Act reasonably
SOLE PURPOSE
TEST
Apply special
Knowledge and skill
Australia (Fiduciary
Duties set out in case
Law and statute)
Take proper advice
Diversity
Consider the suitability
Of investments
Canada and UK
(fiduciary duties set
Out in case law and
Statute)
Consider relevant
considerations
US (fiduciary duties
case law and federal
And state statute)
MODERN
PRUDENT
INVESTOR RULE
Source: Freshfields , Bruckhaus and Deringer . A legal framework for theIntegration of environmental, social and governance
issues into institutional nvestment October 2005. UNEP Finance Initiative Innovative financing for sustainability
.
Institutional Investor Voting 2000-2003
Global labour standards
Equal employment
Political influence
Pollution/ Recycling
Public health- affordable
medicines
Climate change/ renewable
energy
Genetically modified organisms
Militarism and violence
Public health – tobacco cigarettes
Charitable giving
Social community impact
Artic drilling
Human rights
CSR/ CERES reporting
Public health – product safety
Nuclear power
Treatment of animals
Public health –AIDS, workplace
coverage
Banking/ insurance
Humanitarian – debt relief to poor
countries
0
10
20
2000
30
2001
2002
2003
40
50
Evolving
CSR
Standards
Figure 8
The Evolving
Global CSR Architecture
Standards Architecture
Globally
Recognized
principles
NORMATIVE
OECD Guidelines
UN Global compact
Generally
accepted
accounting
principles
Specialized
CSR
standards
Overall CSR
management
systems
Emerging
issues
GRI Guidelines
AA 1000 Assurance Standard
SA 8000
SIGMA
Guidelines
(UK)
EMAS
ISO 14000
WWF CE
Others…
VMS
Principles
(Germany)
Q-RES
Guidelines
(Italy)
AA 1000
Framework
(UK)
SDS21000
( France )
ISO..?
REGULATIVE
Source: Adapted from: Allouche J. (2006). Corporate Social Responsibility: Concept, Accountability and
Reporting
Source: Allouche J. (2006). Corporate Social Responsibility: Concept, Accountability and Reporting.
Source: Allouche (2006). Corporate Social Responsibility; Concept, Accountability and Reporting.
Societal added value
Corporate Strategies to Deliver Value to Society
e
lu
a
v
d th
e
d w
ad gro
e
bl rm
a
in g te
a
st on
u
S L
Collaborate
Create new
value
Community
investment
Control
Costs,
Comply
risks,
liabilities,
Negative
Obey the law impacts
New :
Products &
services,
Processes,
Strategic
Alliances,
Philanthropy, Markets, and
Social venture Business
capital,
Models that
Employee
Meet societal
volunteering
needs
To solve
Complex
social
&
environmental
issues
Shareholder added value
Source: Nelson, 2004.
The Phase Model
Rejection
Non-responsiveness
Compliance
Efficiency
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)
Model of Sustainable Value
Adapted from Hart and
Milstein 2003
Growth of SRI Investment Assets in Australia
2000- 2006
11 985
12000
10000
7670
A$ m
8000
6000
4500
4000
1818
2000
2175
2355
325
0
2000
2001
2002
2003
2004
2005
2006
Source: EIA (2006) Sustainable Responsible
in Australia,
EthicalSurvey
Investment Association
Source: Ethical Investment
Investment Association
(EIA) 2006Sydney:
SRI Benchmarking
Blending Economic and Social Value
Source: Jed Emerson (2006)(See www.blendedvalue.org)