Wrangling over a carbon price is separating the sustainability leaders from the laggards in the land of plenty
A defining moment for corporate responsibility in Australia came on September 16 2010. At a Sydney business lunch, chief executive of BHP Billiton Marius Kloppers single-handedly revived the stalled debate around a carbon price, telling senior executives: “Carbon emissions need to have a cost impact in order to cause the consumer and companies to change behaviour and favour low-carbon alternatives.”
Six months later and the prime minister, Julia Gillard, is preparing to push through parliament by the end of 2011 her government’s proposal for a market-based scheme for pricing carbon but with an initial period of a fixed price, or carbon tax.
The scheme details have yet to be decided and are the subject of fierce debate. Many Australian companies now face a real test of their sustainability commitment: to what extent will they directly or indirectly attempt to tame action on climate change?
Energy for change
As demand for action on climate change increases, Australia – the biggest greenhouse gas emitter per capita in the developed world – faces a big dilemma.
On the one hand, the country has huge supplies of cheap coal and natural gas and an abundance of natural resources, such as iron, copper and alumina – all needing large amounts of energy to extract and process. On the other, the country that generates 84% of its energy from coal has plenty of so far untapped renewable energy resources, such as solar, wind, marine and geothermal.
Some economists say Australia desperately needs a carbon price to introduce a cost for hitherto unpriced pollution. The more progressive carbon-intensive energy and resource companies accept just that, eager to put a stop to the uncertainty that’s dogged the economy since former prime minister Kevin Rudd proposed then abandoned what was the predecessor to today’s scheme, the Carbon Pollution Reduction Scheme in 2008.
“For Australia’s energy companies and the energy-intensive sectors, energy prices will be one of the big issues of our age,” says Terence Jeyaretnam, executive director of consultancy Net Balance.
“Australia is built on cheap electricity, which has been contained for a long time. Projections are that electricity prices will at least double in five years as the costs of generating electricity, infrastructure and carbon pricing rise,” he says.
Following the government’s February carbon price announcement, energy companies AGL and Origin were quick off the mark.
Manufacturing discontent
AGL says a carbon price of A$20-$30 (£12-18) a tonne would be a good place when the system takes effect in July 2012. Managing director Michael Fraser welcomes the government’s announcement as “an important first step towards providing investment certainty for business as we begin the transition to a low carbon environment”
Fraser adds: “We would support the move to a market-based mechanism such as an emissions trading system as quickly as possible.”
Other business figures were not so happy with the government’s plans. Paul O’Malley, chief executive of one of Australia’s biggest manufacturers, Bluescope Steel, describes the government’s carbon tax plan as “economic vandalism”.
The Australian Chamber of Commerce and Industry – the country’s leading business body – says the carbon price proposal was a blow to business competitiveness.
“ACCI does not believe it is in Australia’s national interest to compromise our economic competitiveness and impose new energy costs on households and small and medium businesses in advance of a binding global agreement by other nations,” chief executive Peter Anderson says.
Yet climate action advocates say this approach exposes corporate Australia as irresponsible, unresponsive to change and reluctant to commit to sustainable economic development.
Polluters to pay?
John Connor, chief executive of the Climate Institute, an independent thinktank, says polluters must be made to pay. “It’s critical that polluters, not just taxpayers, begin to take responsibility and contribute to reduce our carbon pollution, develop cleaner industries and help prepare Australia for the increasing number of extreme [weather] events to come from accelerating climate change,” he says.
Dr Leeora Black, managing director of the Australian Centre for Corporate Social Responsibility (ACCSR), says the move towards a carbon-constrained economy is certainly focusing senior managers’ minds.
“The fact is we are moving towards a carbon-constrained economy. The debate is about what’s the best way to do it. One expects that those who have to do the most changes will be centrally involved in it … and protect their interests,” she says.
For its 2010 annual corporate social responsibility report, ACCSR surveyed the importance of understanding climate change to an organisation. Black says she is starting to see a decline in the importance of understanding climate change.
“I don’t think it’s because organisations are less interested in climate change. I think they are getting to a point where they have a good understanding of the effect of climate change on their organisation and what we need to do now is look at other aspects like their success in adapting,” Black says.
Given recent extreme weather events such as the widespread floods in Queensland and Victoria and February’s devastating cyclone in Northern Queensland – not to mention Victoria’s destructive bush fires in 2009 – climate change adaptation is proving to be an urgent challenge to both consumers and businesses.
Miners have seen a huge slowdown in production in the wake of Queensland’s floods during late December 2010 and early January 2011, which saw more than three-quarters of the state declared a disaster zone.
Vines hit
Viticulture is a sector that has seen global warming chip away at its production capabilities. For instance, Fosters Group, Australia’s iconic brewer and also the country’s biggest owner of vineyards until it spins off the winemaking operations this year, has been forced to invest in new equipment as the grape-picking season shortens year by year.
It has been estimated that the grape-picking season has shortened by one day for every year in the past 18, meaning viticulturists now have just a fortnight to pick their prized harvest.
Solid progress on managing social and environmental impacts has been made in the financial services sector, as banks take a more strategic role in corporate responsibility management. But critics argue this is merely a reaction to reputational risks in light of interest rate rises and the global financial crisis.
The big four banks – ANZ, Westpac, National Australia Bank and Commonwealth – perform consistently well in both domestic and international responsibility benchmarks, such as the Dow Jones Sustainability Index and FTSE4Good. Yet environmental campaigners are unhappy at the sector’s continued support of the coal industry and coal-fired generators that dominate Australia’s energy landscape.
Institutional investors are catching on to carbon de-risking fast, but it seems banks have been left behind. The Australian Council of SuperannuationInvestors circulated a study last year to its members that said new scientific data provides a “clear end-date”’ for widespread use of coal, oil and gas that is far sooner than expected and means serious short- and medium-term risks to resource-sector investments.
“Coal, oil and gas companies have a balance-sheet value of their reserves which is a substantial contributor to their share price. But their share price can change very dramatically if those things are no longer exploitable,” ACSI president Michael O’Sullivan says.
Financing questions
In November 2010, Westpac – a consistent top performer in sustainability benchmarks – promised not to support high carbon-emitting assets. But the bank declined to rule out financing coal projects – which are among the biggest polluters of all.
In its energy sector position statement, Financing Sustainable Energy, the bank vowed to “avoid involvement in transactions which support the establishment or long-term continuation of inefficient and high carbon emitting assets into the future”.
Greenpeace also published a report in November 2010 – Pillars of Pollution: How Australia’s Big Four Banks Are Propping Up Pollution. The activist NGO escalated the campaign by hanging large banners outside an ANZ branch in Brisbane, Queensland, with the logo “ANZ: We pollute your world”.
ANZ was named last year by DJSI as the most sustainable bank globally on criteria including climate change mitigation and environmental performance. It deserves a different title, Greenpeace says, since it is the biggest backer of Australia’s coal industry, financing nearly A$1.7bn in mines, ports and power stations in the past five years.
“They’re winning awards for sustainability; they’ve got a policy to go carbon neutral. Those policies and that rhetoric are completely at odds with their practice,” Greenpeace’s John Hepburn says.
ANZ says coal remains important in Australia’s energy security while Australia makes the transition to a low carbon future and says it is the nation’s leading renewable energy financier.
Nathan Fabian, chief executive of the Investor Group on Climate Change, says that while the latest Carbon Disclosure Project survey of major companies, including ANZ, shows high levels of awareness, Australia is lagging behind on action plans.
“Australian companies rate third in understanding the problem but 20th in terms of taking specific action,” Fabian says.
Net Balance’s Jeyaretnam says the mainstream banks have a long way to go in terms of delivering sustainability through their products and lending. “They haven’t focused on their products and the impact they could have in their lending policies,” he says.
For instance, theMecu credit union and Bendigo & Adelaide Bank are the only banking institutions in Australia, according to the Greenpeace report, not to finance coal power stations, coal ports and coal mining.
But sustainable banking has arguably been taken to a whole new dimension by Victoria-based Mecu (see case study).
Property heats up
Commercial property development and management is one sector where companies are considered to be taking effective action on the environment. Listed companies Lend Lease, GPT and Stockland, and the unlisted Investa, are considered to be world class in the real estate investment trust sector (REIT).
The ACCSR’s Leeora Black says the sector has “really carved out new ground in terms of standard-setting”.
Indeed, a January 2010 survey by Maastricht University’s European Centre for Corporate Engagement ranked GPT, Stockland and Investa as some of the most sustainable property companies in the world.
“To a great extent, the Australian top-five outperform their European peers and the full top 10 of American peers,” the report says. “It is clear that property companies from all over the world can learn from Australian best practices in environmental management.”
Among private funds, the top three of the Australian private funds – GPT’s Office and Shopping Centre funds and Investa’s Commercial fund – are ranked higher than any of their peers across other regions.
Most of the companies that manage Australian REITs are part of a collaboration funded by the New South Wales government and managed by the Total Environment Centre: the Existing Buildings Project, where the leading managers of real estate investment trusts have made commitments to upgrade their entire Australian office portfolios’ energy ratings.
But despite their reputation as world-leading sustainable companies, some property companies are not responding responsibly to climate change as global warming puts pressure on their land holdings and development plans.
Australia’s dash for gas
A similar neglect of environmental and community risk has been alleged in Australia’s booming coal seam gas industry. Coal seam gas is methane that is found within coal deposits. It has been touted as a “clean” fuel and part of the vital transition away from Australia’s dependence on high-emitting fossil fuels, but its exploitation does not come without risk.
Companies such as BG Group (through its ownership of Queensland Gas Company) and Royal Dutch Shell (through ownership of Arrow Energy), Conoco-Phillips and Australia’s Origin Energy, Santos and AGL have been accused of poisoning Australia’s water supply and degrading valuable farmland through their quest for coal seam gas.
A recent ABC TV documentary – Four Corners – exposed the major companies in the industry as neglectful of community concerns and polluters of the Great Artesian Basin, one of the largest underground water reservoirs in the world.
Santos, the largest supplier of natural gas to the domestic market, is pursuing four liquefied natural gas projects in Australia, led by Queensland’s GLNG project – a joint venture with Petronas, Total, and Kogas that will convert coal seam gas into liquefied natural gas.
Santos spokesman Matthew Doman says the company was confident in its social and environmental record.
“Santos certainly acknowledges there are concerns in the community over the increasing production of coal seam gas in Australia, particularly in areas where gas exploration and production is taking place,” Doman says. “But we also believe the industry in Australia is highly and effectively regulated and supervised.
“Santos has engaged in open consultation with the community as we develop our coal seam gas business, and we’ll keep doing that. We have maintained the highest environmental and safety standards across our business. We are committed to continuing to do so.”
Case study: Mecu and sustainable banking
Victoria-based credit union Mecu says its investors recognise the opportunity they have to help tackle a host of economic, social and environmental issues, simply by influencing how their money is invested.
“Sustainability goes way beyond the environment and that was part of the thinking that led to Mecu’s repositioning to responsible banking,” saysRowan Dowland,Mecu’s general manager for development. He says Mecu is now asked much more about redefining gross domestic product, social return on investment and green economics.
Mecuhas introduced a range of responsible investment innovations into its credit cards, car financing and home mortgages.
Mecu’s conservation Landbank – a world first for a financial institution – is a good example of the way it conducts business in a sustainable way. It helps Mecu offset the loss of biodiversity resulting from new homes financed with the money members invest in their credit union. When a member buys a block of land and builds a new home, the equivalent amount of land is allocated for protection and/or revegetation in the Landbank.
Properties bought by Mecu and deposited into the Landbank are revegated and protected against any future development by the Trust for Nature Conservation Covenants.
In addition, Mecu offsets the greenhouse gas emissions generated by the vehicles its investors finance – about four tonnes of carbon dioxide equivalent (CO2e) per year. This forward-credited offset is provided by planting trees in the Landbank.
As a mutual, Mecu applies the same commercial discipline to its business that investors would expect of any ASX-listed company.
“Being a mutually owned banking institution is not an excuse for poor business performance,” Dowland says.
“We start from the baseline that the organisation needs to be financially successful, it needs to be financially strong and it needs to achieve high levels of social and environmental performance. The advantage I guess as a mutual is that there are no different competing priorities. Our investor and our customer are the one and the same.”
Case study: Stockland and sustainable commercial property
Australian property company Stockland has been recognised for world-leading sustainability performance in commercial building development and management. Energy efficiency has become a key competitive driver in the commercial office market as electricity prices continue to rise and the government prepares to put a price on carbon pollution.
A 2009 sustainable company of the year winner in Ethical Investor’s annual awards, in December the company won the inaugural national award for office energy efficiency after reducing carbon emissions by 800 tonnes a year and saving A$90,000 in energy bills.
“Stockland has placed a strong emphasis on both leading building management practices as well as trialling emerging technology towards reducing carbon emissions,” says Siobhan Toohill, general manager for corporate responsibility and sustainability.
But experts note a disconnect between top performance on commercial buildings and its record in residential development.
Stockland has been lambasted for its plans to build more than 900 homes on the banks of the Maroochy river on Queensland’s Sunshine Coast – an area known for its floods.
The local council excluded the area the property developer wants for building because of flood concerns. Stockland is appealing the decision through the planning court, claiming it had undertaken extensive studies that demonstrated the land has development potential as an infill site and would provide much-needed housing.
The local council has a clear policy stance on limiting further development on floodplains, citing recent natural flooding disasters and forecasts of rising sea levels. “Yet still the developers continue their push to put more people in the same situation,” it says in a press release.
Net Balance executive director Terence Jeyaretnam says there appears to be a split in sustainability performance between those companies that are asset owners and those building to sell.
“Stockland is building housing in Berwick, Victoria, without significant energy efficiency measures. They are putting energy efficiency into what they are keeping but not what they are selling, and that’s because there is no driver – no one is paying for it.”