Corporate greenery

The Sun
Saturday, 8 April 2006

If green credentials ever came in university degrees, it would surprise few if David Morgan had one with first class honours. The Westpac chief executive doesn't just talk the talk. The London School of Economics doctor has embedded the environment among a host of other corporate social responsibilities deep into the psyche of his $44billion charge.

Morgan has, literally, been out there pushing the barrow for a long time. To the point where Westpac has been voted the world's most "sustainable" bank by global media giant Dow Jones for the past four years. He learned a different side of the importance of the environment in the 1970s when he spent time in Sierra Leone and Liberia with the International Monetary Fund. Why, he was so committed, he even married a greenie former Hawke Government environment minister Ros Kelly.

"Indeed, having a close relationship with the federal environment minister had an influence on me," Morgan says. "But I was certainly very environmentally aware before (wife Ros had the ministry), including my earliest days at university (in Melbourne at La Trobe University and the London School of Economics) and indeed working with the International Monetary Fund."

It was no surprise, therefore, to see David Morgan front and centre this week when a group of business titans laid down their case for immediate action on greenhouse gases (GHGs). Morgan wasn't leading the charge, the council is a definite meeting of equals. But given his public profile on all corporate social responsibility issues, it might have been asked "who forgot to invite Morgan?" had he not been there.

"I think there just comes a time when you say 'enough's enough'. There is, on any reasonable basis in an uncertain world, enough evidence that we firstly have a reality where the world climate is warming (and) that it is caused by an excess of greenhouse emissions. "And that it is going to have unpredictable and deleterious effects on our climate, on our tourism industry, the Great Barrier Reef, our agricultural industry, the impact on our water that is available for grazing stock and the general use of the land.

"Westpac is part of the fabric of this nation. It is Australia's first bank. It is Australia's first company. And we are only as healthy as the community and the economy in which we operate." That's why Westpac is there. It concerns the future of the stakeholders of customer, employee, shareholder and community. At first glance, the Australian Business Roundtable on Climate Change seems an unusual alliance.

Its members are the chief executives of an insurer (Michael Hawker at Insurance Australia Group), a reinsurer (Keith Scott at Swiss Re), a power retailer and explorer (Grant King at Origin Energy), a global oil giant (Gerry Heuston at BP Australia), a packaging company (Harry Debney at Visy Industries) and a bank (Morgan at Westpac).

BP, a global oil giant, is there because it has an international ambition to be involved at the forefront of alternative fuels, but whose main business of oil production and refining is a lead GHG producer. IAG and reinsurer Swiss Re are there because they will be covering the environmental risks of the future, the loss of life and property from catastrophic events and it works for both them and their customers to minimise the risks of those events. It would keep premiums more affordable and, hopefully for all, lower claims.

Visy Industries is arguably the most obvious of the members. It has built a $3 billion business on environmentally friendly recycled paper and cardboard products. Origin Energy, also from an industry that is a lead GHG producer from coalfired power stations, is also strongly committed to renewable energy sources, including wind.

There is no obvious connecting link between the businesses or their chiefs. This is no old school tie binding them together. Apart from all being multibillion dollar businesses, there is no immediately upfront environmental reason for them getting together.

But listening to each of the six chief executives at Thursday morning's breakfast launch of their report, "The Business Case for Early Action", each in turn nodded and gestured as if to say: "We can't afford not to be here". They were there because they believed there was "no choice". Not "no choice" in the sense the Environment Protection Authority had a figurative gun to their heads. "No choice" in the sense that they felt that somebody had to do this. Now. But do what now?

The report is the first attempt by the Australian business community to put together a series of business costings on climate change. The Roundtable's argument is based on the old proverb of "A stitch in time saves nine", or potentially more accurately. "An ounce of prevention is worth a pound of cure".

THE Roundtable hired Allen Consulting Group to run the numbers based on going ahead with the current political will effectively having a carbon pricing system in place by 2022 and an "early action" model that had the carbon pricing mechanism in place by 2013 by agreeing to the broad framework by the end of 2007.

The premise of the report is that if early action is taken, a severe round of pain will be spared later, some time around 2030. By introducing a carbon pricing mechanism in 2013, instead of 2022, cuts of 60 per cent of GHG emissions could be achieved by 2050. The cuts could be achieved if they started later, but it would be incrementally harder the longer it is left. The costs from having started earlier would not have added too much, but would have laid a valuable foundation for change.

The Roundtable argues that the immediate action required is a carbon pricing mechanism, in some form. Those companies who produce carbon should have to pay for that carbon as a disincentive to producing more. That is, the fastest way to learn the cost of doing something in this case polluting is to have some form of cost associated with it. If it becomes too expensive to continue in that form of business, the business will learn quickly to stop producing so much carbon, or it will go broke.

BUT how is it charged? Does it come in the form of a tax? Or is it a credit/debit situation where businesses which, for example, plant trees can sell their credits to those who are in debit, like power companies?

BP and Origin Energy are, therefore very, very interested side parties to a carbon credit system. For those two in particular, arguing for a carbon tax or "pricing mechanism" would add disproportionately to their costs, in comparison to the banks or insurers. Origin's King argues that having some certainty for his business on costs is imperative. There are billions of dollars of investment money at stake. Right now he has to make early investment decisions for the years ahead.

And if a company is putting up those dollars for exploration assets that they hope will last a number of decades power stations are built to last lifetimes they don't want to get halfway through to find a government changing the rules. "If small early steps are taken, then it will be far less disruptive a few years later," King says.

"It would be much better to see a slow steady measure of change taking place ... than leaving it for future generations to have to deal with in a real hurry." The Roundtable accepts that it will come in for some for criticism from politicians and their business peers.

Bring it on, they say. If the report does nothing more than start a few arguments, well, at least it got people talking again and hopefully a little more focused on their belief that the problem, sooner rather than later, needs to be dealt with. When the inevitable criticism came from fellow business people this week, King was effortlessly able to turn those criticisms into yet another powerful argument for change.