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The Role of Australia's Financial Sector in Sustainability

PriceWaterhouseCoopers, 2001


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Executive Summary

Sustainable development and the finance sector

The finance sector has the potential to promote the principles of sustainable development through its lending insurance and investment activities, as well as its internal policies and processes. Internationally, financial institutions have begun to respond to this opportunity by actively participating in global forums, developing and promoting socially responsible investment products and greening their internal operations.

Purpose of the study

Recognising the growing opportunities for the finance sector to contribute to sustainable development, the Minister for the Environment and Heritage commissioned this high level study, which aims to:

This study was conducted over a three week period, with the support of an industry advisory group and gives an overview of recent developments. It provides a basis for further discussions between government and business on enhancing the role of the Australian financial sector in sustainable development.

For the purposes of this study we have adopted the definition of sustainable development used by the World Business Council for Sustainable Development:

'...the delivery of competitively-priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the lifecycle, to a level at least in line with the Earth's estimated carrying capacity.'

Study findings

International developments

The findings of this study indicate that leading international finance sector organizations are responding positively to sustainable development and, in the process, enhancing stakeholder and shareholder value. Financial institutions in North America and Europe are involved in the following activities:

Notwithstanding the above developments, a significant barrier to the further contribution of the finance sector to sustainable development is a prevailing view held by financial analysts that environmental and social risks, whilst important, are not material to company financial performance.

Australian developments

Our findings indicate that in many respects the interface between the finance sector, industry, government and advocacy groups in Australia in relation to sustainable development mirrors the trends in the international arena. In some areas however the Australian finance sector is not as advanced as its international counterparts:

Barriers and Challenges

There are number of barriers and challenges unique to Australia which explain why the finance sector may not be as advanced as its North American and European counterparts in responding to sustainable development. These include:

Opportunities for further development and recommendations

In the context of the international trends outlined in this report and given the extent of some of Australia's sustainable development challenges, there are a number of key areas that could be addressed to further engage the finance sector. The most important of these are:

Finance sector industry commitment and awareness

In addition to the initiatives currently undertaken by individual finance sector organisations, there is scope for the finance sector as an industry to evaluate its role in sustainable development. The objectives of this would be to:

Recommendation 1 - the Commonwealth Government should encourage the financial sector to provide continued support to the Australian UNEP Financial Initiative, thereby demonstrating its commitment to the principles of sustainable development.

Materiality

There is a need to increase the awareness in industry and the finance sector about the growing body of evidence that shows a positive relationship between improved environmental and social corporate performance and financial performance. There is also a need to develop case-study material to demonstrate this in the Australian context.

Recommendation 2 - the Commonwealth Government, in association with the finance sector and industry, commission specific academic research into the financial value for business of investments in sustainable development in Australia.

Environmental and social disclosure

Noting the international trend towards increased voluntary public reporting and in some instances, mandatory disclosure, additional consultation between government, industry and other stakeholders should be pursued to identify an optimal reporting and disclosure regime.

Recommendation 3 - the Commonwealth Government, in consultation with key stakeholders (the finance sector, industry, ASIC, the ASX, the accounting profession, state EPAs and peak environmental groups) should commission a review of the excisting mandatory and voluntary environmental and social disclosure requirements, in order to establish an optimum reporting and disclosure regime.

Performance metrics

To ensure that environmental disclosure by industry addresses the information requirements of the financial sector, there should be closer dialogue between financial analysts and industry.

Recommendation 4 - the Commonwealth Government, should establish a working group to investigate ways to enhance the relevance of public environmental and social disclosure for use by financial analysts.

Management and reporting

International financial institutions are adopting company-wide approaches to environmental, and increasingly, social issues management, in order to demonstrate their commitment to sustainable development and differentiate their services.

Recommendation 5 - the Commonwealth Government should work with the UNEP Financial Initiative's 'Operational Environmental Management' advisory committee to develop ways of promoting the adoption of environmental/social management and reporting guidelines by financial institutions.

In outlining the above recommendations we acknowledge that the Commonwealth Government will need to consider how it will expediate the carriage of these. Additionally the government will no doubt wish to develop a vision of the outcomes it would expect from the further engagement of the finance sector and ensure that it can appropriately foster that relationship.