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Speech
Federal Minister for the Environment and Heritage
The Hon Dr David Kemp, MP

BT Financial Group, Sydney
Monday, 22 September 2003

Launch of: Corporate Sustainability - an Investor Perspective The Mays Report


Thank you for that introduction Shaun.

In addition to Shaun there are others that worked behind the scenes on both the report and today's launch. In particular, I'd like to acknowledge BT Financial Group, the Steering Committee and today's sponsors in helping bring the project to fruition.

I am very pleased to have been asked to launch the report. I see it as a challenging but important document for the financial sector to consider. Sustainability is a significant and long-term matter - and it is set to grow as an issue of corporate, and therefore investor, concern.

The Howard Government believes that economic policy and environmental policy are intrinsically related. A strongly performing economy enables us to address costly tasks of environmental remediation and repair. Equally, the wise handling of environmental issues underpins the long-term profitability of our industries and the quality of life we enjoy and hope to pass to our children.

The first condition for sustainability, therefore, is to ensure that our social and economic institutions are responsive, adaptable, and resilient in the face of continuing competition and challenge in a global economy. The fact that they have become more so as a result of the reforms of recent years has contributed to Australia's remarkable economic performance and social stability - conditions we must never take for granted. Underpinning our sustainability, therefore, is the freedom we enjoy, our market economy and the enterprise of our businesses. A strong economy is the means to creating social cohesion and opportunities for the future.

A resilient and vibrant economy generating increasing wealth empowers the Australian people to address the environmental challenges we face. On the back of a strongly performing economy the Howard Government is now investing record amounts to address our nation's key environmental issues - over $2 billion per annum on a whole of Government basis.

This is over double the amount spent in real terms on the environment by any previous Government in Australia's history.

There is the $2.7 billion Natural Heritage Trust and the $1.4 billion National Action Plan for Salinity and Water Quality.

This year has seen historic breakthroughs with an extra $500 million to underpin the sustainability of the Murray Darling Basin, and an extra $150 million to address land clearing in Queensland.

We are also spending a record $1billion on reducing greenhouse gasses and have established the world's only dedicated greenhouse Government agency - the Australian Greenhouse Office.

These programmes illustrate the second way in which environment and economy are interlinked. Environmental sustainability is recognised in national policy as the key to the sustainability and licence to operate of our industries. This recognition to a degree reflects, and to a degree has stimulated a sea change in cultural attitudes towards the environment. Today, the environment is at the centre of national debate. This has come about through an increasing general awareness of the world we live - particularly as incomes rise - and by programmes such as the Natural Heritage Trust which to date has directly involved almost half a million Australians in direct, hands on environmental projects.

At the political level environmental sustainability has become a whole-of-government issue. The Prime Minister leads the Sustainable Environment Committee of Cabinet and the Ministerial Oversight Committee on Energy. Together with national legislative reform s such as the Environment Protection and Biodiversity Conservation Act, the Howard Government has created institutional frameworks, which recognise that many of the major decisions of government raise sustainability issues. This means we are better placed to make balanced decisions that are good for Australia.

I don't want to dwell on the politics but it is important to remember that the Opposition and the Greens have opposed us at every turn in our mission for sustainability - they opposed the NHT, opposed the environment protection legislation, voted against improvements to renewable energy legislation, voted against the strengthened national heritage regime, and consistently oppose the economic and budgetary reforms which are helping to make Australia more resilient and sustainable. At the State level we are seeing continual undermining of the regional forest agreements which underpin sustainable forestry.

The Howard Government is particularly keen to work with the private sector in tackling sustainability issues, and I am pleased that we were able to play a role in the bringing the Mays Report together. But more important to me is that major financial organisations also chose to participate. This will help to bring sustainability into focus within a sector that has the capacity to be a driving force for sustainability policies in industry.

At the heart of the report is the issue of what value corporate sustainability can bring to investors, boards and managers. By taking a genuine 'market-based' rather than theoretical approach, the report sheds new light on the business case for corporate sustainability.

I am confident that the relationship between prosperity and good social and environmental governance holds at the company level, as it does at the national. Business is increasingly finding that the proper handling of social and environmental issues underpins profitability. An important aspect of the report is that it shows how companies are integrating environmental, social and economic interests to enhance shareholder value.

Certainly, the Howard government is very aware that a healthy economy and healthy environment go hand-in-hand. The substantial environmental repair programmes I mentioned earlier stem from this analysis.

Many environmental indicators show that Australia is facing considerable environmental challenges. The Government's State of the Environment Report, which I launched last year, shows that the degradation of lands and waters are a critical concern. Degraded natural resources not only distress important ecosystems, but also impact the viability of whole agricultural systems and rural communities and industries.

The cost of salinity to the community is significant, as some of the figures quoted in the National Action Plan for Salinity and Water Quality show. Just in regard to the attack of salt on infrastructure, more than $6 million is spent every year on building maintenance related to salinity in South Australia. Salinity causes $9 million damage annually to roads and highways in south-west New South Wales. Saline water damage to household, commercial and industrial water supply in the Queensland Murray-Darling Basin region makes up over 50 per cent of total estimated costs - approximately $20 million per annum.

On another tack, the further protection of the Great Barrier Reef can be justified simply on the need to protect its World Heritage values. But effective protection is also essential for sustaining the tourist and fishing industries that depend on it. In recognition of this the Howard Government is currently taking forward a proposal to increase the area of highly protected zones on the reef by 6 times their current levels.

What is clear from these and many other examples is that our understanding of the inter-relatedness of sustainability and the economy is deepening.

Within the sphere of industry and business, the immediate focus for many of you, the relationship between healthy economy, environment and society holds just as true. The environmental challenge is to essentially 'do more with less'. To use resources more efficiently, to recycle, to cut waste, to redesign products and so on. The case studies in the Mays Report show how this can be done to commercial advantage at both a company-wide and project level.

Investa Property Group saved $185,000, or over 16%, on energy costs at just one commercial property. This was done simply by reducing air conditioning operating hours, installing controls that more efficiently manage after-hours lighting, and refitting office space lights with energy efficient bulbs.

Global Renewables has won approval to build a new waste treatment plant in Sydney to 'mine the waste stream' to produce energy and fertiliser. The facility will recover 17,000 tonnes of plastic, glass, paper and metals each year, then will separate and clean the organic waste to produce renewable energy, and return the carbon to the soil as organic fertiliser.

The benefits emerging from Rio Tinto's Aboriginal Employment Program include a readily mobile pool of local employees living 'at home', enhanced locally based supply enterprises and the stability of local people 'managing their own country'. This will save considerably on operational costs and improve the interface of the company with the community. The BHP Billiton case study demonstrates how innovative thinking turned what was a hazardous waste into a revenue stream, and shows that environmental and financial 'win-wins' come from integrated thinking.

For Insurance Australia Group [IAG] weather and climate are core business issues. As a result Michael Hawker's company is investing in better understanding issues as diverse as the relative merits of different building materials to innovative car insurance products that might link premiums to fuel efficiency or distance travelled. I'll leave Michael to tell you more.

To a large extent the enviable lifestyle and wealth that most Australians enjoy has been built on the use of our country's environmental and social assets. It is now time for all of us - government, business and community - to recognise the full value of these assets.

I have made clear how the Howard Government is making this investment - both directly and through a range of other policy mechanisms. Furthermore, my Department has a number of partnership agreements with a range of industry sectors. I would welcome further discussion with the finance sector, and intend to continue the cooperation to date with other organisations such as the United Nations Environment Program Finance Initiative.

The Howard Government takes the challenge of sustainability seriously. As the Mays Report prompts you to do, business and investors need to consider how sustainability will impact at the company level. It would simply seem good risk management to do so.

An import insight the Mays Report brings to light is that much of the value to be derived from corporate sustainability is still under the category of 'intangibles'. As well as the opportunities to save costs and increase revenues, sustainability is proving to be a good way to improve a company's intangible assets such as brand image, supplier relations, appeal to customers and employees, and the development of new markets. It is well established that intangible assets are a valuable component of business. Some investors recognise that sustainability can be a lead indicator of future investment performance through its relationship to intangible assets and management quality.

Corporate environmental, or Triple Bottom Line [TBL], reporting is one way that businesses can communicate how they manage broader environmental and social responsibilities that aren't immediately reflected in financial data. Only around 10 per cent of the top 500 companies in Australia currently produce these reports. As the understanding of the linkages between the three dimensions of sustainability grows, I hope to see this number increase.

In June this year I launched a guide for reporting against environmental indicators. Copies are available here today along with the Mays report.

Conclusion

The Mays Report has found that Australia's investment community is yet to realise the full benefits associated with leveraging corporate sustainability information to better assess company performance.

In the broader business community the notions of Corporate Social Responsibility and the Triple Bottom Line are gradually becoming mainstream.

If sustainability information is disclosed by business and understood by financial markets, it has the potential to be a powerful force not only in driving sustainability, but also by providing greater confidence regarding company risk and return.

The investment community is a fundamental player in moving Australia towards sustainability. Analysts now have a growing set of tools to assess companies' sustainability performance. I encourage you to take notice of the issues which are canvassed in this report. As wider use and demand for sustainability information grows, business, society and the environment are set to profit - and those who manage their investments of course...

I commend the report to both the financial and business community. The calibre of the names involved - ABN AMRO Morgans, AMP, BT and IAG - means that it demands attention from the wider investment and business community.

And so, I'd like to officially launch The Mays Report - An Investor Perspective on Corporate Sustainability.

Thank you.

Commonwealth of Australia