Sustainability of the Commons

With the black clouds of the GFC looming upon us at the start of 2009, we were cornered to ask some big questions. So what of business sustainability? Is it still important?

Would businesses still seek to be green, or would the sustainability budget be one of the first to be cut? But, we were optimistic. In 2008 we noted that ‘Our feeling is that there will be some natural attrition of sustainability ‘excess’. However, for the large part, there will be retention of sustainability capacity and programs. This is due to a mix of regulatory and competitive drivers that are now in place, compared to say the last stock market downturn in the late 80’s....This [emissions trading] scheme in itself will retain much of the sustainability capacity that has been built within business over the past decade.’

Well, unless the credit crunch is still coming, we weren’t far off the mark. Hardly any of our clients were re-trenched. None of the normal level of voluntary activity around sustainability diminished – sustainability reporting grew, the level of carbon disclosure continued to grow, companies did not back away from the level of voluntary benchmarking programs they participated in and there was much more focus on greenhouse given the mandatory requirements of the NGER Act.

However, not all news was positive. The Carbon Pollution Reduction Scheme (CPRS), which aims to establish an emissions trading system in Australia, was brushed aside for the second time by the Senate in early December, in the eve of Copenhagen. Under new leadership, the scheme was rejected as a ‘tax’ that would cripple Australia’s international economic standing.

In Net Balance’s view, it is disappointing that the CPRS did not get through. The design of the scheme is not perfect, but it represents a step in the right direction. Putting a price on carbon is widely agreed to be the most efficient and effective way of mitigating climate change, and would also give business and investors some certainty over an issue that seems to be postponing the inevitable.

This is because free market economic mechanisms ignore the benefits we derive from the natural environment, instead considering it a ‘public good’ – providing us with clean air, water, resources and waste disposal services at no cost. But, of course, there is a cost to maintaining the quality of these facilities, and it is one that is borne by the general public through remediation tax payments and our diminished ability to personally enjoy the natural environment. An emissions trading scheme will help to correct this market failure by enforcing the ‘polluter pays’ principle.

In the short term, transitioning to a low-carbon economy will create winners and losers. That’s the idea – to stimulate demand in low-carbon products and services and to incentivise businesses not to pollute. Some products will become more expensive. We will need to work hard to make the transition as easy as possible for the most vulnerable people in our communities. But these challenges should not stop us from making the changes we need. It will also put us ahead of the race to become a low carbon planet.

Most of the businesses we talk to acknowledge that the real threat to their existence is unchecked long-term climate change, not the short-term restructuring that an emissions trading system will bring about. What they’re looking for is certainty, so they can get on with what they do best. The Government will seek to pass the CPRS one more time, in February 2010. It would be a step in the right direction if it were to get through.

On the international scene, it was disappointing, to say the least, that all Copenhagen produced was a non-binding pledge to keep potential warming below 2 degrees. There has been much said on this topic, pointless being repeated here. Net Balance’s view is that the principle of the tragedy of commons still seems to stand – and similar to the past instances of solving this dilemma, we believe the answer is in market-based mechanisms supported by culture change and leadership. We think the answer lies in human value systems and that we must all dig deep to find that the commons is where our heart is, where the fundamentals of good business, good communities and good environment is borne.

Terence Jeyaretnam Founding Director, Net Balance.