It Pays to be Environmentally Responsible | BTalk Australia

Last Updated Jan 20, 2009 8:38 PM EST

Podcast

Ensuring your business is helping to protect the environment is not just about being socially responsible. Amanda McCluskey, head of Responsible Investment and Sustainability for Colonial First State Global Asset Management, tells Phil Dobbie that environmental sustainability measures can also help businesses reduce costs and improve the bottom line.

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  • Today's Transcript
Phil Dobbie: Hello, I'm Phil Dobbie. Does it cost too much for your business to be environmentally responsible or are there real financial returns from investing in sustainability? That's today on BTalk Australia. Since 1979, more than 20 percent of the polar icecap has melted away. All of a sudden, climate change has become a big issue and we'd all like to be socially responsible, but then again, business is business. It's going to cost you. Will our investors or shareholders thank you for spending money without getting a return? Amanda McCluskey is head of responsible investment and sustainability at Colonial First Global Asset Management. She joins us on the phone. Amanda, is this thinking a bit outdated, assuming that being environmentally responsible is an extra cost? Can we really see some payback?
Amanda McCluskey: Most definitely, and I think that's where the debate around sustainability issues, climate change and environmental issues has progressed. No longer are sustainability issues seen as costs to the business. Most often, companies who are managing environmental, social and governance issues, are actually managing their businesses a whole lot better and are most likely going to be more profitable over the longer term.

Dobbie: So where are they seeing the money coming back?
McCluskey: Energy use and the continued energy use is probably one of the biggest contributors to the climate change problem, especially in Australia, given that most of our electricity is from fossil fuels and is very carbon intensive. Now energy use is just a straight operating cost for most businesses. So any company that looks to take a proactive view on energy use and energy efficiency, will most of the time look to be actually managing and operating costs a bit better. Energy efficiency often isn't high up the list of things to be managed effectively because it's not a very large percentage of overall outgoings. But almost universally across the board, as companies look to reduce their greenhouse emissions and energy use, they end up reducing costs at the same time, improving margins and therefore making themselves more profitable.

Dobbie: But you said yourself I mean, for a lot of businesses, energy use is not a huge cost. Things like turning the computers off and turning the lights off at night, a lot of that would be tokenism, wouldn't it?
McCluskey: It is, but every cent counts at the end of the day. And an interesting statistic we were looking at: the computer users across the Commonwealth Bank --- just by automatically getting the computers to shut down each night, the estimated savings was going to be a million dollars across the organisation. Now that's reflective of the scale of our organisation, but every cent counts and in some small or middle-sized businesses, it is a material outgoing. It's amazing how inefficient some operations are and how many savings can be made. And there're other things you can do which might have a bit of a longer payback, but investment in videoconferencing-type technology and some of the web-based technologies also allows you to reduce travel and flights; that reduces costs, but also reduces greenhouse emissions significantly as well.

Dobbie: You know we've been talking about telecommuting for it seems like decades now --- maybe over the next few years it'll become more of a reality in the workplace.
McCluskey: I think before you look at the press over the last few days in relation to the fuel costs, I think those weekly trips interstate for business might eventually become a thing of the past.

Dobbie: Now could PR have a bit of an impact as well? You know the company that does the right thing will secure more business because they get the trust of customers more? Conversely, we had the example recently of a bank that indicated it's going to pull out of a sizable investment that some people see as being quite controversial down in Tasmania.
McCluskey: Yes.

Dobbie: And so PR I guess has got a role to play as well.
McCluskey: Yeah. We like to call it social licence to operate as opposed to PR. PR gives you this indication about advertising, whereas for us as investors, when we're looking at companies we look to invest in, we look at companies that are doing a good job managing their social licence to operate. And by that we mean they're managing the expectations of the stakeholders for their business. It can potentially impact their ability to deliver on that business plan. So if you're a company that's got a lot of Gen-Ys working for you, clearly that generation is very concerned about climate change and climate change issues. And if you're able to demonstrate that as a business you're proactive in terms of how you're managing those issues, you're going to make those employees feel better about working for your business. In a shrinking labor market it's difficult to get people and it's even more difficult to retain people. So anything you can do to differentiate yourself in the market, will allow you to have better licence to operate in relation to the stakeholders that are it's very important to the delivery of your business.

Dobbie: So how do different industry verticals perform? For example, is the finance and investment industry, are they sort of leading in this area or are there other areas of business which are more socially responsible?
McCluskey: From the investment perspective, the Australian funds management community, investment community, has embraced this concept of sustainability being a mainstream investment issue. The most recent development has been in the United Nation's principles for responsible investment and there are more fund manager and superannuation fund signatories to the UN principles than any other country in the world. Now the reason that these investors have signed up to the principles is because they believe that sustainability issues have the potential to impact the profitability and the returns of their investments, and so they've made a commitment to integrate the consideration of sustainability issues into their investment process. Now this is not about socially responsible or ethical investing, this is not about taking a moral or ethical view in relation to a sector or stock or company, it's about making the best possible investment decision by looking at how a company manages its operating costs, and energy use is one of those. About looking at how a company manages its licence to operate. How it engages its employees in its community and the stakeholders more broadly. Because these things, at the end of the day, are financial issues that will impact the performance of companies we invest in.

Dobbie: Right. Now if I'm a small business and I'd like to try to cut costs and I'd also like to do the right thing and be socially and environmentally responsible --- other than some of the things we've talked about --- is there somewhere I can turn for advice and help in terms of improving my business, that goal of being a carbon neutral business for example.
McCluskey: Yep, there is a plethora of calculators out there that are freely available on different web sites. I think the Australian government has one, and it's specifically designed for small businesses, where you can actually go through and look at your overall business and look at carbon intensity of that business. Because you've got to remember, it's not just the direct emissions that you may have through using your electricity or your flights or your car fleet, there's also carbon component embodied in a lot of the products that you buy. So if you're a construction company, for instance, and you use steel and cement, there's a lot of carbon embodied in those products and with the carbon trading scheme coming into place, it's likely that the cost of those products will increase. So you also need to think about the carbon intensity of the supply chain and what that will do to your costs over the longer term. There's lots of literature out there. The Investor Group on Climate Change has some research on their web site as well and the carbon disclosure project is a good point of reference to see what other companies are doing in relation to the management of carbon and climate change risks, and see how those things might be relevant to your business.

Dobbie: You said the investment community, the Australian investment community, has embraced the UN's principles and has more signatories than any other country in the world. What about Australian business generally? How do we compare with the rest of the world when it comes to sustainable business practices?
McCluskey: It's always a difficult thing to, to compare. Because when you're actually in the Australian market looking at Australian companies, you form a view and we're not as close to what the real performance of companies is internationally. But what I can say is that Australian companies have dramatically improved their communication and approach to sustainability issues. I think once it was just about corporate social responsibility and sustainability was usually in the donations department --- focused on donations, charitable programs. Now sustainability's increasingly moving into the strategy areas of the organisation and higher up the hierarchy. Key executives are recognising that these sustainability issues are critical to the long-term profitability of their business and we're seeing the evolution of the concept from corporate social responsibility through to long-term profitable sustainability.

Dobbie: So it sounds like a healthy future, Amanda, now that people are starting to recognise their environmental responsibility is part of the bottom line. We can only assume that more and more businesses are going to embrace it.
McCluskey: Yeah, I think we will. It will be interesting to see in the tougher times, if the approach to sustainability issues are as proactive. Because people may look to focus on some shorter-term issues. But I think with the growth, one of the drivers is really the growth of superannuation funds under management in Australia. Superannuation funds, by their very niche, are a long-term focus. They've got long-term liabilities, most of us aren't retiring for a number of years now. So when they manage their investments across the whole Australian economy and even a global economy, they're looking to take a longer-term view. That means, ultimately, they will reward companies and investment managers who also take that longer-term view and have an alignment of interests that's in long-term profitable growth.

Dobbie: That's great news. Thanks, Amanda. Thanks for your time today.
McCluskey: Thank you.