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Achieving the Triple-Bottom Line

An address by the
Federal Minister for the Environment and Heritage
Senator the Hon Robert Hill
to the
John Stuart Mill Society
June 13, 2000

On April 7, 1998, the Australian stevedoring company Patricks locked-out and dismissed its workforce of around 1,700 workers. What was to follow was one of the most bitter and hard-fought industrial disputes the nation has seen. None of us took comfort from the dismissal of workers, but we understood what was really at stake. The Howard Government had committed itself to a long overdue reform of the waterfront, seeking to increase workplace productivity and lift the competitiveness of Australia's exporters by delivering a more efficient waterfront. The maritime unions had blindly obstructed that reform - reform which was clearly in the national interest.

For liberals, there was also the core philosophical issue of freedom of association - the right to work while choosing not to join a union.

But the question I would like to pose this evening is whether an industry would have been prepared to take such radical and decisive action if it was their environmental performance and not their economic performance which was at stake?

Would a government be prepared to give such strong support if what was involved was a better environmental outcome as opposed to an issue of improved labour productivity?

As liberals, would we rate the state of the environment as being as strong a philosophical justification for intervention as freedom of association?

And if not, why not?

Fast forward to May 9 of this year and the handing down of the Howard Government's fifth Federal Budget. For the fourth year in a row, the Coalition had delivered a budget in surplus. But the financial markets weren't immediately convinced with the Australian dollar dipping on news of the surplus. Arguments immediately began to rage about whether this year's surplus was in fact a structural surplus or whether the government had used the sale of an asset to improve the budget's bottom line.

But what about our nation's natural asset base? If we accept the estimate that degradation of our natural environment costs us $2 billion a year, why does that not seem to be factored into the financial market's assessment of our economic performance? In fact most of the economic measures - such as Gross Domestic Product and Balance of Payments - that governments, industry and the financial markets use to assess our national performance, pay no attention to the state of our natural capital base.

In a similar vein, do we ever see the share market factoring in environmental impacts when it makes judgements on a company's profit performance? We have seen in the past the morally disturbing situation of major corporations announcing the shutdown of operations, costing the jobs of thousands of workers, and their share value jump in response. Have we ever seen a company's share price jump in response to the implementation of good environmental policy?

If we looked at the annual financial statements of our major companies, we would see financial values allocated to items such as capital equipment, buildings, inventory and other assets. We would see revenues from sales and expenses for labour, marketing and other items. We would also see figures relating to expenditure on resources for the production process. But how many of these financial statements would include an analysis of the health of the natural resources upon which the company relies?

Our agricultural industry provides the most obvious example of how misleading the concept of productivity can be in judging the long term viability and health of an industry. For decades we considered productivity in the agricultural industry to be based on how much produce could be obtained per hectare of land. Equal attention was not given to what impact that increased production was having on the health of the land itself. We are now seeing the results in terms of degraded soils and rivers and the ever-growing problem of dryland salinity. In generating profits, the industry has run down its natural asset base to the point where it is now costing the nation hundreds of millions of dollars each year in lost production and will take billions of dollars to repair.

All of these examples - from the waterfront dispute to the crisis facing our primary producers - underline that while the environment is now a mainstream political and community issue, there is still a long way to go before it becomes a core part of our economic decision making processes.

The Howard Government, through sound and responsible management of the economy, has delivered economic growth and helped in the creation of almost 700,000 new jobs.

But economic growth is not an end goal in itself. Our community also expects social cohesion, a sound and fair welfare system, adequate health and education services and, of course, a healthy natural environment. So we have sought to deliver reform in all of these key areas. In the environment, for example, we established the Natural Heritage Trust which has already seen $870 million invested in almost 9,000 projects across Australia. But, as I said, all too often our performance as a government is brought down to an individual economic statistic - the budget surplus, the latest economic growth figure, the current account deficit, and so forth.

If we are to move our economy to a truly sustainable basis, we must bring about a change in culture within both Australian industry and the broader community. As liberals, we must develop a culture where the environmental value and social value added by an action is as significant in assessing its worth to the nation as the economic value it brings.

This is the concept we know as the triple-bottom line. It's the traditional bottom line economic profit of a company, with the added dimensions of social and environmental accountability.

If anyone in politics should be interested in triple bottom line accounting, it's liberals. Liberalism is all about freedom of choice - freedom to take a course of action to achieve one's social goals. We are, in essence, limiting or decreasing the freedom of choice of future generations if today's economic freedom comes at the expense of degrading the natural environment.

We are also not providing freedom of choice if the broader community does not share in the fruits of economic expansion funded by reducing government interventions in the market.

As the Prime Minister told our recent National Convention, we don't seek economic growth for the sake of economic growth but to better provide for people's needs and aspirations.

This is consistent with the concept of being responsible for the triple bottom line effect of our actions.

While it appears on the surface to be a reasonable and logical concept, putting it in to practice throws up some obstacles. The reason why we've always seen growths in terms of economics is that it is easy to place a monetary value on things such as goods produced or increases in prices.

How do we transpose such measures on the environmental and social consequences of our actions?

We already have come some of the way in overcoming these empirical problems. As I said, we have established measurements for economic values. Much work has also been done both in Australia and overseas to establish a credible range of indicators to measure the health of our environment. Next month we will be hosting a conference of the International Society for Ecological Economics and an Environmental Economics Roundtable to further progress this work. The UN, among others, has done work to establish benchmarks and measurements for social conditions, including labour standards.

The challenge we face in developing the concept of triple bottom line accountability is to bring all three areas together.

For example, an old technology lead smelter brings with it obvious economic benefits. It is easy to measure the output of the smelter along with the costs involved in operating it. The smelter also brings a social benefit to the community by providing jobs - again a factor which is easily measurable. But what of the smelter's long term impact on the health of the population, in particular the children? In terms of the environment, how do we incorporate the greenhouse gas emissions caused by energy use at the smelter into the company's bottom line performance? At which stage do we make the judgement that the long-term negative social and environmental factors might outweigh the short term economic benefits?

Striking the right balance between the economic, social and environmental values of our actions is the essence of sustainable development. But in attempts so far to achieve this, it appears that old habits die hard. Whereas the OECD has developed programs to guide its members on policies to achieve sustainable growth, it still couldn't bring itself to amend its own charter to replace the goal of economic growth with one of sustainable growth.

Similarly, the World Trade Organisation with its goal of achieving growth by reducing protectionism has not been able to factor in the cost of this policy to the natural resource base. Should environmental and social safeguards be written in to the WTO rules? Now both the US and the EU say yes.

The first step in embracing the concept of the triple bottom line must be the acknowledgment that sustainable development does not mean that companies should abandon the goal of profitability. In fact by forcing industry to focus on the long term security of its natural resource base, triple bottom line reporting can help ensure industries remain profitable into the future. The fishing industry, for example, could make record profits in the next few years by increasing its take in sensitive fisheries. But if the resource is overfished now, the industry will ultimately suffer in the long term. The communities and regions the industry supports will also pay the price.

Likewise, forcing an industry to focus on its social impact can potentially save it money down the track through avoiding class action suits and save the community costs in terms of avoiding increased demand on health and welfare services. Social performance can also affect consumer attitudes to a company.

But sustainable development cannot be allowed to become just another motherhood statement or slick marketing tool - something everybody says they believe in but always find excuses to avoid implementing. True sustainable development demands that an enterprise be financially profitable, must minimise or eliminate its negative impacts on the environment, and must conform with the expectations of the society it serves.

The clear message we should be hearing is that the goal of growing the economic pie is going to be insufficient in itself for the future. A larger pie will be assessed as only one element of success. The community wants the costs of growing the pie to be taken into account. And they want to see that it is benefiting the broader community.

I think it's fair to say that Australia has been a little slow in understanding this new reality. It is important that as liberals we are in the forefront of changing that situation.

I'll give you two topical examples of these issues.

Global warming is the first. If the way we have traditionally expanded our economies - by burning more carbon - has resulted in 40 per cent of the polar ice cap being lost in the last 10 years, then something is clearly wrong. We don't know the full consequences of global warming but there is sufficient evidence to demand a more energy efficient economy - emitting less greenhouse gases per unit of production. And it also may cost a bit (at least in the short term) in economic growth.

Trade in living modified organisms is the second example. The development of living modified organisms might increase productivity. The orthodox view is therefore that uninhibited trade in such organisms will increase global growth. Obstacles to that trade are therefore frowned upon. However what if one fears the consequences to the natural system of meddling with the checks and balances of nature to the extent of implanting a gene from a fish in a tomato to enhance its properties to withstand frost. Reverse the situation and the fish is to be released into the environment with new qualities. Shouldn't the trading partner receiving such an altered organism be able to say 'no'? Only, argue those who give higher priority to economic growth, if it can be proven that the release will cause damage.

There is no room for the precautionary principle because it might be a trade barrier in disguise. If we are to so dramatically risk degrading the natural system, shouldn't the precautionary principle prevail?

While it can be argued that as a nation we've been slow to respond, our government has taken steps to bring about a shift in the way Australia does business. Early next month our new Environment Protection and Biodiversity Conservation Act will come into force. This Act embodies the principles of sustainable development.

It provides substantial benefits to industry in terms of certainty of process and elimination of duplication of effort between different levels of government, while for the first time giving the Commonwealth a clear and defined responsibility for matters of national environmental significance. In assessing the environmental merits of a project, the minister is also required to take into account their social and economic benefits.

We are also encouraging the fledgling moves of Australian industry toward the concept of public environmental reporting. Already around 100 Australian companies publish annual environmental reports. Shareholders and the general public are given an insight into how the company treats its environmental responsibilities creating greater community confidence in the company's operations. They are also useful as an internal check of the environmental efficiency of the production process, leading to potential improvements and cost savings. Our government has published a national framework and helped fund staff in major business organisations to increase the uptake of environmental reporting.

Similarly we have developed and are promoting other tools to assist companies in reducing resource use and creating less waste. Through the concept of eco-efficiency for example, companies begin to look at the entire production cycle of their product, including identifying how their suppliers can contribute to resource and waste reduction.

Again, our government has already achieved success with the packaging industry on this whole of life cycle assessment process and is now working with the construction industry. We are seeking to promote eco-efficiency to all industry sectors in Australia.

I began this evening by posing the question of whether governments, industries and even communities would support radical intervention to deliver such increases in resource productivity, as opposed to labour productivity.

I hope that we never reach that situation. Rather than relying on a radical physical intervention what we require instead is a radical change of culture and thought processes both within the market place and within the broader community.

The market may be the best mechanism to deliver good and services effectively in the short term, but in-built distortions, particularly in the way we ignore the costs of inappropriate resource use, will have severe implications in the long term for the supply of those goods and services.

We need to learn to respect and value our natural capital as much as we pay heed to our economic assets. And we need to understand how our seemingly insatiable thirst for goods and services is impacting on both our natural environment and the quality of life in our society.

While we continue to ignore the social and environmental aspects of production and wealth, the bills for degradation of our soils and waterways, the increased pollution in our cities, and the increased costs of health and welfare services, employee absenteeism and social dislocation will continue to mount.

Without a commitment to rethink the way we do business and the way we judge success, this will be the legacy we leave to future generations.

Commonwealth of Australia