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"Growing a Sustainable Economy."


An address to the
CEDA 'State of the Nation' Conference
by the
Federal Minister for the Environment and Heritage
Senator the Hon Robert Hill
Canberra
June 22, 2000

In recent weeks we have seen the reappearance of former corporate high-flyer Alan Bond, starring in a television advertisement for an internet employment service. For many, Bond's re-emergence has been an uncomfortable reminder of the corporate excesses of the 1980s. The revelation that Bond was paid in return for his so-called apology to the Australian people was in itself an echo of the 'greed is good' credo of that decade.

The mid-to-late 1980s saw an unprecedented boom in the Australian economy. The sharemarket value of some of our largest companies quadrupled, sometimes in the space of less than 12 months. Our banks, with their first taste of deregulation, went on a reckless lending spree which further fuelled the sharemarket boom. Entrepreneurs and the so-called corporate raiders were the beneficiaries of much of this financial largesse, the boldness of their takeover bids dazzling the banks, the markets and the general public.The then Labor Government made serious misjudgements in not bringing down a tighter 1987-88 budget and in its failure to appreciate the consequences of the explosion in credit growth.

But despite the spectre of rising interest rates and unemployment rates hovering above 8 per cent, the economy continued to grow. Not even the share market crash of October 1987, which wiped $9 billion off the value of Australian companies in a single day, could dampen the boom. Bob Johnston, the Reserve Bank governor at the time, summed up the prevailing mood of corporate immortality in Paul Kelly's End of Certainty:

"The fact that we got through the sharemarket crash simply emboldened people to go further. They started to say 'We can live through anything....This is a great country. Let's keep expanding'."

While the 1980s boom may have been unprecedented, history has shown that ultimately it was unsustainable. Investors and taxpayers alike paid the price. It has been estimated that Australian investors lost $8 billion through the failed ventures of entrepreneurs. Taxpayers, meanwhile, were left to pick up the bill for the bailouts of major banks - in my home State of South Australia that topped $3 billion. Ultimately, the Australian economy and the general community shared the cost of the excesses of the 1980s through the severe recession of the early 1990s.

The lessons learned from the 1980s were both harsh and costly. It would be inconceivable to think that the same mistakes could occur again today.

Our government, for its part, has worked hard to return the budget to surplus and to provide a low inflation-low interest rate environment for business to expand and employ. Under our management the fundamentals of the Australian economy have been strong enough to withstand the worst of the Asian economic crisis. We are delivering a major reform of the Australian taxation system - reform which will further underpin the fundamental strength of our economy. The corporate sector has enjoyed record profit growth, exports are up as the Asian economic crisis subsides, and unemployment is down.

So it would appear that unlike the 1980s, our economic growth and the growth in the value of our major companies is sustainable - at least in a financial sense.

But what of the social and environmental impacts of our actions?

Can the growth of our industry and the growth of our nation be judged to be truly sustainable without considering the consequences of that growth on our natural environment and our social structures?

In the 1980s boom, the banks, the sharemarkets, governments and the media turned a blind eye to the dire financial risks and paid the price. In contemporary terms, we must ensure that today's positive growth is not at the expense of our environment or our society.

The consequences of unsound financial practices - whether it be at a government or company level - usually become apparent in the short term. The sharemarket crash of 1987 and the recession of the early 1990s are proof of that. These consequences can be readily measured in dollars lost, creditors left unpaid, production plants closed, lost jobs, and so on.

But the consequences of unsound environmental practices are not always immediately apparent.

For example, Australia faces a massive problem in dealing with dryland salinity. It has been estimated that a land area half the size of Victoria is already at risk of being rendered useless by dryland salinity. Late last year, the Murray Darling Basin Commission released a salinity audit which showed that within 20 years the drinking water for Adelaide would not pass World Health Organisation standards on two days out of every five.

Both of these problems are the result of the cumulative impact of inappropriate natural resource management practices stretching back over the past 200 years - unsustainable broadscale clearance of native vegetation and the over-allocation of water from our river systems.

Even now that the dire consequences of our past actions have become apparent, can we truly say we have learned the lesson?

Earlier this year I addressed Queensland landholders, urging them not to repeat the mistake of overclearing that had already been made by farmers in other States. Their general response appeared to hauntingly echo the false sense of immortality from the 1980s I spoke of earlier: "We can live through anything....This is a great country. Let's keep expanding."

Meanwhile, despite the mounting scientific evidence of a salinity crisis within the Murray Darling Basin, the Queensland and New South Wales governments are still dragging their feet on the effective implementation of a Cap on water diversions from the Murray Darling.

As I mentioned earlier, investors lost an estimated $8 billion in the 1980s boom. Today, the cost of degradation of Australia's resource base by soil degradation, salinity and biodiversity loss is estimated at $2 billion a year - an annual figure which is expected to continue to rise. So if we started counting this evening, within four years from now we would have lost a similar amount to that lost by 1980s investors.

In the same way that the consequences of the 1980s boom forced us to rethink the way we do business, particularly so for the banking sector, so too should the environmental consequences of our present actions.

And while it is easy to illustrate these environmental consequences in relation to primary industries such as farming or fishing, the broader business community needs to understand that it too must play a part if Australia is to move its economic growth patterns to an ecologically sustainable basis. Actions in relation to greenhouse reduction are but one example. A parallel can be drawn between the on-set of the salinity crisis and the challenge we now face with global warming.

Constitutional responsibility for land management rests with the States. Despite warnings to the contrary, unsustainable landclearing and the over-allocation of water from key rivers have continued in some States. It is somewhat ironic to now hear those States, having refused to heed the Commonwealth's warnings, now criticise the Commonwealth for not coming up with the funding to fix the problems.

Similarly, in Kyoto the Commonwealth achieved an outcome that was supported and applauded by both the States and industry. Again, decisions about developments which will affect Australia's ability to meet that target lie primarily with the States, not the Commonwealth. And again, the States and some industry groups are telling the Commonwealth to "butt out" of that decision-making process, despite our concerns about the national interest in meeting our obligation and the impact these decisions will have on the global environment. The States and industry will no doubt make their decisions on the basis of short-term economic gain. But like the salinity problem, one day Australia will be brought to account for its actions. Again I suspect that on that day of reckoning, the States and industry will be looking to the Commonwealth to foot the bill.

I can't help but think that it would be far more sensible to take precautionary action at today's prices, than to have radical measures forced upon us at a future date - at a future, and no doubt, inflated price.

The challenge facing our decision makers today is to deal with the environmental problems of the present while taking the precautionary actions required to avoid or minimise the problems of tomorrow.

Already leading environmental thinkers are arguing that within the coming decades, for the world to sustain its growing population, we will have to double our output while halving our resource use.

The challenge of doing more with less is not a new one for industry. The significant increases in labour productivity over the past decades are proof of this.

These increases have required innovative approaches to work practices, investments in new technologies, better training of staff, redesign of workplaces and the like. These measures have delivered significant benefits to bottom line profits.

The challenge of delivering greater resource productivity will require similar actions and investments and will also contribute to a better bottom line. Many companies and industry sectors have already made a start down this path to the future.

Earlier today I attended an event with companies from the construction industry who are members of a cooperative partnership with the government aimed at cutting resource use and reducing waste. While a national target had been set to achieve a 50 per cent cut in waste by 2000, construction companies involved in our Wastewise program have achieved recycling rates of up to 87 per cent. It is estimated that up to 40 per cent of all landfill comes from construction sites. So this level of waste reduction will have major benefits for the environment while delivering significant savings to the companies in resource and waste management costs.

The concept of seeking to improve profits by reducing resource use and cutting waste should, logically, be attractive to all industries.

Our government is working with industry to increase awareness of the environmental and financial benefits of this approach and the broader concept of "eco-efficiency". Eco-efficiency requires a company to look at the entire life-cycle of its product, including identifying how their suppliers can contribute to resource and waste reduction. It acknowledges that cutting waste and reducing resource use are not just factors in the production process. It recognises that there are environmental implications both during the use of the end product and then in the disposal of the used good. Most importantly, eco-efficiency encourages companies to rethink the way they do business. It requires companies to use a range of tools and adopt new business disciplines to achieve eco-efficiency. These include environment management systems, public environment reporting, environmental accounting, product stewardship and, as I've already mentioned, life-cycle assessment.

Around 100 Australian companies are already publishing annual public environment reports. Our government would like to see even more follow this lead. We have established a national framework to encourage the uptake of public environmental reporting and have helped fund staff in major business organisations to achieve this end. Public environment reports are used by companies to create greater confidence within the community about their environmental performance and also to serve as an internal check of the efficiency of the production process - identifying problem areas and the potential for gains from better resource use or waste reduction. They are a major step toward ensuring that the growth of an enterprise is sustainable in an environmental as well as a financial sense.

While our government has adopted a cooperative approach with industry in the move toward ecologically sustainable development, we are conscious of our national responsibilities. We have provided leadership both in terms of the provision of an effective legislative framework and in the development of natural resource management policy.

Next month, the new Commonwealth Environment Protection and Biodiversity Conservation Act comes into force. It represents the most comprehensive overhaul of environmental legislation ever undertaken by the Commonwealth and has been hailed as being among the most innovative of its kind in the world. The Act clearly defines for the first time the Commonwealth's areas of responsibility in relation to the environment. It also provides major benefits to industry through a clearly defined assessment and approval process. Most importantly, it embodies the principles of sustainable development.

We have also shown world leadership in environmental policy development. Our government has unveiled the world's first National Oceans Policy which aims to ensure the mistakes we have made in the management of our land resources are not repeated in our marine environment.

We have established a high-level ministerial task force to develop a national resource management strategy. The task force is addressing the institutional and market failures which have led to the degradation of our land-based resources. This taskforce will make its first report to Cabinet next week. Already it is apparent that a greater effort and commitment will be required from State governments if we, as a nation, are to effectively meet this challenge. While land management issues remain the Constitutional responsibility of the States, we cannot afford to delay or water down the actions required of the States to address these problems. The States should clearly understand that the time for motherhood statements or "feel-good" statements of intent has long passed. The evidence is that the States, to date, have not been up to the challenge. The Commonwealth and the general public must consider how much longer the environment can afford this situation to continue.

Finally, apart from the financial and ecological impacts of development, Australia must not lose sight of the social implications of our pursuit of economic growth.

Industry makes a major contribution to our social cohesion by providing work for our people. Through the various taxes it pays, industry contributes to our health, welfare and education systems - another significant contribution to society. Over the past week, however, The Australian newspaper has run a series of articles questioning whether all Australians are sharing in the benefits of economic growth. It has presented evidence that the gap between rich and poor is widening. While I would argue that our social capital has increased in parallel with our economic capital, as demonstrated by the falling unemployment rate, we must nevertheless be aware of the danger of some within the community being left behind.

What I am suggesting is that we need to broaden the way we define growth and success. We need to develop business disciplines which take into account the financial, ecological and social impacts of our actions. These three elements must be at the core of our decision making processes, both as governments and industries. This concept has become known as the triple-bottom line.

In triple bottom line accounting, the social and environmental costs are just as significant in determining the worth of an action as is the financial benefit. It helps us assess the net value to society of an enterprise. We will only achieve truly sustainable development when we strike the right balance between the economic, social and environmental values of our actions.

In just 9 days time, Australia will adopt a new tax system. There can be no question that the preparations for the implementation of this system have been both costly and difficult for Australian businesses, both small and large.

And yet industry has embraced the change as being vital to the continuing fundamental strength of the Australian economy.

Likewise, the move toward triple bottom line accounting will be difficult to achieve. Apart from overcoming the empirical difficulties of bringing together established measures of social, financial and ecological impacts, it will require a radical change of culture within our boardrooms, our markets, and our community.

But just as we all recognise the inherent need for tax reform, the concept of triple bottom line accountability is vital to the future economic growth of our nation, the protection of our environment, and the well-being of our people.

For those of us who are not yet reform fatigued, it remains Australia's next great challenge

Commonwealth of Australia