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The following is the text of Tessa Tennant's speech , the last of the Millennium Lectures hosted by the Prime Minister and Cherie Blair at 10 Downing Street.
© Copyright Tessa Tennant
BUSINESS ALARM CALL
by Tessa Tennant UK expert
on socially responsible investment
Ladies and Gentlemen. It is a great honour to give the last of Cherie Blair's Millennial lectures. Truly a milestone occasion especially when the subject is the environment. We are living through an age in human history where we can not say 'we did not know' about the destruction and wasting of the world's natural capital. Yet our actions are still so limited. Dare I say it, but on the subject of climate change especially, the situation reminds me of Chamberlain's Policy of Appeasement.
I know that some of you here
will think that I am the deluded one, that what I suggest is fanciful
and unrealistic. Precisely the opposite is the case, it is intensely realistic
to be developing new solutions and also to be challenging the limits of
existing thinking on environmental policy.
In many ways this is true.. social investment and the business of corporate responsibility are expressions of this and it's why these fields keep growing and draw interest and support from many of the brightest and best who want a good job and to be effective in making the world a better place.
But it's also not true. As one of our most progressive business leaders recently suggested, there's a far more disturbing phenomenon occurring. Yes governments have lost much of their original authority, and yes businesses are more powerful but the mandate given to government hasn't shifted to business, more accurately it's disappeared.
No-one is in control nowadays.
It's ironic that just as the environment has become mainstream and increasingly absorbed into many more aspects of decision-making, so we seem to have lost the plot. We can not see the wood for the trees. Yes environmental factors are factored in to decision-making but there's compromise at almost every turn, and so it seems we've developed a mechanism whereby all can stand up and be counted, claim that they are green, while the reality is that our natural resource base is still dying by a thousand cuts a thousand, million micro-decisions.. micro-compromises the world over. Small wonder then that sparrow numbers fall.
Without a strong steer, clearer goals, this great environmental awakening will not save us from the state were in. Worrying too is the fact that, as one friend put it sustainable development has become a dumping ground for contemporary world problems. The translation of policy into action is bogged down in the treacle of complexity, obfuscation, procrastination wherever you look.
As you Prime Minister said only last month at the Green Alliance annual meeting we have to face a stark fact. Neither we here in Britain, nor our partners abroad, have succeeded in reversing the overall destructive trend. The environmental challenge continues to grow and become more urgent. Quite so, Sir.
We have to pursue new avenues for solutions, which overcome the contemporary power vacuum and mobilise people, business, politicians in substantial ways. As the Economist says in their recent commentary on climate change the solutions are to be found in harnessing the engine of economic growth and the ingenuity of entrepreneurs. Focussing on money, who owns it and what they do with it is undoubtedly a key mechanism and the recent requirement for the Ethical SIP for pensions is an excellent example of a new avenue pursued:
30 years ago, the workers took control of British Industry but no-one ever told them. How did this come about? Through their pension schemes. It is only this year, and thanks to John Denhams brilliant initiative on the Ethical Statement of Investment Policy, that this message is now finally getting through. From now on occupational pension schemes will have to declare whether they have policies or not on environmental, social or ethical aspects of their Statement of Investment Principles. Individuals are waking up to their rights and expectations as shareholders. A new college leaver starting their pension scheme expects the pay out in 30 to 35 years. Of course they want good returns, they also want to be confident that their policy hasn't contributed to catastrophic pollution and a more unstable world. Pension and insurance funds control around 70% of the UK stock market, they can significantly influence the policies of many companies to support sustainable enterprise.
Already the Ethical SIP requirement is influencing the thinking of many financial institutions beyond those traditionally associated with social investment. So you have the pros, Friends Provident, Co-operative Insurance Services, Henderson Investors, Credit Suisse, Jupiter, Scottish Equitable and now a larger group, the Prudential, Morley, Schroders, Societe Generale developing internal expertise to handle these new issues. This represents nothing less than an invisible revolution which can utterly transform the shape of economics, from the old business as normal model where all business impacts which are not commercially useful are externalised, to one which counts and differentiates between the total cost environmental, social and financial - of doing business in different ways. The UK could easily champion the idea of the Ethical SIP as a suitable policy for the entire European pensions industry.. indeed for pensions management everywhere.
But let's not kid ourselves that the worlds capital markets are now fully up to speed and doing everything possible to ensure that environmentally sustainable economic development becomes a reality. For the record, after the Kyoto agreement was signed the Global Care investment team at NPI could not find one piece of analysis from any of the major investment houses about what this meant for fossil fuel shares and high energy users. Only this September, oil experts at an industry briefing in the City described oil companies in Europe as being in a state of paralysis over supply issues from which, it was inferred they would recover there was no mention of climate change except in very dismissive terms.
The emergence of social investment is significant because, as I've said, it reflects the distrust in leaving everything to government. It's very definitely a consumer movement and the first investors were almost without exception, individuals not institutions who wanted to influence business directly, getting companies to do the right thing. An early memory, shortly after launching the Merlin Ecology Fund in 1988 (now the Jupiter fund) was of a guy in bikers gear turning up at the office and writing out a cheque for £10,000. This he said, was all his savings, he believed totally in our mission and wanted to back us as fully as he could. As you might imagine having such trust placed on us at such an early stage was fantastic and dizzily daunting. We had good reason to believe in what we were doing but at that time, little proof of whether it would work. Twelve years on, the good news is that the Ecology Fund is top quartile in its sector over every period since its launch 6 months, 1, 3, 5 and 10 years and its up 423% since then. This excellent performance is seen in other social investment funds too.
Through the creation of funds it has been possible to define investment strategies for sustainable development. For starters, we wanted to back tomorrows industries, those which fit with a sustainable future. It's worth remembering that the Stock Exchange of twenty years ago looks nothing like that of today, which in turn will have transformed twenty years from now. It's a fair bet that the 2020 Stock Exchange will include many large companies which are central to sustainable economies such as: mass transit, renewable energies, water management, healthcare, healthy food, multimedia, education and so on. Social investment funds have often been weighted toward these industries, a reason in part for their good performance record. Of course, more established industries also have a future but many of today's companies will no longer exist and those that do will have been successful, not just in M&As but also in using environmental and social pressures as business drivers. Companies which regard these issues simply as a drag on returns and do nothing positive in response will find it ever more difficult to exist. We live in a goldfish bowl world. Selecting the Best in Class companies, those with greater eco-efficiency as well as Industries of the Future is the two pronged strategy for sustainable investment.
Another crucial dimension is the potential for active shareholder engagement. The process, especially if it is transparent, flushes out inconsistencies in companies and keeps them to the mark on environmental and social targets. For instance, a rather enjoyable early experience was showing a waste management company that their environmental report and annual report were saying diametrically opposite things! And it also allows for a constant refining and clarification of what is and is not sustainable: NO to burning carbon, YES to solar electric through silicon cells, NO to transport of atoms (physical goods), YES to transport of bytes (information).
Let's be absolutely clear, this is about a strategy for economic growth and it is the ONLY strategy which has any chance of delivering what we all want for ourselves and others. Remember if everyone in the world lived the same lifestyles as US and the UK currently do, we would need three planets to sustain us.. THREE planets.
There is now over GBP3Billion in retail SRI funds and over 50 now available offered by almost every major household name. The global figure for SRI is now in the trillions of dollars and in Japan, five funds have been launched and have attracted more than $1.6Billion in the last eighteen months alone. As already mentioned, more and more financial institutions are coming into the frame, recognising that NOT to assess the environmental and social performance of companies is a market anomaly which SRI is already successfully exploiting.
It doesn't take a genius to conclude that we have very little time, perhaps twenty years at most, to get our own economy and that of the worlds onto a sustainable footing so far as climate change goes. As you Sir, have said climate change is the greatest threat to our environment today. Many in business would add that climate change is also the greatest threat to existing business assets.
This is why urgent coherent action is needed. What are we doing about it?
The Government has a laudable package of activities underway including: carbon trading, Vehicle Excise Duty linked to engine size, The Climate Change levy and Carbon Trust and we must build from this.
Businesses too are active in reducing energy consumption, dematerialising and designing new low energy products and systems. Shell believes that 50% of world energy needs could be met by renewable technologies which ALREADY EXIST by 2050. Companies are also introducing new policies such as car-pooling, provision of bike parking facilitie, and these activities have definitely been given a boost with this autumns dramas.
And from the City there's the recent boost to renewable energy investment with the launch of the Merrill Lynch and Bank Sarasin funds. Incidentally, lets combine this heightened investment interest with amore ambitious solar homes programme, taking a lead from Japan and Germany with their 100,000 roof programmes. Members of the UNEP Insurance Initiative are also planning to substantially increase their funding commitments to renewables over the coming year, they are also examining the risk and liability issues associated with their existing portfolios. Measuring the energy efficiency and carbon impact of companies has been a core focus of many social investment funds, and groups such as Innovest in the USA have shown clear positive correlations between these measures and share-price performance.
But is this enough? Can we be honestly confident that these measures combined will meet the Royal Commission on Environmental Pollution recommendation that CO2 emissions must be cut by 60% by the year 2050? Who in this room is prepared to say that were on course to meet this target?
Investors are crucial to spearheading the scale of business response which is needed and there are sufficient numbers of investors now who recognise they must act in new ways to protect their assets even if only to hedge their bets. Recognising this, work has begun to put together a team focussing solely on investor action to combat climate change.
Such an initiative can only work by involving many in the investment industry and by negotiating with entire industry sectors on measures they can support or undertake. In this way, no one company is penalised and investors can collectively bear any impact on short-term earnings, thereby easing financial burdens, should these even arise. If it's everybodys problem then its nobody's problem thats why so little has been done so far. Conversely, if we act in concerted fashion we can turn the tables on this reality. In other words by making climate change genuinely everyone's problem to be acted upon, then and only then can problems be resolved, so climate change is nobodys problem.
The aim is to have the first consultation papers issued by May next year and it is hoped that the Government will help and support this new level of investor commitment to climate stabilisation.
Imagine investors getting behind climate friendly solutions in the way that they did in the last century, with the creation of America's railway network, or this century's information revolution. In both cases it is about investor commitment to creating a critical mass of capacity and connections. Long not short-term investment and big rewards for the wait. The same thing applies to the following: video-conferencing infrastructure, car sharing networks, small scale electricity production and storage, new mass transit networks and so on.
Get British companies like Marconi, the global internet infrastructure company, or Motion Media, the British Videophone company based in Bristol, or EyeNetwork.co.uk based in Brighton to pioneer the new global trade. Let British business become the first to do business virtually. We ruled the seas. Can that same ingenuity get us to rule the electronic ocean of communications? Will Motion Media Technology become the next Ford or Boeing? Will EyeNetwork become the next British Airways?
The investment community should also be working with progressive wings of industry to define targets for Rio+10 in 2002. For example, there could be agreement to sign up to targets at Rio+10, to meet by 2012 the next major Earth Summit. These might include:
These and other targets are things we can set ourselves to do in co-operation with governments and international agencies.
But there are things investors can not lead on. Unlike twelve years ago when to ask questions about environmental performance at company presentations in the City was to invite sniggers and scorn, there's now a more grounded discussion and with it improving analytical tools for making well informed decisions. Your call, Mr Blair, to companies to report publicly on their environmental performance by the end of 2001 is very welcome and I hope you will follow this up by making it a legal requirement to do so. As the saying goes if you cant measure it, you cant manage it so its in companies interests that they do so. DETRs activities to develop standard accounting methodologies for environmental indicators is also very welcome. The next step the Government could take would be to examine how to incorporate environmental risk assessment into actuarial evaluations. Furthermore it would help if there was a clearer and more consistent line on environmental and social accountability and how this relates to disclosure requirements specified in the Turnbull guidelines, the Company Law Review and the Red Hand Book listing guidelines to the stock market.
These are things which investors can do alone and in partnership with Government. There are however, two core issues which affect the overall ability of the public to respond to environmental priorities. The two issues are: communications and equity. The potential for industry and commerce to deliver real solutions with government will always be limited if these two factors are ignored..
Taking communications first. Theres no doubt that British people have had a bucketful of awareness raising on climate change in recent weeks, reinforced by the governments latest information campaign. Nevertheless there's still a problem with climate change communications. As much as we are exhorted to save energy, the overall message is that life continues as normal, reinforced by other messages, primarily through corporate advertising which encourage us to buy the new breed of gas guzzler, fly to exotic places for every holiday, earn more and more air miles, eat air flown produce and so on. Its worth remembering that corporations worldwide spend $300 billion each year on advertising alone. This is a conflict in communications. Small wonder theres a muddle in the public mind, which itself results in greater resistance to change.
What is needed now are practical images in our heads of where we are headed seeing is believing - what it means on a day to day level, living in climate friendly, 60% CO2 reduction Britain, the 60:20:50 challenge. Its all about reinforcing our day to day purchasing decisions and behaviour. With the right images in our heads, the right actions follow more easily. If we can get this bit right then well be well down the road to Sustainable Britain. I hope those masterminding your communications programme on climate change are being encouraged to think of radical, original solutions which have BIG impact at no significant cost to the public purse such as:
On the issue of equity, it is often argued that the environment is a middle class invention. This is disingenuous in every respect, especially when climate change hits the poor worst, whether in the flooded council estates of York or the delta region of Bangladesh.
We need to define wealth and poverty in new ways, just as social investment is doing. Bonus systems often reward the least worthy. Take for example airmiles. If they continue to be issued (no-one can say the systems are too difficult or expensive to install.. they already exist!) they should surely be taxed to the hilt.
Another equity issue arises with carbon trading. Why should carbon trading be something for industry only? Indeed why should the rules governing carbon markets be so dominated by corporate thinking. Surely this is a case where the poorest in our societies have an opportunity to see themselves as among the wealthiest.. and to be rewarded accordingly? Take as an example a household in the rundown estate in any number of Britain's larger urban areas. Two or three kids, no car, inadequate income to warm the two bed flat, minimal use of gas cooker, few electrical goods beyond the fridge and telly and no holiday flights.. fat chance. I'm NOT saying this is the ultimate lifestyle by any means.. I am saying that for living under these conditions they don't even get acknowledged for having a low carbon lifestyle. Their annual per capita allowance is probably well within the world per capita figure and they should therefore be earning carbon credits... so why can't they participate in the carbon market along with the wealthier family with their pioneering and expensive high-tech solar PV, low energy lifestyle. At the same time, those of us living in great carbon extravagance should understand in numerical terms exactly how much more than our per capita allowance we use, exactly how much we take from others.. and pay for it! In this consumerist age, isnt it time to challenge more of our assumptions about wealth and poverty?
If we can't get it right in Britain, what hope is there globally, what right have we to ask anything of other nations? Given the head start we've had in history we should be doing all we can to put our own house in order and to help others. Unlike our dear American friends, European leaders appear to understand this point well. With the work for sustainable investment I'm doing in Asia I find myself at the front end of the legacy we, the west, have bestowed on the world. Far from leapfrogging the problems confronting western economies, country after emerging country is diligently constructing their own highway networks and centralised, large-scale fossil fueled power stations.. NOW as I speak. And they are still being encouraged to do so by western corporations and their governments. I learnt a while ago that to match similar levels of car use to the west, China alone will require 135% of current world car production. Even with 100mpg cars thats still one heck of an energy demand problem and what this figure doesnt communicate is the structural dislocation which occurs .. a big problem we in the UK now have to grapple with.. when car provision and roads dominate planning. We have to demonstrate by our own actions that there are other ways to health, wealth and happiness.
Only investors can control the boards of the greatest agents of change, the corporations. Governments can try to create a level playing field, but it is the owners who must take ultimate responsibility. Along with others, I am totally dedicated to the task of mobilising corporations and hope that we can call on the Governments assistance to make this period of transition to a climate-friendly, sustainable economy as rewarding and painless as possible.
This is the beginning of
the solar century, let's make all that means a reality before its too
late. Thank you.