SENTINELS of the FUTURE
Positive and negative screening affects investment as a battle rages over which companies are sustainable’, writes Robin Bromby
IT pumps oil, digs coal, expends vast energy resources on digging copper and many other metals and ships vast tonnages of iron ore across the oceans using energy- ravenous bulk tankers, yet BHP Billiton — despite its vast carbon footprint — came out winner in Australia’s sustainability reporting awards last month.
Run by the Australian and New Zealand chapter of the Association of Chartered Certified Accountants ( ACCA), and presented by Prime Minister Kevin Rudd, the awards were in recognition of companies that
report and disclose environmental, social and full sustainability information’’.
The award was recognising that sustainable investment does not just involve companies that, say, make solar water heaters or recycle waste materials. Instead, it is showing that even companies that engage in what some would call dirty’’ sectors can make an effort to limit their environmental and social impacts.
One of the criticisms heard about sustainability reporting is that it is often just a bit of window- dressing by companies, something put together by the marketing department that provides plenty of gloss and wellmeaning statements but not all that much more. There is even a word for this: greenwashing.
And then there are those companies that do not even bother with reports, and there are quite a number in the S& P/ ASX 200 index — the big end of town on the Australian Securities Exchange — that have yet to take up the challenge.
No one could accuse BHP of making the minimal effort. Its 2007 report, the one that was recognised in May, ran to more than 300 pages.
With the aluminium sector operations in southern Africa, for example, the company was involved in HIV/ AIDS education and anti- malarial programs in Mozambique ( part of the $ US103 million BHP spent during the year on community programs), was looking at ways to cut energy use in smelters, was monitoring air quality and said it was conscious of the need to recycle water in a region that frequently suffered drought.
Of course, the report is based on selfmonitoring and the fact remains that BHP — and all other companies that produce and consume energy — are going to be polluters to some extent, and will have an impact on the social environmental.
But we cannot live without oil, steel and coal. At least, not yet. All we can do — all these companies can do — is to control their environmental impact, as BHP says it is doing. Harm minimisation, in other words.
The other winners of the Australian awards were not, at first blush, obviously environmentally friendly companies. They included Boral, Fuji Xerox, Vodafone New Zealand and ANZ.
And not everyone was impressed by the ACCA’s decision.
Australian Ethical Investment, which man- ages $ 550 million, reacted to the award by saying it would still not lift its investment ban on BHP Billiton.
In its latest newsletter, AEI profiled the sort of sustainable companies it supports.
One was EDF Energies Nouvelles, a leading French renewable energy generation company. Using wind, hydro, solar and biomass, EDF now operates in 10 countries and is part of a consortium building one of Europe’s largest offshore wind farms. Another to get the nod was Petratherm, the Australian geothermal developer at work in South Australia and Spain. The third company was Herman Miller, a US furniture manufacturer that has won awards for recycling.
Just what sustainable investment is can be hard to pin down. Views and definitions vary on what is now known as SRI — socially responsible investing.
As one British newspaper pointed out when reporting on that country’s inaugural national ethical investment week in early June, you could go back as far as the Quakers who forbade their followers investing in the slave trade.
Twenty years ago, ethical investing was mainly avoiding shares in companies that produced tobacco, alcohol or exploitative products. Victor Bivell, editor of Australia’s
magazine, writing in this newspaper a few weeks ago, said that sustainable investing included not only environmental sensitivity but also a much wider range of activities undertaken by companies.
But you could also argue that sustainable’’ implies just that: in other words, operations by companies that are addressed at ensuring the sustainability of the world’s resources and environment. Hence, the BHP example: the bauxite that it uses is not replaceable, but the energy it attempts to save in processing that mineral does serve the wider purpose of minimising damage to the world’s resources. Recycling water used in such plants would also come under that heading.
On the international scene, the World Economic Forum held in Davos each year includes the unveiling of the list of the world’s most sustainable corporations based on several factors, one of the key ones being environmental impact. This year the Australian inclusions in the list were ANZ, Babcock and Brown, Insurance Group Australia, Rio Tinto and Westpac Banking Corp.
Again, not obvious environmental candidates.
Nor was NSK Corp on the same list, a company that makes bearings and other automotive products. But the company says it has refined its manufacturing and taken significant steps to, among other things, reduce scrap waste, lower CO emissions, increase energy efficiency and cut down on the use of harmful chemicals. In its 2007 corporate social responsibility report, the company outlines goals for 2010. They include achieving a waste- recycling rate of 98 per cent or greater, reducing the number of liquid coolants with chlorine- based additives by 85 per cent and reducing CO emissions per production unit annually by 1 per cent.
Property development is another not- soobvious example of where sustainable investment could play a part.
The United Nations Environmental Program issued a report mid- June urging institutional investors world- wide to embrace UN guidelines when putting money into property development companies.
The report pointed out that buildings were either directly or indirectly responsible for about half of the world’s carbon dioxide emissions, both from their operation and the energy consumed by people travelling between them ( as in between home and work). It expressed concern that the property industry was moving too slowly to address its environmental footprint. It wants investors, when considering backing property schemes, to take into account such issues as energy conservation, water conservation, recycling, investing in urban regeneration, preserving parks and open space, tree planting, green buildings and green power purchasing.
Investment banks are also getting in on the scene as part of their sustainable investment efforts. Credit Suisse led a $ US130 million initial public offering for a solar energy