Business is seeking environmental alliances

Deborah Snow. What does a Californian professor of geography have in common with a bunch of executives from the Australian insurance industry? A lot more than either side might have thought, it seems.

When Professor Jared Diamond travelled here in March for the Sydney Writers Festival to promote his latest book, Collapse, he was surprised to find himself invited to lunch by the Insurance Australia Group (IAG). "I'd never met with a group from the insurance world before and I didn't realise why they wanted to meet with me," Diamond told the Herald later.

Diamond was unsure of his reception. Collapse is hardly standard boardroom fare. It charts the slow death of earlier civilisations which self-destructed because of over-exploitation of the environment, and suggests human society in the 21st century is heading down the same path. It makes for a chilling read.

Yet he found himself welcomed with open arms by the insurance executives. Personal insurance chief Rick Jackson eulogised the gently spoken professor, who is known around the world as an environmental campaigner and punches home a powerful message on the perils of global warming.

Diamond responded by telling the group he could now see "the community of interest between your business and my interest as an environmentalist. By definition you are in it for the long run, and therefore you have to be concerned about the shape of the world decades from now."

Jackson says IAG has been thinking about how to engage with issues like global warming for some time. "We decided that if our business is about managing risk, we ought to be putting something into prevention, not just paying claims at the other end." he says. "Global warming is causing more storms, more storms cause more claims, more claims cause premiums to go up. So we have a vested interest in trying to do something longer term on that."

IAG is not the only Australian company talking "green" these days. Many others, most notably in the retail, mining and resources field but also in less obvious sectors such as banking, have started down the same route. Westpac, for instance, is now touted as a world leader in what's been dubbed the "corporate social responsibility" movement, producing glossy environmental and social audits of its activities.

Corporate social responsibility is a fairly fluid term, but in essence describes what businesses do when they want to market themselves on their environmental and social track record, as well as their business prowess. Well advanced in Europe and Canada, it has taken a little longer to catch on in Australia.

Conceptually, there is a lot of crossover between this responsibility and so-called "triple bottom line reporting", which seeks to extend accounting methods to social and environmental performance. Another catchphrase in the same vein is "sustainability" - doing business in a way that allows you to replenish the resources and community you draw upon. Often the terms are used interchangeably.

But as more and more firms have jumped on the bandwagon, there has been something of a backlash. Some critics claim too much of it is spin, while accountants argue that claims of companies in these areas are often impossible to measure and compare. With no uniform national reporting requirements, how do you compare like with like?

Professor Bob Walker, from the University of Sydney's school of business, says you cannot: "It's like adding apples and oranges and multiplying them by bananas."

There are at least three indices operating in Australia which rate companies on their social and environmental performance. The AuSSI (the Australian SAM Sustainability Index), launched earlier this year, identifies the "top sustainability-driven companies" around the country, using criteria employed by the global Dow Jones Sustainability Index. Then there's the Corporate Responsibility Index overseen by the St James Ethics Centre in Sydney, with the backing of this newspaper and The Age in Melbourne. There's also the RepuTex survey run out of Melbourne by the consultancy of the same name.

Emily Albert, from the St James Ethics Centre, concedes it's early days, but insists the indices are important because they "bring the issue on to people's agenda".

But taking such yardsticks at face value can be fraught with difficulty, as set out in a recent critique of "triple bottom line" reporting by two Canadian professors, Wayne Norman and Chris McDonald. They argue there is no "systematic way of totting up the social pros and cons" to give a "global" figure for a company's social performance.

Company A might have more female directors and fewer industrial accidents than company B, but company B might have fewer fatalities and more executives from a greater variety of ethnic backgrounds than company A. What kind of calculus allows you to weigh the relative merits here?

In short, they concluded it was impossible to find a common scale to weigh all of the social "goods" and "bads" caused by a company.

Last month, a study commissioned by CPA Australia, the country's peak accountancy body, identified similar problems. It found that sustainability reporting by Australian companies lacked consistency and failed to match the rigour of financial reporting.

The president of CPA Australia, Mark Coughlin, says: "I'd say it's a way off before these indices are particularly meaningful because we have found that companies and government organisations aren't using common frameworks."

Another problem is that while some companies are genuinely motivated, others seem to be "greenwashing": adopting the protective camouflage of corporate social responsibility talk, while doing very little to change questionable corporate practice. Walker says: "We are seeing corporations which have been highly praised for their environmental reports in the same year that they did enormous damage to the environment."

There are also heated debates about letting firms which make products that can harm or kill, such as tobacco or arms manufacturers, climb aboard the bandwagon. British American Tobacco was greeted with howls of outrage from sceptics and activists when it put out its first "social responsibility report" three years ago.

Paul Gilding, an environmental consultant whose company, Ecos, has worked for corporate clients here and in the US remains deeply sceptical about the movement in Australia.

"There is confusion over whether CSR is what you do while you are doing your business; or whether it is how you do your business." It should be about the how, he argues. So he dismisses much philanthropy - giving money to good causes - as PR veneer, "doing what you can to get away with making money".

Uncharacteristically for a veteran greenie (he is a former head of Greenpeace International), Gilding believes the profit motive, not regulation, will be the real driver of change.

"Companies are saying 'there is money in this' [global warming]. So General Electric, which is famous for being a money machine, is now using catchphrases like 'eco-imagination', and talking about doubling investment in renewable energies and environmental technologies. And that's a big indicator because GE doesn't have a corporate social responsibility bone in its body.

"I want companies to do it because there is money in it. I'm more excited by GE doing it for reasons of profit and growth than if it's because the top executive has had a cathartic experience about his role in society."

IAG's Jackson has a similar take on the issue: that it's what companies do in their core business that counts. "Sustainability is not just about doing good works. It's about making sure your shareholders get a return. We ask whether something is sustainable in terms of the way we act in the community, environmentally and socially; whether it sustains our employees âââ₠and whether it gives the business sustainability. There is no point in ticking off the first two if you start
to lose money."

So IAG - which now owns NRMA Insurance - will not, for instance, fund cancer treatment for children. But it will fund programs to help get Aboriginal youth off the streets in country towns as part of a crime reduction program, or work closely with the motor repair industry to increase recycling.

"We used to throw away enough bumper bars to lie end to end from Sydney to Brisbane. They would go into landfill and never break down. Now some of our shops are repairing nine a day instead of throwing away 10 a day".

How much is the corporate social responsibility movement sweeping Australia? Coughlin says that of the top 500 companies his organisation surveyed, only 24 had published separate sustainability reports that covered more than one area of it. "So that's quite telling in its own right, and it tended to be only the bigger end of town."

Jackson believes corporate social responsibility will take deeper root eventually, but as a result of generational change in Australian boardrooms.

He recalls being at an international conference where the former US president George Bush snr was a guest speaker. One questioner asked Bush about how sustainability fitted into US business politics.

"Bush replied, 'Oh, business has got nothing to do with the environment'," Jackson recalls. "The whole room, who admittedly were insurers, went 'hello?'. It wasn't that he was being negative, it was just a disconnect."

Coughlin agrees: "I think it's going to become a bigger issue with generational change. As generations X and Y become much more dominant in the political and business world they are going to be demanding more of this information, because they just have a different mindset."