On what to look out for when the tide goes out

News from the front desk, issue 517:After the contentious long form debate on Passive House that we published early in the week – here’s another deep dive for you.

This time it’s into the realm of investment.

It comes in the form of a lightly edited transcript of an interview by ABC journo David Speers with London based ESG guru Colin Melvin who’s helped shape the debate on environmental, social and governance issues and is now working on how to shape their next iteration.

It’s fascinating stuff, with some big warning lights. Such as don’t get carried away by seeing the noble supportive comments from our biggest corporate chiefs when they nod sagely on a low carbon transition, sustainability ethics or whatever.

Behind the scenes, burrowing away like termites, are their second-tier executives working hard in industry lobby groups to specifically prevent any change.

“It’s a kind of lazy assumption that, because the leadership are saying the right thing, everything’s fine in the background. It’s not fine in the background,” Melvin says.

“There’s a toxic relationship between business and government, which leads to lobbying money, which leads to the wrong sort of regulation almost by default, through industry bodies. And that really does need to be addressed.”

Melvin warns too on the constant refrain of “show me the data”.

All very well if the data is measuring the right stuff. As we always want to say, don’t worry about getting the answers right until you are sure it’s the right question.

If you’re measuring the impact of business – impact investment – are you including the externalised costs on the environment, on people?

“That isn’t part of the dialogue around the accounting for business success at the moment and those are the kinds of things that need to change,” he says. “So, a simple search for data and reporting doesn’t really get you there.”

The interview was part of the yearly conference organised by the Business Council of Co-operatives and Mutuals this year themed as “The Sustainability Edition”. And as good as it was – and we urge a full read – the panel discussion that followed was more than equal in quality and insights.

Entitled Sustainability and ESG for Business Success, it resonated very close to home with some wincing views including how, for such a rich country, we are so woefully trailing on some fundamental metrics of leadership. Not just in climate but in social metrics such as justice and equity.

Problematic for our government – and all of us – is what’s coming around the bend.

Right now, Australia is finding it hard to wipe the Morrisonian smirk off its face (that is, until the women circling Parliament House managed to curtail it).

We have managed to evade almost entirely the devastation of Covid that’s hit so many other countries and we now have the pleasure, as one industry leader told us this week, of enjoying capital “pouring” in, especially into Sydney.

Does Australia look like the best place on earth right now? “Australia and Singapore,” he said.

But for how long?

According to the members of the panel session viewed by The Fifth Estate there’s a lot to be concerned about, especially in the coming decade.

Speakers included:

Ross Garnaut, economist and influential commentator who’s just published a new book, Reset, was among other speakers during the day.

By way of background members of the BCCM are member owned businesses that have a long track record in Australia and own a considerable part of its wealth.

According to its chief executive, Melina Morrison, eight out of 10 Australians are members of a mutual or co-operative, and she claims her member’s types of businesses are 25 per cent more resilient that others.

A look at the “about” page on one member, Australian Unity, established in 1840, shows it believes it’s Australia’s first member-owned “wellbeing company”, offering members and customers “health, wealth and care services”.

“We trace our origins back to a pub in Melbourne, where a group of eight people formed a friendly society to look after the health and wellbeing of its members.”

It measures this through Deakin University’s Australian Unity Wellbeing Index since 2000.

Mary Delahunty gave an illustration of how her organisation likes to make an impact.

Fresh back from marching with the women at Parliament House in Canberra, Delahunty delightedly said she was paid to be a feminist, a role she clearly relishes alongside her determination to create better returns for her investors, mainly women.

In the so called “engagement pieces” she likes to do with investors, her and her CEO ensure it’s with the highest decision makers.

“I refuse to see the sustainability person who is wheeled out from a cupboard presumably to say, yes, we’re recycling our plastic lids.

“I want to see your CEO, your chair and the CFO. I want to have financial discussion about the risks and how you’re attending to them.”

There is “no greater example”, she said, than in speaking to Rio Tinto after the Juukan Gorge disaster when the miner blew up ancient caves that are a legacy not just for First Peoples but of the entire humanity.

The incident, she said, was “absolutely devastating.”

But because HESTA has exposure to the company “and we want a sustainable mining sector in Australia and one that’s fit for the future” what do you do?

“Do you throw your tools out of the toy box and say we’re not investing with you anymore, so there. Or do you say actually we will see you on Tuesday because we’ve got something to discuss.

“And we talked about the integrity gap with them.”

The chair, who’s now moved on, was listening. (“They tend to when there is a vote coming up”, Delahunty quipped.)

“They said they had a national reconciliationplan; they said they had operational mechanisms in place to take stakeholder views into their decision making; they said, they said, they said – and then they did something different.

“And that integrity gap creates what I call a financial risk and in this case we think it’s a legal risk in terms of how they are negotiating their agreements with traditional owners.”

And that’s the kind of conversation that people need to have more of.

“So, if you can fix it in a giant company like that then the ripple effect, the systemic change that you can manage to have mitigates that risk across numbers of other companies.

“That lever is one we are very willing to pull and in a more sophisticated way than we have before.”

According to Jacki Johnson, “Money is flowing to social and environmental issues around the world.”

“You’d think some economies would be diverted to the health crisis but they seem to have done both.”

Again, Covid is framed not as a disruptor of trends but an accelerant. Johnson said a good predictor of how companies would deal with Covid with, say, work from home rules, were their flexibility policies pre-Covid.

Covid stripped the commitment from the rhetoric, she said, “just like when the tide goes out, you see who’s in swimmers.

“If you’ve engaged with your people, [you’re better placed]. It’s the people who believe in what you’re doing and that’s what’s given returns to shareholders.”

Johnson would like to see the Sustainable Development Goals, which range from environmental to social goals such as affordable housing and elimination of poverty and hunger, be taken more seriously by the Australian government.

Having a plan, by way of commitment to the SDGs on affordable housing, for instance, would have been an advantage under Covid. Instead, the stimulus funding went into “renovations and roads”.

But while in many countries, responsibility for SDGs is lodged right inside the national leader’s office, in Australia, it’s in the Department of Foreign Affairs and Trade, demonstrating our notion that this is about “other people”.

This will all start to show up as the “tide goes out”, to borrow the phrase.

Other countries, the US included, are not only imposing a carbon border tax but they’re also looking at commitment to SDGs. Australia might have won or be winning on Covid but on social justice metrics, as well as on climate, we are woefully lagging.

Johnson says: “Now with a strong economy, you’d argue, is that right?”

Delahunty said, “Our sole purpose is, as enshrined in the Act, is to provide benefit on their retirement” for Hesta’s 860,000 members.

“By investing in a mutual, I feel like we get an alignment of value, that there’s stakeholder primacy [not shareholder primacy], that there are bigger things than next months’ profit. That’s what interests us about Australian Unity.”

Political power shifts

Rowan Mead pointed out bigger shifts under way. Ten years ago, during the GFC, they were in charge of every position of power in the world and were “still basically immortal”. (So nothing much changed)

“Bang. Move on 10 years and they are no longer holding all the power.”

There are big social movements afoot and retirement is looming fast. It’s no surprise younger folk are searching for different. They want long term outcomes.

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