For the past 5 years the electricity supply industry in Australia has been obsessed with the issue of greenhouse gas emissions and the threat of regulation. As a result there has been much sophistry generated of the impact on Australia and much energy directed towards ameliorating the perceived impact of potential regulation being imposed by governments convinced to act by “scare mongering environmentalists”.

 

Whilst it is an accepted part of the regulatory game to attempt to tilt the rules of an industry to the benefit the incumbents, or in this case to minimise the negatives, one outcome of this behaviour is often to make the feared threat materialise. Undoubtedly this has been one of the outcomes in the current debate on emissions trading etc. Considerable energy, one might say an excessive amount, has gone into trying to stem the tide. Whilst this Canute like behaviour has generated much needed revenue for consultants, financial advisors, and lobbyists it has allowed a far more significant part of the policy agenda to develop in other parts of the world and put Australia at a competitive disadvantage yet again.

 

We all know that the outcomes of the current structural adjustment arising from the climate change debate will result in the realignment of electricity pricing and the implementation of more energy efficient solutions from high energy users (e.g. Alcoa will bring forward its energy efficient smelters and/or realign global production) and Australian industry will make yet another lurch away from 1950’s economic development. Such transformations have occurred throughout modern industrial history and are not to be feared but rather capitalised upon enabling the creative to flourish. Those societies which embrace change rather that fear it are the ones which carve out a future in the sun and not slip back into the primordial slime.

 

This transition could be painful or it can be seen as a positive force to rethink our approach to the future. As Hugh Morgan, the Managing Director of WMC, observed at the 38th joint meeting of the Japan Australia Business Council in October this year “ there will be a very significant dislocation of industry and political, employment and social consequences which really haven’t been addressed” as the international business community addresses environmental issues.

 

The purpose of this paper is not to provide the reader with yet another boring set of graphs to prove how bad the climate change debate will be for Australia, Australian industry, and fossil fuelled generators. That debate will be played out in forums that are tackling yesterday’s issue. Whilst yesterday’s issues occupy the mind of some executives the real debate is how Australian industry tackles the transition not from the old economy to the new economy but rather the transition of their businesses into ones that focus on sustainable business practices. These practices will be the ones that enable corporations to manage the transition from the so-called old to new economies to the benefit of all stakeholders.

 

Movement to the New Economy

 

There is much talk about the movement to the new economy as being the transformation into the information age. This is not the paradigm shift in the movement to a new economy rather it is about transitioning into a mode based on new processes at all levels in our society so as to meet the needs of today’s world without depriving future generations of their means to do so. In economic terms this means creating an economic framework that is based on the least priced system rather than a least cost so that all the externalities are factored into a business decision. It assumes that it is easier to maintain our social and economic systems in real time rather than deferring the maintenance.

 

Looking at this from an Australian window onto the world it is easy to see why we have dismissed this transition. In fact there are only three Australian corporations (BHP, WMC, and Western Power Corporation the WA) who have joined the World Business Council on Sustainable Development compared

 

In the old economy it was based on simple interactions between Business, Government, the market place and society and was characterised by “aorta” statements of “THEY ought to something about……” This simplicity has been replaced by a dynamic system and complex web between all of these elements.

 

What differentiates the Old and New Economies?

 

Hierarchies, standardisation, mass production and low risk behaviour and decision patterns differentiate the old economy the new economy. The latter is characterised by networking, customisation, niche production, risk taking, and innovation. Whilst these characteristics are evidenced in small start information technology companies they are not found solely in such companies. In fact James Collins and Jerry Porras’s longitudinal study of icon companies that have survived up to 200 years identify similar patterns that have enabled these companies to survive. This leads one to believe that the factors that enable companies to transition into new emerging economies are unrelated to technology but to other factors

 

At a macro level there are a number of drivers behind the new economy. These are:

 

 Globalisation

 Sustainability

 Connectedness

 Retreat of Government

 Victory of a democratic market

 Rise of a civil society

 

Turning to each of these factors in turn:

 

Globalisation

 

Despite the recent hysteria on this subject it is in fact a process that has been in operation for over 300 years initiated by the Dutch and English trading companies and refined into a modern management speak by Michael Porter in the mid 1980’s in the guise of the theory of “Competitive Advantage” applied at the level of both the firm and the nation state. The debate has intensified as Porter’s concepts have been translated into action and the level and quality of value added has moved to the point of least cost highest quality in a world market.

 

The impact of these concepts has challenged the old industrial order. Further the old divide between the “isms” has eroded the breadth whilst at the same time the trans-national enterprise is making decisions based on parameters outside the control of individual states or trade unions etc.

 

Whilst Globalisation has enabled enterprises to side step the shackles imposed by a nation state the information revolution is at the same time forcing a reassessment of corporate citizenship and corporate marketing. This is reflected in a heightened awareness of the total systemic price of corporate decisions. The globalisation governance challenge is not to stop the expansion of global markets and economic forces as some desire but rather to develop new rules and institutions for stronger governance to preserve the advantages of global markets and competition but also to ensure sufficient space for human, community, and environmental resources.

 

What is Sustainability?

 

Sustainable Development involves economic growth that is based on systems that:

 

 Respect the limits and carrying capacity of natural systems

 Encourages the use of renewable energy sources for example wind, solar and hydrogen

 Recycles and reuses its throughput

 Places quality and craft over expediency

 Integrates feedback so the real state of the environment as the bottom-line.

As the slogan of Mitsubishi Electric so eloquently expresses it:

 

“NO PLANET NO BUSINESS”

 

A sustainable focussed organization is one that develops management frameworks that recognise the interdependence of the financial, environmental, and social responsibility obligations of the organization and develops systems that achieve all three outcomes simultaneously in all its business activities. This has been called the “Triple Bottom Line” as it recognises the total systemic activity of the business and identifies how to make profits from the total business. Whilst it involves a strategic shift in thinking it is not about environmentalism.

 

The Connected Economy

 

We all recognise that we face a revolution in the way the economy works and is driven by technology in particular the application of information technology. This is not just in terms of connecting people and businesses but also as a network of simultaneous linkages. This connectedness provides us with the ability to create new market places and to integrate and manage complex systems at a distance with greater precision and speed and to share and spread knowledge instantly. Applications of this ability by Enron to energy markets and Duke to global financial risk management are two examples of this use of connectedness in the energy field.

 

In the 1970’s the French described the process by which societies sought to solve problems. They described problems move along a continuum from “simple” to “complex” to a new state termed “hypercomplexity”. Traditional modes of problem solving tackled the first part of this transition. As problems became more complex we moved to a state where the solution often created more unintended consequences and no matter what intervention new problems arose. This was the problem of ‘hypercomplexity”. The information age has provided not only a way of conceptualising this problem but also solving it. Connectedness has empowered the individual, community, and the corporate state to form new relationships hitherto unimaginable.

 

Thus Information Technology is not the New Economy but an enabling tool for the new economy and the technique by which old corporations and societies will adapt and survive or die. We have all seen the empowering of community groups that the Web brings. Information can be shared, alliances formed, and corporations pilloried around the globe as a result of chat sites, bulletin boards Web sites. The efficacy of the S11 coalition is due purely to the application of the connected economy. Without it we would have seen a motley group of 100 hard core demonstrators and maybe one 30seconds on the 6.000 o’clock news rather than thousands from a diverse cross section of Melbourne and nightly debate and news articles both in the lead up, during and post the World Economic Forum.

 

This ability to share and disseminate information is just starting to be harnessed. It ensures that accountability and transparency has taken on a new meaning. No longer will the corporate veil be available to shield behind. This will be open up corporate actions to wider scrutiny. It is the power of the speed and diversity of information transfer that will impact on the ability to create sustainable businesses.

 

The Retreat of Government

 

Over the past 10 years we have seen a radical transformation of the role of Government. The “Aorta” principle of social exchange has been replaced by a new trend. Whether it is the “social partnership” or the “Third Way” a new dimension has developed in the interaction of Government, Business and the Community. The roles and responsibilities of all parties are recognised in this debate. Increasingly we look to Business and the community to develop solutions to societal problems rather than abandon them to either the Government or the Market to solve. Government is seen as the facilitator of the partnership. This is seen in forging solutions not only to social issues but also to commercial developments. (e.g the Basslink inter-connector is a classic example of energy development in the style of the Third Way).

 

Corporate Reporting in a Democratic Market Place

 

Central to the transformation into the sustainable business is the public presentation and reporting process. Overseas we now see reporting on not only financial and environmental matters but also social impacts of the corporation’s performance. Performance is defined in a multidimensional manner and success is defined in a holistic way. Sustainability indices have been developed and the NYSE performance of sustainability-focussed companies is outperforming the market. In fact companies such as 3M have identified that as they now report early decisions such as the withdrawal of Scotchguard form the market because of its environmental effects their stock price is rewarded as opposed to negative down grading.

 

One of the gains from the connected economy is that it has provided a tool for transparency of corporate actions. It will provide the tool for generating trust between corporations and the community. Thus the community will authorise the corporation to pursue its activities or whither. The GMO and biotechnology debates will be the first real test on this matter as companies such as Du Pont react and respond to the community concerns on these issues and account for their actions.

 

Rise of a Civil Society

 

As the level of transparency evolves and new governance processes evolve it will become easier to define where responsibility lies between business, governments and the community. Sustainable development practices require a recognition that the delivery of business objectives to shareholders will be on the basis of enlightened self-interest not on the basis of regulated pressures.

Conclusion

 

Sustainable development is a topic of our age. It is not about freezing a system at a moment in time. It is about recognising when a system is close to reaching its limits and moving to forestall those risks. Accordingly it requires constructive engagement by all.

 

It is built upon three pillars of:

 

 Economic Growth

 Ecological Balance

 Corporate Social Responsibility

 

For the energy industry the trend to deregulation worldwide and the focus on climate change have created new pressures. Coupled with rising energy demand the industry is being urged to increase its pace to explore sustainable energy solutions. Many critics of the energy industry see the current energy mix as unsustainable.

 

This is not just an issue that is being raised by green groups. Corporations such as DuPont have set significant energy reduction targets (maintenance of their energy consumption world wide at 1990 levels) and renewable energy (10% of world wide energy consumption, or about 300MW, to be sourced from renewable sources by 2010) to be met by 2010. Further by the same date 25% of revenues of the company are to be derived from non-depletable resources. Companies such as DuPont, Honda, and Ford etc wishing to exploit first mover advantage in an increasingly green sensitive market will seek to source increasingly larger components on a sustainable basis. For utilities it is necessary that they not only impose the discipline of sustainable business practices on their own operations but also respond to market requirements or lose market share to new entrants who are willing and able to meet demand.