Media Release: Australian consumer goods companies under pressure to be more sustainable

MEDIA RELEASE APRIL 2009

A large study into sustainability in the national consumer goods sector reveals companies under more pressure to be sustainable but hampered by a lack of understanding about the economic benefits.

The Retail World FMCG Sustainability Barometer Survey, released last month, involved 271 participants from across the spectrum of Australian consumer goods companies, with around 40% of respondents from the CEO / senior Exec level.
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Garnaut Report: times, they are a changing

Proactive companies that respond well to change will find plenty to motivate them in the Garnaut Report.

On 4th July, the 537-page report by Professor Ross Garnaut was released. It is the most comprehensive assessment yet about the environmental and economic impact of global warming on Australia. Commissioned by the Rudd Government, it aims to assist Federal Government in developing its policies on climate change, particularly by putting a market price on carbon.

The report is still incomplete. Figures from Treasury are likely to be released at the end of August, enabling more specific economic modelling from Garnaut’s team. The Federal Government’s green paper on the details of the proposed carbon emissions trading scheme is due for release on 16 July. The final Garnaut Report is scheduled for release in September.

We can expect a clear national direction on the issue by year’s end – but in the meantime, smart businesses are leading the charge for a new and better way of doing business now.

Among all the doom and gloom, let us not forget that carbon emissions trading (as opposed to a carbon tax) provides the opportunity for increased profits for proactive companies who can:

• on-sell their carbon credits as a result of effective carbon strategies;
• deliver ‘cleaner, greener’ products to shoppers, consumers and retailers; and
• capitalise on the significant opportunity for commercial advantage through innovation and new technologies.

Garnaut’s Main Points

In his assessment, Garnaut has made a number of dire predictions about the loss of Australian environmental assets and agricultural regions.

Economically speaking, the current report asserts that unmitigated global warming could reduce Australia’s gross domestic product by 4.8% and wages by 7.8% by 2100.

Further, Garnaut makes a case for more ambitious targets than the current 60% reduction in 2000 level greenhouse gas emissions by 2050, suggesting that the current targets will not be high enough to mitigate the economic and environmental threat.

Garnaut reiterates the need for an emissions trading scheme (ETS) to be broad and inclusive. In his press conference he quipped that ‘every industry is emissions intensive and trade exposed’. His position in arguing for the inclusion of transport and petrol is clear, as is his assertion that electricity generators should not be compensated by Government unless there is ‘market failure’.

The original model of initially auctioning emissions permits remains unchanged, but Garnaut’s policy on the proceeds of the auctions is that:

• 50% should go to households to ease the transition, with a particular focus on low income households;
• 30% should go to business to mitigate adjustment costs and assist with structural reform (including ‘trade exposed’ businesses); and
• 20% should fund the further research, development and commercialisation of low emission technologies.

Research funding has been given a high priority in the report, with Garnaut recommending investment in the order of $3 billion per year, and emphasizing the potential of any ultimately viable carbon capture and sequestration (CCS) technologies.

While Garnaut has acknowledged options for a phased introduction to carbon emissions trading, with fixed price permits from 2010 – 2012, it is widely believed that the Rudd Government will still activate the scheme in the 2010 election year.

Implications for Retail and FMCG

The big realisation for most companies is that this is an incredibly fast-moving issue – economically, politically, technologically and socially.

Whilst some of the largest global FMCGs in Australia have been preparing for this change for some time, the majority of medium-sized companies are still seeking both practical understanding and strategic direction.

There is no doubt the change will affect all of us, and especially our businesses. It will affect our inputs, processes and outputs. It will certainly affect all our relationships – with suppliers, retailers, shoppers, consumers, stakeholders, government and community.

Because the broader media always loves a bad news story, it can be easy to forget that within this change lies opportunity.

The demonstrated fact is that Sustainable business practices are profitable. Through increasing productivity and efficiency, minimising wastage and focusing on innovation, it is possible to not only adapt to the change, but to benefit from it.

A key criterion for success is a proactive focus on organisational strategy, not just reactionary tactical adjustments. Carbon reduction initiatives are generally merely tactical, and whilst core to any overall Sustainability strategy, should not be considered in isolation from your organisation’s other environmental, social and economic factors.

The opportunity for real differentiation and competitive advantage lies in holistic Sustainability strategy.

Whilst it may not be easy to make the initial assessments required, which will be specific to your company, its value proposition and its relationships, the good news is that it can be done and achieve real strategic and market positioning benefits.

Yes, times, they are a changing… for the better.

This article was also published in the July 21 issue of Retail World