Corporate strategies for sustainability The business case and strategic approach

1. Corporate strategies for sustainabilityThe business case and strategic approach Dr Nick Fleming, Chief Sustainability Officer CMIC Conference, 29 October 2010

2. Overview • Core ideas and observations about sustainability • Business implications • Why it’s hard to address • How to approach sustainability in business • What progress and success can look like • Summary Corporate strategies for sustainability

3. A common predicament • “Some are calling for sensible development, arguing that sustainability is harder to define and identify” Greg Bondar, CEO, Institute of Quarrying Australia in Quarry, October 2010 • What we consider ‘sensible’ is a function of the information we have, our cumulative experience and personal values Corporate strategies for sustainability

4. Drivers of change • Population growth, growing affluence, urbanisation • Water scarcity andcompetition • Energy security, climate risk • Ageing or inadequateinfrastructure • Food security • Resource security • Global financial crisis • National security Sustainability

5. A deep evidence base 1960 2010 Sustainability

6. Sir Rod Eddington, Infrastructure Australia “The infrastructure ‘problem’ can’t be ignored just because it’s complicated ... we have to deal with the complexities of reality.” SKM achieve interview, 2009 Commentary

7. Ken Henry, Treasury Secretary “Wise action is required now because infrastructure experiences lagged supply, lock-in of paths, externalities, and widely dispersed costs and benefits. Getting it wrong will be very costly, socially and environmentally.” Commentary

8. Tom Albanese, CEO, Rio Tinto “Water is now a major strategic issue, linked with biodiversity. They represent constraints that carry major capital costs. Future facilities and mines need to be designed smartly from the outset.” McKinsey Quarterly, January 2010 Commentary

9. Bjorn Stigson, President, World Business Council for SD “We are reaching a tipping point in perception and realisation – globally. A radical economic transformation seems to be coming – much faster than anticipated. There will be clear winners; the losers will adjust to offering new solutions to slowly. ” A tipping point, posted 20 Sept 2010, wbcsd.org Commentary

10. Growing suite of success factors Growing sustainability focusand business complexity Time Cost Quality Safety Waste minimisation Resource efficiency Carbon price Climate risk Biodiversity maintenance Community livelihoods Time Cost Quality Safety Waste minimisation Time Cost Quality Safety Time Cost Quality 1970 1980 1990 2000 2010 2020 Sustainability

11. Risks and opportunities Risks Opportunities China Social unrest Green technology powerhouse Rio Tinto Reduced competitiveness Natural resource manager Loss of ‘social license’ Preferred resource developer Sustainability is about being fit for the future, and deliberately designing the future Sustainability

12. A broader lenson value creation BHP Billiton The business case Corporate strategies

13. Does action match the rhetoric? Number oforganisations Policy expression the gap know howvs know what Demonstration in operations Strategicleadership Proactivelyresponsible Managingrisks Aiming forcompliance Corporate strategies for sustainability

14. So why is change slow? • The ‘problem’ is often poorly defined, meaning solutions are equally poor • “It’s an environmental issue ... and it will just cost us more.” • “Short term focus, poor governance and blindness to risk are central factors” • Narrow perspective on risk, meaning alternative solutions are undervalued • Prevailing mindset of competition and economic efficiency • Inertia in favour of conventional solutions • Tendency just to work ‘business as usual’ harder • General yearning for a ‘techno fix’ • Lack of policy certainty undermining investment Corporate strategies for sustainability

15. Phases of business evolution Strategic leadership Responsibility Eco-efficiency Risk management Compliance businessmaturity Over time, innovation will become the only way to generate real business value and competitive advantage business value Corporate strategies for sustainability

16. So what does a business do? Take sensible steps. MONITORAND REFINE BUILD CASEFOR CHANGE IMPLEMENT DEVELOP STRATEGIES ALIGN PLANS AND TOOLS ENGAGE STAFF Corporate strategies for sustainability

17. It’s a process of organisational change AS ISorganisational design AS ISorganisational design TO BEorganisational design TO BEorganisational design Traditional, competition, efficiency focused organisation Traditional, competition, efficiency focused organisation Modern, collaborative, innovative, sustainable enterprise Modern, collaborative, innovative, sustainable enterprise Corporate strategies for sustainability

18. Look along supply chain for opportunities Corporate strategies for sustainability

19. Outcomes for other organisations Goulburn Valley Water • Improved strategic planning • Single EPA license • Business Excellence approach to operations • Regional development focus • Leveraging waste water facility into high value asset • Rio Tinto Iron Ore • Designed out risks • Reduced resource use • Achieve business goals • Massive potential savings in Capex and Opex Commentary

20. Summary • Most organisations find themselves in a similar predicament: “What is sustainability, and why and how would we address is?” • Evidence base and drivers for change are well established • Major risks and opportunities in this period of change • Only nimble, forward looking organisations will succeed • Sustainability is core to business strategy • Yielding full value requires mindset and behaviour change • Implementation can drive profound business improvement • It’s entirely possible if planned and executed well Corporate strategies for sustainability