Mark Diesendorf

The writing is on the wall for coal-fired power in Australia. Despite federal government attempts to stop the growth of renewable energy, all they can do is delay the inevitable transition.

Tasmania already has almost 100% renewable electricity, based on hydro supplemented by wind. The ACT is on track to reach its target of 90% net renewable electricity by 2020, based on solar and wind.

South Australia, with no fresh-water hydro-electric potential, is the leading mainland state in the transition to renewable energy. Last year 33% of its annual electricity consumption was generated by the wind and 6% from rooftop solar.

Furthermore, its electricity system has already operated reliably and stably for hours when the contribution of variable renewable energy reached two-thirds of demand. Recently wind power and gas coped admirably when the coal-fired Northern power station went unexpectedly offline.

Coal power will soon disappear from South Australia and eventually from the whole country.

Because wind has no fuel cost, it can bid the lowest price into the electricity market and so is ranked higher in operating order than coal. The result: coal is displaced from operating as baseload (24/7) power, coal’s economics become worse and incidentally the wholesale price of electricity decreases.

This is the real reason Prime Minister Tony Abbott is trying to stop the growth in wind power. It has nothing to do with aesthetics or the sham ‘‘wind turbine syndrome’’, but everything to do with Abbott’s misguided commitment to coal.

Hourly computer simulation modelling by Ben Elliston and colleagues at UNSW show the National Electricity Market (NEM) could be run solely on scaled-up, commercially available, renewable energy sources. Some of this research is outlined in my 2015 report to the Conservation Council of South Australia, now available online.

The NEM could be supplied reliably by a combination of variable renewable energy sources (wind and solar PV) and flexible, dispatchable sources (hydro with dams, gas turbines and concentrated solar thermal power with thermal storage).

The combination of variable and flexible sources, together with geographic dispersion of wind and solar farms, is the basis for reliability of 100% renewable electricity systems.

Biofuelled gas-fired turbines (essentially jet engines) and demand management via ‘‘smart’’ meters and switches could manage the infrequent small lulls in wind and solar supply.

Gas turbines have low capital cost and, if operated infrequently, low running costs. Therefore, until other kinds of energy storage become cheaper, gas turbines can play the role of reliability insurance with a low premium.

As pointed out by professor Andrew Blakers at ANU and a research group at the University of Melbourne, pumped hydroelectricity, based on small dams that supply high power for short periods, could also handle the small lulls.

Our simulations show that the NEM does not need any baseload power stations, such as coal or nuclear. Indeed, the low operational flexibility of coal and nuclear makes them poor partners for high penetrations of variable renewable energy.

Given the political will, I estimate the renewable energy transition would take 15-25 years. Increased interstate trading of electricity, possibly assisted by a new direct transmission link joining South Australia to NSW, would assist in smoothing the fluctuations in wind and solar.

In Europe, moving to 100% renewable energy is not controversial. The north German states of Mecklenburg-Vorpommern and Schleswig-Holstein are already operating on 100% net renewable electricity, mostly from wind. The ‘‘net’’ indicates trading electricity with each other and their neighbours.

Denmark is on track to reach its goal of 100% renewable electricity and heat by 2035. It already generates 39% of its electricity consumption from wind and about 10% from biomass in the form of agricultural residues. However, unlike northern Europe, Australia has the advantage that it is very sunny as well as windy.

Transitioning to renewable energy will deliver environmental, social and economic benefits. The transition will reduce Australia’s greenhouse gas emissions, air pollution and associated respiratory diseases. Once the initial investments have been made, it will cap electricity prices.

Renewable energy could create a wide range of new jobs in manufacturing, installation, grid connection, technical support and sales, which could compensate for the job losses in the coal industry.

The key policies needed are state and territory renewable energy targets together with a reverse auction system for commissioning wind farms and solar power stations, as in the ACT. The winning bidders are paid by feed-in tariffs or ‘‘contracts for difference’’ funded by a small increase in retail electricity prices.

This could be offset by the decrease in wholesale electricity prices caused by large-scale renewable energy, provided governments ensure that the wholesale savings are passed on to retail customers.

Renewable energy is technically and economically feasible, and environmentally and socially desirable.

Associate professor Mark Diesendorf is deputy director of the Institute of Environmental Studies and a researcher at the Centre for Energy and Environmental Markets at UNSW Australia. A version of this post appeared in The Canberra Times. It can also be found under Automatically transcribe audio.

Peter Swan

On Thursday the Gillard Government launched Phase 2 of their High Speed Rail study that was produced as part of a political agreement with the Greens.

The very optimistically projected cost is $114 billion for 1,800 kms of rail to link Melbourne to Brisbane via Canberra and Sydney. Approximately 8% of the route requires exceedingly expensive tunneling, giving huge scope for costs to blow out.

The projected (internal) financial return is 0.8% compared with a minimum of 15% to be considered for a commercial project. Hence it could never be financially viable and is likely to require on-going subsidies even if the Government provided the entire capital cost.

Can the project be justified in cost-benefit terms? Certainly, the Report claims that there is a positive benefit/cost ratio at low discount rates with the benefits roughly equal to the costs with a 7% discount rate.

These benefits consist of consumer and producer surplus. It is my belief that these benefits are likely to be vanishingly small in practice with the costs far outweighing the benefits.

These benefits are assumed to arise largely from time savings due to better access and egress compared with airports such as Tullamarine. A high-speed rail connection between Tullamarine and the City could be built for less than $114 billion with considerable time and convenience savings. There might even be some spare change.

Such assumed time savings also presumably drive the 55% of passengers who are assumed to switch from air to rail and the 19% induced passenger increase.

It is hard to imagine that the 23% of passengers that are assumed to switch from cars will gain sizeable subsidiary benefits to motivate a switch. In fact, many who currently drive will face car-rental and other out-of-pocket costs that are likely to be sizeable.

In my view, these passenger estimates are likely to be even more upward-biased than the pie-in-the-sky estimates that led many toll-road providers to the bankruptcy in both Sydney and Brisbane. Projected toll-road/tunnel usage exceeded the reality, typically by 100% or more.

At least one would think that private providers taking and equity stake would be cautious in accepting ludicrous estimates of traffic projections. Governments looking for juicy election bribes have no such hip-pocket concerns. All of these failed projections tended to give excessive weight to traveler time-saver benefits.

The first question to ask is what is a high-speed rail network? It is largely duplication of air passenger routes provided for ‘free’ by nature. Unlike air-routes high-speed rail is exceedingly capital intensive with an exceedingly long gestation period.

The Report projects that cash-flow will be positive for the first time around 2060, about 45 years after commencement. Once of the few routes that is commercially viable is in major Japanese city pairings with population density about 1,000 times higher than major pairings in Australia.

Even Japanese bullet trains received a bailout in 1987 and Taiwan’s line needed rescuing only two years after commencement. In China the high-speed network is highly problematic with severe speed limitations imposed on some lines. One line was even reduced to 45 kms an hour. Even in much denser Europe, only a few city pairs are financially viable.

There is no indication that any success will be achieved in North America. The Californian line that commenced in 2008 had spent $630 million within three years without constructing even one kilometer of track.

Thus the benefits of high-speed rail are largely illusory, especially in Australia with its exceptionally low population density and existing network of relatively efficient airports. Removal of curfews could greatly improve airport efficiency, especially in Sydney. Unfortunately, the costs are not illusory and are likely to be massively understated in the Report.

There have been quite few very-fast train schemes in Australia, mostly centering on the Sydney-Canberra-Melbourne corridor.

The first one was proposed by the then head of the CSIRO who carried the appropriate handle of ‘Wilde’. Hence the ‘Wilde scheme’, of which the latest incarnation from the Gillard Government is yet another example of an exceedingly white elephant.

It is also well timed as a tempting election bribe where it joins the Gonski Report into school funding, the National Disability Scheme and numerous other unfunded projects.

Professor Peter Swan is the Professor of Finance at the Australian School of Business.

Martin C. Jones

In a survey last year of 22,812 people across 22 countries (including Australia), the polling organisation GlobeScan found that environmental concerns had fallen worldwide since 2009, and fewer than one in two people (49%) now viewed climate change as a “very serious” problem. GlobeScan’s chairman, Doug Miller, commented: “Scientists report that evidence of environmental damage is stronger than ever – but our data shows that economic crisis and a lack of political leadership mean that the public are starting to tune out.”

Miller’s comments could have been tailor-made for Australia. The famous “hockey stick graph” of rising temperatures has been confirmed, and atmospheric greenhouse gas concentrations spiked dangerously upward in 2012. The Australian Climate Change Commission found that climate change is already adversely affecting Australians with record-breaking heat, severe bushfires, extreme rainfall, and damaging floods – byproducts of the “Angry Summer”.

Yet with the centrepiece of Australia’s climate policy not even a year old, most Australians are sick of it, or sick of hearing about it – fewer than 13% trust what politicians say about major public issues like climate change. And in the shadow of the Clean Energy Future package (CEF), state and federal governments are quietly letting other climate policies slip.

This “abdication of climate policy”, as Tristan Edis calls it, wouldn’t be so bad if Australia’s climate policy were perfect. But it isn’t; no policy is. The carbon price, while worth having, is a broad, blunt tool that covers two-thirds of Australia’s greenhouse gas emissions. The rest of the CEF fills in some gaps, but there is ample room for further complementary climate policy at a state and federal level.

I wrote last year on this topic, giving reasons why state (or other federal) climate policies could still be worthwhile under the CEF. This would mean innovative approaches such as:

• addressing areas that don’t respond well or rapidly to price changes
• shifting habits, socially-shaped preferences, or intrinsic motivation
• investing in worthwhile programs the private sector is unlikely to fund
• addressing goals other than least-cost abatement, such as improving energy efficiency in disadvantaged households
• making Australia’s climate policy robust; that is, giving it the ability to maintain a minimum level of performance under a range of possible future conditions.

My colleague, Paul Twomey, wrote in a similar vein the year before.

Academics aren’t alone in regarding (some) additional policies positively. Five years ago the federal government received a strategic review of its climate change programs, assessing them for efficiency, effectiveness, appropriateness, and complementarity with the Carbon Pollution Reduction Scheme (CPRS, the forerunner to the current Clean Energy Future package).

Named after its author, the 249-page Wilkins Review formalised criteria that governments could use to assess which climate policies complement a federal carbon price. Reasons for needing complementary policies included market failure, inefficiency, covering sectors that emissions trading can’t, helping people make informed decisions to change their behaviour, social equity, or where the underlying problems of climate change differ across regions. Some of those may sound familiar.

And it’s not as though states have never complemented federal policy, in climate or in other areas. One of the great benefits of federalism is that states can compete with each other to provide better policies, the best of which then (ideally) percolate to the national level. NSW had an emissions trading scheme in 2003, one of the first in the world. Queensland started transitioning to a lower-carbon economy in 2005 with its 13% Gas Scheme. Victoria’s Industry Greenhouse Program to regulate industrial emissions and energy efficiency was another world-leading climate policy.

Indeed, under the constitution, states – and councils – have a duty to act in many areas. They hold powers the federal government doesn’t – education, the environment, or town planning. These are clearly areas where state and local governments should be complementing federal climate policy, as they have not only the power but the best knowledge of the field. They are, quite literally, at the coal-face and on the front line of disaster management.

The need for climate action remains. The scope for complementary policy remains. The duty of governments to act remains. But in many areas, they are going backward. Energy efficiency activities are being scaled back. Construction of renewable energy plants is being cruelled. And electricity price freezes or subsidies are on the cards – as far from a complementary measure to a carbon price as is possible. How you can you make a polluting product more expensive if it’s subject to a price freeze?

These actions make Australia dangerously vulnerable to the fate of its carbon pricing scheme, and there’s no certainty it will last the next term of government. If the CEF is scrapped, or fails, what do we have to replace it? The Coalition’s Direct Action package has a far narrower scope than the current carbon price, and relies on soil carbon measures unproven at the suggested scale and cost. State governments aren’t competing to beat each other or the federal government on climate policy, as they once did.

As the risks of a dangerous climate increase, Australian governments are risking measures needed to ward it off and respond adequately. If GlobeScan polled me, I’d say that’s a very serious problem.

Martin C. Jones is an environmental economist from the Australian School of Business.

Rafal Chomik

Since its proposal at a 1910 conference, International Women’s Day, which we celebrated last week, has served as a reminder of the role of women in society and the struggle for equality.

The most commonly debated element of this struggle relates to balancing child care and work. Policy makers have responded with various measures.

In Australia and elsewhere even cuts to parental benefits are justified on the basis that they are aimed to help parents, particularly single mothers, into work. The recent introduction of paid parental leave for fathers and partners is intended to help parents become more equal in balancing work and family. And in courting women’s votes for the upcoming federal election the Coalition has pledged to take the issue further by proposing to extend paid maternity leave.

But another area of unpaid work in which women overwhelmingly participate involves care for people with disabilities and the elderly. Australian Bureau of Statistics data on unpaid care shows that women comprise 68 per cent of primary carers overall, 92 per cent of primary carers of children with a disability, 70 per cent of primary carers of parents, and 52 per cent of primary carers for partners. It translates to 1.5 million Australian women acting as either primary or secondary carers.

The benefit of this unpaid work is considerable. One set of recent estimates puts the value of unpaid care by both women and men at $650 billion – equivalent to 50.6 per cent of GDP.

But carers often bear the cost of their unpaid responsibilities. Informal care is associated with lower levels of formal employment, higher risks of poverty, and a higher probability of mental health problems.

Unpaid primary carers are half as likely to be participating in the labour force as non-primary carers. And when they are employed, they are twice as likely to be in part-time work and 30 per cent more likely to hold a temporary job. These impacts increase with hours of care provided.

Of course, the care involved may be incompatible with a full-time job or there may be a level of ‘self-selection’ into the role of unpaid care-giver by those who had lower market opportunities in the first place. But analysis shows that even controlling for such socio-demographic variation, informal carers are less likely to be in paid employment.

Lower employment rates, fewer formal working hours, and fewer household members with earnings can mean that unpaid carers have a higher probability of experiencing poverty. Women carers appear to be particularly vulnerable to such a risk. Moreover, less work and lower earnings during their working life translates to lower savings and incomes in retirement.

The psychological distress and isolation of caring and the lack of support are possible reasons why unpaid carers in Australia are shown to have a 40% higher rate of mental health problems than non-carers. Again, even controlling for socio-demographic characteristics shows that informal caring is associated with more mental health problems and that the impact is more detrimental for women. Being the recipient of a carers’ allowance does not seem to alter the negative impact on mental health in Australia.

With an ageing population the demand for informal care is only going to increase. Indeed, the Productivity Commission sees such care as an integral part of the Australian aged care system. At the same time, the Commission points to the likely reduction in availability of informal care due to demographic and motivational factors. Yet, most informal care is low intensity, with 55% of informal carers providing 0-9 hours of care. Such figures suggests that with the right level of support there is scope for some carers to increase their hours of care with limited impact on work and mental health outcomes. So how do we design support systems for informal carers that avoid the negative impacts?

The Australian government has started putting various measures in place. It developed a National Carer Strategy as a framework to address the economic, educational, and health needs of informal carers.

While flexible work for women with children has been on the agenda for a while, only recently has care responsibility across the life-course been recognised. Last month, the Prime Minister announced that the Fair Work Act will be amended to extend the right to request flexible working to carers – it was already available for those caring for children.

As ever, there is more that can be done. In January, the Sex Discrimination Commissioner, Elizabeth Broderick, released a report calling for a series of possible reforms to support unpaid carers including legislative mechanisms, flexible work arrangements, carer support payments, leave arrangements, services for carers, workplace initiatives and mechanisms within the retirement income and savings system.

Investing in unpaid carers would mean not only relieving pressure from the formal aged care system and improving the quality of care for recipients, it would also go some way to redress this particular area of gender inequality.

Rafal Chomik is a Senior Research Fellow at the Arc Centre of Excellence in Population Ageing Research at UNSW.

Sir Stuart Hampson | CSI Blog

When Jigme Singye was King of Bhutan he took the unconventional approach of declaring ‘Gross National Happiness’ as the measure of success for his government.  Bhutan is, of course, a country with a tiny population in a remote Himalayan region; it benefits from being able to sell hydro-electric power from its melting snow to its energy-hungry neighbour India, and you might say that they can afford to stand aside from the urgency of raising productive output or the international competitiveness of their workforce.  But during my fourteen years as Chairman of UK retailing group, the John Lewis Partnership (JLP), I felt a close affinity with Jingme Singye and his different view of life.  We didn’t have the magic equivalent of melting snow to drive customers through our doors, but our competitive edge was the power of employee ownership and the happiness it created.

John Lewis is the UK’s largest department store group and is widely regarded as ‘a great British institution’.  Its customer loyalty is legendary, and its readiness to publish weekly sales figures means that it’s regularly cited as a bellwether of the consumer economy.  The other part of the company is the Waitrose supermarket chain, a niche operator with some 4% of the UK market, but punching well above its weight with a reputation for high quality and product innovation.  With combined sales last year of £8.7bn (some AUD13bn) and profits of £354m (AUD527m), JLP would comfortably occupy a place in the FTSE100 – except that it’s not quoted.  JLP is a private company, and since 1929 it’s been owned by a Trust for the benefit of the people working in the business, all of whom are called ‘Partners’.  So, no outside shareholders, and almost half of last year’s profits – £165m – was divided up among the 81,000 Partners, with everyone, from long-serving Chairman to newly recruited part-time sales assistant, receiving the same 14% of their annual pay.  The rest was ploughed back into expansion of the business.

Like Jigme Singye, JLP starts from a different place from its retailing competitors, but this doesn’t mean it can ignore efficiency or customer attraction.  Despite that sobriquet ‘a great British institution’, there’s no room for resting on one’s laurels in the vigorously competitive UK retail sector.  Nonetheless, its unusual business structure enables JLP to strike a distinctive chord in its statement of corporate purpose:

The Partnership’s ultimate purpose is the happiness of all its members, through their worthwhile and satisfying employment in a successful business.

On first reading, this focus on happy staff might look like a defiant fist-shaking to the orthodox obsession with satisfying shareholders, but it’s just a logical extension of the well-recognised ‘employee-customer-profit chain’ concept championed by the Sears retailing group in the USA.  Sears saw that well-trained and motivated staff would serve customers better and lead to higher profits for shareholders, and therefore investment in the first part of that chain was beneficial to the dividend flow and capital growth which investors could expect.  Crucially, it went beyond the modern mantra adopted by many businesses of having to be ‘customer oriented’ as it recognised that the delivery of excellent customer service depended on the quality of the employees and the interest they took in caring for customers.  The former Chairman of Marks & Spencer Sir Rick Greenbury was proud of the reputation his company had for employee benefits: “We look after our staff well, but look at how well they look after our customers.”  In the same way, employees who feel a commitment to the success of their business will be better motivated to develop innovative products and processes, get the best out of supplier relationships and nurture a sound reputation in the community – all key ingredients to sustainable success and even to that goal of creating shareholder value.

The John Lewis Partnership converts the Sears model of an ‘employee-customer-profit chain’ into a self-sustaining circle.  Happiness isn’t just about having fun, working in a pleasant environment or being well paid for the job – though all three are energetically pursued.  The model asserts that happy Partners doing worthwhile jobs get satisfaction from those jobs, ensure that customers experience a high level of satisfaction too, and thus create a successful business.  There are three key points here.  First, the jobs have to be ‘worthwhile’ – no room for inefficiency or soft options, and experience shows that peer pressure in an employee-owned business creates an expectation of high performance rather than complacency.  Secondly, let’s be clear – there’s no satisfaction or happiness from working in an unsuccessful business.  And thirdly, the benefits of success are returned to the Partners, whose happiness and job satisfaction are increased accordingly. 

So, employee ownership creates a virtuous circle designed to achieve continuous progress, in contrast to the Sears model where the chain is seen in terms of the benefit to shareholders, who are divorced from the creators of success and where the objective is a flow of profit out of the business. 

Although I believe passionately in the merits of this kind of mutual ownership of businesses and feel encouraged to see it being more widely adopted, I’m also realistic enough to recognise that most companies have an established corporate structure which they’re unlikely to change radically.  Revolutionary cries of “more ownership for the workers” are not my scene.  I do believe, however, that companies which, in one way or another, embrace the concept of the self-sustaining circle described above will outperform their less enlightened competitors, give better service to their customers and deliver higher returns to their investors – which seems to me what most managements would see as their agenda.

Many companies might consider that they’ve grasped this point already by introducing profit-sharing schemes.  I’ll gloss over the observation that frequently the nature of such schemes either skews the benefit to the top echelons of management or encourages behaviour which is hostile to business sustainability (both topics currently enjoying plenty of public airing, and so I’ll say no more).  But if profit-sharing is to provide the incentive to improved efficiency and productivity, not only does it have to recognise that commercial success is the result of every person working in the business, but it also has to influence behaviour towards creating long-term success.

Profit-sharing is ineffective unless matched with constant communication – in two directions – on the link between the efforts of employees, whatever their role, and the profits which are generated.  Companies need to share knowledge – to update their employees as a matter of course throughout the year on the progress the business is making, to trust them with real figures, to engage them in the challenges it faces.  When I’ve suggested this to companies they frequently pale at such open disclosure and plead the need for commercial confidentiality, and obviously some information does have to be retained on a ‘need-to-know basis’ during sensitive negotiations or product development.  But generally it comes down to trust:  if you can’t trust your staff to know your figures and to be aware of your overall corporate strategy, can you really expect them to understand the direction the business is supposed to be taking?  Can you trust them to convey to your customers the corporate image which might be in the mind of top management?

Sharing information is the essential starting point, but this needs to be linked to what some may see as the even more unnerving idea of sharing power – taking notice of what employees are saying and harnessing those ideas for improving the business.

Again, the John Lewis Partnership’s unusual constitution means that it has crystallised this process in its statement of purpose:

 “Because the Partnership is owned in trust for its members, they share the responsibilities of ownership as well as its rewards – profit, knowledge and power.”

As well as sharing profit, conventional shareholder/owners also expect to enjoy full knowledge about their business and to have the ability to wield power at least through their ability to appoint directors.  At JLP this opportunity applies to all employees – Partners – but it isn’t seen as a right but as a responsibility.  Employee/owners don’t take a share of the profits just through turning up at work.  They have a responsibility to share knowledge about what’s going on in the business – contributing their experience and perceptions and facing up to some of the unpleasant truths about the competitive scene.  And then they have a responsibility to use their power to do something about it, both through their individual actions and also through elected councils which are involved in many commercial decisions. 

Companies might be nervous that consultation will slow the business down, and in the 1970s the Labour government in the UK encouraged the setting up of worker co-operatives which precisely demonstrated that weakness.  At JLP there isn’t management by committee.  In contrast to the fashionable enthusiasm for ‘flat companies’, it recognises that business decisions are of varying magnitude and need to be taken at various levels of authority.  Hierarchies are beneficial to speed of management initiative, as long as they are characterised by respect for the essential contribution made at all levels and for the people making that contribution.  I was always conscious that I didn’t serve customers, and yet the John Lewis reputation depended every day on the care taken over that critical interface.  Respect for the ‘front line’ sits alongside  the importance  of the strategic planning  provided by senior directors.  Sharing power implies no diminution of the responsibility of management to manage, but there is an expectation that this will be matched by a willingness to explain and to listen to the views of Partners who haven’t been involved in that part of the business. 

If one judges by published Reports & Accounts a large proportion of companies ought to have no difficulty with this approach.  “Our greatest asset is our workforce” is a truism which is rarely omitted, but too often these are empty words.  The consistent performance of JLP demonstrates that consultation and genuine sharing of information and responsibility between managers and managed is an accelerator not a drag anchor.  It’s often described as ‘managing in a gold-fish bowl’.  Undeniably, for some managers brought up in a more authoritarian school this style of management will prove uncomfortable or maybe even impossible.  The good news is that those managers will tend to work for the competition!

In case I seem to be describing a Utopian vision of management when everyone can be happy all the time, I readily acknowledge that employee-owned businesses go through tough times just like any other company.  Sometimes units which clearly have no long-term future have to be closed down.  This was the conclusion reached about two small department stores in the London suburbs, and the decision to close them down meant that the jobs of 800 Partners were lost.  Not much happiness around when that news was broken.  But the survival of an employee-owned business – just like any other – will involve tough decisions, and the greater good of the business as a whole is well understood.  Probably the main distinction of JLP when handling those job losses was the extent to which there was forward planning, holding vacancies at other neighbouring department stores and Waitrose supermarkets and arranging transfers where these were feasible.

In his book ‘The Loyalty Effect’ [Harvard Business Press 1996] Frederick Reicheld quoted some grim statistics:

US corporations lose half their customers in five years, half their employees in four years and half their investors in less than a year.

He painted a picture of a future ‘where business relationships are opportunistic transactions between virtual strangers’.  I find that an unappealing prospect in terms of the kind of dysfunctional society it predicates as well as its contradiction of the aim of business sustainability.  Yet it’s a prospect which is encouraged by a narrow focus on short-term profit as the indicator of success.  The ability of a company to survive through bad times as well as good – and that much targeted goal of shareholder value – is the outcome of a process driven by the engagement of its employees.  Anyone hoping to create long-term value needs to concentrate on the people who will make a difference rather than on the share register or the quarterly profit figure analysts are expecting. 

The accountancy profession will have problems determining how ‘happiness’ can be quantified as an asset on a company’s balance sheet, but the extent to which it is identified as a management objective will provide a better forward indicator of performance than just historical financial data.  Happy, satisfied and committed employees will want to stay with a business.  They’ll ensure that you have loyal customers, engaged suppliers and a sound reputation in the community

If you’ve worked in a company which already practices these ideas, then it seems impossible to think of managing in any other way.  The idea of ‘mutual interest’ is self-evidently practical and powerful.  If, however, you’ve seen nothing but ‘command and control’, all this consultation must look scary – but not as scary as being overtaken by competitors which are sharing knowledge, power and profit with employees throughout their business and enjoying the acceleration in performance which that brings.

This post previously appeared in the CSI Blog: Happiness – the key to company sustainability

Dr Mehreen Faruqi

In 2012, the focus of the 40th World Environment Day and the UN Conference on sustainable development, Rio +20, is on greening world economies.

The United Nations Environment Program (UNEP) defines a green economy as one “that results in improved human wellbeing and social equity, while significantly reducing environmental risks and ecological scarcities”.

However, despite a focus on sustainability, we are currently in the midst of an economic crisis; our environment is under threat from the significant looming effects of climate change; global forests are shrinking; rates of species extinction are higher than ever before; and although health and wealth may have increased on average, these benefits are unevenly distributed, and the divide between rich and poor nations and individuals is deepening.

So why is it that after decades of environmentalism and sustainable development, we live in a world where environmental degradation is worsening and poverty and hunger increasing?

It would be unfair not to recognise that effort has been put into minimising human impacts on the environment. Governments have instituted environmental legislation and regulation, progressive businesses place increasing emphasis on social responsibility, and individuals are adopting environmentally friendly practices.

However, much of the focus has been on discrete, easier to manage issues such as industrial air and water pollution, and some ‘trophy‘ projects such as green buildings, renewable energy, water, and waste recycling. Progress on resolving harder to manage ‘wicked’ problems such as global climate change, increasing water scarcity, and inequalities of wealth distribution has been slow and patchy.

Traditionally, environmental problems have been framed as narrow, isolated bio-physical phenomena with linear cause and effect chains which have been ‘fixed’ using technical solutions such as pollution control e.g. air filters on factory stacks. This has resulted in short-term, band-aid solutions that treat the symptoms only while underlying causes persist over a much longer-term.

A complex systems view of the world where our economies, societies and the earth’s ecological systems are inextricably linked and form a dynamic interdependent system has challenged these traditional notions of a mechanistic and fragmented world.

More and more, sustainability problems such as climate change, natural resource depletion, and social and economic inequities are seen as multidimensional, having many interconnected causes and effects, uncertain and unpredictable consequences, and no clear-cut solutions.

Addressing such problems requires not just scientific and technological solutions but also significant, and some even argue radical, changes in societal systems, values and lifestyles as well as in government and corporate policies and practices.

If we are serious about greening our economies and achieving sustainability, this chasm between traditional and contemporary views of the world will have to be bridged urgently, so innovative and creative thinking can be unleashed.

But this requires making fundamental changes to the way we approach problems, rethinking business as usual models of growth and development, and shifting away from unsustainable patterns of production and consumption.

These changes have to be underpinned by ‘strong sustainability’ recognising the intrinsic value of the environment and the dependence of our society and economy on our natural systems.

Our neoclassical economic systems of accounting such as cost-benefit analysis favour short-term profits and do not accurately reflect the negative social and environmental consequences that occur over the longer-term.

We measure growth and development using GDP, which in fact only measures economic activity. Measuring long-term sustainable growth and wellbeing requires indicators that reflect social, environmental and economic growth. Failing to do this could mean another half a century of rhetoric about green economies without any appreciable change.

Such profound change that contests long-held views of ‘thinking and doing’ essentially requires a ‘new’ and courageous model of leadership in government, organisations and communities. Rather than leading through individual power and authority, new leaders prefer distributed leadership and are collaborative, flexible and adaptive.

Changing dominant mindsets is no easy task, and exercising new leadership is risky and dangerous as it requires stepping out of the security of business-as-usual practices into unknown situations to confront conflict, uncertainty and unpredictability.

The choice of not taking this risk, however, may leave our future generations with no choices at all.

Mehreen Faruqi is academic director of the Master of Business and Technology (MBT) Program and Associate Professor at the Australian Graduate School of Management (AGSM) within the Australian School of Business at UNSW.

This article first appeared on the Drum, 5 June 2012.