I am enormously touched and flattered by such a warm and friendly welcome here in this remarkable part of the world, in this particularly remarkable city.
And - although after talking to you all for the last hour I am going to lose my voice! - I just did want to say that it seems far too long since I was last in California. It really must be something like 29 years ago that I picked up this splendid tie! It is wonderful to be back here in this wonderful part of the world again with my darling wife.
And if I may say so I am so glad that you still have in this city the wonderfully evocative sounds of the trams in San Francisco and that they haven't changed. It is a very evocative sound I promise you. It reminds me of the sound of our trams all those years ago. It was also a great treat to see some of the rural side of the state Marin County a few days ago. But what fascinates me is the way the state here has become both an economic powerhouse and the centre of so much environmental thought and action. I am told that one of the first issues faced by the newly formed state government in the 1850s was what to do about the debris from hydraulic mining for gold. And, of course, similar challenges of reconciling prosperity and the natural world have been faced ever since.
This dilemma in our society has been highlighted in our own age by the sheer extent of the impact our technology can make on the natural environment. That is why, eleven years ago, I set up my Business and the Environment Programme, specifically to challenge business leaders to understand and engage with a wide range of environmental and social issues. Since then, more than 1200 senior business people have attended the Programme's four day seminars, creating a powerful alumni network. In addition to being the foremost learning programme on sustainable business in the United Kingdom, it has also had huge success in Continental Europe, on the East Coast of this country and in Southern Africa. I am delighted that this occasion marks the launch of the Business & the Environment Programme here on the West Coast, and I am enormously grateful to all those whose generosity has made today's event possible.
I receive a lot of very enlightening feedback from the people who attend the seminars. They tell me that the sheer pace and intensity of everyday business life makes it difficult for them and their colleagues to see the big picture. As a result, environmental considerations can be all too easily overlooked. But it is equally clear that when business leaders do have the opportunity to concentrate on these issues, and are convinced by what they hear, they have extraordinary capacity to make things happen. For instance, in 2004, Fred Buenrostro, Chief Executive of this state's Public Employees Retirement System pension fund, CalPERS, took part in our seminar at Cambridge University in England. When he returned he talked to his counterpart in the state teachers' pension fund and the two organizations have now jointly committed $1.5 billion to sustainable investments. They have also taken a series of other actions to secure environmental benefits through their investments. This sort of leadership is not without risk, as you can imagine, in the rather conservative world of investment management, and I am particularly pleased to be able to acknowledge it here in California.
Persuading people to look seriously at environmental issues can be a bit of a challenge. I know – I've tried it for quite a long time! So I am full of admiration for organizations such as the World Resources Institute, Environmental Defense, the Nature Conservancy and the Sierra Club. They and others do really magnificent work in raising awareness of both problems and solutions. But there are always calls, from both believers and disbelievers, for ‘more science' and ‘better data'. So the publication of the Millennium Ecosystem Assessment, commissioned by the United Nations and drawing together contributions from more than 1300 experts around the world, was an important milestone. Incidentally, I really do recommend you all read it as a matter of priority.
The Millennium Ecosystem Assessment shows quite clearly that, in the words of the authors, ‘human activity is putting such strain on the natural functions of the Earth that the ability of the planet's ecosystems to sustain future generations can no longer be taken for granted'. The report goes on to describe climate change as ‘a chemical experiment humans have been conducting on the atmosphere for the past century and a half', and says it is an unprecedented challenge to the resilience of the Earth. Coming from the United Nations, this is pretty powerful stuff…
In Europe we have recently faced extraordinary droughts, heatwaves and flooding; perhaps partly as a result of climate change. All the serious scientific advice we receive indicates that we will see more of these and other damaging consequences as climate change starts to bite. So we can easily understand the concerns in this country that similar effects, such as the predicted potential for increased ocean temperatures to drive more intense hurricanes, may be seen here - if indeed they are not already having an impact. It is certainly not a coincidence that the insurance industry, which needs to look harder and further ahead at risks than most, has been in the forefront of identifying the potential consequences of climate change.
It seems that there is now almost complete global scientific consensus about the links between climate change and developments such as the rapid changes to Arctic sea ice and major reductions in permafrost in Russia – and this appears to be better reflected in the media and public discourse than previously. At the recent East Coast seminar of my Business and the Environment Programme there was almost unanimous agreement amongst the business delegates that climate change is indeed a current reality and that it is imperative there is no further delay in finding and implementing a full range of appropriate responses. But, of course, the $64,000 question (allowing for inflation and the exchange rate!) is whether we can rise to this challenge quickly enough…
Now, anyone who might be inclined to doubt the commitment of major businesses, on both sides of the Atlantic, and indeed around the world, to taking action should look at the publication ‘Carbon Down Profits Up' produced by the Climate Group. This documents the achievements of business, cities and whole regions in reducing emissions and deriving significant economic benefits from doing so. One of the most significant examples quoted concerns this state. California, which of course is also the world's sixth largest economy, has already saved $20 billion in electricity and natural gas expenditures and, by 2011, forecasts saving a further $57 billion. Among companies, GE stands out for its Ecomagination initiative, which will see $1.5 billion invested every year into clean technology by 2010.
In addition to climate change, the Millennium Assessment and many other recent scientific reports provide us with stark warnings (and they are stark) about other growing environmental problems, such as over-fishing, desertification, loss of forests, declining freshwater aquifers and nutrient pollution. Addressing all these threats to our long-term survival will clearly require a massive and co-ordinated response from all sectors of society and in all nations. We simply can't go on as we are. Somehow we have to find the courage to re-assert the once commonplace belief that human beings have a duty, a duty, to act as the stewards of creation.
An important first step will be to stop arguing about how we got into this situation - or, indeed, about whether the situation exists at all - and start thinking creatively about what we need to do to start putting things right, before it is actually too late. We might start by inviting all concerned to accept that the world of business depends on the natural environment and natural resources, and not the other way round. That means that the business community, whether they realize it or not, has a common cause with a wide spectrum of environmental organizations in taking effective action on behalf of the natural environment.
Let me just explain that a bit further, because I know it goes against the grain of some people's thinking. Long-term success in any business is achieved at least partly, I would have thought, through minimizing risks and building value. And neither of those things is going to be possible in the kind of unstable world of diminishing natural resources and degraded ecosystem services described by the Millennium Ecosystem Assessment.
In the 19th Century we learned that to keep our economies growing it was necessary to invest in maintaining the social conditions necessary for that growth. We no longer argue about the importance of making investments in health or education or a social safety net – even though we will probably always argue about how best to do this. In the 21st Century we clearly need to learn to invest in maintaining the environmental conditions for continued economic development. One of the hard lessons from the Millennium Ecosystem Assessment is that we are not yet investing enough in this area.
Against this background it is tempting to argue that we will need a radically different economy to make real progress towards an environmentally secure and sustainable future. And perhaps we will. I don't pretend to be an economist, but surely, we should first look at what we already have, and find ways to make it work better?
The market economy has got us where we are today. For better or worse, we know how it works and we know that it has changed and adapted successfully in the past. Economic theory says that the market provides an efficient way of mobilizing resources, such as capital, land and labour, to improve people's lives. But for the market to work in the cause of environmental sustainability, the price we pay for things would need to reflect accurately all the true costs of production. This would mean factoring in all the costs of environmental damage and resource consumption. It would also be essential to look at the role of subsidies. Experience shows that, whatever their intention, subsidies tend to work against the protection and enhancement of natural capital. Too often in the past, even when introduced on environmental grounds, subsidies have ended up creating even greater, if unintended, disbenefits in other areas.
One of the dilemmas we face is that this sort of approach will inevitably require careful direction of entrepreneurial activity. Political courage, good judgement, well-designed regulations and wise fiscal policies are all essential if business endeavours are to produce benefits to the environment and to posterity, as well as to shareholders. This, of course, is very much a role for Governments. The power of the consumer can also be harnessed in this process, to deliver additional signals about what is and is not acceptable and desirable in the eyes of society. But the consumer cannot make proper choices without a degree of transparency that is not always attainable. Cross-sector partnerships have much to offer in this respect, with initiatives such as the Diamond Development Initiative leading the way in demonstrating what can be done to inform consumer choice and drive change.
The problems and challenges of the market economy are seen most starkly at a global scale. On the one hand, the global economy provides huge opportunities to bring emerging and developing economies into international trading and financial systems, thereby assisting those countries to lift themselves out of poverty. On the other hand, access to those same international systems can lead to new problems in the developing world. I have often said in gatherings such as these around the world that globalization of opportunity has to be matched by globalization of responsibility, and there are indeed many examples of multinational companies delivering real benefits through their activities in the developing world.
We also have to accept that globalization often comes at a most alarming price for the future, and that price may be paid in terms of displaced rural communities, an intensified drift towards already overcrowded and inhumane urban slums and the destruction of social and cultural systems built up over many centuries. I believe that developed and developing world economies will need to accept that they have a common responsibility to develop policies that will mitigate the damaging effects of rapid growth.
One of the concepts in the market economy that surely needs close examination is growth. The orthodox view, of course, is that the pursuit of economic growth is what drives wealth-creators and secures prosperity for nations and their people. And of course that's true – up to a point! As Senator Robert Kennedy put it so succinctly in the 1960s, GDP “is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. GDP measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything in short, except that which makes life worthwhile.” And I would add that it doesn't deliver environmental sustainability either.
So what sort of growth do we need? I suggest that, as a minimum, we need growth that is not achieved at the expense of the ‘natural capital' on which we all depend. As with financial capital, when we do spend natural capital we need to ensure that we are doing so wisely, and that we take steps to replenish it, if not for ourselves then for our children and grandchildren. This means accepting the concept of natural limits in a resource-constrained world.
We also need growth that promotes sectors and technologies which will reduce our reliance on declining fossil fuel resources, growth that generates lasting value for consumers and citizens, as well as shareholders, and growth that emphasizes improved wellbeing, not merely consumption.
And achieving this sort of growth will require innovation, of which there has never been any shortage in this country, and particularly, if I may say so, in this state. The United States of America has an extraordinary capacity to solve problems, to find ways of doing things that were thought impossible and to bring them to market. The advances that have been achieved here in renewable energy, for instance, and in the development of fuel cells, have had an impact around the world.
The challenge of achieving environmental sustainability provides unprecedented economic opportunities for innovation. This process moves even more quickly when there are unmistakable price signals from the market, as in the case of rapidly rising oil prices driving demand for fuel-efficient cars – seen first in the 1970s. It is interesting to note that between 1977 and 1985 the United States cut oil use by 17 per cent, while GDP grew by 27 per cent. In the same period, total oil imports fell by 50 per cent and imports from the Persian Gulf fell by 87 per cent. With 70 per cent of oil being used for transportation, it seems that fuel efficient vehicles hold the key to energy security in the United States. This was no doubt one reason why fuel efficiency standards were introduced in 1978, when the average consumption was 16 miles per gallon. By 1987 that figure had increased to 22 miles per gallon. After a further 18 years it has actually decreased to 21 miles per gallon, and it will be interesting to see what happens now that oil prices have risen rapidly once again.
It is clear that capitalism is by far the most dynamic economic system for driving forward new technologies and processes. So how do we harness and shape innovation to the cause of sustainable wealth creation? The essential first step is for Governments to set the clear, long-term frameworks which will provide sufficient security for businesses to make major investment decisions. In doing so they must provide a spur to eco-efficiency – making the best use of natural resources - and ‘closed loop' systems which eliminate waste. The aim has to be to decouple the benign growth we need from the damaging externalities, such as pollution, waste and climate change that we need to avoid. At the moment we too often appear to be living in a “throwaway” society and, increasingly, a “throwaway” world…
We also have to find ways of ensuring that technological breakthroughs work as much for the world's poorest people as they do for the rich world. This is particularly important in the case of climate change since the negative impacts will fall disproportionately on already vulnerable communities in the poorest parts of the world. One of the keys to success, therefore, will be to put a full and proper value on ecosystem services, because in doing so we will generate more demand for new, less damaging technologies.
But let me just add a word of caution. It is all too easy to get carried away with enthusiasm for new technology (and at this point I can hear the usual, predictable cry that I am “anti-science”, which I am not – I am just pro its appropriate use). As one good idea succeeds another, it would be tempting to conclude that nothing is impossible, that there are no limits to human ingenuity and that every problem we encounter can be ‘fixed' if we just apply enough time and research dollars. I may not be an economist, but I am a historian and I would have thought history suggests that attempting to re-engineer our planet is fraught with danger and that simple solutions are usually the most sustainable. In the drier parts of the world, for instance, water-harvesting is more sustainable than massive water-transfer schemes. Energy efficiency is more sustainable than developing new power stations. Organic farming is more sustainable than the use of chemical fertilizers and pesticides, and will become more so as the price of oil rises. Preventing pollution through good design is more sustainable than end of pipe or clean-up solutions. And I could go on…and on….
But if environmental sustainability is the aim, how will we monitor progress and measure success? And how will we know whether our prosperity and quality of life today are being achieved at the expense of our children and grandchildren? In a world of scarce resources it is essential that we secure the best value for money over time. But, with all due respect to accountants, their profession tends to look at historical costs, not future consequences. Our accounting mechanisms simply have not kept pace with our requirements for information about sustainability. That is why, if I may say so, I established an “Accounting for Sustainability Group” with the active assistance of Britain's National Audit Office to see, in particular, what could be done to encourage longer-term and broader perspectives in decision-making, which are, of course, the essential prerequisites to ensuring that we live and work more sustainably.
This group published a booklet, entitled ‘Realising Aspirations', earlier this year and I then – rather hesitantly I must admit! – launched it at the 125th Anniversary dinner of the Institute of Chartered Accountants in London. This made two over-arching points. Firstly, that sustainability can be good value for money and can enhance rather than be an enemy of economic growth; and, secondly, that a new accounting and forecasting system is needed to ensure that the longer term and broader consequences of our actions are taken into account more effectively in decision-making. The Group is now determined to raise the funding needed to develop such a new accounting system. But as you can perhaps imagine, that isn't necessarily an easy proposition…. If you need some light, bed-time reading, copious quantities of this booklet should be available as you leave this seminar… And perhaps the U.S. Government's Accounting Office, the equivalent of our National Audit Office, might be interested to glance at a copy too…
Ladies and gentlemen, I fear I am the kind of interfering busybody who, when I read the list of conclusions produced by the Millennium Ecosystem Assessment, finds myself quite unable to sit back and do nothing. There are clearly no easy answers, but our actions, or inactions, will all make a profound difference to the lives that our descendants will lead. I simply cannot stress this more strongly. For their sakes we must take a longer term view. One day our children and grandchildren will look back and assess what we did, in the light of what we knew. At the current levels of progress it seems likely that their assessment of our generation will be rather harsh. But there is a lot that we can each do, and it is the cumulative effect that matters. In my case I can both raise these issues (as likely as not to a chorus of well-orchestrated abuse!) and try to demonstrate what is possible, as I have done with my various organizations, with the organic farm at Highgrove and new models of integrated development at Poundbury, in the South of England, and elsewhere, and with a current study into how my whole establishment could become more carbon neutral.
Throughout my lifetime, your country has been willing to take responsible actions for the greater good of the global community, even when it had no direct need to do so. The environmental crisis we face is another situation in which I believe the United States could use its power and influence to help create a sense of unity in a common cause among disparate peoples and sectors of society. This country had the strength and conviction to forge, and indeed continues to forge, a single nation from people from all over the world. Those same characteristics could be harnessed to create a united sense of purpose around the agenda of environmental stewardship and a market economy reshaped to deliver it. If that were done, the benefits would be felt around the world, and for generations to come. And the people who can perhaps do more than most to make it all happen are right here in this room.