As quite a long-standing President of WaterAid, I particularly want, if I may, to thank KPMG for their incredibly kind and generous support of WaterAid. It will make all the difference to the challenges they are helping people to overcome in so many different parts of the world.
Believe it or not, I was in India last month and visited the village of Tolesar Charan, in Rajasthan, which sits in the most densely populated arid zone in the world. They get as little as four inches of rainfall in an entire year, so the importance of the work done by WaterAid cannot be over-stressed. Clean water is essential for life, yet one in eight of the world's population does not have access to it. WaterAid works to improve access to safe water, as well as hygiene and sanitation in the world's poorest communities, and this is why I am so grateful to KPMG for supporting their work.
I am afraid that my personal contribution to the process when I was in India was a little less effective. Rather unexpectedly, I was persuaded to take part in a Hindu rain dance. Equally unexpectedly, they gave me a small parasol to hold above my head as I danced. You can imagine, perhaps, that the press had what might be called a field day! But it didn’t exactly encourage the heavens to open…
Others, though, seem to have been more successful. There was an increase in rainfall this year which replenished those vitally important, traditional water-harvesting check dams that still exist in the region and good work is being done to increase their use throughout Rajasthan. Thankfully, people there have had the far-sightedness to recognize the value of this traditional approach to water management, which was comprehensively about sixty years ago. They are taking the sort of long-term view that will only become more crucial if climatic conditions get worse, as they are expected to do. And this is my point this evening.
The primary issue you will be considering tomorrow is, I am told, the new world economy and, if I may say so, you could not have chosen a more important and apposite topic.
We have without a doubt arrived at a crossroads in the development of the world economy and we cannot ignore the choice that now faces us. One route offers a somewhat more peaceful and harmonious outcome, which will require us to create the conditions for coexistence and mutual understanding - where we find the means for truly sustainable development and establish durable economies. The other route – the one I fear we are inclined to follow, if not already on it – promises only the very real chance ecological decline, a massive loss of biodiversity, increases in social tension, economic insecurity and conflict. Already this is happening over scarce fish stocks, as we’re beginning to see. This may sound a rather too certain prognosis or even a gross over-characterization of the choice we face, but looking at recent evidence, and acknowledging the fact that I am anything but an accountant, I find it impossible to come up with any other. The question, then, is why are we on this path?
I have no doubt it comes down to how our current approach forces us to live off more and more of Nature’s capital, rather than sustaining ourselves from the income derived from that capital. It seems self-evident to me that, given we cannot have capitalism without capital, we have to recognize that the ultimate source of all economic capital is Nature’s capital. In other words, the health and stability of our economy are profoundly and directly dependent upon the health and stability of the natural environment, and the people living within it – not the other way round.
The damage that we are doing to our atmosphere through the emission of carbon dioxide and other greenhouse gases is the best known example of this economic illiteracy – what Lord Stern in his seminal report on climate change called “the greatest market failure in history.” But we have other problems too.
For instance, it is widely accepted that there is a crisis in the world’s fisheries. Over seventy-five per cent of commercially valuable fish stocks are either fully exploited or over-exploited. That is a fact. The impact of the collapse of fish stocks on the 200 million people employed in the world’s fisheries and on the billions of people who depend upon fish as a major source of their dietary protein will be catastrophic. And bearing in mind the way we are going, this will happen.
If you then add in the fact that global population is expected to grow to 9.3 billion people by 2050, plus the fact that twenty-five per cent of the world’s agricultural land is already degraded or is at risk – each year, would you believe it, 12 million hectares is lost – you begin to see that we have engineered all the makings of what might be called a perfect storm. And let’s not forget that water consumption will increasingly become the critical factor in determining agricultural production. Only five per cent of the world’s water is fresh and yet seventy per cent of that small quantity is used in agriculture. A staggering thirty-five tonnes of fresh water is needed to make a single tonne of artificial fertilizer in the industrialized world. It is worth, perhaps, remembering that the total amount of water circulating throughout the world is in fact finite - and yet, at the same time, there are currently one billion people who are chronically undernourished, who live on less than a dollar a day and who have no access to any clean water whatsoever.
Consider, also, that cutting down the world's rainforests to feed livestock thousands of miles away, or to produce palm oil along the conventional monocultural lines being used, not only destroys the vital biodiversity of the forests and pumps more carbon dioxide into the atmosphere than the world's entire transport sector, it also reduces the amount of that precious rainwater that falls on farmland in many regions of the world. Wherever you care to look, our approach is eroding elements of Nature's capital at an alarming rate, even though Nature's capital is the very bedrock of the kind of economic capitalism we have come to take for granted.
It is a very challenging conundrum, but it is a puzzle we simply cannot ignore any more. We have to consider the solutions because, if we don’t, we will effectively be locking our children and grandchildren into a very grim future and then throwing away the key.
What is it, then, that we must do to ensure that we choose the path towards sustainable economic development? If I may say so, I think that there are two simple elements.
Firstly, we need to do everything we can to look to the long-term. We need to think much more about others and about tomorrow, just as much as we do about ourselves and today.
Secondly, we need better information so that we can see that acting with the long-term view in mind, and in the best interests of communities and the environment, is in fact the right financial approach and that it is not just an expensive luxury to be discarded rapidly in times of economic downturn.
Try as I might, I don’t want to be too gloomy on an evening like this, but if we just cast our minds back to the credit crunch and the effects of the recession which we are still battling with, it is now clear, I think, that governments, regulators, investors and consumers did not understand the systemic risk of operating in an overly debt-fuelled economic system. It has been a painful lesson to learn, which I can only hope we have learnt, simply because if we fail to understand how much of a systemic risk we take by over-utilizing the world’s natural capital, then the consequences will be far, far greater. We will see much more economic disruption and much more human deprivation and misery than we did after the bankruptcy of Lehman Brothers on 15th September 2008.
This, then, is why I set up my Accounting for Sustainability Project some six years ago - to ensure that we are not battling to meet twenty-first century challenges with twentieth century decision-making and reporting systems. My hope is that this will become an important part of the way forward by helping to provide the better and more comprehensive information we need in order to create what I can only describe as a “sustainability revolution.”
The project, therefore, is developing the practical tools and approaches that allow the sustainability of business practice to be taken into account on a day-to-day basis. This includes a new approach to reporting – an approach that reflects the inter-connected impact of financial, environmental and social factors on an organization’s long-term performance. We call this approach ‘Integrated Reporting’ and I am pleased to say an increasing number of organizations – including the UK Government, and the international groups, EDF Energy, HSBC and Aviva – are adopting it. I am also delighted to say that in July we launched the International Integrated Reporting Committee which is a global group, supported by the world’s accounting and standard-setting bodies, everywhere from Sao Paulo to Washington to Beijing. It is also backed by the main international accounting firms and by the UN, as well as the Stock Exchanges and by a number of charities, academics and others working in this area. KPMG has again been enormously generous in supporting the work of my A4S Project and I really could not be more grateful.
The intention, therefore, is to induce a global system for accounting for sustainability with the aim of putting forward proposals at the time of the G20 meeting in the second half of next year. And, if I may say so, it is clearly timely.
You only have to look for instance at the report delivered to a gathering of 193 Environment Ministers in the Japanese city of Nagoya last month to see what I mean. It was prepared by a UN initiative called The Economics of Ecosystems and Biodiversity, or TEEB, that firstly conducted a global assessment of the multi-trillion dollar importance to the world's economy of the natural world. And then, from this, they defined the kinds of policy-shifts and smart market mechanisms we need if we are to respond to the many challenges that arise from the loss of natural capital.
Top of their list was a call for the present system of national accounts to be upgraded rapidly, so they include changes in the stocks of natural capital and accurately reflect how the services offered by natural ecosystems are performing.
They also wanted to see public disclosure of the impact of business activity on the natural world, including environmental damage that affects society. They called for the inclusion in statutory accounts of changes in natural assets that are not currently disclosed and the introduction of incentives that encourage business to maintain biodiversity and safeguard ecosystems – tax breaks and other fiscal transfers that persuade both the private and public sectors to ensure the stability of Nature's systems. And it called for the phasing out of those government subsidies and mechanisms which, perversely, often end up eroding the vital, natural components that provide us with our essential capital resources.
The report also reiterated something I have long tried to encourage businesses to recognize - that we should not regard these ideas as a kind of tax. We should see them as a powerful investment for the future. TEEB called for the conservation of ecosystems to be considered as a viable investment option. Why? Because mitigating things like the impact of climate change will inevitably help the viability of many businesses in the long-term. Only through this kind of thinking, this kind of international collaboration and leadership, can we hope to achieve the sorts of dramatic changes we so urgently need to create.
And when you think about it, perhaps discussing a new paradigm could be a natural corollary on the work done by Accounting for Sustainability.
Ladies and gentlemen, these ideas call for big shifts in our thinking which can only happen with your commitment, your intelligence and your creativity. The business community around the world not only has the resources, it also has the brain power to find the right solutions. However, if I may say so, this will only happen if you turn your sights properly on the long-term. You have to consider how we might wean ourselves off a business culture locked into the vicious circle of short-termism. And I hope you can now see that an important element in doing this is broadening and improving the accounting information on which you base your long-term decisions. Make no mistake, they may not seem so, but the decisions you take in the next few years will have a cumulative effect upon humanity’s ability to survive in the long-term. You may not want to hear this from me, or you may join the sceptics and disagree with me entirely – but how, may I ask, are you going to face your grandchildren and tell them that you wish you had taken the action needed when you could have done?
As the Native American proverb says “We do not inherit the Earth from our ancestors, we borrow it from our children.” This is not a time for inaction, in my opinion, and all the evidence suggests that it is no longer possible for us to carry on with business as usual – if, that is, we hope to become truly mindful of the impact our actions now have on the lives of those who follow us. And who better to take the lead in defining a model for a new world economy than you, ladies and gentlemen, here tonight, accountants, economist and marketing experts working together. I believe that your discussions tomorrow will represent an important and practical step in addressing the daunting challenges that confront us, and I very much look forward to hearing what you come up with.