Don Argus' Address to ERBEI Forum, 19 March 2002

Don Argus

Well, first of all, it would be inappropriate for me not to stand here and apologise for being late to attend this forum but when the plane sits on the tarmac for an hour, then I ‘m afraid I can’t do much about it. I’ve titled my delivery tonight "The Guidelines of Actual Sustainable Development and Business Ethics". You’ll pick up a theme of where it all fits in. I don’t like to deal with these things in isolation because I think there is a correlation between the three subjects I intend to cover. Over the last, I suppose, couple of years we have had countless opportunities to read articles and watch television programmes speculating on the trends that will shape the twentyfirst century. Magazine after magazine have published special issues devoted to the ideas, the technologies, the people who will give shape to where we are going to finish up at the end of the twentyfirst century. What all this special news coverage had in common was optimism stemming from the potential in societies around the world for future development, particularly future development of humanity. What was too infrequently mentioned, of course, in all of these articles, even when there was discussion of energy and environmental issues, was the concept of sustainable development. I don’t think anyone here will argue that the opening up of the world markets has led to unprecedented economic growth but of course that growth isn’t shared equally across the globe and so the benefits of free and open markets are being questioned by some.

The protests at the WTO Ministerial Meetings in Seattle and the World Economic Forums that we’ve all read about emphasise the tensions which globalisation has caused and is causing. Earlier, in 1999, stressing the need to underpin the free and open market system with stable and just societies, the UN Secretary, Kofe Annan, challenged business to embrace a set of core principles for human rights, workers’ rights and environmental protection. He called this the "Globalisation with a human face" and I was present at that meeting when he uttered that particular statement.

I’m firmly of the view that business cannot take open global markets for granted. It must demonstrate that the economic growth which globalisation has fuelled and, I suppose, confers benefits which we can all share. This, in part, if you like, is securing the business’ long term ‘licence to operate’. Now, what is this dreaded word ‘globalisation’? There have been lots of people stand up and give their view of it and I have certainly stood up and spoken about it on numerous occasions. I think the violent demonstrations to which I referred have ensured that at least globalisation has now become a household word. Reality, however, is that it is a process which has ebbed and flowed now for as long as I have been reading history. This process of globalisation has deepened and broadened in my view the economic and political connections amongst the world’s communities, perhaps at this stage the connections between the more developed communities, rather than the developing communities.

Just so that we are all interpreting the ‘globalisation’ from the same page, the fundamental economic mechanisms through which globalisation occurs have three elements in my view: one is trade investment, the second one is the economic liberalisation and the third one is the effect of privatisation. The growth of the Internet and the increased access to computers has also, in my view, been a key and unique factor in this development, particularly with the communication transfer.

 

Each of us, of course, can identify how globalisation has increased the pace and scope of change that we are all living in. We’ve seen growth and contraction in industry sectors in both developed and developing countries and the related impacts on the communities where these industries are located. You can imagine telling someone that "globalisation is good for you" and yet you’re closing down the factory they are working in and they lose their jobs.

Increased competition amongst nations now is becoming quite apparent. We have talked about it in the past. Some nations are certainly embracing it. Others have yet to step up to it and we have seen the interdependence between nations. As Jim Wolverson said during his 2001 trip to Melbourne "There’s no reversing the trend of globalisation. Information technology has simply accelerated the process of information transfer." He also referred to the World Bank data indicating that three billion people – that’s half the world’s population – had benefited from globalisation, whereas about one billion had not.

Now, what does all this mean to business? I suppose you look at the creation of BHP Billiton, for example, and that reflects the globalisation process. We face two clear options: we either do a deal or the deal is done on us. We chose the former and through the merger of BHP and Billiton we have created an Australian-based company. I repeat that – we have created an Australian-based company – that is truly global in its activities. There are many other examples that I have read about and I could talk about where you have seen businesses adopting a different operating model to enable survival, if you like, in a globalised world and I think it’s pretty important that we understand that.

The growth of funds management is a key factor behind the fact that corporations now represent 50% of the world’s 100 largest economies. While many people have benefited from globalisation, there is still a large body of people who see companies as being the primary beneficiaries of globalisation alone. The perceived wealth and power of a company’s influence on people’s lives is now feared by many. The fact that globalisation has meant that economic activity is increasingly subject to rules set internationally, rather than just locally, and that’s brought about a feeling of disenfranchisement to some.

In the meantime, the capacity of public institutions, and I was interested to hear Terry’s comments – in my mind it’s starting to struggle to stay abreast with some of the changes being imposed around the world – and I would suggest to you that in my travels around the world I am now perceiving Governments searching to find their real niche as to where they can operate when things are going on so quickly around what they endeavour to regulate.

This, of course, has created increased community expectations on the private sector and an increasing expectation that corporations will be accountable to a wider range of stakeholders. Now, that’s fair enough if we are to move to a sustainable development framework which is defined in terms of social, economic and environmental goals and objectives. It is natural that there be better systems of governance and instruments that allow the goals to be achieved but we need to be careful that we do not deal with these issues in isolation because they are not mutually exclusive.

 

What, then, does this mean for the global corporation model in its approach to sustainable development? Contrary to some, I believe that globalisation has brought higher corporate standards of environmental and social performance. In the past, a company’s licence to operate was granted by Governments and Governments alone. In some instances, the regulatory frameworks were poorly developed or virtually non-existent, resulting in the potential for an unethical company to exploit that situation and I am sure there are textbooks everywhere that will point out just some of those examples.

Now we see the communities with which we work – the media, the NGOs playing a role in determining our licence to operate and grow our business. I am sure most present here tonight would be aware that multinational corporations are very sensitive to the criticism regarding their environmental and social performance. In fact, you would see most Boards now starting to think about reputational risk. There is no doubt that the Internet world has ensured that poor performance is rapidly and widely broadcast in glorious technicolour for all to see.

That said, I take issue with the suggestion with some sectors of the anti-globalisation debate that developing countries should be protected from development and that argument’s there. This is fundamentally a decision for Governments on behalf of the people in question. Our experience, however, is that developing countries do want to develop their economies and benefit from the improvements in education, health and many of the other facilities that it brings. There is no doubt in my mind that the natural resource industry has an important role to play in contributing to sustainable development and we have got a classic case study with the Octedy experience in Papua New Guinea. There have been lots of debates about the Octedy experience but nobody’s going to tell you and stand up say that the mortality rate of the male has gone from 25 years to 55 in the area where we are represented. Nobody’s going to tell you that the death rate at birth has diminished completely. Nobody’s going to stand up and tell you about the schools and hospitals that have developed and the creation of the expectation of the people within those areas that actually now have a higher expectation than hitherto they would in going back to subsistence farming.

I do, however, recognise that the mineral industry has had a patchy record of environmental health and safety performance and all too often leaves little behind to communities once the resources are exhausted. I could observe that such instances have been due to mismanagement associated with poor Governments and, in some cases, regulatory frameworks. In other cases, companies have failed to work effectively with host Governments and communities to maximise the benefits of the resource development. As a company, we have learned a lot from our experiences here in Australia, South Africa, PNG, South America, and recognise that we have a role to play in helping developed countries learn from these experiences and avoid making the mistakes of the past. As a result of these experiences, BHP Billeton and other major mineral houses have lifted their game significantly, as I perceive, in terms of how we engage with stakeholders generally.

You notice I use the word "stakeholders" regularly. We have moved from a process where we might not have even communicated with communities about the impact of some of the projects that might have been undertaken in the past to a point where we now engage them in the dialogue about a project in its design stage for the life of a project.

 

From a business perspective, of course, there are a number of key drivers shaping our commitments and performance with respect to environmental and social issues and there are many case studies one could quote which highlight the positive and negative aspects of these business drivers. Some of the risks you have got to consider when you are looking at some of the projects and taking into account the economic, the environmental and the social issues are: What are the trailing liabilities you might have with a mine or any business, working in a community. Land access is becoming a big issue particularly here in Australia and other parts of the world. Project security is another issue if you do start to operate in perhaps some of the lesser developed countries. Recruitment and training of the indigenous races is certainly an important element, particularly when you start to operate in some of these less developed areas. Regulatory constraints – I touched a little bit on it but it is a big issue as to where the corporate dollar will be invested into the future. Reputational risk, that I just touched on a minute ago, is a big issue for all corporations operating out of their own environment and of course the emergence of the ethical investment funds is now starting to really impact in the decisions that corporations are now making, particularly when it comes to investment.

On a positive note, in recent years we have seen the emergence of Codes of Conduct, aimed at improving the performance of corporations: the Global Compact, the OECD Guidelines for Multinational Enterprises, and the Australian Minerals Industry Code for Environment Management, are all aimed at providing benchmarks aligned to the principles of sustainable development. At BHP Billeton we have reflected the core element of these Codes in our Company Charter - The Health, Safety & Environment Committee Policy, which, along with the Guide to Business Conduct, form the backbone of what we call the BHP Billeton Way. And these are fundamental principles upon which business ethics are based and they are the fundamental principles that all of our people must comply with.

To my mind the BHP Billeton Charter is one of the most succinct and effective corporate commitments to the principles of sustainable development that I have experienced and seen working and I have seen a lot of these statements produced by companies but then you have got to say – "Well, show me how you are practising it. Where is it working?" And this one does work.

The Company’s commitments in terms of economic, social and environmental aspects of sustainable development are clearly addressed in the Value Statements and the success measures that we outline in the Charter.

I can give you just a quick, truncated view of the Charter because I think it does touch on the ethical piece that we will get back to later. In terms of economic performance, of course, we are fundamentally accountable to the shareholders and I don’t think I need to spend a great deal of time about the need to deliver superior terms if we are to remain in business.

 

So I’ll concentrate my focus, I think, on the environmental and the social issues. The Company commitment in relation to environmental performance is clearly stated in the Charter. We have an overriding commitment to safety, environmental responsibility and sustainable development. This commitment is further developed in the Company’s Health, Safety and Environmental Company Policy, where we have set ourselves a target of zero harm. Now this is a longterm goal, particularly in a mining company. If you like, it’s the bullseye where we want to be. We won’t get there tomorrow but, again, it is where we ultimately want to be and we will certainly be setting stretch targets to make sure that this is complied with over a period of time and with 60,000 employees I can tell you that is no small task, particularly in an earthmoving operation. Part of our strategy, of course, is to pursue ecoefficiency opportunies, essentially producing more with less environmental impact. I think a lot of you would be aware of the developments of the Falcon Airborne Gravometric Survey technology, which allows us to undertake surveys and exploration activities from the air over extensive and potentially remote areas that in the past would have required extensive tracks running through some of these areas. So, ecoefficiency is easy to say but the journey to success is long and arduous. There’s no doubt that it is a necessary component of sustainability but it alone is not sufficient to get the right outcomes.

I am also a firm believer that contemporary business is part of a highly integrated global system in which supply, demand, government structures, financial markets and society’s expectations all continue to influence the outcome. Exciting new developments like your biotechnology, your nanotechnology, your e-commerce, offer opportunities to improve that system. However, these technologies alone will ultimately be counterproductive if they are not developed within a framework of sustainability.

The principles and practice of sustainability must pervade the entire global system for this concept to ultimately succeed.

On the social side, one of the core values that we seek opportunity to share our success by developing partnerships to focus on creating sustainable value for everyone. We also recognise that we will only be successful as a company when our citizenship is valued by the communities with which we work. A commitment to 1% of the pre-tax profits and a commitment to share the benefits of our success through sustainable development is already well established. We recognise the need for a participatory approach that involves encouraging communities to determine their own destiny. We recognise that we certainly don’t know what’s good for them. They need to determine this for themselves and we will help where we can. This requires extensive consultation through the life of a project and a commitment to develop projects that will be self-funding after the life of it initially, and this is particularly relevant for a mining company.

Again, as Jim Wolverson said, this is not charity. In fact, companies cannot be managed simply on philanthropic or do-good principles. To win business support for sustainable development, we must be able to demonstrate that it is actually good business and that it has an effect on the bottom line. As the BHP Billeton Charter says, we will not be successful unless the communities with which we work value our citizenship.

 

Now, no discussion on environmental issues, of course, would be complete without mention of the Kyoto Protocol. When President Bush declared in March, 2001, that he was withdrawing the United States from the Kyoto Protocol, which, as you know, is a 1997 International Treaty intended to curb rising temperatures from around the globe, he drew angry attacks from many quarters. As tempers have cooled, politicians and environmental experts are giving fresh thought to alternatives to Kyoto, from a full throttle assault on greenhouse gases to strategies on living with a hotter climate, ways to reduce greenhouse emissions through the trading of pollution credits – and it’s also the technology solutions are now starting to come into focus.

I don’t have the answers but with so little consensus I could take a cynical view and suggest that the options requiring the least effort, I suspect, may win the day by default. In my short experience in this area, and I have become a very keen student of it, the one thing that has struck me is how nations use data to further their own vested interests. I was reading America Today recently and if you look at the rankings of who pollutes most, and that’s just pollution, U.S.A., China, Russia, Japan and India make the Top 5. Australia can’t make the Top 10 list.

Developed countries use this type of data to say that any agreement on reductions in emissions and improved energy efficiency must include developing countries. Developing countries, on the other hand, say this is wrong because developing countries have already raised living standards with significant emissions in the past and so should now have a higher set of targets for reducing those emissions.

Irrespective of this debate, what is important for the moment are the most immediate targets that have been negotiated under the Kyoto Protocol, which now looks more than ever like it will come into effect in 2003. These targets, which are based on the level of emissions, are still very immediate. They cover the period 2008 to 2012. The European Union and Japan have indicated that they will ratify and are putting in place systems to meet their targets. If Russia ratifies, as it is in their interests to do in my view, Kyoto will come into force even though the world’s largest producer of greenhouse gases, the U.S., is going to take action on climate change in its own way.

What we are doing at BHP Billeton? Well, obviously, we can’t influence the political agendas. However, we have been following the course of the international negotiations very closely, as we feel it is an important issue for the company. We are also considering what our overall company policy will be regarding climate change. In recent years, a number of our businesses have reduced energy intensity significantly, including in Australia under the Greenhouse Challenge Programme, in the five years to 2001 we achieved a 10% improvement in the intensity of our emissions in Australia. We are currently working on determining what our internal greenhouse gas emission target will be for the next three to five years as part of our overall Climate Change Policy.

As we move forward, we are investing capital to ensure that our energy use is as efficient as possible. For example, in South Africa the new aluminium smelters are among the most energy efficient in the world. This behaviour benefits our business, reduces the impact on our operations and is certainly consistent with the sustainable development principles.

 

I suppose if I can move to a conclusion, there are opportunities in my view for a positive change and for creating a vision and reality of globalisation where social inequities and environmental decline are addressed. For business, this means doing things differently. In the first instance, you’ve got translating sustainable development into reality. It will be by doing the hard yards in the locations where we are operating to put our words into action and, again, you look at the challenges of South Africa, you look at the challenges of South America, you look at the challenges of PNG and you look at the challenges here in Australia and the words just aren’t enough now. There’s got to be action behind the words.

We also need to forge some creative partnerships with the traditional adversaries, the NGOs and the civil society groups, and working together for a positive change with a focus on the future and I have to say to you in the PNG experience our work with the NGOs was just marvellous and we were able to work through and start to get a proper outcome there, demonstrating leadership and encouraging under-performers to look at their game. Clearly society’s assessment of our value also depends on what our neighbours do. You can’t have a mine beside another mine where you don’t have the same basic principles apply. Again, focusing on social values, not only shareholder value – they are not mutually exclusive and as we move forward will become increasingly related.

Now, the cynics amongst us may see all of this as self-interest and that may be the case. However, I would put a slightly different spin on this and argue that enlightened self-interest is something business should be unashamedly pursuing, so all sectors of our society can prosper and grow.