13 November 2002 - “Trucost … is an excellent system” says Rt Hon Michael Meacher MP, Minister for the Environment and Agri-Environment

13 November 2002, London: Rt Hon Michael Meacher MP delivered a speech at the UKSIF / Trucost seminar today in London, to which 160 people attended from the mainstream and SRI fund management community, along with corporates and government bodies. Below are some key points that Rt Hon Michael Meacher MP made in answer to questions from the floor:

Rt Hon Michael Meacher MP:

"The environment needs to be woven into the fabric of the way in which business is conducted. Trucost are presenting a full cost accounting methodology which they think can do this job and I think its an excellent system. Its up to the market to decide if everyone is going to get behind that.

I will be extremely interested to see how this will develop over the next three to six months. I'm absolutely determined that it will develop. This is absolutely key. The mandatory requirement is there in the background but I would prefer to see whether these excellent proposals really take on. If they don't we are going to have to think further. What I am not going to do is just allow the matter to drift.

There has been a lot of shift in five years. I genuinely believe that the majority of companies in this room will be doing this [environmental reporting] within five years, absolutely as readily as they do things traditionally now. I think this will catch on because it will be seen to be necessary and I think the market pressures which are corralling people, harnessing and galvanising them in this direction, are very powerful. Its coming fast in the next two or three years.

But you producing the evidence of what ignoring this actually means, thats the message. If you ignore climate change, whats going to happen to you, whats going to happen to our society, our neighbourhood in which we live? Its harnessing that evidence in a way that persuades people. I know in the government we have a role to bring it together and to formulate a framework of appropriate instruments or to drive home that message."

Before taking questions, Rt Hon Michael Meacher MP delivered the following key points in his speech:

ìOpportunities are being missed because many businesses, and I won’t say all, aren’t paying enough attention to the resources they use, the wastes they emit and the environmental damage they are causing. Simply because a lot of this stuff isn’t getting measured."

That is why the Government has been encouraging organisations of all kinds, including ourselves, to measure, manage and report on these issues. I chair the Green Ministers group across Government and we publish our results. These are relatively simple actions, but they can help companies use resources more efficiently – by getting more from less and improving the bottom line.

But it’s not just about saving money in the short term. Far from it. Understanding how a business interacts with the environment and the wider community, I submit to you, is becoming a key strategic issue.

A company’s reputation increasingly hangs on its corporate engagement on these issues. Customers want to know that the corporations they buy goods and services from are acting responsibly in what they are doing. That means having good labour standards, good environmental management practices and open and honest corporate disclosure. These aren’t buzz words that we don’t know anything about. They are important issues and they matter.

Companies ignoring these issues expose themselves and their shareholders to increased business risk. You’ll be well aware of examples, and I won’t mention them, when things have gone badly wrong for companies.

And reputation is only one aspect of risk. For many companies the challenge of sustainable development demands a fundamental re-think about the core inputs to their business. The energy sector’s dependence on fossil fuels is an obvious example, but the issue of sustainable production and consumption will touch every business.

Every business uses energy. Every business uses natural resources. And every business creates waste. Businesses must recognise what is needed to minimise these impacts.

The market-place is starting to recognise this. It is not just Greenpeace and Friends of the Earth calling for business to take sustainable development seriously. Just look at the development of Socially Responsible Investment. In 1985 the total value of SRI funds in the US was around $65 billion, that’s quite a lot. Last year it was around $2.3 trillion. That means it has doubled, and doubled again, and doubled again, and again, and again, and it’s still going up!

The managers of these funds want assurance that companies understand how their companies affect things like climate change (that’s going to impress on us more and more), our growing waste mountain, and the working conditions of people - both here in Britain and abroad. And it is not just the SRI community who want to know. Our hosts here today found that around half of the UK’s top pension funds wanted fund managers to consider the financial impact of these issues. I underline that. Big pension fund investors are looking at these impacts. Because big impacts represent potentially big risks.

And the pressure to manage these issues and disclose information is only going to increase. We’re pushing this. The government is planning changes to environmental regulations, to smart regulations, that will increase the scrutiny on polluting companies and reduce costs for better performers. You meet the basic requirements and have less hassles, less costs. We are also shifting the burden of taxation from ‘goods’ such as labour, to ‘bads’ which cause environmental damage. This will go a lot further.

Today’s share prices are based on the performance of companies well into the future – on average 18 years just to cover the cost of the shares. So there should be little wonder that investors are looking at the long term quality of their investments.

That is why the Government’s White Paper on modernising company law includes proposals for companies to produce a forward looking operating and financial review. The report would include a range of non-financial information about future plans, risks and opportunities relevant to the company, including those relating to environmental, social and community issues.

That should be good news to the SRI community who have been calling for greater disclosure for a long time. But it should benefit all investors and business too because today’s impacts could be tomorrow’s liabilities, that’s the point.

I am not saying that it’s going to happen tomorrow, it isn’t. But we are trying to get prices right so that the market works more efficiently. Externalities must begin to be internalised. Someone must pay, whether it’s the taxpayer or whoever causes it, and we think the polluter must pay.

So you can see why some companies are starting to look at full cost accounting methodologies which try to allocate a cost to environmental impacts. This is a difficult challenge. But a number of organisations have developed workable systems, including Trucost who we’ll hear about this morning.

Trucost will argue that the City, and I agree, needs a rational framework that allows comparisons to be made between different companies, in different sectors, in different locations and over time. They will describe the full cost accounting system that they have developed to assist companies to quantify the externalities that arise in the course of their business.

Their approach uses much of the financial data that companies already collect as a starting point. Because of course this data actually contains a large amount of information that is of relevance from an environmental perspective. It then makes adjustments to incorporate environmental externalities – the organisation’s use of natural resources not currently accounted for.

And the system then produces a single figure rating that should help investors incorporate the environment into investment decision-making. I can’t overemphasise the importance of this.

I think the point is that systems like this can give companies and investors a real indication of just how sustainable a business is - and of how profitable it would be if the most significant external environmental impacts were taken into account.

The people in this room have the ability to reward companies that take environmental disclosure seriously – if you want the best bottom line this is the way to proceed - by incorporating this kind of information into their investment decisions. This is not some philanthropic appeal for the City to pursue some greater societal good. It is simply good business, that’s the point. Environmental degradation is not some vague future liability. It can affect valuations today. And the huge growth in SRI funds means that investment managers have a growing mandate from pension funds and savers to incorporate these factors into their decision-making now. So my challenge to you is very simple, to take the environment out of the conference room, and into your day-to-day business lives. It’s the way to business success, in my view, in the future.”

A full copy of Rt Hon Michael Meacher MP’s speech, and the speech from Simon Thomas, Chairman of Trucost, is available. Please call Philippa Thomson on 020 7321 3731 to obtain a copy or if you want further information on Trucost Plc or an interview with Chairman (Simon Thomas) and CEO (Andrew Jacobs) of Trucost Plc.

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