Infrastructure Sustainability Guideline

8/12/2019 Infrastructure Sustainability Guideline

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Published by the Cooperative ResearchCentre for Infrastructure and Engineering

Asset Management (CIEAM)Endorsed by the Australian Green

Infrastructure Council (AGIC)

Author: Dr Tony StapledonSeptember 2012

Why Infrastructure Sustainability isGood for your Business


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AcknowledgementsThe CRC for Infrastructure and Engineering Asset Management (CIEAM) would like to acknowledge thenancial support from the Commonwealth Governments Cooperative Research Centres Program and thecontributions from our industry, government and university participants.

This project was undertaken by the following CIEAM research team:

Project Leader: Adjunct Professor David A Hood, FIEAust, CPEng, FIPENZ, FISEAM, MASCE

Key Researcher and Author: Dr Tony Stapledon

Support Research: Professor Arun Kumar, FISEAM, FIEAust, CPEng; Dr Gavin Shaw

This project was undertaken with guidance and advice from Professor Kerry Brown, Southern Cross University,and Professor Joseph Mathew, FIEAust, CPEng, FISEAM, MASME, MAAS, CEO, CIEAM.

The author would like to thank those who contributed to this research, in particular David Hood, Arun Kumar,Gavin Shaw, Susan Lambe and Mellini Sloan from CIEAM; Rick Walters and Antony Sprigg from AGIC; CarolineSnelling, Piroj Hira, Manjari Kariyawasam, Michael Player, Kathy Jones, Chris McArthur, Mark Rogers, JaneScanlon, Kristen MacAskill and Andy Harland.

Condentiality

In accordance with Australian Freedom of Information legislation, all information collected as part of this studywill be retained for seven years in a safe and secure environment. Paper-based data will be stored in a lockedling cabinet, and electronic data will be encrypted. Both forms of data will be stored by Queensland Universityof Technology.

Disclaimer

Any person making relying on this research report or any information provided by CIEAM does so at their ownrisk. CIEAM will not be responsible for the results of any actions taken by third parties on the basis of theinformation in this research report, or other information provided, nor for any errors or omissions that may becontained in this research report or other information. CIEAM expressly disclaims any liability or responsibilityto any person in respect of anything done or omitted to be done by any person in reliance on this researchreport or any information provided.

Enquiries

COMMUNICATION & MARKETING COORDINATORCRC FOR INFRASTRUCTURE & ENGINEERING ASSET MANAGEMENTLEVEL 7, O BLOCK, QUT GARDENS POINT CAMPUSBRISBANE QLD 4001PHONE: +617 3138 1471

FAX: +617 3138 4459EMAIL: [email protected]: WWW.CIEAM.COM

WWW.AGIC.NET.AU

ISBN:

978-0-9803102-3-8 (e-book)978-0-9803102-4-5 (Print)

CRC for Infrastructure and Engineering Asset Management 2012. This work is copyright. Except as providedby the Copyright Act 1968, no part of this publication may be reproduced by any process or transmitted in anyform or by any means without the prior written permission of the publisher.
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Contents

Preamble 2

Endorsement of this guideline... 3

Executive summary 5

About CIEAM 6

Introduction 7Structure of this guideline 7

1. Infrastructure sustainability 9

What is infrastructure? 9Infrastructure and sustainability 9

Why is infrastructure sustainability important? 12

What does infrastructure sustainability look like? 13

Measuring infrastructure sustainability performance 13

2. The benets of infrastructure sustainability 17Achieving shared value 17

A business case for infrastructure sustainability 18

1) Image and reputational benets 19

2) Stronger employee motivation, retention, and recruitment 22

3) Cost efciency/savings 23

4) Revenue increases from new sources of revenue and improved market share 24

5) Risk reduction and management 28

6) Enhanced social licence to operate 30

3. Barriers to acceptance of the business case for infrastructuresustainability 35Infrastructure industry culture 35

Lack of appreciation of value pathways 35

Accounting practices 36

4. Selling the business case for infrastructure sustainability 39Demonstrate the business case 39

Consider alternative accounting approaches 40

Incorporate experience into the business case 40

Conclusion 41

Appendix: Industry perceptions of infrastructure sustainabilitybenets from the CIEAM survey 42

References 52

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Preamble

There can be no sustainable development without

infrastructure delivering sustainability outcomes;making sense of sustainability in the context ofkey infrastructure elements is one the principleobjectives of the Australian Green InfrastructureCouncil [AGIC]. These objectives are a modernexpression of the ambition to act responsibly, fairly,effectively, efciently, sensitively, and with a view tothe long term.

AGIC, through the application of the InfrastructureSustainability Rating Tool [IS], aims to assist withthe decision making towards a sustainable future in

terms of the provision of roads, railways, ports andairports, in water and wastewater, and in powergeneration. In other words, in all of the elementswhich underpin society world-wide.

Infrastructure needs to deliver its service over itslifetime, efciently and reliably, and it needs to beadaptable and resilient to change and shock. Thisimplies assets with a long useful life, with minimumreliance on non-renewable resources, withmaximum benet to society and the environmentand which contribute to, rather than endanger,

national prosperity in the long term.Rather than being one of many competingobjectives, sustainability is an underlying philosophywhich should guide decision-making throughoutinfrastructure projects to meet the wider objectivesof durability and performance. This is where thisbusiness case for sustainability is so important.For AGIC and our stakeholders, articulating thebusiness case for sustainability in the context ofthe design, delivery and operation of infrastructureis a priority. The Guideline produced by CIEAM is

a crucial and timely piece of work which sets thescene. We hope that its publication will advancethe debate and will assist stakeholders associatedwith the infrastructure supply chain to identifythe tangible and intangible drivers for sustainabledevelopment.

David SingletonChairman, Australian Green Infrastructure Council

The case for embedding sustainability as a business

driver for commercial and residential buildings is nowwell established. Around the world Green BuildingsCouncils and their like associations have transformedthe property industry. Buildings that have achievedhigh Green Star, BREEAM, or LEED ratings arenow demonstrating substantial savings in energy,and water use, waste and emissions reductions,productivity increases and biodiversity improvements.

However, the business case for infrastructuresustainability is less well understood, despiteinfrastructure being critical in supporting economicsecurity and societal wellbeing. For too longthe infrastructure industry has focussed on theeconomic imperative as the overwhelming driverfor infrastructure project planning, delivery andoperations. The industry has considered sustainabilityprimarily in terms of environmental legislativerequirements, rather than addressing the wider rangeof social, environmental and economic issues that areso important to achieving full value from infrastructureinvestment. This guideline demonstrates that

embedding a culture of sustainability throughout theinfrastructure delivery and management process willnot only achieve public good outcomes, but will addbottom line value to your project, your organisation,and to society.


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The game has changed.Infrastructure sustainability will letus have it both ways: we can createvalue for society and contribute to

improved environmental outcomeswhile still increasing total returns tothose involved in the delivery andoperation of infrastructure.

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About CIEAMThis guideline has been prepared for the CooperativeResearch Centre for Infrastructure and EngineeringAsset Management (CIEAM). As a leadinginternational research centre, CIEAM is focussedon innovative, industry-directed research anddevelopment, education, and commercialisation inan integrated approach to physical asset lifecyclemanagement.

CIEAM works closely with industry partners todevelop innovations that meet their needs, and as aresult, contributes to improving the engineering assetmanagement industry sector. The Centres focus is onreal-life asset management problems faced by industrytoday.

CIEAMs research is based on industrys need toaddress a number of challenges:

Ageing national engineering infrastructure;

Under-investment in asset maintenance;

Cost of maintenance management and the totalcost of engineering asset ownership;

An innovative integrated asset managementregime across all industry sectors; and

Addressing climate change and

sustainability issues.Information about CIEAM is availableat: www.cieam.com

As part of the research for this guideline CIEAMconducted an online survey to test industryperceptions of the business case for infrastructuresustainability and whether they accord with theliterature discussed in the preceding sectionsof this guideline. The survey also examinedindustry perceptions about which aspects of goodsustainability performance drive business benets.The survey and its ndings are discussed generally inthe guideline and in detail in the Appendix.

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IntroductionSustainability is a hot topic in the infrastructureindustry, with businesses trying to manage theirenvironmental, social and governance (ESG) risk;clients requiring increasingly sophisticated responsesto sustainability requirements in tenders anddemonstrated performance on site; governmentsgenerally escalating social and environmentalcompliance regimes; and communities demanding asay in how they are impacted by construction projectsand operating assets.

Despite this, there is a lack of understanding of whatsustainability means in infrastructure and a tendencyfor management to see it as an imposition that willincur costs and delays and damage to market position.Many managers ignore the abundant evidence thatcorporate social responsibility and sustainability arevaluable to business and drivers of market value.

Yet the infrastructure industry continues to commitfunds to specialist sustainability staff and consultants,to reporting sustainability performance and to

undertaking a wide range of sustainability initiatives.Perhaps this is because of lingering perceptions thatsustainability is important for building reputation andfor hiring and keeping talented employees andbecause clients are increasingly demanding evidenceof sustainability performance.

One reason for a lack of adoption of sustainabilitypractices is that infrastructure industry managers ndit difcult to link the less immediate dollar outcomesof many sustainability initiatives with their businessobjectives. This guideline is designed to overcome thisdifculty. It explains how outstanding sustainabilityperformance acts on the business drivers of improvedtotal shareholder returns while also contributing topublic good.

Structure of this guidelineThis guideline explains how integrating infrastructuresustainability into decision-making can indeed deliverthose benets to any organisation involved in theinfrastructure business.

The rst section explains what infrastructuresustainability actually is; why it is important; andhow it is measured, including using the growingrange of tools designed to help businesses measure,benchmark and promote their sustainabilityperformance.

The second section looks at the benets that areavailable to government, institutional and privateclients, nanciers, constructors and operators ofinfrastructure assets and shows how those benetstranslate into shared value simultaneouslyimproving market value and public good. Casestudies are provided to illustrate the benets inpractice.

The third section discusses barriers to the take-up of infrastructure sustainability in business caseformulation, including obstacles to quantifyingsustainability benets for traditional managers whofail to appreciate the contribution of intangible assetsto present and future business value.

The fourth and nal section of the guidelinesuggests an approach for managers to follow if theywant to build the value of their business for both itsshareholders and communities through sustainability.

The results of CIEAMs on-line survey of industryperceptions of the value drivers of infrastructuresustainability are reported in the Appendix .

McKinsey & Company Valuing social responsibility

many companies are creating real value through their environmental, social, and governance activitiesthrough increased sales, decreased costs, or reduced risksand some have developed hard data to measure

even the long-term and indirect value of environmental, social, and governance programs. Its not surprisingthat the best of them create nancial value in ways the market already assessesgrowth, return on capital, riskmanagement, and quality of management.

Bonini, S., Koller, T.M. & Mirvis, P.H. (2009) Valuing social responsibility programs, McKinsey on Finance, Summer 2009, Number 32.

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Economic Infrastructure:Transport, Energy,Communication and Water

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1. Infrastructure sustainability

total employment. With a total value in Australia of$A58 billion in 2009-10, the construction alone ofmajor infrastructure involves a signicant commitmentof nancial, technical and human resources 12. Further,the rate of infrastructure investment in Australia hascontinued to increase since 2008 12. It is projectedto grow by 128% in emerging markets and 18%in developed markets in the decade to 2020 15.The industry has a responsibility to efciently andeffectively deploy that investment.

Infrastructure and sustainability

In a business sense, the denition of sustainabilityremains unclear. It is often considered to besynonymous with environmental, social andgovernance (ESG) and corporate social responsibility(CSR). All these terms imply that businesses voluntarilyintegrate social and environmental concerns into theiroperations and their interactions with stakeholders.

Essentially, there are two terms in common use

for sustainability in the infrastructure industry:sustainable infrastructure and infrastructuresustainability.

What is infrastructure?

The current debates about the adequacy or otherwiseof our roads, airports, railway systems, energy andwater services, and communications networkshighlight the central role of infrastructure in Australia.Appropriate and well-managed infrastructure is a keydriver of productivity and national wellbeing, withbusinesses and individuals reliant on its efcient andeffective performance.

Indeed, it has been claimed that the built environmentis the fundamental foundation upon which a

society exists, develops and survives 9. An AustralianGovernment report sees infrastructure as an essentialinput to virtually all economic activities andcontributes directly to peoples wellbeing 10, whileCanadas CRC Research 11 denes infrastructure asthe set of structural elements that supports the dayto day function and inuences the direction of humansociety.

In Australia, major economic infrastructure is classiedunder four sectors by the Bureau of Infrastructure,

Transport and Regional Economics (BITRE): transport,energy, communication and water 12.

In each of these sectors, industry and governmentshare responsibility for planning, nancing andoperating civil infrastructure systems. They developnew and complex systems and restore degradedones. They expand, repair and refurbish some thatare operational including those damaged byaccident or natural disasters. And they deconstruct,decommission, demolish or adapt those that have

reached the end of their useful lives9

.The industry embraces diverse asset types andconsumes large quantities of human, nancial andmaterial resources for both their delivery and use. Itsassets have complex delivery and operations methods,may cover large geographic areas of differingtopography and occupation, and have wide andvaried potential impacts that may continue andchange over decades on both the environment andstakeholder groups 13,14,9 .

The nancial investment in Australian infrastructureis signicant and the major infrastructure sectors arecrucial to national GDP and employment performance,contributing just under 10% to GDP and 7.6% of

Sustainable development is truly aboutachieving a balance between several objectives(environmental, economic, and social) overdynamic time and spatial horizons.

Sahely, H.R., Kennedy, C.A. & Adams, B.J. (2005) Developingsustainability criteria for urban infrastructure systems, CanadianJournal of Civil Engineering, vol. 32, no. 1, pp. 72-85.

Sustainable infrastructure is concerned with:

t for purpose assets, where tness is a functionof an assets capacity to be:

Continually useful over its entire life;

Resilient and adaptable to changing externalcircumstances;

An integral and consistent part of the widerinfrastructure jigsaw; and

Fullling community expectations by helpingto solve sustainability challenges 16.


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Infrastructure sustainability is about balancingtriple bottom line trade-offs, and extendsbeyond just addressing ecological concerns.However, it is not simply a matter of tradingoff positive impacts in one area against negativeimpacts in another. A successful developmentbuilds on the three pillars and achieveseconomic success, social benet and highenvironmental quality together.

The Royal Academy of Engineering (2005) Engineering forSustainable Development: Guiding Principles, London.

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This last dot point is often reframed to dene

sustainable infrastructure as that infrastructurethat assists in changing human behaviour to moresustainable lifestyles.

Infrastructure sustainability is the designing,delivery, operation and eventual deconstruction oradaptation of infrastructure assets in ways that donot diminish the social, economic and ecologicalprocesses required to maintain human equity,diversity and the functionality of natural systems 11 .Whereas sustainable infrastructure is concernedwith the strategic benet of an asset, infrastructuresustainability involves the implementation ofsustainability principles in the procurement andoperation of infrastructure, irrespective of whetherthe infrastructure itself is sustainable. It is based onthe very pragmatic principle that all infrastructurecan deliver greater sustainability outcomes throughbetter design, construction and operation and thiscan contribute to the journey towards sustainabledevelopment.

This guideline is focussed on the business benets ofinfrastructure sustainability.

The American Society of Civil Engineers (ASCE) 17 seessustainable water systems as ... systems designedand managed to fully contribute to the objectives ofsociety, now and in the future, while maintaining theirecological, environmental and [engineering] integrity.This denition can be applied equally to sustainableinfrastructure and to infrastructure sustainabilityin general. By contrast, a railway built specicallyto transport fossil fuels (eg. coal) from a mine to a

port for export may be seen to be contributing toan unsustainable practice (the burning of fossil fuelscontributing to greenhouse gas emissions), and wouldthus not be classied as sustainable infrastructure.However, it could well be designed, constructed,and operated in a way that delivers sustainabilityoutcomes and so these processes may thereforequalify as infrastructure sustainability.

Infrastructure sustainability will invariably involvetrade-offs. These may include operational versuscapital costs, short-term versus long-term planning,and the frequent need for individual pieces ofinfrastructure to function as an integrated partof a system 14. The challenge for business is tomaintain protability and continuously build valuefor shareholders while best balancing the economic,environmental and social needs of, and impacts on, itsother key stakeholders.

Key stakeholders of any piece of infrastructure mayinclude its owners, employees, customers (or users),impacted communities, regulatory authorities, andsuppliers. Importantly, future generations are alsokey stakeholders because of the expected long usefullife of much infrastructure. As the USAs Institute forSustainable Infrastructure 18 says, We are building2050 today; inefciencies locked-in now may have

long-lasting and expensive consequences, perhapsmagnied by the asset being part of a wider system.

Queenslands Department of Transport and MainRoads (TMR) has identied its key stakeholders as:

Clients

Partners

Federal, state and local agencies

The community TMR (2012) Sustainability in Transport and Main Roads


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Sustainability in a business context hasthree dimensions: triple bottom line (TBL)performance 19, key stakeholder relationships 20,21 ,and nancial, legal and ethical responsibilities 22,23 (Figure 1).

Sustainability is often seen to be about the triplebottom line of economy, environment, and society.But the triple bottom line is purely a way of measuringperformance and just the rst of the three dimensionsin Figure 1.

The second involves its relational nature its focuson those primary stakeholders who bear riskthrough having invested something of value, (forexample, their own efforts or nancial capital), in theorganisation. These stakeholders are an organisationseyes and ears to the dynamic business environment;they decide its future, and they determine itsreputation.

The third dimension is responsibilities, the mostfundamental being economic: If organisations donot make a prot they will not survive, nor be ableto contribute to the sustainability of their communityor the environment. They also have legislated(compliance) and ethical (beyond compliance)

responsibilities, the latter being discretionary withinbusiness imperatives but increasingly expected bysociety.

Together these dimensions dene businesssustainability as: the responsible management ofthe economic, environmental and social needsof, and impacts on, those stakeholders in a

position to inuence business success.

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Figure 1 The three dimensions of corporate sustainability

Adapted from Stapledon, T. 2004, Ofces as Tools for Organisational Sustainability, PhD thesis, The University of Sydney,Sydney

TBL PERFORMANCE

EconomicEnvironmental

Social

RELATIONSHIPS

ShareholdersEmployersCustomersSuppliers

CommunityFuture generations

RESPONSIBILITIES

EthicalLegal

Economic

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The value of infrastructure to our nation cannotbe underestimated. The effectiveness of currentand future infrastructure in meeting economic,environmental and social needs is of critical nationalimportance. When managed well, infrastructure can

provide the efciencies and opportunities needed tomeet these needs.

Infrastructure Australia (2010) Getting the fundamentals right for

Australias infrastructure priorities: An Infrastructure Australia reportto the Council of Australian Governments, Australian Government:Infrastructure Australia, Canberra.

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Why is infrastructure sustainability

important?

outcomes. For example, the Australian Governments

Infrastructure Australia includes among its sevenstrategic priorities: developing cities and regions;reducing greenhouse emissions; and improvingsocial equity and quality of life 25. The VictorianTransport Integration Act 2010 26 is designed tocreate a paradigm shift from an efcient transportsystem to an integrated and sustainable one, withobjectives including social and economic inclusion,economic prosperity, environmental sustainability,and safety, health and wellbeing. The introductionof carbon pricing policies will further drive change for

sustainability in the infrastructure industry, which isa heavy consumer of diesel fuels and materials withhigh embodied energy.

There are other important political, social andeconomic reasons to ensure that infrastructure isdelivered and managed to achieve sustainabilityoutcomes, including:

The highly visible nature of shortfalls ininfrastructure adequacy and performance,together with associated political ramications

Evolving needs of society through bothdemographic changes and technologicaldevelopment.

Disruption and inconvenience caused toindividuals and communities during theconstruction and, in some cases, operation andmaintenance of major infrastructure assets.

Intense competition for access to natural, humanand nancial resources

Impacts of coastal erosion on property ownersand the nances of affected councils.

Risks of environmental damage, includingconsequential damage to business reputation.

Developing community expectations of the roleof business in society, along with demands bythe public for more transparent performance oninfrastructure projects.

Evidence that good urban design and

infrastructure can improve health outcomes.

Given current and planned future investment andthe importance of infrastructure to economic,social and environmental wellbeing, public andprivate participants in the industry have particularresponsibilities to ensure that infrastructure is efcientand effective in serving its public purpose over itslife. Further, the design, construction, operation andeventual demolition or adaptation of infrastructuresignicantly inuence the rate of consumptionof natural resources and have major impacts oncommunities and the natural environment.

Australias former Secretary to the Treasury, Ken Henry,has said that the public policy goal of investmentin infrastructure should be the sustainableenhancement of wellbeing. He noted that:

Sadly, there have been many failures for well

over 100 years in Australia to develop policiesto promote sustainable activity. This is strikinglyevident in the dramatic loss of native species andbiodiversity. This most signicant example shouldmotivate us not only to solve the complex anddifcult problems associated with the intersectionof public infrastructure policy and privateendeavour, it should also motivate us to put in

place policies and governance structures that aretruly focussed on a sustainable future 24.

Australian governments are now becoming motivatedas Henry suggests, with the gradual introduction ofpolicies aimed at achieving infrastructure sustainability


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What does infrastructure sustainability look

like?One of the challenges for business to integratesustainability is to imagine an amorphous conceptthat is different from traditional business thinking.Managers like to see sustainability as a dened thingwhich can be managed, and which has a clear shapeand a single solution. Rather than something thatis clearly dened, infrastructure sustainability is theoutcome of a systematic way of thinking about aproject or an asset that identies, prioritises, and

manages ESG risks within the business environment,beyond the traditional triple project objectives of time,cost and quality.

Accordingly, it involves a governance process thatensures an asset has been constructed or is beingoperated so that it addresses the spectrum ofpertinent environmental, social and governance risks.As such, sustainability and its subset of ESG issueswarrant management attention alongside otherrisks including tax, legal, structuring, operationaland demand. Traditionally, ESG risks have been ill-analysed in relation to the nancial risk they pose.This is due largely to the fact that nancial analysisframeworks have failed to quantify the individualsustainability risk factors in a business case.

However, sustainability risks are highly variable acrossand within industry sectors, projects and assets.Australias AGIC40 , the UKs CEEQUAL41 , and theISI18 in the USA have all developed frameworks thatmanagers can use to help them identify and quantifythe particular risks and opportunities they and theirstakeholders face in the sustainability space. It is likelythat a project or asset managed for sustainability willincorporate performance criteria around the typesof risks identied in these frameworks and will, forexample:

Have management objectives, processes andpeople in place to ensure that sustainabilityissues are managed, measured and reported in atransparent way.

Educate employees about their role in ensuringsuccessful sustainability outcomes.

Link project sustainability objectives to

individual and team performance through keyperformance indicators and a focus on continuousimprovement.

Factor sustainability considerations into decision-making.

Factor climate change impacts into decision-making.

Use life cycle and whole of life costing to test thelong-term value of decisions.

Select materials that come from renewablesources and look for alternatives to those withsignicant environmental impacts.

Minimise waste.

Adopt measures to optimise energy and wateruse efciency and effectiveness.

Prevent damage or restore past damage to theenvironment, including from spills and silt run-off.

Involve local communities affected by the

operations in order to best meet their needs andenhance their benets.

Have the development of staff and the transferof knowledge as priorities, so that the experiencegained moves beyond individuals to futureprojects and the infrastructure industry moregenerally.

Measuring infrastructure sustainabilityperformance

Many businesses measure their sustainabilityperformance, and advertise it publicly, using a numberof tools. Rating systems such as the Dow JonesSustainability Indexes 27, the European FTSE4GoodIndex Series28, and international frameworks such asthe GRIs G329 are gaining traction with infrastructurecompanies including nanciers, constructors anddesign consultants.

However, these high level indicators are notappropriate for detailed project/asset level

performance assessment. In infrastructure, thepossible relevant social and environmental variablesare many, and project/asset specic. Agreement islacking as to what they are, how serious they are,


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and how they should be addressed 30. Sustainability

performance frameworks and rating tools aim toaddress this issue.

Private companies are also adopting sustainability

performance tools and reporting their performance.Engineering consultancy Arup has developed SPeAR,an integrated decision-making tool used to supportproject development and communicate outcomes 37.Energy company, Origin, which has signicantrenewable energy investments, has a well developedgovernance framework and reports against the GRI 38.

These tools are often bespoke for individualorganisations and for particular sectors of theinfrastructure industry. This is to be expected:businesses tailor performance measures to targetperceived critical variables in areas they believe to becentral to their success 39.

However, the extent of benets and costs of bothsustainability generally and individual initiatives variesacross industries, business units and projects notonly across companies. Consequently, isolatingcritical variables that may apply generically tocross-organisation and cross-asset infrastructuresustainability governance is a challenge, takenup by the Australian Green Infrastructure Council(AGIC) with its Infrastructure Sustainability (IS) ratingscheme 40.

Like its international equivalents the UKsCEEQUAL41 and Envision 18 in the USA the AGICtool serves a dual purpose as a generic, exibleperformance measurement system and decision-support framework. Each has a set of meaningfulindicators, arranged under sections or themes,designed to draw on and/or complement datacollected in mainstream business systems.

Sustainability performance frameworks haveunderlying consistencies that distinguish themfrom other performance measurement systemscommon in business: explicit focus on triplebottom line issues, their emphasis on the linkagesbetween those issues, and their explicit focus ona long-term view of business performance.

Searcy, C. (2011) Updating corporate sustainabilityperformance measurement systems, Measuring BusinessExcellence, vol. 15, no. 2, pp. 44-56.

At a project/asset level, there are numerous toolsdesigned to help interpret complex informationabout infrastructure sustainability and which attemptto balance the three dimensions of sustainabilityperformance.

For example: a Canadian framework has been

developed for unifying the approach to publicinfrastructure 31; the City of Cleveland in the USA hasa strategic framework to help measure progress andprioritise initiatives 32; the Chicago Department ofAviation has released its SAM Rating System 33; whilein Australia VicRoads uses its Invest tool for assessingthe sustainability aspects of Victorian road projects 34.

International, industry specic, tools such as theHydropower Sustainability Assessment Protocol 35 and the World Bank Groups IFC EHS Guidelines 36 on

environment, health and safety, are being developedand adopted.


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The Australian Green Infrastructure Council (AGIC)is a member based industry association committedto the delivery of more sustainable outcomes fromthe design, construction and operation of Australiasinfrastructure. Its members are both private andpublic organisations working in infrastructureengineering, environment, planning, law, nance,construction and operation.

AGICs IS (infrastructure sustainability) rating schemehas been assembled through rigorous consultationand testing processes with diverse groups ofstakeholders in both the private and public sectors.As such, it represents consensus views of the keyindicators of operational success in sustainabilityperformance.

AGICs IS Rating SystemThe Australian Green Infrastructure

Council (AGIC)

AGICs IS Rating System has ve themes, each with anumber of categories:

Management and governance;

Using resources;

Emissions, pollution and waste;

Ecology; and

People and place.

Two further themes economic performance andworkforce are planned for future development.

The scheme is designed to apply across Australiasinfrastructure industry with three rating types:

Design, awarded at the end of planning anddesign;

As -built, awarded at construction completion;and

Operation, awarded after at least 24 months ofoperation based on performance of the operatingasset.

More information is available atwww.agic.net.au/ISratingscheme1.htm

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Potential benets to publicgood value range across awide spectrum: economic,

social and environmental.

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A business case for infrastructuresustainability

A business case for infrastructure sustainability thatrecognises shared value requires:

An appreciation of the net benets that mayaccrue.

The value of those benets to the organisation(both monetary and non-monetary value) relatedto an appreciation of how they leverage intobusiness performance or shareholder value.

Where those benets originate, that is, whatsustainability initiatives are likely to deliver them.

The degree of sustainability performance that willmake the benet valuable there is evidenceof diminishing returns for higher performancebeyond a certain point 44,45,3 .

Potential benets to public good value range across awide spectrum: economic (for example, employment,local purchasing, reduced demand for electricitygeneration through improved efciency); social (forexample, Indigenous employment and development,equity of access to public and economic assets); andenvironmental (for example lower greenhouse gasemissions, reduced use of non-renewable resourcesand potable water, less waste, enhanced biodiversity).

Some of these benets have impacts that lie in more

than one of the economic, social and environmentalareas of public goods.

Sustainability offers six sources of business value 46-48 that have the potential to enhance shareholder value:

1. Positive effects on company image, reputationand brand strength.

2. Positive effects on employee engagement motivation, retention, and recruitment

3. Cost efciency/savings.

4. New revenue sources, increased revenue fromexisting sources, and improved market share andpricing power.

5. Risk reduction and management.

6. Conrmation of a rms social licence tooperate.

Shareholder value (total shareholder returns) is afunction of two things: the free cash ow available fordistribution and the valuation multiple that the market

places on the business over and above its net tangibleasset value. Sustainabilitys business benets canact on levers of value creation and ow through tototal shareholder returns (see Figure 3) by increasingprots through margin improvement and/or revenuegrowth, and/or varying the valuation multiple throughinuencing market perceptions of risk and brandstrength.

The concept of shared value recognises that societalneeds, not just conventional economic needs, denemarkets and that policies and operating practicesthat enhance the competitiveness of a companywhile simultaneously advancing the economic and

social conditions have the potential to expand thetotal pool of economic and social value.

Porter, M.E. & Kramer, M.R. (2011) Creating shared value: Howto reinvent capitalism - and unleash a wave of innovation andgrowth, Harvard Business Review, Jan-Feb 2011, pp. 62-77.


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1) Image and reputational benets

Reputation reects a rms relative standing,internally with employees and externally with otherstakeholders, in its competitive and institutionalenvironment 49. Social responsibility, a central driver

Figure 3 Value ows from infrastructure sustainability to Total Shareholder Returns

Adapted from Berns, M., Townend, A., Khayat, Z., Balagopal, B., Reeves, M., Hopkins, M. & Kruschwitz, N. (2009) TheBusiness of Sustainability, MIT Sloan, BCG, North Hollywood

The six dimensions of corporate reputation:

Workplace Environment: Perceptions of how wellthe company is managed, how it is to work for,and the quality of its employees.

Social Responsibility: Perceptions of the companyas a good citizen in its dealings with communities,employees, and the environment.

Fombrun, C.J. (2001) Reputations: Measurable, Valuable, andManageable, American Banker, pp. 14.A-14A.

of sustainability performance, is a key component ofa strong corporate reputation. Alternatively, failing todemonstrate social responsibility can be a source ofreputational risk 50-54 .

Emotional Appeal: How much the company isliked, admired, and respected.

Products and Services: Perceptions of the quality,innovation, value, and reliability of the companysproducts and services.

Financial Performance: Perceptions of thecompanys protability, prospects, and risk.

Vision and Leadership: How much the companydemonstrates a clear vision and strong

leadership.

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SustainabilityImpact

Improved

reputation

Employeeengagement

Cost efciency

New marketsIncreased

market share

Reduced risk

Social licenceto operate

Pricing power

Productivity

Cost savings

New sources ofrevenuee

Access tocapital

Brand strengthRisk premium

Marginimprovement

Revenuegrowth

Increased prot

Market valuationmultiple

free cash owTotal

shareholderreturn

Value creationlevers


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Workforce management

Project/asset management

Economic performance

Efcient & effective resource use

Management of emissions, pollution & waste

Managing ecosystems & biodiversity

Community management

Important Extremely important

No. of respondents0 10 20 30 40 50 60 70 80 90

20

A McKinsey survey of 1560 CFOs, investment

professionals, and nance executives found theyagreed, by a large margin, that improved corporatereputation and image is the most important waysustainability programs create value 2.

Reputation, brand strength and shareholdervalue

Reputation and brand strength built off sustainabilityimpacts shareholder value through a number ofnancially valuable objectives including pricingpower, level of perceived risk, talent attraction and

retention, and improved access to markets and marketshare 55-57,44,58,47,59 .

How infrastructure businesses build reputation

from sustainabilityRespondents to CIEAMs business case survey believethat sustainability-based reputation is primarily builtthrough good performance in community relations,workforce management and management ofemissions, pollution and waste (Figure 4).

Infrastructure businesses pursuing sustainabilitypromote their image, reputation and brand bycultivating relationships with key stakeholdersthrough community relations programs; market

briengs; websites and social media; and face-to-faceinteractions with customers and suppliers.

Other commonly used vehicles include: promotingachievement of project awards like those obtainablethrough AGICs IS rating scheme and EngineersAustralias Engineering Excellence Awards; utilisationof rating systems such as the IS rating scheme,Dow Jones Sustainability Indexes 27, and the GlobalReporting Initiatives G3.1 29; adopting labels andstandards; active membership of forums; anddemonstration of compliance to or instances ofexceeding national and international codes andlegislation.

However, businesses that make elevated andunsubstantiated claims about their sustainabilitycredentials may suffer exposure and damage to theirreputation if sceptical stakeholders consider thatthey are guilty of greenwashing and misleadingadvertising 47.

Reputation and market value

Research that compared groups of companieswith similar levels of risk and return, but differentaverage reputation scores, showed that a 60 percent difference in reputation score was associatedwith a 7 per cent difference in market value.

Another study, which examined reputation scoresof companies rated by Fortune between 1983 and1997, concluded that a one-point difference wasassociated with $500m in market value.

Fombrun, C.J. (2000) The value to be found in corporatereputation: The publics view of a company not only acts as areservoir of goodwill, but also boosts the bottom line, FinancialTimes 4 Dec 2000.

Figure 4 Sources of reputational benets from infrastructure sustainability


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Measuring reputational performance

Reputation is usually measured at a macro-levelthrough ratings such as Fortunes annual MostAdmired Companies 60 and the Reputation InstitutesGlobal RepTrak 100 61, despite questions over thereliability of such ratings, which are often based onprivate information.

At a project/asset level, infrastructure businessestypically use qualitative attitudinal surveys ofstakeholders to understand the impact of theirsustainability initiatives on reputation. These surveystest the reaction of clients, the workforce, the users of

the asset and those impacted by its construction and/ or operation.

The surveys may be conducted to measure:

The attitudes of clients, users and communities tothe construction and/or operation of the asset;

Brand awareness the depth of recognition ofthe organisation among stakeholders;

Brand image whether the business is viewedfavourably by stakeholders; and

Satisfaction rating to test stakeholder perceptionsof the quality of products and services.

Stockland

Stockland has in place stakeholder engagement plansfor all state operations and every project to ensure acoordinated and strategic approach.

We engage regularly with all levels ofgovernment in Western Australia, New SouthWales, Victoria and the Australian Capital Territorydirectly, and through industry associations.

Our management regularly meet with institutionalinvestors and we provide investor briengs on ourstrategy and nancial results.

We regularly seek feedback from customersthrough surveys and research, and we incorporatefeedback into our product design and serviceofferings.

Our major suppliers complete a CR&Squestionnaire and a comprehensive health, safetyand environment questionnaire as part of theirresponse to our tender requests.

Our engagement with communities includes

community and consultation forums, one-to-one meetings with community groups and localleaders, as well as surveys and research.

Stockland (2012) Corporate Responsibility & Sustainability 2011,Stockland Corporation Limited, available at: http://www.stockland.com.au/sustainability/2011/about-stockland.htm

Key Stakeholder Survey

ALPURT B2 project, NZ.The 7.5km, $360m motorway, delivered by theNorthern Gateway Alliance (NGA), replaced theexisting State Highway 1 route north of Aucklandthat contained winding, narrow sections and was notdesigned to carry heavy trafc volumes. The projectskey stakeholder survey was distributed annually to agroup of 24 key stakeholders including members ofthe Community Reference Group, Auckland RegionalCouncil, Rodney District Council, Department of

Labour and Department of Conservation. The 12survey questions were designed to test stakeholderperceptions about the adequacy and transparencyof project communications, the strength and levelof respect of stakeholder/NGA relations, compliancewith statutory approvals, and the NGAs ability tolisten and respond to stakeholder concerns.

In the projects Key Performance Indicators (tied toreward) performance against wider community andkey stakeholders constituted a total of 12% of the

total performance framework.Adapted from Northern Gateway Alliance (2007) SustainabilityReport 2007


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No. of respondents

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2) Stronger employee motivation, retention,

and recruitmentIn todays business environment, the capabilities,commitment and inter-personal skills of employees areincreasingly seen as sources of competitive advantage.The ability to attract, retain and develop employeesis therefore a fundamental business objective, andone in which sustainability has a role. Australianresearch has found that, increasingly, employees areseeking to work for rms that express and activate acommitment to the broader community and society

where their work has wider meaning62

.It has also been shown that even relatively smallamounts of information regarding corporate socialresponsibility and the businesss environmental focuscan positively affect reputation and recruitmentefforts 63,54 .

Employee engagement and shareholder value

Employee engagement the level of commitmentof employees to their rms is the measure of howsuccessful a business is in attracting and retainingemployees. As a key driver of productivity it is alsoan important indicator of business performance 64 .Productivity, in turn, creates value through leveraginginto margin improvement and so increasedprotability. Improved employee engagement alsolowers costs from turnover. Employee turnover resultsin loss of valuable employees and their corporate

memory, and in the often hidden costs of recruitment,

including training, induction, and reduced productivityin the initial months of employment 65 .

How infrastructure businesses enhanceemployee engagement through sustainability

It is not surprising that respondents to CIEAMsonline survey highlighted the important role thatgood workforce management plays in employeeengagement (Figure 5). This includes maintainingworkforce health and safety and well-being; equity,including equal opportunity and local employment;building capacity through training and development;and capturing and sharing knowledge aboutsustainability. They also identied good communitymanagement performance and sound project/ asset management as being key factors. Economicperformance is rated least important.

In line with the survey results, businesses thatwant to build employee engagement throughsustainability pay particular attention to theiremployees health, well-being, working conditions,

and development 66. They also take actions to builda positive reputation for social and environmentalperformance in community and employee relations,their business processes, and in the nature and qualityof their products, recognising that this will providea competitive advantage in attracting and securingapplicants for positions 67.

Figure 5 Sources of employee engagement benets from infrastructure sustainability


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The industry is a signicant user of diesel fuel, steel,

concrete and bitumen, all of which are increasing incost. In addition, because they also have high levelsof embedded energy, efciency in the use of thesematerials has the added benet of reducing the costsof carbon emissions.

Beyond these eco-efciency driven low hanging fruitsavings from sustainability initiatives become harderto realise, and management is then forced to lookto the whole product life cycle for further savingsopportunities 70,71 . This is particularly important ininfrastructure, given the long operational life ofmany assets. However, the application of life cycleand whole of life costing principles is complicated bysplit incentives (see following section) that commonlyexist in traditional contracting methods. Othercontracting forms for example alliancing and somepublic-private partnerships that include operationof the asset offer alternatives that do (or should)encourage consideration of asset life cycle costs.

Further commercial opportunities in the capital-intensive infrastructure industry include better accessto capital and reduced cost of nance. These areavailable because sustainability offers investors andmanagers valuable insights into the dynamics of abusinesss operating environment and its specicrisks and opportunities. Consequently, nanciers arebeginning to relate the cost of capital to a businessssustainability rating 72,58 . The same principle applies toinsurance and reinsurance costs, which are escalating,for example, for assets liable to exposure to oodsand cyclones.

Measuring cost efciencies

Cost efciencies are characterised by savings in capitalexpenditure and by life cycle and whole of life coststhat take into consideration capital expenditure andalso factor in nancing costs and costs of ownership,including costs of operation and maintenance,refurbishment and ultimate decommissioning anddeconstruction. These longer-term savings can beparticularly signicant in infrastructure due to theirrepetitive nature and the long life of many assets.

While sustainability governance and economics

support the concepts of life cycle and whole of lifecosting, this is a difcult question for infrastructure fortwo reasons.

Firstly, infrastructure assets are frequently acquiredthrough typically short-term, competitive contractualrelationships. This leads to split incentives: whilethe developer, contractor and outsourced operatorare interested in reducing their capital expenditure,the eventual owner, whether public or private, isconcerned with the ongoing costs of ownership andoperation. These conicting agendas can drive thedesign process and the built solution, and have thepotential to work against efciency and sustainability the outcomes in buildings are often appallinglyenergy-wasteful and unnecessarily costly on a lifecycle basis 73 , and this is undoubtedly also the casewith infrastructure.

Second, the short-term nature of project andcorporate performance expectations discouragesmanagers from taking a longer-term view of costs thatwould include life cycle considerations.

4) Revenue increases from new sources ofrevenue and improved market share

Infrastructure sustainability offers opportunities toincrease revenue through improved market share,new sources of revenue, or enhanced pricing power.Innovative green and socially respected products,processes and management allow rms to penetratenew sectors, enhance market share, bring on newproduct lines and, in some cases, command price

premiums 74,58 . Price premiums are also closely relatedto reputation and brand strength.

The renewable energy industry, Caleras new cementtechnology, and Torontos Deep Lake Water Coolingare all examples of the opportunities that exist forinfrastructure rms to identify new streams of revenuebased on sustainability.


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Brisbane Airport Corporation (BAC)

water efciency program, QldBrisbane Airport is the third busiest and the largestcapital city airport by area in Australia.

In 2004, with an annual water consumption of1,620ML per year, Brisbane Airport was among thetop ten water users in Queensland. At the time,this was exacerbated by the worst drought in SouthEast Queensland in over 150 years. It was evidentthat the continuation of existing practices wouldresult in rapid and unsustainable growth in waterconsumption.

Implementation of a Sustainable WaterManagement strategy has involved four relatedstreams of work: greater water use efciencies,reduction in wastage through leaks, conversionfrom potable to recycled water use whereverpractical, and stakeholder/tenant engagement andeducation to ensure behavioural change away froma water will always be there mentality.

Between 2004/05 to 2008/09, BAC reducedpotable water consumption by 78%, despitegrowth in passenger numbers and increasedcommercial and construction activities. BAChas set a limit on future potable water useequivalent to the 2006/07 consumption, withprojected demand increases to be offset by greaterefciencies and substitution with other water types.The cost saving in 2008/09 was $2.3M, and theprojected annual saving thereafter was $2.4M.Non-monetary benets include strengthened

reputation through winning an International WaterAssociation Award and improved stakeholderrelations, and risk mitigation through weaning offreliance on potable water.

Adapted from BAC (2008), Beyond Tokenism: Sustainable UrbanWater Management in a Holistic Framework. Application forthe IWA Sustainability Specialist Group Prize for Innovationin the Practical Realisation of Sustainable Urban WaterManagement, Brisbane Airport Corporation, Brisbane.

Disastrous year sends insurance

premiums higherInsurance premiums are set to jump by double-digit percentage points over the next 18 months, asinsurers desperately seek to recoup lost prots aftera record year of ruinous and costly natural disasters some industry sources have shown The Australianinsurance policies that have increased in cost by 100per cent since last Januarys oods But insurerscontend that rate increases of that magnitude arestrictly limited to areas exposed to the greatest risk of

disasters.The Australian, 21 January 2012

Whole of life cost savings EquipmentEnergy Efciency Program

There are approximately 2.28 million street lightinglamps in service in Australia, with around 33% onmain roads and 67% on local roads. The annualenergy cost of public lighting in Australia exceeds$125 million (and more than $250m includingmaintenance). Street lighting is the single largestsource of greenhouse gas emissions from localgovernment, typically accounting for 30 to 60 percent of their greenhouse gas emissions. A jointinitiative of Australian, State and Territory andNew Zealand Governments proposed a strategyto introduce regulatory measures to phase outthe use of energy inefcient HID lighting, providecommunications support to the sector, deliverreplacement programs in each Energy DistributionBusiness Area, and address nancial barriers.

The overall benets of the program would includeannual energy savings of between $35 and $52m forpublic lighting customers and savings of 400,000 to635,000 tonnes of greenhouse gas emissions.

Adapted from Commonwealth of Australia (2011), Street LightingStrategy: Draft Strategy Paper Available at: www.energyrating.gov.au

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New technology new business

New technologies provide start-ups with theability to challenge conventional wisdom. Calera,a California start-up, has developed technology toextract carbon dioxide from industrial emissions andbubble it through seawater to manufacture cement.If successful, Caleras technology will solve twoproblems: removing emissions from power plants andother polluting enterprises, and minimizing emissionsduring cement production The company is toyingwith a radical business model: It will give awaycement to customers while charging polluters a feefor removing their emissions

Developing a new business model requires exploringalternatives to current ways of doing business aswell as understanding how companies can meetcustomers needs differently. Executives must learn toquestion existing models and to act entrepreneurially

to develop new delivery mechanisms. As companiesbecome more adept at this, the experience will leadthem to the nal stage of sustainable innovation,where the impact of a new product or processextends beyond a single market.

Nidumolu, Prahalad, and Rangaswami Why Sustainability is Nowthe Key Driver of Innovation, Harvard Business Review, September2009

Toronto, Canada, Deep lake watercooling New revenue streams fromshared value

The City of Toronto entered into a private/publicpartnership to integrate a district cooling system, fedfrom Lake Ontario, with its potable water system. Theprivate sector shared in the municipal infrastructurecosts, and share capital and debt nancing providedstart-up funding. The partnership entity, Enwave,receives ongoing revenue by selling the coldness ofthe water (but not the water itself). The system willgenerate long-term stable, utility rate returns and cashow to its shareholders.

The system has reduced energy consumption by upto 90% compared with conventional chillers and isestimated to save over 45,000 MWh/year in electricalproduction. It uses only water that is destined tomeet the citys domestic water needs and so does notpollute the lake with a plume of waste heat, saves700 million litres of water p.a., and compared withcoal-red electricity, reduces GHG emissions by anestimated 79,000 tonnes p.a.. Life cycle benets thesystem offers to Enwaves customers include reducedneed for major capital investments, massively reducedrisk of interruption and downtime, reduced facilitymanagement requirements and cost savings in space,maintenance and labour.

Adapted from Enwave Services, available at: http://www.enwave.com/services.html and from FCM (2004), Demonstrating theEconomic Benets of Integrated, Green Infrastructure, Federationof Canadian Municipalities, available at: http://www.fcm.ca/

Documents/tools/GMF/Demonstrating_the_Economic_Benets_of_Integrated_Green_Infrastructure_Final_Report_EN.pdf

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Revenue increases and shareholder value

Efcient management provides the opportunityto convert the increases of revenue from entryinto new markets and increased market share intorevenue growth and improved prot performance, soenhancing shareholder value.

How infrastructure businesses increase revenuethrough sustainability

CIEAMs survey respondents consider that soundeconomic performance is the major driver of increasedrevenue (Figure 7). Sustainability in economicmanagement may include demonstrating value formoney of sustainability initiatives and designing andoperating the asset for a longer economic lifespan.Sound project/asset management and efcient andeffective resource use are also key drivers. A numberof respondents considered that environmental,community and workforce management had little oran unimportant direct impact on revenue generation.

To increase revenue through sustainability initiatives,infrastructure businesses concentrate on buildingmarket share by improving customer loyalty andreputation through demonstration of social andenvironmental responsibility. They may also nd newrevenue streams through offering new products andservices within their existing markets or diversifyinginto new markets.

New products and services based on infrastructure

sustainability may provide opportunities foradvantages for early adopters and set up barriersto entry for competitors, particularly if they arisefrom innovation. For example, some innovative newtechnologies and products may be used to improvecompetitiveness through converting waste productsinto value, reducing the cost of compliance, improvingprocess consistency, or reducing downtime 75,30,68 .

Measuring revenue increases

Organisations planning to benchmark revenueperformance against competitors and test the successof specic initiatives use a number of market metrics.The most common market metrics employed tomeasure market revenue position are:

Market size ascertains the value of theparticular market over a period.

Market share the businesss revenue as apercentage of the total market revenue.

Market penetration the number of clients as

a percentage of the total number in the market,and used to determine revenue per client.

These measures may be used in combination withspecic quantitative and qualitative studies todetermine marketing and business developmentstrategies.

Figure 7 Sources of revenue increases from infrastructure sustainability


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5) Risk reduction and management

Risk management is designed to add value throughavoiding or taking advantage of uncertainevents. ISO 31000:2009 Risk ManagementPrinciples and Guidelines denes risk as an effectof uncertainty on objectives. Increasingly, riskmanagement has come to address not just negativeeffects but positive ones, or opportunities forachieving objectives 76.

Of the top 10 business risks identied by Ernst

& Young in a survey of more than 70 industryexecutives, four are sustainability issues for theinfrastructure industry:

1. Regulation and compliance

4. Managing talent

8. Radical greening

9. Social acceptance risk and corporate socialresponsibility

The Ernst & Young Business Risk Report 2010: The top 10

risks for business

A key competitive advantage provided bysustainability is that it extends risk managementbeyond compliance activities outside the typicalinfrastructure considerations of time, cost andquality. This allows systematic, early identication andaddressing of risks in the operating environment.

Most infrastructure businesses consider to somedegree environmental and community risks. Asustainability approach to risk management may alsoidentify longer-term strategic issues such as resourceshortages, uctuations in energy costs, productliabilities, and pollution and waste management 77,58 as well as macroeconomic, political, social anddemographic factors which can pose signicantoperating risks, particularly to assets in the transport,energy and mining infrastructure sectors 78.

Allianz Group Climate Change Risks

As global risk managers, we care about climatechange because it directly affects our business Climate change is one of the greatestchallenges facing the insurance industry, whichis why nancial organisations like Allianz havecommissioned some of the most in-depth studiesinto global warming.

Every hailstorm, every hurricane, every oodcauses damages insurers have to pay for. In thepast 30 years there has been a 15-fold increase in

weather-related claims and 40% of all damagesthat Allianz now pays out are due to naturalcatastrophes. Between 2010 and 2019, averagelosses for the insurance industry could grow toUS$41 billion per annum.

But importantly, climate change is not only aboutmanaging risks, it is also about tapping markets ofthe future. Financial institutions are key players ingrowth markets ranging from renewable energyand energy efciency, to eco-friendly investments

and to carbon trading These are just a few examples why climatechange is one of the issues which are of mostconcern to our stakeholders, and one of the mostimportant trends that we have to manage.

Allianz (2012) Why we care, accessed 30 March 2012 https:// www.allianz.com/en/about_ allianz/sustainability/sustainability_old/climate_change_and_environment/index.html

Risk management and shareholder value

By managing sustainability risk businesses caninuence time, cost and quality outcomes thatcan leverage into margin improvement, prot, andconsequently shareholder value.

Opportunities identied during risk managementprocesses may translate into revenue growth throughimproved market share or new revenue streams.Market recognition of competent risk managementmay reduce risk premiums and the cost of nancethat, in turn, can inuence the valuation multipleassigned by the market.


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Sustainability risks and investment

Investors are increasingly recognising that theymust protect and manage their investments forthe long-term. They do this through consideringESG risks in their investment decision-makingprocesses and in the management of theirinvestment portfolios. Super funds as investorsmust therefore monitor how their investeecompanies manage the ESG impacts of theiractivities and there are a wide range of ESG issueswhich may be relevant to Australian companies.

Whilst ACSI recognises that there are indeedbarriers to progress on sustainability reporting,such as resource constraints and condentialityconcerns, we do not believe that these are sound

justication for excluding the consideration ofsustainability risks in corporate reporting. Webelieve that sustainability reporting is an indicatorof the quality of a companys governance, andcompanies that provide little or no reporting arecause for serious concern.

Adapted from: Australian Council of Super Investors (2012)Sustainability Reporting Practices of the S&P/ASX200: As atMarch 2012, available at: http://www.acsi.org.au/

A more robust business risk assessment framework

will provide better value protection opportunities forexisting shareholder value. That is, a business thatincludes sustainability issues in its risk assessmentframework is more likely to protect existingshareholder value from erosion over time.

It has also been suggested that, because sustainabilityoffers investors and managers valuable insight intothe dynamics of the external business environmentand its specic risks and opportunities, it is useful inthe attraction of long-term and lower cost capital 79,58 .

As well as nancial benets, better risk managementmay also have benets that reect in strengthenedreputation through avoidance of socially unacceptablepractices.

How infrastructure businesses manage risk

through sustainabilityRisk management begins with establishing the contextfollowed by an analysis to determine the natureand severity of risk and the upside of opportunities,typically through use of a risk matrix using bothsubjective and quantitative factors.

Risk management in infrastructure has traditionallyfocused on issues that may impact the threeobjectives of time, cost and quality. The range ofsuch issues, including stakeholder activism, legislative

delays and environmental management failures, isbroad and aligns with key aspects of sustainability.Consequently, risk managers are able to use toolssuch as infrastructure sustainability rating schemesto ensure that their processes capture a full rangeof issues. By doing so they expand the boundariesof typical risk assessment processes to integratefunctionality, sustainability and project executionrelated issues. 76

Respondents to CIEAMs business case surveyconsidered that the most important sources ofreduced risk from sustainability are good performancein project/asset management (which includesattention to sustainability-based risk managementissues including climate change adaptation),community and workforce management, andmanagement of emissions, pollution and waste(Figure 8).

Measuring risk (including opportunities)

The ability to measure risk from sustainability

performance is extremely important to nancialstakeholders. While constructors and owners wanta way to diagnose risk so they can manage andreduce it, nanciers and buyers, particularly thoselike governments and superannuation and insurancefunds with a longer term outlook, want to know therisks of capital be that debt or equity.

An obvious difculty with understanding theoutcomes of a good risk management processis that it is specically designed to avoid adverse

consequences; as such quantication of what isactually avoided is not possible.


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6) Enhanced social licence to operate

Society grants business owners legitimacy and limitedliability an intangible social licence to operate in exchange for putting their capital at risk, andreceives public benets in return 46,80 . Originally, thepublic benets of this licence including jobs, taxes,and goods and services were solely economic.

However, as expectations of corporate behaviourand contribution build, increasingly the publicbenets are being extended to embrace social andenvironmental performance. As a result, conrmationof a licence to operate is often argued as a benet ofsustainability 46,47 .

Figure 8 Sources of risk management benets from infrastructure sustainability

Maintaining the intangible social licence to operateis particularly relevant to businesses that depend ongovernment consent and/or those that rely on goodstakeholder relationships 81 . Both these situationsfrequently apply in the infrastructure industry, wherethe licence is closely associated with both reputationand risk. An illustration of the association betweensocial licence and risk is afforded by the situationaround the third runway proposed for LondonsHeathrow Airport.

While under normal circumstances a social licence tooperate is usually a given when the project or assethas the necessary government approvals, it mustbe maintained. An organisation risks damaging oreven losing it through poor social, environmental oreconomic performance.

The principal advantage of using a sustainability framework such as AGICs IS rating system in risk assessmentis that it considers interlinked factors and facilitates identication of relationships between risks. Thisrecognises that interconnected risks can create or exacerbate other risks.

MacAskill, K. (2011) Risk Management as a Framework for Applying Sustainability Concepts on Infrastructure Projects (Dissertation),

University of Cambridge.









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Risk management in Ausgridsnetwork upgrade, King Street,Newtown, NSW

Ausgrid is a State Owned Corporation of theNew South Wales Government. The company isdelivering one of Australias largest infrastructureprograms an $8 billion upgrade of the electricitynetwork including 50 new major substations andhundreds of kilometres of new electricity cables.

The principal drivers of the upgrade project were

Ausgrids duty of care to provide a safe andreliable electricity network in one of Sydneysbusiest retail precincts. Over its 18 months life,the project directly impacts 130 mostly smallbusinesses. The owners/operators take anydisruption to their business extremely seriouslyand often personally as it may have severenegative nancial consequences.

The potential risks of poor community/businessrelations were identied in a procurement plan

prepared at the project outset; it was clearthat intense community liaison was criticalto project success. Ausgrid appointed anexternal consultant to plan and deliver projectcommunications and community liaison. Anissues/risk analysis was conducted which,together with a set of protocols and proceduresand a structured measurement and reportingprocess, has served as a management framework.

Risk management was a key rationale behind this

community liaison program, leading to avoidedpotential costs through delays and additionalnon-monetary benets of better reputationand stronger social licence to operate. Thesebenets are evidenced through a lower level ofcomplaints, less local media attention and lackof local political interest when compared with asimilar completed Ausgrid project that did nothave such a program in place.

From Ausgrid and project consultant interviews and Ausgriddata (2012)

What does it look like when acompany has a social licence?

First of all, theres low and infrequent conictbetween stakeholders and the company. Thecompany or the project is seen as an inextricableand valued component of the social andeconomic fabric of the community. Its employeesand managers will be socially well acceptedin the community because theyre part of thecommunity. These companies will easily beable to attract good talent. They will have few orno problems in obtaining the necessary regulatorylicences that they need. Basically, they will betreated as a valued member of the community.

Black, L. & Bice, S. (2012) Dening the elusive andessential social licence to operate, available at: http://www.csrconnected.com.au/2011/08/dening-the-elusive-and-essential-social-licence-to-operate/

Social licence to operate and risk Heathrows third runway

Heathrows projected third runway provides anexample of investors factoring in future growthinto their investment model, but being unable toachieve a social licence for the project to proceedbecause of a strong campaign by communitiesthat would be affected by the increased airportactivity.

BBC News 12 May, 2012 Heathrow runway plans scrappedby new government, available at: http://news.bbc.co.uk/2/hi/ uk_news/england/london/8678282.stm

Despite earlier decisions, ultimately theanticipated level of growth may be such thatgovernment overrides social concerns andapproves the project.

FT.com 13 June, 2012 Cameron clears way for HeathrowU-turn, available at: http://www.ft.com/cms/s/0/5a0b7cd0-b578-11e1-b8d0-00144feabdc0.html#axzz1y1m14n72

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Social licence to operate has threecomponents:

Social legitimacy based on established normsof the community that may be legal, socialand cultural and both formal and informal innature

Credibility created by consistently providingtrue and clear information with any and allcommitments made to the community

Trust (which) comes from shared experiences Boutilier, R. & Thomson, I. (2012) The Social License to Operate,available at: http://socialicense.com/index.html

Figure 9 Sources of social licence to operate benets

But remember that conduct peoples conductand societal conduct is largely driven by societalnorms, not by law. So we should be earningour social licence through tting in and adaptingto the prevailing social norms and acceptable socialnorms and the legal requirements are simply acomplementary element to that.Harvey, B., Global Practice Leader - Communities and SocialPerformance, Rio Tinto (2011) http://www.skmconsulting.com/ Knowledge-and-Insights/Achieve-Magazine/Issue4-2011/cover.aspx

Social licence to operate and shareholder value

A strong social licence to operate inuencesperceptions of risk premiums and, through its closerelationship with reputation and image, it also impactsbrand strength. Both of these factors drive themarkets valuation multiple and so can translate intoshareholder value.

How infrastructure businesses strengthen theirsocial licence through sustainability

By its very nature, infrastructure sustainability isintimately related to the strength of a businesss sociallicence to operate. Outstanding performance againstAGICs IS rating scheme (or similar) provides the rststep in maintaining a licence. The key performanceindicators of rating systems cross the spectrum ofeconomic, social and environmental issues valuedby stakeholders. In particular, good communityand environmental performance and sound project/ asset management are considered to be central tobusinesss social licence to operate by the respondentsto CIEAMs survey (Figure 9).

Communicating that performance at overall andstakeholder-specic levels through the whole range ofavailable marketing tactics is central to building andchanging stakeholder perceptions and reinforcing thelicence to operate.


Project/asset managementEconomic performance






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The Visy Tumut Pulp Mill, NSW

Following community concerns over the level oforganic efuent discharges to waterways and loggingof old-growth native forests, the planned constructionof a pulp mill in northern Tasmania was halted and aninvestment strike in new mills followed, evidencingwithdrawal of the industrys social licence to operate.In 2001, Visy Industries opened a new unbleachedkraft pulp and paper mill at Tumut, NSW, regardedas a showcase of innovative environmental andsustainable energy, water and waste technologies.The go ahead to the project was only given after theestablishment of a social licence to operate througha process of public and community engagement andcommitment to meeting or exceeding regulatorycompliance and, in some cases, world best practice.

Adapted from AusCID (2003) Sustainability Framework for theFuture of Australias Infrastructure

Measuring social licence to operate

As with most intangible business assets, the sociallicence to operate is usually measured qualitatively,for example using surveys that test stakeholderperceptions of the business. This may be measuredacross four levels of performance 82:

Withheld/withdrawn the rejection levelindicated by shutdowns, blockades, boycotts andlegal challenges

Tolerance , where there may be lingering issuesand threats, the presence of NGOs and watchfulmonitoring

33

Support , where the business is considered a

good neighbour and the community approves ofthe project and those involved

Co-ownership , where the community becomesan advocate for the project and the business.

It is important to recognise that an organisationslicence to operate may be project or asset specic.In other words, poor social, environmental orgovernance performance on a project or assetoperation may damage the reputation of the wholebusiness.


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The integration of sustainability into risk management,project objectives, and performance setting and rewardstructures may help businesses see sustainability as a

value proposition rather than a value imposition.

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3. Barriers to acceptance of the business case forinfrastructure sustainability

share such information as their carbon footprint and

the specics of their manufacturing [construction oroperating] practices, information often consideredto be commercially sensitive 2. This is exacerbatedby beliefs that suppliers cannot meet demand forsustainable inputs or transparency, that there will be aneed for reinvention of processes and equipment, andthat clients will not pay for improved sustainabilityperformance.

The integration of sustainability into risk management,project objectives, and performance setting andreward structures aligned with business strategy(similar to the way some alliance contracts function)may help businesses see sustainability as a valueproposition rather than a value imposition.

Lack of appreciation of value pathways

Proving that particular sustainability initiativestranslate into enhanced market value is problematical.Causal links are indirect and ill-dened and may haveambiguous direction. Reputation, for example, is acomplex concept, the sum of a number of actionsacross its six dimensions. In addition, what addsto market value in one rm may not in anotherdepending on individual company strategy, cultureand operational methods.

Further, sustainability drivers are highly unpredictableand so the necessity of planning in a dynamic anduncertain business environment potentially [requires]companies to adopt entirely new concepts andframeworks 2. The lack of a common language ofsustainability, even within individual infrastructure

industry sectors, exacerbates this problem.It is also evident that benets from sustainabilityactivities are non-linear and returns may diminish asthe intensity of sustainability actions increase, perhapsfollowing an inverted u-shape 44,45,3 . Accordinglyexcessive actions (a zero emissions goal has beencited as an example 83) are likely to be costly anddamaging to nancial performance.

Despite these complications, the model discussed inthis guideline provides a guide to how businesses mayapproach understanding their own pathways to value.

The question must be asked: if there are so many

benets, why dont all managers believe theevidence? The reasons are related to the prevailingindustry culture including its highly competitivenature, a lack of appreciation of how stakeholdervalue is created, and accounting practices.

Infrastructure industry culture

The industry culture holds back acceptance of thesustainability business case because it is short-termresults focused, relies largely on confrontationalcontractual relationships, and is highly competitiveand nancially intensive.

Firstly, given the widespread view that the role ofbusiness is to maximise prots, and the nature of thereporting cycle, it is not surprising that a majorityof managers are focussed on delivering short-termprots. However, what is surprising is reluctanceto embrace a wider perspective of risk given theindustrys high level of potential immediate andlonger-term social and environmental impact andthe increasing scrutiny that projects and assets facefrom stakeholders and NGOs. This reluctance ignoresthe environmental and social risks which need to befactored into mainstream thinking and the mountingevidence that creating value for stakeholders beyond

just shareholders is the key to building short-termprots into longer-term success.

Similarly, governments, the major funders of publicinfrastructure in Australia, are also often focused ondelivering short-term outcomes, in their case driven bythe electoral cycle, and so are less inclined to take the

long-term view that infrastructure demands.Second, and as discussed earlier, the culture of theindustry is also characterised by typically short-term,confrontational contractual relationships betweennanciers, developers, consultants, contractors,and extending to owners and operators, with splitresponsibilities and leading to split incentives.

Finally, the infrastructure industry is competitive andnancially intensive. There is a view that adoptingsustainability will impose cost penalties and createcompetitive disadvantages where others operate atbusiness as usual levels. Further, the transparencyrequirement of sustainability requires companies to


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Accounting practices

The most fundamental obstacle to quantifying costsand benets of sustainability initiatives is the nature ofaccounting practices, which commonly hold the viewthat what cannot be empirically measured is typicallyviewed as unimportant or even non-existent 84. As aresult, ecological and social resources, and the often-intangible benets of integrating sustainability intostrategy and operations, are frequently consideredto have no intrinsic economic value and to beunimportant to business performance.

Even though as this guideline demonstrates some non-monetary (intangible) assets can beleveraged into competitive advantage and shareholdervalue, in practice, investors and managers dontknow how to play in a space that expands theframework to include other than strictly nancialmetrics 85.

Many of these intangible assets are valued by themarket but overlooked by management, meaningthat management is prone to under-manage or

even ignore what might be the most signicantportion of their companys (market) valuation 86 giventhat, in todays knowledge econom