About the episode

Globally we are at a crucial point when it comes to climate change. Fires, floods and record-breaking temperatures have revealed its devastating environmental impact, but what’s the cost of climate inaction at a business level? 

Research by Deloitte says over 80% of executives worldwide are concerned about climate change and how it affects their industries, yet many might not be aware of the amount of action required in the next 5 - 10 years in order to address it.

In this episode, The Business of Climate Change, we explore how climate change is impacting business, industry and global markets.

Professor Nick Wailes, Senior Deputy Dean and Director at AGSM is joined by Penny Joseph, Head of Resilience and Climate Change Adaptation at Sydney Water. Penny shares her insights on how we all can rise to the challenge of addressing climate change and create a brighter future.  

We also hear about the major investment benefits that come from commitment to sustainability from Kingsley Fong, an Associate Professor at the School of Banking and Finance at UNSW Business School.

Speakers:

  • Professor Nick Wailes, Senior Deputy Dean and Director at AGSM
  • Penny Joseph, (AGSM MBA Executive 2019), Head of Resilience and Climate Change Adaption at Sydney Water
  • Associate Professor Kingsley Fong, School of Banking and Finance, UNSW Business School
  • Narration:

    Globally we are at a crucial point when it comes to climate change. 

    Fires, floods and record-breaking temperatures have revealed its devastating environmental impact, but what’s the cost of climate inaction at a business level? 

    Research by Deloitte says over 80% of executives worldwide are concerned about climate change and how it affects their industries, yet many might not be aware of the amount of action required in the next 5 - 10 years in order to address it.

    Welcome to The Business of Climate Change, podcast brought to you by the Australian Graduate School of Management at the UNSW Business School. 

    In this episode, we’re discussing how climate change is impacting business, industry and global markets. What’s our role in addressing this universal challenge, and how can the leaders of today and tomorrow approach the changes required of them?  

    Professor Nick Wailes, Senior Deputy Dean and Director AGSM is joined in conversation by Penny Joseph, Head of Resilience and Climate Change Adaptation at Sydney Water.

    We’ll also hear from Kingsley Fong, an Associate Professor at the School of Banking and Finance at UNSW Business School, and an expert on how we can invest for a sustainable future.  

    First up - let’s go to Nick Wailes in conversation with Penny Joseph. 

    Nick Wailes: 

    Penny, your role is head of resilience and climate change adaptation at Sydney Water, which is a long title and a challenging role, I imagine. It's great to have you on the podcast. I thought we might start just by talking about, how did you end up getting into this role? What does your career look like to get into this role?

    Penny Joseph:

    So, I've had a fairly diverse career. I actually started out my career in the manufacturing industry. So, I studied engineering at UNSW and after that, spent a bit of time in the aerospace industry, both at Boeing and Airbus overseas, and then followed a pathway into the solar industry, did some business improvement roles in Sydney Water, across to some longer term strategy roles, and then landed this role in climate change adaptation. Actually, my background might seem quite diverse, but very, very relevant because I've had quite a lot of operational experience, which has taught me well about how do you respond to different events and incidents and how do you do that effectively, but also those opportunities to look towards the longer term strategy as well. So, the good thing about my role is that I take both of those parts into account. So, I have the longer term climate change adaptation, but also the shorter term emergency management, which sets itself well up for continuous improvement learning cycles.

    Nick Wailes:

    And Penny, we're going to talk about the business of climate change in this podcast, and I'm really looking forward to that conversation. I thought I'd start with quite a big topic. So, it's very easy when you look at climate change. It seems there's two extremes. There's either, "It's not happening," or, "There's nothing we can do about it," and there's this pessimism. Where do you sit on that continuum that seems is a very polarised debate?

    Penny Joseph:

    I think change always happens in the middle. So, it doesn't matter what change you're trying to affect, if you're playing at the extremes, it's very, very difficult. So, for my role, it's really about, how can we progress forward? And there's so many opportunities for us to progress forward and so many opportunities in that context that it's almost, I suppose, irrelevant, some of that situation that's happening in the background. Because we've got so many challenges and so many things that we're acting upon. 

    Nick Wailes:

    So, do I get a sense from that you're quite optimistic about the future, that you think there's lots that we can do and there's lots of low hanging fruit that we can address in the climate change area?

    Penny Joseph:

    Oh, for sure. Yeah. So, if you look at the different programmes of work, look, we have so many opportunities to act on different small and large things. I'm not saying that we should be complacent because of course we should be acting with intent. But we should also be, I think, optimistic about the future. If you're not optimistic about the future, then you may as well pack up now, in my mind. So, there's so many opportunities that we have, so much new technology that we can utilise, and so much low hanging fruit, as you say, as well.

    Nick Wailes:

    And so that's good. I think that's a great place to start our conversation. There are things that we can do and we need to be optimistic about the future, but it is a big challenge, right? I want to talk a bit later about how your role is structured and how that allows you to do things within Sydney Water. But one of your key responsibilities is resilient water supply. I wonder if you could just talk us through how the Climate change is affecting the resilient water supply? And what are some of the issues that we have to deal with in that?

    Penny Joseph:

    Yeah, sure. So, if we look at the last drought which occurred between mid-2017 and ended in February 2020, it was really one of the worst droughts in history. If we look at why that is, it's not because the Warragamba Dam ended up at a lower point than it had in previous droughts, but more because of the speed that that happened. So, we literally lost 50% of the dam capacity in about two and a half years. And why that's important is it gives you less time to react or to build infrastructure. But if you take a look at also the events since then, so we had bushfires, then we had a flood. So, you had the bushfires in the water catchment. Then you have a flood that moves the ash into the catchment. And then you have different events that impact the quality of the water as well. 

    So, it's everything from water conservation to how we can use water more effectively. How do we change customer's habits? We know that people in Sydney, for example, use a lot more water than people in Melbourne. But also thinking about drought planning, drought response, putting more climate-independent sources of water into the mix, diversifying our sources of water so that if some event happens, it doesn't take out the whole water supply. So, it's a really holistic way of thinking about a challenge. And because of that, it really does require a lot of people through the organisation who contribute their particular skill sets. It's certainly not just one team or one small person that is looking into those issues.

    Nick Wailes:

    So, that's quite interesting about how these overlapping effects of climate change can really affect the water supply, but also that there's multiple different initiatives that you need, which I think is this strange thing that you, as a corporatized entity, are often encouraging me to use less water, which seems counterintuitive for a business, but that's an important part of the strategy, isn't it? To really emphasise effective water usage.

    Penny Joseph:

    Yeah. It's about effective water usage. So, we do also know that water can play a big part in how the community can adapt to climate change. So, thinking about some of the projects that we are looking into, thinking about using water for cooling and greening. So, we know that we can, for example, reduce the temperature that people experience by about 4.8 degrees by using water differently. So, it's a very holistic and integrated system that you need to think about these issues because it's certainly not simple and linear, that's for sure.

    Nick Wailes:

    And then I can remember you saying in something I've been reading that one of the challenges is, water users don't necessarily understand the water cycle and the way that water works. And I wonder how big a challenge that is and is that true, that some people don't really understand that water goes around and around and there's a finite amount of it?

    Penny Joseph:

    Yeah. So, that's right. So, really the same water has been going around and around for many generations since the dinosaurs. So, it's the same water that is going through the system and through people drinking it and peeing it, and it's going into the rivers and back around as rainfall and has been for generations. So, we find there's some people, obviously that understand that well and people certainly learn it at school, but I don't think it's something that a lot of people really spend their life thinking about, unless you work in water, in which case it's all we spend our life thinking about. But what we do know is that people who understand that cycle are very open to new ways of using water. 
    So, thinking about using recycled water for drinking supplies, and there's about 35 cities that are doing that. And then you can think beyond that as well to ultra pure water. So, water that's so purified that it's been so cleaned that it's almost too clean for drinking and is good for other uses like medical uses, but importantly also for other uses, so things like hydrogen manufacturers. So, there's a whole stream of uses. And I think the key message is the more water we have, the more we can put it to different types of uses. And it's really about thinking about what are the types of uses that you need, and then what's the best supply to meet those particular needs.

    Nick Wailes:

    So, part of your role is to pursue this net carbon zero goal that Sydney Water has. There's things about water that make it pretty high in emissions. Can you explain to us why that is?

    Penny Joseph:

    Well, if you think about water, we actually are moving a lot of water around the system each day. It's millions of litres of water servicing five and a half million people. So, if you think about it, each litre of water weighs a kilogramme, it's actually very heavy. If you've ever seen a river flowing, it's quite a powerful thing. So, moving that volume of water around, of course, takes up a lot of energy. And then there's the treatment of the water as well. So, aspects like desalination and other forms of treatment, which also, I suppose, consume energy. And a lot of that is offset, but the processes themselves consume energy.

    Nick Wailes:

    So, I think for me that was, I never really thought about that. I just assumed I turned off the tap and water came out and it somehow flowed downhill, but there'd been a lot of energy used to get that to me. So, that then makes the challenge of net carbon zero, that increases the challenge. But some of the projects that you're working on have been described as mining the sewer. Can you talk to us about that and what's going on there and how is that generating positive carbon offsets?

    Penny Joseph:

    So, the opportunity we have is really about embracing the circular economy. So, it's about understanding that the waste we collect is actually a valuable resource and can be put to good use. So, we can use that to generate all kinds of valuable resources people would be familiar with, bio solids, and probably use that in their gardens. But there's also an opportunity to produce gas, biogas, and currently Sydney Water are partnering with Jemena to actually take some of that gas and pass it to households in Sydney. So, I think next year we'll start to provide gas to six and a half thousand households. So, there's opportunity for those types of projects. And clearly we can expand those types of projects as well. So, we can take, for example, the food waste of the city and also turn that into energy so they're all the same processes that we utilise to process our wastewater.

    Nick Wailes:

    Okay. So, quite a lot of new revenue streams leveraging the resources that are in the water supply and not letting that go to waste.

    Penny Joseph:

    Yes.

    Nick Wailes:

    So, Penny, maybe you could talk about the role, how it's structured and then how you work in the organisation. Because I'm really interested in how that structure helps drive things like awareness of climate change.

    Penny Joseph:

    Yeah, sure. So, my role, we know it as being a custodian role. So, there's several custodians in the organisation. Climate change is one, but environment, water quality, data are others. And our role as custodians is to actually thread through the organisation. So, if you think about topics like the one we were just talking about, the net carbon zero programme, there's people that are looking at innovation and sequestration. There's people that are looking at business development. There's people who are trying to modify their operational efficiency and effectiveness. There are people doing corporate strategy. There's people in digital services thinking about new digital methodologies. So, there's obviously people in asset life cycle who are thinking about the assets that we need to make and thinking about how we might do that differently.

    So, there's lots of people through the whole organisation having a lot of effort. And my role is to bring those teams together, to succeed together, to innovate together, and to have common purpose. It's a great fun role because what we see now in our organisation is very little... We don't have silos. If you looked back, the organisation had a lot of silos, whereas what we're seeing more and more is really effective teams. And so we're achieving a lot and progressing forward a lot. 

    So, it's a role that I touch a lot of stakeholders and I spend a lot of time joining dots for different people. We have a lot of conversations. We run a lot of forums. And I enjoy it because I get to go between strategy and detail. And I often see or think about my role as removing barriers that people have. I think the advantage that I have compared to other people in the organisation is other people have, of course, conflicting priorities. Whereas I've been asked to take a look at this particular issue and progress that. And so it helps the organisation keep focus on these important issues.

    Nick Wailes:

    So, that sounds great. And it sounds, a very complex issue like climate change or resilience, it sounds like it's a mechanism to bring together all of the expertise that you need, but also to get people aligned across their different objectives. But I can imagine that was quite hard to get that to work. When the structure was first put in place and you were first put in the role, was it challenging and did you have to change behaviours?

    Penny Joseph:

    Yeah, for sure. One of the difficulties, I think, was, or a brain wave, I think, was that really nobody in the organisation in our current structure can achieve by themselves. I absolutely can't achieve my outcomes without utilising other teams, and other teams would say the same thing. And it's been really interesting to go through that experience. And we've also all been working remotely with COVID, but wow, it's completely refreshed organisation. We had to spend a lot of time, of course, developing relationships. On a topic like mine, I think it's a little bit easier. The one thing that makes it easy is most people in Sydney Water, the vast majority of people, are very caring of this particular issue, that they value the adaptation and the mitigation that we do highly. 

    Nick Wailes:

    Yeah. And it makes sense to me now that one of the reasons you get into water is that you're interested in the environment. And if you understand the water cycle, you understand these type of things. So, I think all of us listening have had to coordinate across complex organisations and get different teams to work together and that's incredibly challenging. What are the key skills that you think you're bringing to that role and what are the things you really focus on to make sure that you get good progress?

    Penny Joseph:

    Yeah. So, with complex programmes, I think a big task is to actually break things down, to progress them, and thinking about progressing the complex issues rather than solving for the complex issues. Because you can never solve for these complex issues. 

    So, one approach to looking at problems is through the Cynefin framework. So, the Cynefin framework helps you understand what type of problem you're looking at. 

    So, it basically describes, I suppose, four different contexts. The first is simple context. So, simple context you actually need, or it's more effective if you work by yourself, right? Because you can solve the problem and it's easy. You can do that. Then you have technical context. So, technical contexts are things that they might be difficult and they might have a lot of parts to the problem, but you can actually solve them. So, maybe something like a complicated computer system would be an example of that. Then you talk about complex. So, complex problems are like wicked problems. There's lots of moving parts. There's more things than you can actually solve for. You'll be working with a lot of unknowns. So, unknown technologies, difficult political environments. You'd be thinking about having complexity in your stakeholders. You'll be having unknowns that you don't you that you don't know. So, you've got all of this changing circumstances. People often misunderstand the problem is another part of what defines complexity.

    And then finally you're talking about chaotic problems. So, chaotic problems are much more like an emergency management situation, which I also deal with. In an emergency management situation, then you're often just trying to bring some kind of structure back to a problem and you need to do it very quickly. So, that very direct, very, very specific, almost ordering leadership works really well in that context because it restores structure to a situation. But in the complex problems, you're really trying to draw on different skill sets and bring them together, and that's how you can progress the problem.

    Nick Wailes:

    So, I think that's a fantastic summary of that framework. And I think I've been looking at that for about 10 years, but that's much clearer than lots of the ones I've ever heard. So, you really are in that complexity area, right? So, you've got unknown technologies, multiple stakeholders, lots of overlapping issues, and you're trying to create a structure that allows people to work through the complexity. Is that the way that you see your role?

    Penny Joseph:

    So, a lot of my role is in that complexity space, but not all of it. As I said, I also have an emergency management in my portfolio. So, that tends to be more in that chaotic space at the time when you've got an event going on. But I do also have sometimes in the technical space and sometimes in the simple space. It's really about going, "Where am I and what's the best approach to deal with this?" But in the complex issues, one of the things that I try and draw out is actually the differences of opinion that people have. I try and surface that. Because if you can allow that to happen, you can understand problems from different angles or the different skill sets that people bring. And when you can do that, then you can come up with new ideas and you can think about how you can progress the issues. So, creating an environment where people can express themselves, raise issues, look at things. Some people will see problems from different angles. It's helpful to be able to do that.

    Nick Wailes:

    So, can you think of a concrete example where you've done that, or in your portfolio where there's an area where you're having to bring these different perspectives together and resolve that?

    Penny Joseph:

    Yeah. So, right through my portfolio, actually. But we talked about some of the challenges with some of the climate risks. How do you do a climate risk assessment? It would seem to be fairly straightforward thing to do, but then what are the plausible futures? Which one of those are you going to adapt to? You've got the different types of futures. You don't know which one is going to eventuate. You don't know how people are going to reduce their carbon. So, where do you invest, and at what point is investing too early? Should you invest in everything? Should you invest only in those things that are difficult to change later? Do you invest in projects that are already in flight? Do you ask them to go back or do you allow them to keep moving?

    So, even an issue that's like climate risk assessments, which would appear to be straightforward, in reality has its own complexities. Now, when you bring the teams together and understand what they're trying to do, what their different drivers are, you can achieve really pragmatic ways to do that. And some of the thinking is, we know that there's going to be a certain amount of change. And so we should build that into our designs at decision points, but that we should also be thinking about designing systems in a way that you can adapt them in the future. So, if a particular scenario turns out to be worse than what we've planned for, that you've planned the infrastructure in a way that you can continue to adapt it later.

    Nick Wailes:

    Okay. So, that makes sense to me. So, because I'm thinking some of the assets that you're building, so when you're building new infrastructure, they're potentially a hundred year life. Is that right?

    Penny Joseph:

    Yeah, for sure.

    Nick Wailes:

    And so you need to design them in a way that allows you to adjust for different futures. So, that might mean changing the technologies you use or changing where the water's coming from, those type of things, yeah?

    Penny Joseph:

    Yeah. So, the engineering teams absolutely are thinking about those types of answers and they're trying to design things in a way that opens up options. Some decisions that you make close down options. So, in this complex thinking, you're actually trying to make decisions that will open up three more options rather than making a decision that leads you to dead ends. So, they call it optioneering or trying to make decisions and trying to keep a wide variety of options open as long as you can so that you've got space to adapt in different directions as things change.

    Nick Wailes:

    Penny, I wanted to go back to something you raised a bit earlier, which I thought was really interesting, about the role of water in making cities more livable. And I wondered if you could talk a little bit about that and how we might see water in the future playing a role in our cities in making them livable or mitigating the effects of climate change.

    Penny Joseph:

    Hmm. So, you can understand that if you go under the shade of the tree, that you can feel cool. And so that's what you're trying to do in the city is you're trying to use the water to affect those types of outcomes. So, thinking about how you can use the water to establish more greenery and more blue infrastructure, which is the waterways. The vision for the future, it would be really great to have more of the Parramatta River swimmable, for example. And we know that there's millions of people who live in two kilometres of the water of the Parramatta River. And we've seen that in COVID, right?

    Some of those open spaces have become much more popular than they ever were before. And so it's really as simple as that. It's trying to think about all the water infrastructure. Now, in new suburbs that can be easier to achieve, in that you can design the suburb around the water, as opposed to designing the water around the suburb. And if you can do that and put water at the centre of the way you think about developments, then that can be really helpful in delivering some of those types of outcomes.

    Nick Wailes:

    And is that happening? Is Sydney Water playing an active role in planning suburbs and new developments and-

    Penny Joseph:

    For sure.

    Nick Wailes:

    But presumably, then, there's an issue around developers who are trying to optimise the amount of space that they're using and those type of things.

    Penny Joseph:

    Absolutely. These things are collaborations. And so Sydney Water is part of collaborations with other government departments, developers, councils. And so everybody has their different take on those things. But even from a developer point of view, these places that people want to live in are worth more money, right? People will pay more to live in a place where they want to live. So, I don't necessarily think that those objectives are in conflict. It's really about trying to do it in a way that people value. And if you're doing that, then you should be able to find a way.

    Nick Wailes:

    Okay. Well, that's good. Because I think we all know that regardless of what we do, the climate's going to get hotter and then livability is going to become a big challenge. And so Penny, I thought we might finish off and just get you to think about, what's your advice to us when we are thinking about our businesses and climate change and the role that we can play? What are the types of things that we should be focusing on and what would you encourage us to do?

    Penny Joseph:

    Hmm. I think the biggest thing I'd encourage for people is just to break down the big problems into smaller problems. If you can do that and find, you'll be able to see that there's lots of different things you can act upon. And when you do that, you can start to feel positive about the future. And you can see the positive outcomes that we can each achieve. The second thing I would encourage people to take or make decisions that open up more options, because that way you're actually, as you progress forward into circumstances that are unknown, you give yourself more ways to respond in the future. But finally, I think, thinking about leadership instead of management. There's actually a lot of people, certainly in our organisation and I'm sure in others, that are actually wanting to do the right thing. So, we should be trying to lead in a way that empowers people in our organisations, and that's really important and the keys to success, I think.

    Nick Wailes:

    Great. Well, that's a great summary. Penny, it's been a real pleasure talking to you. And I think it's easy to be pessimistic about climate change, but your business, both affected by but able to impact the climate, and it's great to hear about the approach that you're taking and some of the fantastic things you're doing. So, thanks for sharing your insights and thanks for joining us.

    Penny Joseph:

    Thank you very much.

    Narration:

    It’s clear to most of us that climate change is having a major effect on the things we take for granted - including our water supply. But Penny Joseph’s shared insights show it's possible to rise to the challenge and plan for the future.

    So - we’ve heard how individuals and teams can take action on climate change within their organisations. But what do these initiatives mean to external stakeholders and potential investors? 

    Associate Professor Kingsley Fong, says there are major benefits that come from a strong commitment to sustainability within organisations. As well as being good for the planet, there comes opportunities to attract sustainable investment.   

    Let’s go to Associate Professor Fong to find out more.

    Kingsley Fong:

    My name is Kingsley Fong. I'm an Associate Professor at the School of Banking and Finance, UNSW Business School.

    The COVID actually, it has been a test for sustainable investment and the market has spoken. Billions and billions of dollars continue to flow into sustainable investment vehicles.
    Showing that investor has to resolve to continue the agenda, they see it as important. 
    It's very important to act now because we are basically at a threshold of some of the environmental and social boundaries of the current global socioeconomic systems. We have exponential growth in populations and resource consumptions, which is not sustainable in the long run. 

    So you will hear about the term, ESG, stands for environmental, social and governance used interchangeably with the term sustainable investments in the media, but strictly speaking, sustainable investment belongs to a broader class of investment approach. That's called responsible investment, which includes all strategies and practises that incorporate environmental, social and governance factors into investment decision-making and active ownership. So there are actually three categories of responsible investments. There are the basic ones called ESG integration, that's to make sure that our analysts and investors use environmental and social, and governance information and issues to value financial risk and opportunities.

    So that should really be practised by most, if not all, investors. So that's called ESG integration and there is an ethical element to it, which is called screening. That's the second type of responsible investment. Screening could be based on your ethical orientations and values, that's the oldest types of sustainable investments, value based, has been practised for hundreds of years. And the last type is called thematic, which is where investors explicitly value environmental and social outcomes, as well as financial and sometimes they prioritise environmental and social outcomes to financial returns. So there are these three broad categories or three levels that you could practice sustainable, responsible investment. 

    Narration:

    So now we know a little more about how sustainable and responsible investing works, how can we start to integrate these considerations throughout our organisations?
     
    We asked the Associate Professor about some long, medium and short term strategies for companies wanting to attract sustainable investment. Here’s what he had to say. 

    Kingsley Fong:

    So I say the first thing is to get educated about what responsible investors are looking for. Because the criteria under environmental, social and governance are probably new to a lot of large and small companies' employees or directors. So getting into the specifics is important. And then think about the purpose of the business. I think that's the overarching strategy to deal with sustainability. So how is the business relating to, and how is the business serving the world? Think deep along that one, because there are a lot of resources and inputs and outputs that are not exactly priced. So you need to understand your company well, what are the inputs and outputs that the company or the business is getting and what is it producing and are these inputs and outputs priced by the markets?

    And then you also look at it from a product development and long-term strategy perspective. So what are the long term, short term, medium term changes that you would expect to the demand of your products and how you might want to change, for example, your supply chain, so you can have products that are more marketable and more sellable in a environment towards higher expectations on company sustainabilities. And once you have now done the purpose of the business and a way to see the future in terms of the products that the company could offer, then you can have the mission statements and the product agendas to recruit talents that would support the missions, right?

    And then you're more likely to have more conscientious staff, and you can attract them. They're not just worried about the financial payoff. They are wanting to buy into the journeys to create values and for a better world. 

    Okay. And for large company, again at the board levels, are the board having the right skills and compositions to deal with issues in the climate change, most importantly, and then other social issues like there are, for example, recent legislation on modern slavery, these are not trivial things to deal with. How is the board composition and the skill sets are able to deal with that. And again, education probably will be necessary on these things. And are there credible incentives in the remuneration system that would indicate the company is taking these things seriously? So again, that's a message and also a mechanism to deliver performance. And it can be just short term incentive. Because long term, these sustainability issues should help the company to prosper. So that will naturally show up in the long term financial incentive, but in the short run, there might be needs for environmental and social performance-based incentives to compensate. So these are many ways that both large and small companies could use to adapt or take advantage of the risks and opportunities that sustainable investments bring.

    Narration:

    That’s about all we have time for today. Thanks for listening in. We hope you enjoyed our dive into The Business of Climate Change. 

    To find out more about today’s episode, search for AGSM’s the-business-of-podcast online.

    Please share, rate and review and subscribe to AGSM’s business podcast on your favourite platform and look out for future episodes.

    In the meantime, you can follow AGSM at UNSW Business School on LinkedIn and Facebook for more industry insights for an accelerating world or find us at agsm.edu.au.

    Until next time, thank you for listening.