On Environmentally Sustainable Development
2006.11.16.
(from a previous speech given in 2005 at the BCC)
It is not difficult to make the observation that the key drivers of
environmentally sustainable development initiatives or projects are
people’s collective environmental conscience and market demand.
I believe everyone has an environmental conscience. However, as with many
other aspects of our lives, it is simply ineffective to just rely on
voluntary self-regulation to manage the level of environmental impact we
are causing collectively and to protect our environment for future
generations.
This leaves Market Demand as the most dominant force in how we perceive,
respond and resolve issues of environmental sustainability.
We often talk about supply and demand in the marketplace for
environmentally sustainable products. In doing so, it becomes necessary to
understand the needs and wants of such a market system with regard to ESD
products as a commodity item.
The fundamental elements of a market system that most of us are familiar
with are – buyers and sellers trading a commodity determining price and
quantity of output.
Going down this path attempting to flesh out this skeletal framework, a
few issues immediately come to the fore before we can develop such
framework further. These issues are:
- How do we determine environmental needs and how do we categorise such needs – the needs of the Federal Government, State and local governing authorities, communities, companies and individuals?
- When can we determine these needs and what are the timeframes?
- What are the commodities being traded and how do we deal with their multi-facet nature?
- How much should we pay for environmentally sustainable products and how would we pay for them?
Market forces can be in the form of push factors through various
government and regulatory authorities imposing more astringent regulatory
requirements.
Market forces can also be in the form of pull factors coming from the end
users choosing to live and work in dwellings and buildings with higher ESD
ratings, and in doing so, willingly accept the potential cost premium
during the transition.
This requires a change in how we conceptualise what is deemed ‘necessary
and vital’. It is clear that at the moment, we do not treat individual
user’s contribution towards environmental protection as ‘mandatory’.
However, a balance between push and pull factors is necessary. And such
balance may change over time depending on the overall market environment.
A significant influence on the ESD market environment is the property
cycle. During a property boom, especially at the beginning of a boom
period, increases in costs can be easily covered up by rising selling
prices, while still achieving profit targets.
Yet cost increases in a market downturn erode profitability, and in many
instances, they can stop projects from getting off the ground.
Some may argue that purchasers are willing to pay a premium for ESD,
however, it is also highly likely that the extent of such premium is very
sensitive to the property cycle.
A note on who pays for the ESD premium – there is a significant difference
between commercial and resnameential developments. Commercial buildings
when developed and held as assets, the cost risk is spread over the life
of the building and the benefits can be more easily justified in
potentially lower operating costs and better rents.
As to residential properties, a purchaser may not live in the house or
apartment long enough to derive sufficient financial benefit. And I should
be safe in hypothesising that an individual dwelling purchaser is on
average much more sensitive to the marginal cost for ESD benefits than a
property trust or syndicate purchaser of commercial properties.
In order to facilitate an optimum combination of ‘push’ and ‘pull’
factors, the society needs to become more aware of the importance of
Environmentally Sustainable Developments and be educated over time on what
ESD entails to enable people to establish appropriate rules and
regulations as policy makers and enforcers, and to make appropriate
briefings and decisions as clients and
purchasers.
It should be noted that what are now considered additional commitment
would become standard practice one day. The quicker we can accept such
sustainability improvement as a matter of necessity and not as gadgetry
add-ons, the shorter the transition period would become. Consequently, the
shorter the transitional period, the quicker we can outgrow the urge to
cut development cost increases due to ESD practices.
More issues for consideration:
- Pressure of ESD premium on affordability of housing prices;
- ESD technology on the construction market in terms of demand on skilled
- labour and material (eg. plantation timber);
- Relativity of ESD input required and the overall benefit to the
- environment if everyone participate in it;
- The importance of the “participation rate”.
These are difficult discourses, but we need to meet these challenges
head-on to make progress. And open discussion would help in raising
awareness and identify further research and education required, which
would ultimately encourage resolutions and the much needed en-mass
participation and action.
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