Environmental and ethical issues – Lesson 28

What is environment?

What is environment?

Environment is our nature or surrounding including pure air, clean water and undeveloped countryside

Do businesses need to be responsible towards the protection of the environment?

• Yes businesses need to be responsible towards the protection of environment. Businesses have a social
responsibility. Social responsibility is when a business decisions benefit stakeholders other than shareholders

Example: decision to protect the environment by reducing pollution by using latest greenest equipment.

 Many consumers prefer firms that are aware of their social responsibility

How business activities can impact on the environment

• Waste disposal might pollute rivers and sea

• Transport of goods by ships and trucks burns fossils fuels such as oil, which creates carbon emissions and may be
linked to be global warming and climate changes

• Global warming is gradual increase in the overall temperature of the Earth’s atmosphere.

• Pollution from factory chimneys might reduce air quality

• Aircraft emissions might create air pollution

Some businesses think that they only have a responsibility towards producing goods and services but, not to worry about
the environment while, some businesses accept that they have a responsibility towards the environment for everyone’s
benefit

The concept of externalities

 Externalities occur when producing or consuming a good cause an impact on third parties not directly related to
the transaction.

 Simply, Externalities are costs or benefits resulting from a particular business activity.
Sustainable development

 It is the development which would not risk the living standards of future generations.

How businesses contribute to gain a sustainable development?

• Use renewable energy –Solar power, Tidal power

• Recycle waste –Re using resources

• Use fewer resources – lean production

• Develop new environmentally friendly products and production methods

Examples: replacing plastic drink cans with biodegradable packaging

How and why a business might respond to environment pressures and

opportunities

 Always there will be parties who put pressure on businesses, if their business activities are affecting the
environmental activities.

 There are three main influences work towards the betterment of environment

1) Consumers

 Customers are becoming better informed and more aware of the environmental impact of consumer products.
Thus, they are demanding that industry improves the environmental performance of its products.

 Today, customers are more enlightened and informed, and they are also concerned for their children when it
comes to going green.

 If businesses are concerned about the environment, it will lead to increase in reputation and brand image,
resulting in consumer loyalty and a positive impact on long run profits.

 On the other hand, if customers not do care about the environment, if the businesses are damaging the
environment, then many consumers will stop buying its products and that will lead to a sales fall.

2) Pressure groups

 Pressure groups are groups of people who act together to try to force businesses or governments to adopt certain
policies

 Pressure groups are becoming increasingly powerful and they usually take actions against the businesses that are
socially irresponsible.

Example: “Greenpeace” and “Earth first” are few that are popular, and have tried to organize consumer boycotts

 A consumer boycott is when consumers decide not to buy products from businesses that do not act in a socially
responsible way
3) Government, through legal controls

• Governments can make business activities illegal by passing laws

Examples:

i) Prohibiting manufacturing operations in environmentally sensitive areas.

ii) Restriction for disposing wastes by,

 Pollution permits

 Other Penalties

 Additional taxes on goods or factories that create pollution

iii) Encouraging ecofriendly products such as recycled items

 Governments can make business activities more expensive and enhance their cost of production. This will lead to
increase the prices of the products.

 Therefore, some governments, hoping that this will discourage businesses to produce in their country, they do
not pass strict laws on environment.

Ethical issues a business might face – conflicts between profits and ethics

Ethical decisions

 Should businesses always ‘do the right thing’? Should businesses always take decisions that are fair and ethical?

 Firms need to make decisions with situations that they have to face up frequently. Sometimes these decisions can
be ethical either unethical

 Ethical decisions are the decisions based on moral/ethical codes and it is simply following the right things

Examples:

• Charging fair prices

• Providing correct information about products

• Using right quality materials

• Selling right products

Different people will have different moral codes and therefore they will sometimes have their own ethical standards.
The two most extreme views are;

1) ‘As long as a business does not intentionally break the law then any decision it makes is acceptable. Businesses want
to make profits, after all’

2) ‘Even if certain activities are not illegal, it is unethical to promote any. Therefore it is wrong to do them even though
any increase in profits occur by practicing those activities’

How business might react and respond to ethical issues

Example:

 There are two large multinational companies as X and Y,

 X purchases clothes from a factory in a low cost country that employees uses child labour, which is illegal

 Y purchases clothes only from guaranteed suppliers who do not use child labour in production, pays workers fair
wages and offers good working condition.

What is the potential impact on Company Y on this ethical decision?

Remember that there is NO ‘right or wrong’ answer when discussing ethical decision making. Be prepared to discuss the
IMPACT ON A BUSINESS OF BEIGNG LESS or MORE ETHICAL in its decision making