6.2 Environmental and Ethical Issues

Can business have a conscience? Can business be a force for good in the world or will companies always prioritise making profit over people and the environment? We examine these dilemmas from the perspective of business in environmental and ethical issues. 

You may be asked question like this:

Past Paper Question Example  Paper 1 (e) Do you think that large manufacturing businesses should be concerned about ethical issues such as child labour? Justify your answer                                                        [6]

6.2.1 Environmental concerns and ethical issues as both opportunities and constraints for businesses:

How business activity can impact on the environment 

Business Activity, like all human activity, has a massive impact on the environment.

Pollution from factories and the products  can pollute the air and water.

Businesses contribute to deforestation and destruction of animal habitats, to use resources for producing goods.

Global Warming: It’s very difficult to find a business which doesn’t burn fossil fuels and contribute to climate change.

Coca-Cola has been widely criticised for using up the water used by the local community in India to manufacture soft drinks. 

Like virtually every business, it relies heavily on fossil fuels to power it’s factories and deliver its products, so it contributes to climate change.

The concept of externalities: possible external costs and external benefits of business decisions.

Externalities are a way of looking at the wider impact of business decisions. 

Let’s take the example of a plastic bottle of Coca-Cola. Coca-Cola may make 60 cents of profit for every bottle they sell, but what about the cost of the environmental impact of this business activity? Millions of  empty plastic bottles are thrown away which don’t decompose for thousands of years and can’t be effectively recycled. The impact of this business activity is passed on to the rest of society, and these are called external costs.

So external costs are the costs of business activity which aren’t paid by the business but by society.

Product delivery trucks burn fossil fuels and contribute to global warming.

However, businesses can also create positive externalities, where society or the environment benefits because of business activity. For example if Coca-Cola decides to build a new factory in India, Coca Cola will benefit by gaining access to the Indian market and a low cost, highly skilled labour force.  The local community and society will also benefit through higher employment and more money entering the local economy. 

So external benefits are the positive impact of business activity which don’t benefit the business but the rest of society.

There is an important link here with Unit 1 and stakeholders, as externalities are essentially analysing the impact of business activity on external stakeholders, both positive and negative.

Link  1.5 Stakeholders

Every business decision will result in external costs and external benefits. 

Many businesses have moved beyond making decisions based solely  on making the most profit possible, and started to think about sustainable development and ethics. 

Sustainable development and how business activity can contribute 

Sustainable development is achieving growth without negatively impacting the environment.  Companies can contribute to this goal and benefit by using these goals as a means of marketing their business.  

Previously Coca-Cola was criticised and suffered a negative brand image for using up local people’s water supply to make their products. It has responded by introducing a 100% water replenishment goal. So it will replace all the water it takes from the natural environment for producing Coca-Cola. It can then use this to improve its brand image in marketing campaigns, increasing sales and profits.

However, sustainable development means minimising the impact on the environment of all business activity, which can be a challenge for huge multinational businesses, with thousands of products, suppliers and factories all over the world. 

Hewlett Packard,  the computer manufacturer, ranks as one of the most sustainable companies in the world. Not only through innovative programs like using disused plastic bottles to make ink cartridges, but in addition to its own practices, the company holds its suppliers, distributors and resellers to high environmental standards. This gives it a competitive advantage when attracting environmentally conscious consumers. 

The role of legal controls over business activity affecting the environment

Not all companies will take the initiative and become more sustainable. For some companies like coal mining businesses it can be virtually impossible to change their whole business model to one that is environmentally friendly.  That is why the government passes laws, to force businesses to lower the impact of their activity on the environment. 

The government can ban single use plastics, or put an additional charge on items which are harmful to the environment such as plastic bottles, plastic bags or a carbon tax for high polluting businesses. 

Denmark is ranked as the “greenest” country in the world, based on the Environmental Performance Index. It sets strict rules on how much businesses can pollute. 

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

Ethics is doing the right thing, basing business decisions on what is morally right, rather than if it is legal or more profitable. 

Environmental issues are also ethical issues. if Coca–Cola doesn’t pollute or take water from the environment and cause a drought, this is also ethically the right thing to do.

However, ethical issues are much wider than environmental issues, and cover how employees, consumers, suppliers and the wider society are impacted by business activity. 

Businesses continually face difficult decisions over what is  ethically the right thing to do and what is more profitable. Unethical decisions by business can result in negative publicity, for example:

• Volkswagan and other car companies cheating in pollution tests

• Facebook not protecting their users privacy or personal information

• Tobacco companies promoting an activity which often causes death

• Mc Donald’s and the links to childhood obesity

How business might react and respond to ethical issues, e.g. child labour

However, companies can respond by finding solutions to these ethical questions and using  them to appeal to ethical or health conscious consumers.

For example Coca-Cola has developed a sugar free Cola, and started to offer it’s drinks in smaller packages, to lower the negative impact of its products on consumer’s health.

Pressure Groups are groups that try to influence business in the interests of a particular cause.

Pressure groups seek to influence business and consumer behaviour.

There are thousands if not millions of pressure groups around the world. These can be small local pressure groups that may try and stop a business locating in it’s area. Pressure groups can also be huge international organisations like Amnesty International, which campaigns for workers rights, and Greenpeace which campaigns to protect the environment. 

Often pressure groups will try and influence consumer behaviour. Like persuading customers to stop buying a product from a business that they feel is acting unethically or damaging the environment.

Coca-Cola has been criticised by Greenpeace for selling single use plastic bottles.

In response Coca-Cola has launched a plant based plastic bottle which is much easier to recycle. So has Coca-Cola done enough to become sustainable and behave in an ethical manner?

⭐⭐⭐Top Tip ⭐⭐⭐ In a question focused on ethical issues it can be tempting to give your own personal views, for example, a business should invest in new environmentally friendly machinery as you believe it is the right thing to do. However, stay focused on the business aims. Will the additional investment required for a business to behave in an ethical or environmentally friendly way,  lead to the business achieving its objectives?

More and more businesses now have ethical or environmental business objectives, in addition to making profit. 

Although investing in sustainable or ethical objectives may be more costly in the short term, in the long term businesses can gain greater customer loyalty and sales by marketing themselves as an ethical and sustainable business.