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6.2 Environmental and Ethical Issues

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10 views3 pages

6.2 Environmental and Ethical Issues

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almondtrainers
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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HOME 6.

2 – Environmental and Ethical Issues

BUSINESS’ IMPACT ON THE ENVIRONMENT

Social responsibility is when a business decision benefits stakeholders other than shareholders
i.e. workers, community, suppliers, banks etc.
This is very important when coming to environmental issues. Businesses can pollute the air by
releasing smoke and poisonous gases, pollute water bodies around it by releasing waste and
chemicals into them, and damage the natural beauty of a place and so on.

WHY BUSINESSES WANT TO BE WHY BUSINESSES DO NOT WANT TO BE


ENVIRONMENT- FRIENDLY ENVIRONMENT-FRIENDLY
It is expensive to reduce and recycle waste for the
Sense of social responsibility that comes from the business. It means that expensive machinery and
fact that their activities are contributing to global skilled labour will be required by the business –
warming and pollution reducing profits.
Firms will have to increase prices to compensate
Using up scarce non-renewable resources (such as for the expensive environment-friendly methods
rainforest wood and coal) will raise their prices in used in production- higher prices mean lower
the future, so businesses won’t use them now demand.
Consumers are becoming socially-aware and are High prices can make firms less competitive in the
willing to buy only environment friendly products. market and they could lose sales
Governments, environmental organisations, even
the community could take action against the
business if they do serious damage to the Businesses claim that it is the government’s duty
environment to clean up pollution

EXTERNALITIES

A business’ decisions and actions can have significant effects on its stakeholders. These effects
are termed ‘externalities’. Externalities can be categorized into six groups given below and we’ll
take examples from a scenario where a business builds a new production factory.

Private Costs: costs paid for by the business for an activity.


Examples: costs of building the factory, hiring extra employees, purchasing new machinery,
running a production unit etc.

Private Benefits: gains for the business resulting from an activity.


Example: the extra money made from the sale of the produced goods etc.
External Costs: costs paid for by the rest of the society (other than the business) as a result of
the business’ activity.
Examples: machinery noise, air pollution that leads to health problems among near residents,
loss of land (it could have been a farm land before) etc.

External Benefits: gains enjoyed by the rest of the society as a result of a business activity.
Example: new jobs created for residents, government will get more tax from the business, other
firms may move into the area to support the firm-helping develop the region, new roads might be
built that can be enjoyed by residents etc.

Social Costs = Private Costs + External Costs


Social Benefits = Private Benefits + External Benefits

Governments use the cost-benefit-analysis (CBA) to decide whether to proceed with a scheme
or not and businesses have also adopted it. In CBA, the government weighs up all the social
costs and benefits that will arise if the scheme is put into effect and give them all monetary
values (this is not easy- what is the value of losing natural beauty?). They will only allow the
scheme to proceed if the social benefits exceed the social costs, if the costs exceed the benefits, it
is not allowed to proceed.

SUSTAINABLE DEVELOPMENT

Sustainable development is development that does not put at risk the living standards of
future generations. It means trying to achieve economic growth in a way that does not harm
future generations. Few examples of a sustainable development are:
 using renewable energy- so that resources are conserved for the future
 recycle waste
 use fewer resources
 develop new environment-friendly products and processes- reduce health and climatic
problems for future generations

ENVIRONMENTAL PRESSURES

Pressure groups are organisations/groups of people who change business (and government)
decisions. If a business is seen to behave in a socially irresponsible way, they can conduct
consumer boycotts (encourage consumers to stop buying their products) and take other actions.
They are often very powerful because they have public support and media coverage and are well-
financed and equipped by the public. If a pressure group is powerful it can result in a bad
reputation for the business that can affect it in future endeavours, so the business will give in to
the pressure groups’ demands. Example: Greenpeace
The government can also pass laws that can restrict business decisions such as not permitting
factories to locate in places of natural beauty.
There can also be penalties set in place that will penalize firms that excessively
pollute. Pollution permits are licenses to pollute up to a certain limit. These are very expensive
to acquire, so firms will try to avoid buying the pollution permit and will have to reduce
pollution levels to do so. Firms that pollute less can sell their pollution permits to more polluting
firms to earn money. Taxes can also be levied on polluting goods and services.

ETHICAL DECISIONS

Ethical decisions are based on a moral code. It means ‘doing the right thing’. Businesses could
be faced with decisions regarding, for example, employment of children, taking or offering
bribes, associate with people/organisations with a bad reputation etc. In these cases, even if they
are legal, they need to take a decision that they feel is right.
Taking ethical/’right’ decisions can make the business’ products popular among customers,
encourage the government to favour them in any future disputes/demands and avoid pressure
group threats. However, these can end up being expensive as the business will lose out on using
cheaper unethical opportunities.

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