3.2.2 - Ethical & Environmental considerations

• What is ethics?

  Where businesses make decisions based on what is morally right rather than what is more profitable
• Ethical behaviour...

  Businesses are increasingly concerned about the ethics of their business behaviour. Making morally correct decisions is often as important to a business as choosing the more profitable option.
• Benefits of behaving ethically?

  • Higher revenues –

  demand from positive

  consumer support

  • Improved brand and

  business awareness and

  recognition

  • Better employee

  motivation and

  recruitment

  • New sources of finance –

  e.g. ethical investors
• Drawbacks of behaving ethically?

  • Higher costs – e.g. sourcing from Fairtrade suppliers rather than lowest price
  • Higher overheads – e.g. training & communication of ethical policy
  • A danger of building up false expectations
• Poor ethical behaviour with stakeholders:

  • Customers – charging very high prices when customers have no

  choice

  • Suppliers –paying very low prices and delaying payments
  • Employees – paying very low wages and using child labour

  Local Community – creating pollution and inconvenience
• Poor ethical behaviour through the functional areas...

  • HR - Employees: very low wages, overlong hours,

  poor living conditions, unsafe machinery

  • Marketing: Exploiting vulnerable groups

  through advertising (young, old), high pressure

  selling, internet scams, false descriptions

  • Operations: Poor health and safety, polluting

  the environment, poor quality

  • Finance: faking financial documents e.g how much employees are paid
• What are environmental considerations?

  • Areas such as pollution, waste recycling and energy use have

  all increase business costs, as firms must meet these new

  standards. In many cases however, this increase in costs can

  been passed onto the consumer

  • Consumers will expect to pay a higher price for goods and

  services that have been produced in a more environmentally

  friendly way, for example higher prices for organic products.
• Solutions to environmental policies...

  Prices – these may increase as increased business costs are

  passed onto the customer

  Availability – recycling will mean scarce resources last longer

  so goods may be available and cheaper in the long run

  Quality of Life – reduced pollution and waste will improve

  living conditions

  Taxes – if pollution is reduced than government can spend

  less so can reduce taxes
• What happens when a business causes pollution ?

  If a business causes pollution it is affecting the natural environment. This

  can damage the condition, health, safety, or welfare of animals, humans,

  plants, or property and reduce the quality of life.
• Examples of different types of pollution

  • Air – factories and transport making air

  contaminated for breathing

  • Noise – factories, construction damaging

  peoples hearing

  • Light – factories altering animals habitats
  • Water – factory discharges poisoning

  drinking water

  • Land – dumping of industrial waste

  contaminating agricultural land
• Advantages of environmental policies

  Provides good publicity and meets the requirements of environmental laws.

  Customers may be willing

  to pay higher prices.
• Disadvantages of environmental policies

  Costs increase as the business has to pay more

  for waste disposal and meet the requirements of anti-pollution laws.

  • Not all countries will have similar laws.
• Solutions to environmental problems:

  • Trafic congestion: Retime working day to avoid rush hour and encourage use of public transport. Relocating to less congested areas
  • Recycling: Reduce packaging and use materials that can be recycled. Separate waste and use and pay for recycling services
  • Disposing of waste: Make maximum use of recycling. Where this is not possible use correct and legal waste disposal arrangements

  Noise and air pollution: Ensure licenses and permits have been obtained. Reduce pollution impact on local communities. Consider relocating if this reduces pollution.
• Environmental policies and the consumers:

  • Prices – these may increase as increased business costs are

  passed onto the customer

  • Availability – recycling will mean scare resources last longer

  so goods may be available and cheaper in the long run

  • Quality of Life – reduced pollution and waste will improve

  living conditions

  • Taxes – if pollution is reduced than government can spend

  less so can reduce taxes
• Why do businesses want to be more environmentally friendly?

  • Morally right to do so (ethical reasons)
  • Opportunity to increase profit (commercial

  reasons)

  • Government influence (legal reasons)

  However, if they face international competition from

  businesses with lower environmental standards they

  might be less keen to use such policies.
• What is sustainability?

  the idea that goods and services should be

  made using resources that can be replaced – this could be raw

  materials or energy requirements
• Effects of global warming...

  • Global warming is causing new pressures on

  our world and its climate – resources are

  being flooded and destroyed by rising sea

  levels

  • Industries such as agriculture are directly

  affected by change in temperatures and

  droughts

  • Other industries are all also affected e.g.

  insurance but so are people, their

  consumption and their survival through

  natural disasters and famine

  • Solutions including using renewable

  resources and reducing energy consumption

  are essential
• Sustainability - the trade off:

  • Businesses can add value to their products by demonstrating their environmental and social benefits
  • It is often said that businesses have to make a trade off between sustainability and profit as the extra costs of using renewable sources reduce profits
  • Business can be successful and sustainable – but it is difficult to achieve in a competitive environment as some businesses will put profits first