6.2 – Environmental and Ethical Issues

• Social responsibility: when a business decision benefits stakeholders other than shareholders
• Sustainable Development: development that does not put at risk the living standards of future generations
• Pressure Group: a group made up of people who want to change business (government) decisions by taking action (organizing consumer boycotts)
• Private costs: the costs paid for by a business or consumer of a product
• Private benefits: the gains to a business or the consumer of a product
• External costs: costs paid for by the rest of society, other than business or consumer, as a result of a business activity
• External benefits: the gains to the rest of society, other than business or consumer, as a result of a business activity
• Social costs: private costs + external costs
• Social benefits: private benefits + external benefits
• Consumer boycott: when consumer decide not to buy product from businesses that do not act in a socially responsible way
• Ethical decisions: decisions based on a moral code
• Drawbacks of environmental concern:

  •   can be expensive - adding to costs and prices
  •   businesses become uncompetitive - lose sales
  •   higher prices - lower demand
  •   difficult to prove who is polluter
  •   government ought to clean it up
• Benefits of environmental concern:

  • global warming affects us all - social responsibility
  • non-renewable resources - not sustainable growth and increases price
  • consumers want environmentally - aware businesses - socially responsible
• Ways to deter businesses from being 'environmentally unfriendly:

  • laws/fines
  • additional taxes on products that pollute
  • pollution permits - businesses need to buy these - raises costs
• Pressure groups:

  •   try to make businesses give the environment a higher priority
  •   effective when support of public, consumer boycotts reduce sales
• Sustainable development, businesses can:

  • use renewable energy
  • recycle waste
  • use fewer resources
  • develop new 'environmentally friendly' products and production methods
• Benefits of businesses acting ethically:

  • attract consumers who care about the way products are produced
  • good publicity for the business
  • profits in the long term may increase
  • may attract workers or investors who want to be ethical
  • less likely to be fined
• Potential drawbacks of businesses acting ethically:

  •   higher costs
  •   prices may have to rise
  •   lose sales from prices-sensitive customers
  •   short-term profits may fall