Desjardins5e ppt ch10

CHAPTER TEN: BUSINESS’S ENVIRONMENTAL RESPONSIBILITIES
AN INTRODUCTION TO BUSINESS ETHICS
Copyright © 2014 by McGraw-Hill Education. All rights reserved.

THIS CHAPTER SEEKS TO
 Describe the range of issues involved in environmental
ethics
 Introduce a pragmatic understanding of environmental
responsibility
 Examine standard understandings of corporate
environmental responsibility
 Describe government environmental regulation of
business activities
 Explain the concepts of sustainable economics and
sustainable development
Copyright © 2014 by McGraw-Hill Education. All rights reserved. 10-2

THIS CHAPTER SEEKS TO
 Compare and contrast standard economic models with
sustainable economics
 Provide an analysis of market-based solutions to
environmental challenges
 Examine arguments supporting a model for sustainable
business
 Describe the business model of natural Capitalism
 Explore the implications of Natural Capitalism for
contemporary business

DISCUSSION CASE: SUSTAINABLE BUSINESS
 Sustainability is defined as the ability to meet
the needs of the present without
compromising the ability of future generations
to meet their own needs (Gro Bruntland of
Norway)
 Since the mid-1990s, Nike has steadily moved
towards a leadership position in sustainability

(CONT.)
 In the 1990s, Nike was criticized for alleged sweatshop labor
conditions in the plants manufacturing its shoes in such
countries as Vietnam and China
 Nike originally denied any responsibility for the actions of the
manufacturing plants
 This perspective changed, due in part to strong public
pressure
 Nike instituted a more aggressive policy to ensure that its
suppliers were complying with ethical labor standards
 Nike acknowledged that it had a social responsibility for
activities all along its supply chain

(CONT.)
 In 2010, Nike released the results of a two-year study of its
corporate social responsibility activities and introduced the
next phase of its efforts, which explicitly focuses on a
sustainability strategy
 Nike described its corporate social responsibility efforts as
evolving from a “risk management, philanthropic and
compliance model to a long-term strategy focused on
innovation, collaboration, transparency and advocacy to
prepare the company to thrive in a sustainable economy.”

(CONT.)
 Patagonia, the outdoor gear, equipment, and
clothing company, has been a true leader in the
sustainability movement
 For Patagonia, profitability and sustainability merge
rather than conflict
 Its mission statement includes: “For us at Patagonia,
a love of wild and beautiful places demands
participation in the fight to save them, and to help
reverse the steep decline in the overall
environmental health of our planet.”

DISCUSSION CASE: SUSTAINABLE BUSINESS (CONT.)
 Patagonia’s sustainable business practices include using
recycled synthetics and pesticide-free organic cotton in its
clothing lines
 It donates at least 1% of profits to environmental causes
 It pledges to:
 Reduce resource use
 Repair products to extend their life
 Reuse products by reselling or giving them to others
 Recycle what cannot be repaired or reused
 Reimagine a world in which humans live in harmony with nature

DISCUSSION CASE: SUSTAINABLE BUSINESS (CONT.)
 A pioneering aspect of Patagonia’s commitment to
sustainability is its “footprint chronicles,” a wide-ranging
project that aims for full transparency in supply
chain operations
 On-line disclosure of all mills and production factories used to
create Patagonia’s products
 Online disclosure of factories’ locations, what products are
made there, how many people are employed, the languages
spoken, the percentage of male and female workers, and
updated information from recent social audits

ENVIRONMENTAL RESPONSIBILITIES
 Various market failures show the inadequacy of
the economic model of corporate social
responsibility
1. The existence of externalities
 “Costs” of greenhouse gas emissions, air pollution,
groundwater contamination and depletion, soil erosion,
and nuclear waste disposal are typically borne by parties
“external” to the economic exchange
 Thus, free market exchanges cannot guarantee optimal
results

2. No markets exist to create a price for important
social goods
 Endangered species, scenic vistas, rare plants and
animals, and biodiversity
 Public goods such as a stable climate, clean air, and
ocean fisheries
Markets alone fail to guarantee that such important
public goods are preserved and protected.

3. Important ethical and policy questions can be missed if
policy decisions are left solely to the outcome of
individual decisions
 The overall social result of individual calculations might be
significant increases in pollution and such pollution-related
diseases as asthma and allergies
 Alternative policies that could address pollution and pollution-related
disease would never be considered if we relied only on
market solutions
 Markets are incomplete (at best) in their approach to
the overall social good.

 Internalizing external costs and assigning property rights
to unowned goods such as wild species are two
responses to market failures
 But there are good reasons to think that such ad hoc
attempts to repair market failures are environmentally
inadequate
 The first-generation problem: Markets can work to prevent
harm only through information supplied by the existence of
market failures

 Business has wider environmental responsibilities than
those required under a narrow free market approach
 A common alternative argues that some goods are so
important that they should be exempt from the
preference optimizing trade-offs that occur within
markets
 This alternative would support limits, typically in the form of
government regulation, on business’s economic goals

 In the 1970s in the U.S., unregulated markets
were seen as inadequate to deal with
environmental challenges
 Instead, governmental regulations were seen as
the better way to respond to environmental
problems
 1970: Clean Air Act
 1972: Federal Water Pollution Act
 1973: Endangered Species Act

 The laws enacted during the 1970s established
standards that shifted the burden from those
threatened with harm to those who would cause
harm
 They set minimum standards to ensure air and water
quality and species preservation

 Society had two opportunities to establish business’
environmental responsibilities
 As consumers, individuals could demand environmentally
friendly products in the marketplace
 As citizens, individuals could support environmental legislation
 As long as business responded to the market and
obeyed the law, it met its environmental responsibilities

 This regulatory approach is an improvement over the
narrow view in that it acknowledges the legitimacy of
exempting some environmental goals from market
trade-offs
 Our beliefs and values, expressed through law and consumer
choices, establish an ethical context in which we can pursue
our economic ends
 Absent law or consumer demand, business has no particular
environmental responsibility

 The regulatory approach likely will prove
inadequate over the long term
 It underestimates the influence that business can
have in establishing the law
 It underestimates the ability of business to influence
consumer choice
 If we rely on the law to protect the environment,
environmental protection will extend only as far as
the law extends

 Perhaps most troubling from an environmental
standpoint, the regulatory model assumes that
economic growth is environmentally and ethically
benign
 There are many different ways to pursue profits within the
side constraints of law
 More recent approaches to business’s environmental
responsibilities aim to better link economic and
environmental goals

BUSINESS’ ETHICS AND SUSTAINABLE ECONOMICS
Herman Daly argues
- There are biological, physical, and ethical limits
to growth which the world economy is
approaching
- Unless we make significant changes in our
understanding of economic activity, we will fail to
meet very basic ethical and environmental
obligations

Consumer goods and services
Wages, rents, interests, profits
Households
Resources: labor, land,
Capital, entrepreneurial skills
Business
Payments
Circular Flow Model

 Business produces good and services in response to
the market demands of households
 Goods and services are shipped to households in
exchange for payments back to business
 These payments are in the form of wages, salaries,
rents, profits and interests
 These payments are in exchange for the labor, land,
capital and skills used to produce goods and services

In the Circular Flow Model, natural resources
are undifferentiated from the other factors of
production.
This model treats economic growth as
boundless and the solution to all social ills.

Challenges to this model:
1. A large percentage of the world lives in total
privation.
2. This population, particularly in impoverished
areas, will increase significantly.
3. The only sources for economic activity are the
natural resources of the earth.

Daly argues that neoclassical economics will fail
to meet these challenges unless it recognizes
that the economy is but a subsystem within
the Earth’s biosphere.
A model of an economic system that uses
resources only at a rate that can be sustained
follows.

Consumer goods and services
Wages, rents, interests, profits
Households
Resources: labor, land,
Capital, entrepreneurial skills
Business
Payments
Biosphere
Heat Energy
Energy,
Nat’l
Resources
Heat Energy
Energy,
Nat’l
Resources
Wastes
(pollution,
trash)
Waste (pollution,
trash)
Solar Energy

 In the new model there is a recognition that the
economy exists within a finite biosphere
 Energy is lost at every stage of economic activity
 Natural resources are no longer treated as an
undifferentiated and unexplained factor of production
emerging from households
 Wastes are produced at each stage of economic activity
and dumped back into the biosphere

The new model provides a way to interpret the
four policy areas of environmental consensus.

BUSINESS ETHICS IN THE AGE OF SUSTAINABLE
DEVELOPMENT
The pillars of sustainability
 Sustainable development must be economically,
 environmentally and
 socially satisfactory

DEVELOPMENT
We may judge models of business’ environmental
responsibility similarly:
- Business ought to be arranged to adequately
meet the economic expectations of society
- Business ought to be arranged to support the
ability of the biosphere to support life

DEVELOPMENT
We may judge models of business’ environmental
responsibility similarly:
- Business ought to be arranged in a way that
addresses minimum demands of social justice

DEVELOPMENT
We must move away from the view of
environmental responsibilities as side constraints
on the pursuit of profit, as if there is only one
way to pursue profits, and ethical responsibilities
are a barrier to that pursuit.

DEVELOPMENT
Natural Capitalism by Paul Hawken, Amory Lovins
and Hunter Lovins, offers four guiding principles
for the redesign of business:
1. The productivity of natural resources can be
increased
2. Biomimicry requires that business be
redesigned to model biological processes

DEVELOPMENT
Natural Capitalism offers four guiding principles for
the redesign of business:
3. Traditional models of business should be
replaced with a model of business as a provider
of service
4. Business must reinvest in natural capital

DEVELOPMENT
Natural Capitalism contains examples in which
managerial decisions regarding the design of
both products and production methods has
increased resources efficiency by a factor of 5, 10
and in some cases even 100.

DEVELOPMENT
Natural Capitalism describes the redesign of an
industrial pumping system at Interface
Corporation.

DEVELOPMENT
Business managers have a responsibility to seek
ways to integrate former wastes back into the
production system, transform wastes into
biologically beneficial elements or, minimally, to
produce wastes at rates no faster than the
biosphere can absorb them.

DEVELOPMENT
A service-based economy interprets consumer
demand as a demand for services, e.g. clothes
cleaning, floor-covering, illumination,
entertainment, cool air, transportation, word
processing.

DEVELOPMENT
Business has a responsibility not to use resources
at rates faster than what can be replenished by
the biosphere, and especially ought not to
destroy the productive capacity of the biosphere
itself.

DEVELOPMENT
 The biosphere is a true public good
 Reinvestment in natural capital is perhaps one business
responsibility that should be especially subject to
government regulation
 Tax incentives to encourage such investment and tax
penalties for uncompensated resource extraction are
options

Desjardins5e ppt ch10

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