Desjardins5e ppt ch10

CHAPTER TEN: BUSINESS’S ENVIRONMENTAL RESPONSIBILITIES

Copyright © 2014 by McGraw-Hill Education. All rights reserved.

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

10-2Copyright © 2014 by McGraw-Hill Education. All rights reserved.

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


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


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


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.”


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.”


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


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


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


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

Energy,

Nat’l Resources

Heat Energy Heat Energy

Energy,

Nat’lResources

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.


The pillars of sustainability Sustainable development must be economically, environmentally and socially satisfactory


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


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


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.


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 increased2. Biomimicry requires that business be redesigned to model biological processes


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 service4. Business must reinvest in natural capital


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.


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


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.


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.


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.


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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