Globalization and the Natural Environment Trevor Hunter King’s University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment One of the biggest ethical dilemmas companies face today Different countries place different value on clean environments – not always by choice however Rich countries tend to value environmental protection more than poor ones – they can afford to King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment In the latter half of the 20th century, the perspective of environmental concerns has changed from local to global Things are no longer “someone else’s problem” King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment This perspective arises from three conceptualizations: Finiteness Interdependence Sustainable development King's University College

Introduction to ACS 020 Finiteness Can the earth as a whole (not just one country) continue to absorb the damage we inflict? A notion of limits to the carrying capacity of the global ecosystem Challenges the status quo of expansion equalling progress – bigger is not always better King's University College

Introduction to ACS 020 Interdependence Global village, spaceship earth, shrinking world etc. – the notion that we are dependent upon each other arises from economic connections and information dissemination As we know more about others, we realize how connected we are and how we depend upon each other King's University College

Sustainable Development Introduction to ACS 020 Sustainable Development “Development which meets the needs of the present without compromising the ability of future generations to meet their own needs” - World Commission on Environment and Development (WCED), 1987 King's University College

Sustainable Development Introduction to ACS 020 Sustainable Development Development includes: Societal Economic Industrial Differs from how developed countries developed King's University College

Sustainable Development Introduction to ACS 020 Sustainable Development Tragedy of the commons (Garrett Hardin): Grazing cattle in a common pasture Individual incentive to overuse the pasture leads to collective overuse, leading eventually to the destruction of the pasture and an end of the resource for all King's University College

Sustainable Development Introduction to ACS 020 Sustainable Development A developed world concept being applied to the developing world: North/West vs. South/East debate – developed vs. developing North/West: emphasis on global environmental protection (now that they are developed) South/East: emphasis on right to develop just the way North/West did: but, what if China used as much fossil fuels as US? King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Ironically, environmental degradation was mainly caused by local problems, but affect the world, and may be stopped through globalization However, due to their scope, local problems have become global problems King's University College

Impact of Human Systems Increase in greenhouse gases: Carbon dioxide Methane Nitrous oxide Ozone CFCs Water vapour Causing: Acid rain Depletion of the ozone layer Depletion of critical resources e.g. energy, fish stocks King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Air pollution Carbon Dioxide from US factories causes: Poor air quality days in Canada Acid rain – dying trees, dead lakes Deforestation in Brazilian rainforest causes: Reduced oxygen production/carbon dioxide cleaning globally King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Global warming: Greenhouse effect – So-called greenhouse gases (carbon dioxide, methane, Chlorofluorocarbons, CFCs etc) block infrared radiation that normally escapes raising the global temperature Melting ice caps and glaciers – rising sea levels Drying out of arable farmland King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Ozone depletion: Protective layer in atmosphere that reflects harmful radiation (like UV rays) away from planet Increase in skin cancer Reduced immunity in food crops Destruction of low-level food chain organisms King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Land pollution: Garbage dumping and soil degradation Where does it go – Toronto shipping garbage to Michigan Topsoil overuse and erosion means less arable land Increase in irrigation requirements King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Water pollution/over use: Only 1.1% of all water is fresh, of this 92% is used for agriculture or industrial purposes Once water is used for industry it is essentially dead Disproportionate distribution of fresh water – water wars? King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Water pollution: Lake Karachai in Russia – most polluted site in the world Aral Sea – 65 000 km2 in 1964, less than half of that now Cuyahoga river fire - 1969 King's University College

Introduction to ACS 020 Aral Sea - 1987 King's University College http://edcwww.cr.usgs.gov/earthshots/slow/Aral/Aral1987

Introduction to ACS 020 Aral Sea - 1997 King's University College http://edcwww.cr.usgs.gov/earthshots/slow/Aral/Aral1997

The Aral Sea Introduction to ACS 020 April 8, 2005 King's University College Source:http://www4.gvsu.edu/lioubime/CentralA_files/aral_sea_links.htm and http://www.redtailcanyon.com/items/919511.aspx

King's University College

King's University College

King's University College

Costs of Inaction Stern Review concluded that, over next 50 years, if nothing done to stem climate change: Output per head could fall permanently by 20% i.e. everyone in the world would be a fifth poorer than they would otherwise have been Agricultural productivity will drop  effects on farmers  increases in cost and reductions in the supply to food processing industries King's University College

Costs of Inaction Fishing catches will decline Increased costs of damage from hurricanes, flooding and forest fires  increases in the costs of insurance and more volatile financial markets Major victims – developing countries - in deaths and as a % of GDP Implications for business operating in developing countries King's University College

Costs of Action 1% of GDP – costs of stabilizing CO2 at 500-550ppm by 2050 BUT costs could range from -2% to +5% of GDP (Stern) King's University College

Environmental Sceptics Lomborg argues that: Global warming is occurring but claims exaggerated Resources spent reducing greenhouse gases better used improving the health, welfare and economies of DCs (opportunity cost) Future generations should not be denied fruits of economic growth Other sceptics claim that: Global warming a natural phenomenon and not man-made King's University College

Environmental Policies Green taxes e.g. congestion charges Controlling emissions e.g. using emissions trading schemes (ETS) as in the EU Setting quantitative limits on emissions Switching to low carbon technologies Increasing energy efficiency These policies more effective with greater international cooperation King's University College

International Cooperation Kyoto protocol: signed by 37 industrialised countries + the EC signatories legally committed to cut GHG emissions US not a signatory protocol ran to 2012 King's University College

Durban Climate Conference 2011 194 participants agree to start talks on new accord Aim – a legally binding accord to cut GHGs To take effect by 2020 at the latest Poor countries to receive financial aid to help reduce emissions US a signatory Kyoto commitments re GHGs extended for 5 years for industrialised countries King's University College

Paris Accord 2015 At the Paris climate conference 195 countries adopted the first-ever universal, legally binding global climate deal. a long-term goal of keeping the increase in global average temperature to well below 2°C above pre-industrial levels; to aim to limit the increase to 1.5°C, since this would significantly reduce risks and the impacts of climate change; on the need for global emissions to peak as soon as possible, recognising that this will take longer for developing countries; to undertake rapid reductions thereafter in accordance with the best available science.* *Source: https://ec.europa.eu/clima/policies/international/negotiations/paris/index_en.htm King's University College

Policy Implications for Business Policies can impose costs on business through: Imposition of taxes The need to buy emissions credits Having to change production techniques Causing firms to relocate production But also provide opportunities: New markets for alternative technologies King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment Implications for global managers: While environmental protection is now a global phenomenon, different national standards exist – will you take advantage of them? Environmental protection costs increase the liability of foreignness Ethics and reputation vs. short term competitiveness King's University College

Globalization and the Environment Introduction to ACS 020 Globalization and the Environment How will NGOs and regulations affect your international expansion? Standards – ISO 14001 Legitimacy expression Pollution havens – national comparative advantages Competitiveness drivers King's University College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Trevor Hunter King’s University College

Ethics vs. Laws and Institutions Introduction to ACS 020 Ethics vs. Laws and Institutions Laws: Rules developed and enforced by governments and legal systems the regulate the behaviour and actions of actors within a given jurisdiction Are relatively closed to interpretation Often codified King's College

Ethics vs. Laws and Institutions Introduction to ACS 020 Ethics vs. Laws and Institutions Ethics: The study of moral judgements about the rightness of actions and rules of behaviour Intended to contribute to mutually beneficial modes of conduct as an alternative to government prescription and enforcement.1 1Source: Baron, 2000 King's College

Ethics vs. Laws and Institutions Introduction to ACS 020 Ethics vs. Laws and Institutions In other words, ethics is a system to which we can all subscribe to avoid the need for government intervention and force Supposedly reflect “universals” that allow for interaction without regulation and anarchy King's College

Problems with Acting Ethically Introduction to ACS 020 Problems with Acting Ethically Ethical behaviour does not always make the firm better off Refusing to make payments to government officials to “facilitate” business can result in lost opportunities or business failure Paying workers uniform salaries around the world can make product prices uncompetitive King's College

Problems with Acting Ethically Introduction to ACS 020 Problems with Acting Ethically Ethical behaviour may not always be self-evident or rewarded Being “green” in a country that does not expect environmental protection is costly and may not provide a good reputation Paying more than standard wages (but still lower than Western rates) could still lead to boycotts or be seen as helping the locals King's College

Problems with Acting Ethically Introduction to ACS 020 Problems with Acting Ethically May conflict with the business’ profit objectives or management’s self interest Agency risk – incentives, self-interest with guile, bounded rationality Ethics sometimes cost money – shareholders or customers may not be forgiving King's College

Problems with Acting Unethically Introduction to ACS 020 Problems with Acting Unethically Although ethics cost money, unethical behaviour can result in greater losses if and when it is discovered Reputation effects – no customers Bad apple spoiling the bunch leading to over regulation and industry suspicion (accounting, corporate governance) King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Ethics are culturally and socially based Cultures and societies differ Ethics differ between cultures and societies Ethical differences further complicate international business King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Three major perspectives of ethics that are relevant: Utilitarianism Contractarianism Pluralism King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Utilitarianism: Founded on ideal of “maximizing net expectable utility for all parties affected.” In a situation, the costs and benefits are weighed so that the outcome is in the best interests of all Global managers act ethically when everyone wins King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Utilitarianism - Problems: How do you assess welfare maximization? How can you measure the net contributions to social welfare? Equal pay vs. equal prices globally – who wins and who loses? King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Contractarianism: What is ethical is what is fair to everyone (note that fairness is not the same as interests) Global managers act ethically when everyone is treated fairly and everyone’s rights are respected King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Contractarianism - Problems: Whose “rights” take precedence when crossing borders and interests disagree? Each has equal rights but different interests King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Pluralism: It is the individual’s duty to act morally Focuses on rightness or wrongness of actions, distinct from interests and rights Global managers act ethically when they do the right thing, regardless of who has the right or wins – moral integrity King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Pluralism - Problem: Moral integrity is difficult to define when what is right and wrong is perceived differently in different countries King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Corporations have to define their ethics systems Ethical global managers combine contractarianism and pluralism to develop company ethics systems that guide behaviour King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Good ethics systems: Define company rights that transcend borders and extend them to all stakeholders that are narrow but consistent with company strategy Embrace moral absolutes which are independent of country norms and are applied to everyone equally and therefore may be at times, higher than what are embraced in a given country King's College

Ethics in Business The firm develops ethical standards that are “absolute” by evaluating all the perspectives of stakeholders around the world to find the “highest” standard. Members are then socialized to that standard (affects hiring and filtering mechanisms). Standards are communicated and incentives are created to support desired ethical behaviours. Trevor Hunter

Ethics in International Business Ethical Standard Country 1 2 3 World Average Firm global Standard: based on “highest” levels within the firm’s locations Unethical Highest in Firm Lowest in Firm King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Integrity: Having and demonstrating a strong commitment to personal morals and company standards Reflects the need for absolute standards (separate from the company) and relative standards (reflecting what the company does). King's College

Ethics in International Business Introduction to ACS 020 Ethics in International Business Integrity is demonstrated at two levels: External interactions Activities through which the company is represented to the outside world Internal interactions Activities involving groups or individuals within the company King's College

External Interactions Introduction to ACS 020 External Interactions Big challenge when there are large differences between the dominant behaviours in a situation and what the manger’s judgement of what the behaviours should be. So. . .managers must understand the ethics of the country in which they are operating and those of their company and how they differ King's College

External Interactions Introduction to ACS 020 External Interactions Cultural relativism: You do what is appropriate in a given culture. If it is ok for members of a given society to do something, it is ok for you to do it. Often used as an excuse but is it ethical? King's College

External Interactions – Cultural Relativism Operating Standards Country 1 2 3 Ethical Unethical King's College

External Interactions Introduction to ACS 020 External Interactions If ethics are universal (i.e. go beyond values and norms – which differ between cultures) then cultural relativism is not an ethical perspective What to do? King's College

External Interactions Introduction to ACS 020 External Interactions Acting ethically raises the level of ethical performance of supporting industries ultimately improving the conditions of the country Only dealing with ISO 14001 suppliers = better environmental conservation Only dealing with non-sweatshop produced goods = higher disposable income for workers King's College

Internal Interactions Introduction to ACS 020 Internal Interactions Since these actions are internal to the firm, external stakeholders are less likely to know about unethical practices and firms face less scrutiny and pressure to act ethically However, companies still should have ethical standards that govern internal interactions King's College

Internal Interactions Introduction to ACS 020 Internal Interactions Common ethical situations: Worker safety – less is cheaper Equity in hiring – hire the cheapest Equality of opportunity – only some get promoted Comparable compensation – sweat shops and disproportionate pay Freedom of expression – why is it needed? King's College

Ethical Decision-making Introduction to ACS 020 Ethical Decision-making Ethical decision-making depends upon three competencies: Good observations skills – internally and externally Asking tough questions Understanding what standards are core to the company – knowing what NOT to compromise King's College

Ethical Decision-making Introduction to ACS 020 Ethical Decision-making Determining what are core standards: Is it strategic – can we survive without it? Is the standard as high as possible? Are people (animals, the environment) being put before the company? King's College

Ethical Decision-making Introduction to ACS 020 Ethical Decision-making Global Standards Local Core to competitiveness Non-core to competitiveness Morrison, 2001 King's College

Ethical Decision-making Introduction to ACS 020 Ethical Decision-making For activities that are non-core to the success of the firm and do not go against the core standards – use local standards, otherwise, use global standards. King's College

Why Ethics Are Important to Business Introduction to ACS 020 Why Ethics Are Important to Business When facing an ethical problem in a country, there are three basic choices: Avoid doing business in the country Maintain standards and risk putting the firm at a competitive disadvantage Change standards King's College

Why Ethics Are Important to Business Introduction to ACS 020 Why Ethics Are Important to Business From an ethics perspective only options 1 & 2 are ethical Option 3 is risky: Reputation effects Stakeholder perceptions Impression management problems Boycotts etc. etc. … King's College

Why Ethics Are Important to Business Introduction to ACS 020 Why Ethics Are Important to Business Short-term gains not worth the long term pain (losses) Information travels fast and it is difficult to hide Stakeholders have long memories – so do the press Public perception is important (avoid, change values, change perception, confront) King's College

What do Businesses do? They create, maximize and transfer wealth They also: Create most of the world’s products, innovation, food, pharmaceuticals, etc. to allow people to live Provide most employment to allow people to live Provide investment opportunity to spur innovation and economic growth Provide the bulk of governmental revenue to fund social programs, educational institutions, to deal with societal problems They’re kind of important Trevor Hunter

Why do We Expect Businesses to act Ethically? The answer: We are irrational hypocrites! Trevor Hunter

Why do Businesses Act “Unethically”? Introduction to ACS 020 Why do Businesses Act “Unethically”? They have no choice! Businesses are in a no-win situation. We expect them to do the impossible: Businesses are expected to hire a lot of people, at home, pay everyone a living wage, provide a broad selection of the highest quality goods for the lowest price, produced sustainably, fairly, locally and organically while providing a quarterly return on investment in the double-digits and support social causes! Irrational! Trevor Hunter

Why do Businesses Act “Unethically”? Introduction to ACS 020 Why do Businesses Act “Unethically”? In the mean time we benefit from business’ activities and have the luxury of criticizing them because their operations (that we despise) allow us a lifestyle that is cushy enough to have no other cares than to worry about how bad businesses are. Hypocrisy! Trevor Hunter