Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Chapter 8 Ethics and the Environment Understanding Business Ethics Stanwick and Stanwick 2 nd Edition

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Is It Just Me or Is It Getting Hotter in Here? Exxon Mobil claimed it was doing its part to help foster renewable energy Exxon opposed the Kyoto environmental sustainability accord and disputes that fossil fuels are the main cause of global warming Exxon’s research and development budget focuses on adapting and improving fossil fuels, not alternative fuels 1

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Is It Just Me or Is It Getting Hotter in Here? Raymond stated that investing in businesses that are not profitable to solve a problem that has not been proven is not the correct way to run a business In 2005, Exxon announced that it made $36.13 billion in profits, the highest level ever for the oil company 2

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. The Tragedy of the Commons Underlying belief is that free access with unrestricted use of any resource that is finite will ultimately ruin the resource through overexploitation Recommended “management” solutions to the tragedy of the commons are to – Privatize resources – Have polluters pay for their damage – Have government regulations to control the use of natural resources 3

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Natural Environment as a Stakeholder Can be considered a stakeholder without a voice The resources used in the manufacturing of a product, the energy used to run a plant, and the disposal of waste products are just some of the links the natural environment has with firms 4

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Natural Environment as a Competitive Advantage Typologies that represent the type of competitive business strategies a firm uses to convert the natural environment into a competitive advantage – Strategy 1: Ecoefficency – Strategy 2: Beyond Compliance Leadership – Strategy 3: Ecobranding – Strategy 4: Environmental Cost Leadership 5

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Strategy 1: Ecoefficiency In the ecoefficiency strategic focus – productivity is the key element for companies to gain an environmentally competitive advantage – Waste products are considered to be an inefficient use of resources 6

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Strategy 2: Beyond Compliance Leadership In the beyond compliance leadership strategic focus – The firm makes a conscious effort to acknowledge the demands of its stakeholders – Firm are able to provide “proof” to their stakeholders pertaining to their commitment to the natural environment 7

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Strategy 3: Ecobranding In the ecobranding strategic focus – Firms use their proactive environmental commitments in an attempt to differentiate their products and services for their customers – Allows potential customers to consider the natural environment when they are purchasing products and services 8

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Strategy 4: Environmental Cost Leadership In the environmental cost leadership strategic focus – Firms that compete on low price can offset their environmental investments – Firms would concentrate on radical product innovation such as material substitution and/or using fewer materials to yield cost savings 9

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. The Cost of Noncompliance The U.S. Environmental Protection Agency (EPA) – Levied its largest civil administrative penalty against DuPont – Charged DuPont in 2005 with hiding information about the dangers caused by one of the chemicals, perfluorooctanoic acid, used to make Teflon – DuPont paid $16.5 million in fines and research and education funds 10

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Johnson & Johnson’s Worldwide Environmental Policy Committed to the following: – Operating beyond compliance – Maintaining an environmental accountability structure – Integrating environmental goals – Striving for zero waste – Utilizing innovative technologies – Fostering an environmental ethic – Building relationships with appropriate stakeholders – Enhancing corporate social responsibility 11

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Employees as Environmental Stakeholders Three types of environmental initiatives that can be generated from an employee: 1.Initiatives that decrease the environmental impact of the company through the policies of reuse and recycling 2.Initiatives that solve an environmental problem such as hazardous substance use reduction 3.Initiatives that develop a more ecoefficient product or service that uses fewer resources and/or less energy 12

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. NGOs as Environmental Stakeholders Greenpeace Sierra Club Environmental Defense Fund Friends of the Earth 13

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Communicating the Firm’s Environmental Commitment to its Stakeholders Stanwick & Stanwick’s Research – Found there was a relationship between a firm’s environmental disclosures and its financial performance – Also found that firms that had a medium level of financial performance had the highest incidences of environmental policies – Concluded that firms in the “middle of the pack” financially were usually environmentally committed 14

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Voluntary Partnerships with the EPA Benefits to companies who participate – Cost savings – Increased profits – A cleaner environment – Access to technical assistance – A framework and strategy for improving environmental performance – A network of business and industries interested in becoming better environmental stewards – Public recognition 15

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Environmental Auditing As defined by the EPA, is a periodic, objective, and documented assessment of an organization’s operations compared to audit criteria Allows management one measure of ensuring that they are in compliance with environmental regulations 16

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Environmental Justice Can be defined as the systematic equal allocation of environmental benefits and burdens Evolved from the perception that lower- income areas with minority ethnic groups within a community – would receive a disproportionate amount of environmental burdens and a disproportionately low allocation of environmental benefits 17

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Environmental Sustainability The ability of an organization or country to protect the use of future resources by properly maintaining and protecting the resources that are currently being used Three major components: 1.A system to ensure the sustainable management 2.The development of social and institutional structures 3.Changes in the economic framework so it would support the sustainable management of the earth’s natural resources 18

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Environmental Sustainability Three different types countries addressing sustainability 1.Survival economies 2.Emerging economies 3.Developed economies 19

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Ethics and Climate Change Kyoto Treaty – Created in December 1997 – Aim is to have every industrialized nation in the world voluntarily reduce the level of greenhouse gas emissions into the atmosphere by 5.2% compared with 1990 GHG emission levels 20

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Climate Change as a Strategic Option Firms whose assets are directly affected by weather patterns must plan for fundamental changes in the global climate Firms involved in insurance, real estate, agriculture, and tourism will be impacted by shifting climate patterns 21

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. The Effects of Climate Change on the Firm Types of risks to the firm due to the impact of climate change 1.Regulatory risk 2.Supply chain risk 3.Litigation risk 4.Reputational and physical risk 22

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. A Firm’s Carbon Footprint Refers to the amount of carbon via GHG emissions that have been generated by a firm Based on the total annual GHG emissions that are a direct result of the firm’s operations 23

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Questions for Thought 1.What should the role of oil companies such as Exxon Mobil be in searching for alternative energy sources? What role does culture play in embracing environmental issues? Why does the philosophy of Exxon contradict the philosophy of other oil companies such as Shell? 24

Understanding Business Ethics 2 nd Edition © 2014 SAGE Publications, Inc. Questions for Thought 2.What role should businesses take in climate change? What should government’s role be in climate change? 3.Do you believe that a business’ carbon footprint will be an important competitive issues in the future? 25