1. 1 The Environmental Responsibility An ethical dilemma Gaurav Sagar Amrita Vaswani Ema Hoffmann September 2004

2. 2 © AGSM 2004 Background APP (Asian Pulp & Paper) is a major paper manufacturer in Asia It uses low price timber from rainforest hardwood as raw material Large international investor base Market depression Price erosion Escalation of debt: £8.5bn debts in 2001 Sharp fall in share price from £5 to 8p Indonesian government interferes to save APP from bankruptcy, thus perpetuating the escalation of commitment

3. 3 © AGSM 2004 Engine of destruction? Irresponsible and unethical competition and environmental behaviour

4. 4 © AGSM 2004 Main ethical issues APP Environmentally damaging behaviour: clear- cutting of rainforests without re-plantation Responsibility towards investors and shareholders vs. social responsibility Anti-competitive actions: is price dumping ethical?

5. 5 © AGSM 2004 Main ethical issues Investors Ethical to invest in such a business? Ethical not to care for a remote country? Would the investors have invested if forests in their own country would have been affected? Ethical to force APP to continue cutting trees or consider as sunk cost? To what extent can banks be held responsible for the behaviour of their clients? Limited Liability of investors. What resources can banks allocate for investigating the ethical character of their clients’ activities? …Where do you draw the line?

6. 6 © AGSM 2004 Main ethical issues Government To what extent should the government regulate the unethical behaviour of companies? Governmental responsibility: economic situation of the country vs. environment …Where do you draw the line?

7. 7 © AGSM 2004 Investor value ◄ Corporate responsibility Better use of resources in the long run Improved brand equity and company attractiveness Revenue Increase; higher employee loyalty; better competitive environment, etc Sustainable competitive advantage ◄

8. 8 © AGSM 2004 Principle Maximizing investor wealth Social responsibility Recommendation Win-win solution: invest in environment-friendly actions such as recycling or replantation of trees Situation Should companies engage in environmentally irresponsible behaviour? Should a company consider any other stakeholders apart from its shareholders? And if yes, then to what extent?