Chapter 25, Environmental and Ethical Issues
Learning Objectives: To understand how business activities generate external impacts
When studying business, working in business, or doing business, you need to understand that business activity has impacts on both, the environment and the society. Note that such impacts are both, positive and negative.
The concern from businesses towards the impact on society and environment became specially important in the last few years.
Customers are increasingly aware of business unethical behavior which can lead to bad publicity, lower sales, and profits.
The positive or negative impacts business activity has over other stakeholders are called externalities:
Positive Externalities are social benefits brought by business activities/projects:
The construction of a new hospital would bring new jobs and easier access to healthcare to the local community.
On the other hand...
Negative Externalities are the social costs brought by businesses activities/projects:
The construction of a new hospital would bring noise pollution and potentially increase traffic congestion in the local community.
Businesses oftentimes conduct cost-benefit analysis to assess which decisions will generate the most benefits with the least societal and environmental costs.
The catch? Different stakeholders have different interests - what is a benefit to one might be a cost to another.
Investing on equipment to decrease pollution in a factory has positive impacts on the society and environment but generate costs to shareholders who will see their dividends diminish.
Some of the most common negative externalities from business activities include:
1. Different Types of Pollution:
- Air Pollution: diseases and impact to environment;
- Land Pollution: landfills or inappropriate disposal can cause diseases and environmental impacts;
- Thermal Pollution: manufacturing exhaust increase air temperature and air-cooled equipment returns high-temperature water damaging the environment and harming wildlife;
- Light Pollution caused by billboards can negatively impact residents sleep and interfere with ecosystems;
- Water Pollution: toxic and chemical liquid disposal damages the environment and cause unhealthy consequences in humans;
- Visual Pollution: simply 'ugly environments' with exposed powerlines, pipelines, overcrowded spaces: minimum to no natural spaces;
- Noise Pollution: peoples' quality of life is impacted by noise from manufacturing, cars, airplanes, etc.
2. Overuse of Energy / Resources:
Overuse of energy is closely related to pollution generation.
However, the overuse of resources and general is a different issue as most of our natural resources are limited and businesses are the main users of such:
- Water, oil, natural gas, coal, and other resources such as:
3. Waste Generation:
Business activity produces enormous amounts of waste which, in most cases, are not or cannot be recycled ending up on landfills, rivers, or nature.
Example: lithium batteries disposal has increasingly been causing fires.
Sustainable Businesses are those that have been trying to minimize their negative externalities on societies and environment yet being profitable. Such businesses share a few common characteristics:
1. They contribute to the economy's growth and not only focus on individual growth;
2. They are profit making businesses;
3. They go beyond laws and regulations to not only being legal but also being ethical;
4. They are ethical on their treatment of customers, suppliers, society, and environmentally-friendly.
Business striving to become sustainable businesses can follow a few simple steps:
Investing on the implementation of renewable sources of energy;
Avoiding unnecessary travelling to save on resources and create less pollution;
Recycling and using recycled on materials on their processes (e.g. packaging);
Invest on energy-efficient processes and equipment to reduce energy usage;
Treat customers, suppliers, and employees fairly.
To-Do-List:
Activity 25.1 (p. 317)
Chapter 25, Environmental and Ethical Issues
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