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Influencesonbusiness

6.1Ethicalandenvironmentalconsiderations

Keyelementstothistopic

Ethicalconsiderations

Environmentalconsiderations

Whatisethics?

Wherebusinessesmakedecisionsbasedonwhatismorallyrightratherthanwhatismoreprofitable

Businessesareincreasinglyconcernedabouttheethicsoftheirbusinessbehaviour.Makingmorallycorrect

decisionscanbeasimportanttosomebusinesses,aschoosingthemost

profitableoption.

Ethicalbehaviour

MarksandSpencerMarksandSpencerhaspledgedtoraise£25mformentalhealth,heartandcancercharities,aswellashalvefoodwastefromitsshopsby2025.Italsoaimstofundcommunityprojectsupto£50,000.ThisshowsanincreaseinM&S’scommitmenttoactingandbehavingethically.

AnalysethepossiblereasonsbehindM&S’s

decisions

Benefits• Higherrevenues– customersareincreasinglymakingpurchasingchoicesbasedonethics,withtheactualsellingpricechargedbeinglessimportantintheirdecision-making

• Improvedbrand/businessawarenessandrecognition

• Easiertoattractandrecruitstaff• Increasedemployeemotivationandstaffretention

• Newsourcesoffinancearepossible,forexamplefromethicalinvestors

Possibledrawbacks• Highercosts,forexamplesourcingfromFairtradesuppliersratherthanfromsuppliersofferingthelowestprices

• Higheroverheads,suchastraining&communicationofethicalpolicy

• Adangerofbuildingupfalseexpectationsamongstconsumers

• Badpublicityifbusinessisfoundtobeacting“unethically”

Benefitsanddrawbacksofbehavingethically

Rankthefollowingbusinessactionsfromthemostethicaltotheleastethical

1 2 3

4 5 6

Examplesofpoorethicalbehaviour

Poorethicalbehaviourcanaffectdifferentstakeholdergroups…

Customers– chargingveryhighpriceswhencustomershavenochoice

Suppliers– payingverylowpricesanddelayingpayments

Employees– payingverylowwagesanduseofchildlabour/partofthesupplychainuseschildlabour

Localcommunity– creatingpollutionandinconvenience

Unethicalbusinesspracticecontinued….

Withglobalcommunication,massmediaandthewidespreaduseoftechnology,unethicalproductionislesscommon.Whereexamplesarehighlighted,theytendtorelatetosuppliersindevelopingcountriesmakinggoodsformultinationalcompanies.

Examplesofunethicalpractice…• Employees:verylowwages,overlonghours,

poorlivingconditions,unsafemachinery• Marketing:Exploitingvulnerablegroups

throughadvertising(young,old),highpressureselling,internetscams,falsedescriptions

• Production:Poorhealthandsafety,pollutingtheenvironment,poorquality

REMEMBER:businessbehaviourcanbelegal,butunethical

WatchthevideoclipanddiscusswhetherApple’sbehaviourisillegalorunethical

• Overrecentyears,therehavebeenincreasingconcernsabouttheenvironment.ThenumberofUKlawsonbusinessregardingtheenvironmenthaveincreaseddramatically.

• Areassuchaspollution,disposalofwastelinkedtorecyclingandenergyuseallincreasebusinesscosts,asfirmsmustmeetthesenewstandards.Insomecases,thisincreaseincostscanbepassedontotheconsumerintheformofhigherprices.

• Consumerswillexpecttopayahigherpriceforgoodsandservicesthathavebeenproducedinamoreenvironmentallyfriendlyway,forexamplehigherpricescanbechargedfororganicproducts.

Environmentalconsiderations

Whatispollution?

Examplesofdifferenttypesofpollution:Air– factoriesandtransportmakingaircontaminatedforbreathingNoise – factories,constructiondamagingpeopleshearingLight – factoriesalteringanimalshabitatsWater – factoriesdischargingpoisonsaffectingdrinkingwaterLand – dumpingofindustrialwastecontaminatingagriculturalland

Ifabusinesscausespollutionitisaffectingthenaturalenvironment.Thiscandamagethecondition,health,safetyorwelfareofanimals,humans,plantsorpropertyandreducethequalityoflife.

Mostlargebusinessesandmanysmallbusinessesnowhaveenvironmentalpolicieswhichcoverareassuchasenergyuse,

wastedisposalanddifferenttypesofpollution

Providesgoodpublicityandmeetstherequirementsofenvironmentallaws.

Customersmaybewillingtopayhigherprices.

Environmentalpolicies

Costsincreaseasthebusinesshastopaymoreforwastedisposalandtomeettherequirementsofanti-pollutionlaws.

Notallcountrieswillhavesimilarlaws.

CocaColauserecycledplastic

Explainone reasonwhyCocaColaincreasedtheuseofrecycledplastictomakeitsbottles.

Statetwo costsandtwobenefits ofCocaCola’snewrecyclingpolicy.

Bethe“BusinessAdvisor”…

Trafficcongestion

Recycling

Disposalofwaste

Noiseandairpollution

Suggestonewaythefollowingenvironmentalissuescouldbeimproved…

Possiblebusinesssolutionstoenvironmentalproblems

Retimeworkingdaytoavoidrushhourandencourageuseofpublictransport.Relocatetolesscongestedareas.

Reducepackagingandusematerialsthatcanberecycled.Separatewaste;useandpayforrecyclingservices.

Makemaximumuseofrecycling.Wherethisisnotpossible,usecorrectandlegalwastedisposalarrangements.

Ensurelicensesandpermitshavebeenobtained.Reducepollutionimpactonlocalcommunities.Considerrelocation.

Justaminute…

Youhave60secondstonotedownhow

environmentalpoliciesmayaffectconsumers

Environmentalpoliciesandtheconsumer

• Prices– thesemayrise,asincreasedbusinesscostsarepassedontothecustomer

• Availability – recyclingwillmeanscarceresourceslastlonger,goodsmaybeavailableandcheaperinthelongrun

• Qualityoflife– reducedpollutionandwastewillimprovelivingconditions

• Taxes – ifpollutionisreducedthegovernmentcanspendlessonthisarea,whichmayresultinareductionintaxation

Solutionstoenvironmentalpolicieswillaffectbusinessesdirectly,buttheywillalsoimpactonconsumers.

Ikeawins2017GreenAward

IKEAhasemergedasoneoftheleadingcompanieswinningthebusinessleaders“greenaward”in2017.Aspartofits“PeopleandPlanet”policy,ithasalreadyswitchedfactoriestoLEDlightingandmadeamassiveinvestmentintheuseofrenewableresources.Ithasfocussedoncustomerengagementanditssupplychain,aswellasinvestingincleantechnologies.

OutlineonebenefitandonecosttoIkeaofits“PeopleandPlanet”environmentalpolicy

Environmentalconclusions

1. Morallyrighttodoso(ethicalreasons)2. Opportunitytoincreaseprofit(commercialreasons)3. Governmentinfluence(legalreasons)However,ifbusinessesfaceinternationalcompetitionfromrivalswithlowerenvironmentalstandards,theymightbelesskeentousesuchpolicies,astheymayfinditdifficulttocompeteinthemarketplace.

Therearemanyreasonswhybusinesseswanttobecome“environmentallyfriendly”

Whatissustainability?

• Aswehaveunlimitedwantsandlimitedresourcestherewillalwaysbescarceresources

• Forourworldtobesustainable,wemustreplaceorrenewtheresourcesthatweuseorovertimetheywillrunout…

Sustainabilityistheideathatgoodsandservicesshouldbemadeusingresourcesthatcanbereplaced– thiscouldberawmaterialsorenergyrequirements

Effectsofglobalwarming

• Globalwarmingiscausingnewpressuresonourworldanditsclimate– resourcesarebeingfloodedanddestroyedbyrisingsealevels

• Industries,suchasagriculture,aredirectlyaffectedbychangesintemperaturesanddroughts

• Otherindustriesareallalsoaffected,forexampleinsurance,butsoarepeople,theirconsumptionandtheirsurvivalthroughnaturaldisastersandfamine

• Solutions,includingusingrenewableresourcesandreducingenergyconsumption,areessential

Datadrop…

Arecentsurveyhasestimatedwhenkeyresourceswillrunout.Basedoncurrentuse,someraremetals,usedinsmartphones,willrunoutattheendofthenextdecade.

WritedownTHREE effectsofthesefuturescarcitiesonbusinessesandonconsumers

Mainbarisbasedoncurrentlevelofpopulationgrowth,extendedbarassumesstaticpopulation

Agricultureandglobalwarming

• Agricultureemploys30%oftheworld’spopulation

• AUNstudysaystheeffectsofglobalwarmingwillhelpsomecrops,butdamagefarmore

• Accordingtothisstudy,by2050,foodpricescouldriseby84%

• OnesmallareaofCalifornialostproductionworth$2billioninoneyearduetodrought

Explainwhyitissoimportanttostopglobalwarmingdamaging

foodproduction

Sustainability– thetradeoff

• Businessescanaddvaluetotheirproductsbydemonstratingtheirenvironmentalandsocialbenefits.

• Forexample,UnileversourcesitsteaforLiptonteabagsfromsustainablesources.Theteamaynotcomefromthecheapestsupplier,butUnileverknowthesourceissustainable.

• Itisoftensaidthatbusinesseshavetomakeatrade-offbetweensustainability andprofit, astheextracostsofusingrenewablesourcesreducesprofits.

• Businessescanbesuccessfulandsustainable,butthismaybedifficulttoachieveinacompetitiveenvironment,assomebusinesseswillputprofitsfirstandthereforefocusoncostminimisationresultinginlowerpricesbeingchargedtocustomers.

IncreaseinsalesforUnilever’s“sustainablebrands”

Contextcorner

Unileverisaverylargecompanyproducingmanyproductsandbrands.Growthinsalesforitssustainablebrandsis50%higherin2017thanitsotherproducts

ExplainwhyUnilever’ssustainablebrandssuchasBenandJerry’s,LiptonTeaandSurfwashingpowderhavedonesowell.

Knowledgecheck

Answerthefollowing4questionstocheckyouhaveunderstoodthe

contentofthissection

Businessethicscanbedefinedas:

A Profitmaximisation

B Helpingthepoor

C Makingdecisionsthatarefairandhonest

D Havingagoodreputation

Q1

Adrawbackofethicalbehaviourtoconsumerswouldbe:

A Costswoulddecrease

B Employeesarelesslikelytoleavethefirm

C Pricescouldincrease

D Thebusinesscouldgetapoorreputation

Q2

Whichofthefollowingbusinessactionswouldhaveapositiveeffectontheenvironment?

AAdvertisingthesuccessofafirm’senvironmentalpolicies

B Increasingtheuseofnon-renewableenergysources

C Reducingtheuseofrailtransport

D Allowingemployeestoworkflexiblehours

Q3

Havinganenvironmentalpolicyislikelyto:

A Decreasebusinesscosts

B Increasebusinesscosts

C Increaseglobalwarming

D Maketheeconomylesssustainable

Q4