Environmental and ethical issues Revision Notes

Environmental issues refer to the effects of business activities on the natural world, including pollution, resource depletion, and global warming. For example, factories emitting greenhouse gases contribute to global warming, which can lead to climate change and extreme weather events.

Businesses face challenges such as increased costs to reduce pollution or comply with environmental laws. However, these challenges can also create opportunities, such as developing eco-friendly products or adopting energy-efficient technologies that reduce costs in the long term.

Understanding environmental issues is essential for businesses to manage risks and capitalise on opportunities related to sustainability.

• Pollution and waste from production processes can harm ecosystems.
• Global warming results from greenhouse gas emissions, affecting weather patterns and resources.
• Environmental challenges can increase operational costs but also drive innovation.

Externalities occur when a business activity causes costs or benefits to third parties not involved in the transaction. Negative externalities impose external costs, such as pollution harming local communities. Positive externalities provide external benefits, like a company planting trees that improve air quality.

For example, a factory releasing toxic waste into a river imposes health and clean-up costs on nearby residents (negative externality). Conversely, a business investing in community parks creates benefits for local people (positive externality).

Businesses often do not bear the full cost of negative externalities, which can lead to overproduction of harmful goods unless regulated. Recognising externalities helps businesses understand their wider impact and the need for responsible practices.

• Negative externalities: pollution, noise, health hazards affecting others.
• Positive externalities: community improvements, job creation benefiting society.
• Externalities justify government intervention to correct market failures.

Sustainable development means meeting present needs without compromising the ability of future generations to meet theirs. It balances economic growth, environmental protection, and social equity.

Businesses contribute to sustainable development by adopting practices like reducing waste, using renewable resources, and ensuring fair labour conditions. For instance, a company using solar energy reduces fossil fuel dependence, lowering its carbon footprint.

Sustainable development can improve a business’s reputation, reduce costs, and open new markets. It requires long-term planning and commitment beyond short-term profits.

• Focus on long-term environmental, social, and economic balance.
• Examples: recycling, energy efficiency, ethical sourcing.
• Sustainability can enhance brand image and customer loyalty.

Businesses react to environmental pressures from consumers, governments, and pressure groups (activist organisations). Pressure groups campaign for better environmental practices, influencing public opinion and business policies.

For example, a pressure group may protest against deforestation by a company, prompting it to adopt sustainable forestry practices.

Businesses may also see opportunities in environmental trends, such as developing green products or entering renewable energy markets. Responding effectively can improve competitiveness and compliance with regulations.

• Pressure groups influence business behaviour through campaigns and publicity.
• Consumer demand for ethical products drives business change.
• Environmental opportunities include innovation and new market development.

Governments impose legal regulations to control environmental damage, such as pollution limits, waste disposal laws, and emissions trading schemes. Compliance is mandatory and non-compliance can lead to fines or closure.

Ethical dilemmas arise when profit motives conflict with social responsibilities. For example, using child labour reduces costs but violates ethical standards and damages reputation.

Fair pricing for suppliers ensures ethical treatment in the supply chain, avoiding exploitation. Businesses must balance profit with ethical considerations to maintain trust and long-term success.

• Environmental laws enforce pollution controls and resource management.
• Ethical issues include child labour, fair wages, and honest marketing.
• Balancing profit and ethics is a key challenge for businesses.