Environmental and Ethical Issues: Study Notes (IGCSE Business Studies 0450)
Welcome to this critical chapter! We are moving beyond the internal workings of a business and looking at the external influences that demand attention.
Why is this important? Because today, successful businesses aren't just judged on profit; they are judged on how responsibly they treat the planet and the people they affect. These notes will help you understand how environmental rules and moral choices impact business decisions, costs, and reputation.
Quick Context Check: This topic explores factors *outside* the business control that force entrepreneurs to adapt. Think of it as the world telling the business how it must behave!
Section 1: The Business and the Environment
The environment refers to the natural world. Governments, pressure groups, and customers are increasingly demanding that businesses minimise the harm they cause to the environment.
1.1 Negative Environmental Impacts Caused by Business Activity
Every time a business produces goods or offers a service, it uses resources and creates waste. The goal is to understand the main negative impacts so we can explore solutions.
Key Environmental Problems:
1. Pollution: This is the release of harmful substances into the environment.
- Air Pollution: Caused by factory chimneys and vehicle emissions (e.g., releasing carbon dioxide or toxic fumes).
- Water Pollution: Caused by dumping chemicals or industrial waste into rivers and seas (e.g., a factory releasing untreated wastewater).
- Noise Pollution: Can disturb local residents, especially near busy factories or construction sites.
2. Waste Disposal: Businesses often generate huge amounts of non-biodegradable waste (waste that doesn't break down naturally).
- This includes plastic packaging, broken machinery, and rejected materials. Managing this waste responsibly is costly and essential.
3. Resource Depletion: This means using up natural resources faster than they can be replaced.
- Using too much fossil fuel (oil, coal) for energy.
- Using unsustainable raw materials (e.g., harvesting wood from endangered forests).
1.2 How Businesses Can Reduce Environmental Damage (Going Green)
Being environmentally friendly (or "Green") means adopting policies that reduce negative impacts. This is often called Sustainability.
Don't worry if this seems like a long list—most actions fall into three categories: Reduce, Reuse, Recycle!
Practical Steps for a Greener Business:
- Reduce Waste: Implement strict policies to minimise material usage (e.g., using digital documents instead of printing).
- Recycling: Setting up systems to sort and reuse materials (e.g., recycling cardboard packaging or glass bottles).
- Sustainable Sourcing: Buying raw materials that are grown or harvested responsibly (e.g., using FSC-certified wood).
- Clean Technology: Investing in machinery that produces less pollution (e.g., using solar panels for energy or electric delivery vans).
- Green Products: Developing products that are specifically designed to be environmentally friendly (e.g., biodegradable plastics).
Quick Review: Environmental issues force businesses to change their production methods and sourcing of materials.
1.3 The Impact of Environmental Policies on Business
When a business decides to "go green," it affects its finances, operations, and reputation.
Benefits of Environmental Policies (Why businesses bother):
- Improved Reputation and Image: Customers today often prefer buying from companies they see as responsible. This is a massive marketing advantage.
- Attracting Staff: Employees often prefer working for ethical companies.
- Cost Savings (Long-term): While initial investment is high, reduced energy use or efficient recycling can lower utility bills and waste disposal costs over time.
- Legal Compliance: Avoiding heavy fines or legal action from the government for breaking pollution laws.
Drawbacks/Costs of Environmental Policies:
- High Capital Costs: Installing new, cleaner machinery (like solar panels or advanced filters) requires huge upfront investment.
- Higher Production Costs: Sustainable and organic raw materials are often more expensive than standard alternatives.
- Price Increases: These increased costs may force the business to raise prices, potentially making them less competitive against businesses that ignore environmental concerns.
- Training Needs: Employees may need training on new, complex recycling or energy-saving procedures.
Key Takeaway: Environmental policies often require a trade-off: Short-term costs for long-term benefits (reputation and potential savings).
Section 2: Ethical Considerations and Corporate Social Responsibility (CSR)
Ethics are the moral principles or values that guide a person or business's behaviour. While laws tell you what you *must* do, ethics tell you what you *should* do.
2.1 Defining Ethics and Social Responsibility
Corporate Social Responsibility (CSR): This is the idea that businesses should consider the interests of society and the environment when making decisions, not just the interests of shareholders (owners).
Think of it this way: A company with good CSR aims to be a good neighbour, not just a successful company.
Key Areas of Ethical Concern:
- Employee Treatment: Ensuring fair wages, safe working conditions, no discrimination, and preventing child labour.
- Product Safety: Not selling faulty, dangerous, or misleading products.
- Marketing Honesty: Not using false advertising or aggressive selling tactics.
- Community Support: Supporting local projects or donating profits to charity (e.g., Donating Profits to Charity).
- Supplier Relationships: Engaging in Fair Trade practices, ensuring suppliers in developing countries are paid fairly.
Did you know? The concept of Fair Trade means that products (like coffee or chocolate) are sourced from producers who meet specific social and environmental standards, ensuring they get a sustainable price.
2.2 Ethical Dilemmas in Business Operations
An ethical dilemma occurs when a business decision that maximizes profit conflicts with a moral standard.
Common Ethical Conflicts:
1. Production Location:
- The Conflict: A company can make products cheaper in country X where labour laws are weak and wages are low (maximising profit). However, this might involve poor working conditions (ethical issue).
- Ethical Choice: Pay a higher price to ensure production takes place in safe factories with fair wages.
2. Use of Materials:
- The Conflict: A cheaper, potentially harmful chemical can make a product last longer (higher sales). A safer, natural material is expensive and reduces the product’s lifespan.
- Ethical Choice: Use the safer materials, prioritising consumer health over short-term savings.
Memory Aid: Ethics is the battle between Profit (Greed) and Principles (Good Deed).
2.3 The Impact of Ethical Considerations on Business Operation
Choosing to run an enterprise following moral values and beliefs fundamentally changes how a business operates.
Benefits of Ethical Behaviour:
- Stakeholder Loyalty: Customers become loyal (brand loyalty) to ethical businesses, and employees are highly motivated and productive.
- Higher Sales: Consumers are often willing to pay a premium price for goods known to be ethically sourced (e.g., organic farming produce).
- Easier Access to Finance: Banks and investors often prefer lending money to companies with strong CSR policies, as they are seen as less risky in the long run.
- Positive Community Impact: Supporting community activities can lead to better relationships with local government and residents, potentially easing planning permissions or other local approvals.
Drawbacks/Costs of Ethical Behaviour:
- Higher Costs: Fair Trade premiums, better quality raw materials, and higher wages all increase variable and fixed costs.
- Reduced Profit Margins: If a business chooses to absorb these higher costs rather than passing them on to customers, its profit per unit will be lower.
- Slower Decision Making: Ensuring every decision is ethical can involve more research and take longer than simply opting for the cheapest legal option.
Key Takeaway: Ethical considerations are often about balancing the financial health of the business with the well-being of its stakeholders (employees, customers, community, and suppliers).
Comprehensive Review: Environmental & Ethical Issues
You must be able to analyse the implications of these issues. When faced with an environmental or ethical requirement, ask yourself:
1. What is the change? (e.g., must use recyclable packaging)
2. What is the immediate cost? (e.g., recyclable materials cost 15% more)
3. What is the long-term benefit? (e.g., improved brand image, 10% increase in repeat custom)
4. Which stakeholders are affected? (e.g., Customers benefit from less environmental damage; shareholders face lower initial profit)
Mastering this balancing act is key to high marks in the analysis and evaluation questions!