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Business, The Environment
and Sustainability
Business Ethics: Decision-Making for Personal Integrity
& Social Responsibility
Copyright © 2008
The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Objectives
After exploring this chapter, you will be able to:
Describe a range of values that play a role in environmental decisionmaking
Explain the difference between market and regulatory-based
environmental policies
Describe business’ environmental responsibilities that would flow from
each approach
Identify the inadequacies of sole reliance on a market-based approach
Identify the inadequacies of regulatory-based environmental policies
Define and describe sustainable development and sustainable business
Highlight the business opportunities associated with a move towards
Describe the sustainable principles of eco-efficiency, biomimicry, and
Sustainability as
the New Paradigm?
There is some evidence that, at the start of the 21st century, a new model
of business is emerging, perhaps first initiated in Europe and followed by
North America and Asia.
Sustainable business, and sustainable economic development seek to
create new ways of doing business in which business success is measured
in terms of economic, ethical and environmental sustainability, often
called the Triple Bottom Line approach.
Sustainability as
the New Paradigm?
Environmental responsibilities are seen as a fundamental part of basic
business practice.
Indeed, sustainable business ventures may find that environmental
considerations offer creative and entrepreneurial businesses enormous
The major ethical question of this chapter: What responsibilities do
contemporary businesses have regarding the natural environment?
Business Ethics and
Environmental Values
Deciding what we should do is the ultimate goal of practical reason; our
values are standards that encourage us to act one way, not another.
Therefore, what values are supported by the natural environment? Why
should we act in ways that protect the natural environment from
degradation? Why should business be concerned with, and value, the
natural world?
Human Self-Interest!
All human beings depend on the natural environment in order
to survive.
Humans need clean water to drink, healthy air to breathe, fertile
soil and oceans to produce food, an ozone layer to screen out solar
radiation, and a biosphere that maintains the delicate balance of
climate in which human life can exist.
Two aspects of contemporary environmental realities
underscore the importance of self-interested reasoning:
The threat to life
The threat to everything else
Business’ Environmental
The Market Approach
An overwhelming consensus does exist about the prudential
reasons for protecting the natural environment-- humans have
a right to be protected from harm.
What controversy remains has more to do with the best means
for achieving this goal.
Historically, this debate has focused on whether efficient
markets or government regulation is the most appropriate
means for meeting the environmental responsibilities of
Each of these two approaches has significant implications for
The Market Approach
Some argue that there is an optimal level of pollution that
would best serve society’s interests.
This optimal level is best attained by leaving it to a
competitive market.
Denying that there is any “natural” or objective standard for
clean air or water, we would begin with a goal of “safe” air
and water quality, and translates this goal to a matter of
balancing risks and benefits.
Society could strive for pure air and water, but the costs (lost
opportunities) that this would entail would be too high.
The Market Approach
A more reasonable approach is to aim for air and water
quality that is safe enough to breathe and drink without
costing too much.
This balance, the “optimal level of pollution” can be achieved
through competitive markets.
Society, through the activities of individuals, will be willing
to pay for pollution reduction as long as the perceived
benefits outweigh the costs.
Inadequacy of the Market
Externalities: The market approach results in externalities,
such as environmental pollution.
No Exchange Value: A second type of market failure occurs
when no markets exist to create a price for important social
Individual vs. Group Decisions: Important ethical and policy
questions can be missed if we leave policy decisions solely to
the outcome of individual decisions.
The Market Approach – Defenses
and Counters
Internalizing external costs and assigning property rights to unowned
goods such as wild species are two responses to market failures.
But there are good reasons for thinking that such ad hoc attempts to
repair market failures are environmentally inadequate.
 One important reason is what has been called the first-generation
problem. Markets can work to prevent harm only through information
supplied by the existence of markets failures.
 That is, we learn about markets failures and thereby prevent harms in the
future only by sacrificing the “first-generation” as a means for gaining
this information
 When public policy involves irreplaceable public goods such as
endangered species, rare wilderness areas, and public health and safety,
such a reactionary strategy is ill-advised.
The Regulatory Approach:
Historical Perspective
Except for the incentive provided by the threat of compensation, U.S.
policy did little to prevent the pollution in the first place.
Absent any proof of negligence, public policy was content to let the
market decide environmental policy.
Because endangered species themselves had no legal standing, direct
harm to plant an animal life was of no legal concern and previous
policies did little to prevent harm to plant and animal life.
The Regulatory Approach:
Impact of the Laws
Each law enacted during the 1970s established standards that
effectively shifted the burden from those threatened with
harm to those who would cause the harm. Government
established regulatory standards to try to prevent the
occurrence of pollution or species extinction rather than
compensation after the fact.
These laws established minimum standards to ensure air and
water quality and species preservation.
Business was free to pursue it own goals as long as it
complied with the side constraints established by this
minimum standards.
The Regulatory Approach:
Ethical Perspective
Philosopher Norman Bowie defended a modified version of
this narrow view of corporate social responsibility.
Bowie argued that, apart from the duties to cause no
avoidable harm to humans and to obey the law, business has
no special environmental responsibility.
In so far as society desires environmental goods, e.g.,
lowering pollution by increasing the fuel efficiency of
automobiles, it is free to express those desires through
legislation or within the marketplace.
Absent those demands, business has no special environmental
Inadequacies of the
Regulatory Approach
This approach underestimates the influence that business can have
in establishing the law.
This approach also underestimates the ability of business to
influence consumer choice.
If we rely on the law to protect the environment, environmental
protection will extend only as far as the law extends. Yet, most
environmental issues, pollution problems especially, do not respect
legal jurisdictions.
Perhaps most troubling from an environmental standpoint,
this regulatory model assumes that economic growth is
environmentally and ethically benign.
Business’ Environmental
The “Sustainability Approach”
Beginning in the 1980s, a new model for environmentally
responsible business began to take shape, one that combines
financial opportunities with environmental and ethical
The concept of sustainable development and sustainable
business practice suggests a radically new vision for
integrating financial and environmental goals, compared to
the growth model that preceded it.
These three goals, economic, environmental, and ethical
sustainability, are often referred to as the “Three Pillars of
Sustainability Approach:
Historical Perspective
The concept of sustainable development can be traced to a 1987 report
from the United Nations’ World Commission on Environment and
Development (WCED), more commonly known as the Brundtland
Commission, named for its Chair Gro Harlem Brundtland.
The Commission was charged to develop recommendations for paths
towards economic and social development that would not achieve shortterm economic growth at the expense of long-term environmental and
economic sustainability.
The Brundtland Commission offered what has become the standard
definition of sustainable development: “Sustainable development is
development that meets the needs of the present without compromising
the ability of future generations to meet their own needs”
Business Opportunities
in a Sustainable Economy
While the regulatory and compliance model tends to
interpret environmental responsibilities as constraints
upon business, the sustainability model is more
forward-looking and may present business with greater
opportunities than burdens.
Indeed, it offers a vision of future business that many
entrepreneurial and creative businesses are already
For reasons of business self-interest alone, a strong case
can be made for taking steps now to achieve a
sustainable future.
Principles for a Sustainable
Firms can evolve toward a sustainable business model by not
allowing resources to enter into the economic cycle from the
biosphere at rates faster than which they are replenished.
Ideally, waste should be eliminated or, at a minimum, not produced at
a rate faster than which the biosphere can absorb them.
Finally, the energy to power the economic system should be
renewable, ultimately relying on the sun, the only energy that is truly
Principles for a
Sustainable Business
The precise implications of sustainability will differ for
specific firms and industries; but three general principles
will guide the move towards sustainability.
1. Firms and industries must become more efficient in using
natural resources;
2. They should model their entire production process on
biological processes; and
3. They should emphasize the production of services rather
than products.
Chapter Nine Vocabulary Terms
After examining this Chapter, you should have a clear understanding of the following
Key Terms and you will find them defined in the Glossary:
Corporate Automotive Fuel Efficiency
(CAFE) Standards
Service-based Economy
Sustainable Development
Sustainable Business
Three Pillars of Sustainability
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