Chapter 9 Business, The Environment and Sustainability McGraw-Hill/Irwin Business Ethics: Decision-Making for Personal Integrity & Social Responsibility Copyright © 2008 9-2 1-2 The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives After exploring this chapter, you will be able to: 1. 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 sustainability Describe the sustainable principles of eco-efficiency, biomimicry, and service. 2. 3. 4. 5. 6. 7. 8. 9-3 1-3 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. 9-4 1-4 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 opportunities. The major ethical question of this chapter: What responsibilities do contemporary businesses have regarding the natural environment? 9-5 1-5 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? 9-6 1-6 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 9-7 1-7 Business’ Environmental Responsibility: 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 business. Each of these two approaches has significant implications for business. 9-8 1-8 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. 9-9 1-9 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. 9-10 1-10 Inadequacy of the Market Approach: 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 goods. Individual vs. Group Decisions: Important ethical and policy questions can be missed if we leave policy decisions solely to the outcome of individual decisions. 9-11 1-11 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. 9-12 1-12 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. 9-13 1-13 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. 9-14 1-14 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 responsibilities. 9-15 1-15 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. 9-16 1-16 Business’ Environmental Responsibilities: 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 responsibilities. 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.” 9-17 1-17 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” 9-18 1-18 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 pursuing. For reasons of business self-interest alone, a strong case can be made for taking steps now to achieve a sustainable future. 9-19 1-19 Principles for a Sustainable Business 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 renewable. 9-20 1-20 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. 9-21 1-21 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: Backcasting Biomimicry Corporate Automotive Fuel Efficiency (CAFE) Standards Cradle-to-Cradle Eco-Efficiency Service-based Economy Sustainable Development Sustainable Business Three Pillars of Sustainability 9-22 1-22