BUSINESS ETHICS

Chapter 6
Business, the Environment and
Sustainability
LECTURER: DUONG THI HOAI NHUNG
(MBA)
FACULTY OF BUSINESS ADMINISTRATION
EMAIL: nhungdth@ftu.edu.vn
MOBILE: 0985867488
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 CHAPTER 6: Business, the Environment and
Sustainability
- Reading
- Chapter 9: Business, the Environment and Sustainability
(Hartman, 2008, Business Ethics: Decision−Making for
Personal Integrity and Social Responsibility, The
McGraw−Hill Companies)

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 CHAPTER 6: Business, the Environment and
Sustainability
 Purpose and learning objectives
 After exploring this chapter, you will be able to:

 Describe a range of values that play a role in environmental decision-

making
 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
3 sustainability
 CHAPTER 6: Business, the Environment and
Sustainability
Main contents:
1. What is environmental ethics?
2. Business ethics and environmental values
3. Business’s environmental responsibility
3.1 A market-based approach
3.2 A regulatory-based approach
3.3 The sustainability-based approach
- Business Opportunities in a Sustainable Economy
- Principles for a Sustainable Business
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 1. What is environmental ethics?
Environmental ethics considers the ethical relationship
between ……… and ……..…………. and the kind of
decisions ………… have to make about ...

Environmental ethics simply tries to answer the questions of

 how humans should .………… their environment
 how we should ……….the Earth’s resources
 how we should .…… other species, both plant and
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animal
 Business and Environmental Ethics

Why should
business be
concerned with
value of the
what values natural world?
are supported
by the natural
environment?
What responsibilities
do contemporary
businesses have
regarding the natural
environment?

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 2. Business ethics and environmental values

what values are supported by the natural environment?

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
7 in which human life can exist.
 2. Business ethics and environmental values
Why should we act in ways that protect the natural
environment from degradation?
1. The Threat to Life
Past human societies have often run up against the limits of
the local environment’s ability to sustain human life.
In these historical cases, environmental degradation has
been localized to a particular region and has seldom
affected more than a generation.
In contrast, some contemporary environmental issues have
the potential to adversely affect the entire globe and change
human life forever.
Global climate change, species extinction, soil erosion and
desertification, and nuclear wastes will threaten human life
8 into the indefinite future.
 2. Business ethics and environmental values
The Top Ten fundamental environmental issues:
1. Climate Change: global warming creates the Greenhouse effect
- the prevention of solar heat absorbed by our atmosphere
from returning to space, causing an unprecedented rate of
warming.
2. Energy: energy inefficiency, wasting nonrenewable sources of
energy.
3. Water: Both quality and quantity of water endangered.
4. Biodiversity and Land Use: The variation of life forms inside
an ecosystem, serves as a key indicator of its health. It is
being lost at an unprecedented rate
5. Chemicals, Toxics, and Heavy Metals: Chemicals or
compounds that may cause damage to the nervous system,
reproductive and developmental problems, cancer and genetic
9 disorders - & the environment.
 2. Business ethics and environmental values
The Top Ten fundamental environmental issues:
6. Air Pollution
Outdoor Air pollution - Acid Rain, Global Warming, Smog, Depletion of
the ozone layer, Serious respiratory illnesses
Indoor Air Pollution – Comes from oil, gas, kerosene, coal, wood and
tobacco products, building materials & furnishings, damp carpets,
household cleaning products and lead-based paints. Long term
effects , respiratory diseases, heart disease and cancer, can be fatal.
7. Waste Management
8. Ozone Layer Depletion: Ozone is harmful near the surface of the earth,
but vital in the atmosphere. Ozone Layer Depletion causes skin
cancer.
9. Oceans and Fisheries- The oceans are running out of fish to meet
human needs.
10. Deforestation: Humans depend on forests for building materials, fuel,
10 medicines, chemicals, food, employment and recreation.
 2. Business ethics and environmental values
Why should we act in ways that protect the natural
environment from degradation?
2. The Threat to Everything Else
The science of ecology and its understanding of the
interrelatedness of natural systems have helped us to
understand the wide range of human dependence on
ecosystems.

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 2. Business ethics and environmental values
Why should we act in ways that protect the natural
environment from degradation?
2. The Threat to Everything Else (cont.)
Where once we might have thought that buried wastes were
gone forever, we now understand how toxins can seep into
groundwater and contaminate drinking water across great
time and distances.
We now understand how pesticides accumulate throughout
the food chain and pose greatest dangers not only to top
predators such as bald eagles, but to human beings as well.
Where once we thought that ocean fisheries were
inexhaustible and the atmosphere too big to be changed by
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humans, we now understand the precise balance necessary
to maintain life-supporting systems.
 Case 6.1: Should Toxic Waste Be Exported?

Questions to discuss:
1. Should waste disposal be treated simply as an economic issue, to
be resolved through private market exchanges?
2. Should government regulations place greater responsibility on
producers for the entire life cycle of products?

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 3. Business’s environmental responsibility
What kind of the most appropriate principle/approach
should be applied to meet the environmental
responsibilities of business ?

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 3. Business’s environmental responsibility
3.1 A market-based approach
1. If the best approach to environmental concerns is to trust them
to efficient markets, then the responsible business manager
simply ought to seek profits and allow the market to allocate
resources efficiently.

Maximize profit within the law

Utilitarian: Greater overall good of optimally satisfying consumer
preference

Eg: Whether we are concerned with the allocation of scare non-

renewable resources such as gas and oil, or the earth’s capacity to
absorb industrial by-products such as CO2 or PCB,
16 environmental challenges can be addressed through efficient
markets.
 3. Business’s environmental responsibility
3.1 A market-based approach
2. If it considers that environmental problems are economic
problems that deserve economic solutions.
William Baxter argues that there is an optimal level of pollution
(mức độ ô nhiễm tối ưu) that would best serve society’s
interests.
 No perfect “state of health”
 Allow market to balance risk and benefits
(eg. Air safe enough to breath water safe to drink without costing to much)
 This optimal level is best attained by leaving it to a competitive
market.

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 3. Business’s environmental responsibility
3.1 A market-based approach
Limitation of market approach
 Cost of such things as pollution are borne by third parties to the
economic exchange, free market exchanges cannot guarantee optimal
results.

o In the case of pollution—the traditional example of a negative externality—a

polluter makes decisions based only on the direct cost of and profit
opportunity from production and does not consider the indirect costs to those
harmed by the pollution. The indirect costs include decreased quality of life,
say in the case of a home owner near a smokestack; higher health care costs;
and forgone production opportunities, for example, when pollution harms
activities such as tourism. Since the indirect costs are not borne by the
producer, and therefore not passed on to the end user of the goods produced
by the polluter, the social or total costs of production are larger than the
private costs.
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 3. Business’s environmental responsibility
3.1 A market-based approach
Limitation of market approach
 No market exists to create a price for important social goods
(threatened animals – Rhinoceros, tigers, elephants, clean air and
ocean fisheries)

o Endangered species, scenic vistas, rare plants and animals, and

biodiversity are just some environmental goods that typically are not
traded on open markets
o Public goods such as clean air and ocean fisheries also have no
established market price. With no established exchange value, the market
approach cannot even pretend to achieve its own goals of efficiently
meeting consumer demand.
o Markets alone fail to guarantee that such important public goods are
preserved and protected
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 3. Business’s environmental responsibility
3.1 A market-based approach
Limitation of market approach
 Buying is an individual decision consequences are borne by group
 Important ethical and policy questions can be missed if we leave
policy decisions solely to the outcome of individual decisions.

o Consider the calculations that an individual consumer might make

regarding the purchase of an SUV and the consequences of that decision
on global warming. The additional CO 2 that would be emitted by a
single SUV is miniscule enough that an individual would likely conclude
that her decision will make no difference. However, if every consumer
made exactly the same decision, the consequences would be significantly
different.
o This example demonstrates that the overall social result of individual

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calculations might be significant increases in pollution and such
pollution-related diseases as asthma and allergies.
 3. Business’s environmental responsibility
3.1 A market-based approach
Limitation of market approach
Market does not respond until there is a major screw up

o Only when fish populations in the North Atlantic collapsed, for

example, did we learn that free and open competition among
the world’s fishing industry for unowned public goods failed to
prevent the decimation of cod, swordfish, Atlantic salmon, and
lobster populations. That is, we learn about market failures and
thereby prevent harms in the future only by sacrificing the
“first generation” as a means of gaining this information.

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 3. Business’s environmental responsibility
3.1 A market-based approach
Limitation of market approach
Cost of such things as pollution are borne by third parties to
the economic exchange, free market exchanges cannot
guarantee optimal results.
No market exists to create a price for important social goods
(protection of animals versus using threatened animals –
Rhinoceros, tigers, elephants, clean air, ocean fisheries)
Buying is an individual decision, consequences are borne by
group
Market does not respond until there is a major screw up

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 3. Business’s environmental responsibility
3.2 A regulatory-based approach
 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. Governmental regulations were
seen as the better way to respond to environmental problems.
 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.
 Philosopher Norman Bowie argued that, apart from the duties to
cause no avoidable harm to humans and to obey the law, business
23 has no special environmental responsibility.
 Case 6.2:
Ethical issues in protecting
environment in X Chemical Corp.
Questions to discuss:
1. Whether X Chemical should go ahead and install
the final stage equipment?
2. Whether Bryan should blow the whistle if they do
not?

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 3. Business’s environmental responsibility
3.2 A regulatory-based approach
• Limitation of a regulatory-based approach
Underestimate business ability to influence law
making
Underestimates business ability to influence
consumers
Law is a crude tool
Models used to deal with corporate social
responsibility underestimates managerial discretion

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 3. Business’s environmental responsibility
3.3 The sustainability-based 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.”
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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
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.”

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
“Three Pillars of Sustainability” - Triple bottom line
Economically, environmentally and socially satisfactory
Meet the needs of those future generations
Meet the needs of those who lack food, water, and other
necessities

Legal Environmental
goals goals

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
The Natural Step Model
The Natural Step uses an image of a funnel, with two
converging lines, to help business understand these
opportunities.
The resources necessary to sustain life are on a
downward slope.
While there is disagreement about the angle of the slope,
there is widespread consensus that available resources
are in decline.
The second line represents aggregate worldwide demand,
accounting for both population growth and the increasing
29 demand of consumerist lifestyles.
 3. Business’s environmental responsibility
3.3 The sustainability-based approach
The Natural Step Model
Barring an environmental catastrophe, many but not all
industries will emerge through the narrowing funnel into an
era of sustainable living. Businesses unable to envision that
sustainable future will hit the narrowing wall. Innovative
and entrepreneurial business will find their way through.

Legal Environmental
goals goals

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
The Natural Step Model
The Natural Step then challenges business to “backcast”
a path towards sustainability.
We are all familiar with forecasting, in which we
examine present data and predict the future.
“Backcasting” examines what the future will be when we
emerge through the funnel.
Knowing what the future must be, creative businesses
then look backwards to the present and determine what
must be done in order for them to arrive at that future.

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
1. Sustainability is a prudent long-term strategy.
Business will need to adopt sustainable practices in order
to insure long-term survival.
Firms that fail to adapt to the converging lines of
decreasing availability of resources and increasing
demand risk their own survival.

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
2. There is a huge unmet market potential among the
world’s developing economies that can only be met in
sustainable ways.
Enormous business opportunities exist in serving the billions
of people who need, and who are demanding, economic
goods and services.
The base of the economic pyramid represents the largest and
fastest-growing economic market in human history.
Yet, the sheer size of these markets alone makes it impossible
to meet this demand with the environmentally damaging
33 industrial practices of the 19th and 20th centuries.
 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
3. Significant cost savings can be achieved through
sustainable practices.
Business stands to save significant costs in moves
towards eco-efficiency.
Savings on energy use and materials will reduce not only
environmental wastes, but spending wastes as well.
Minimizing wastes make sense on financial grounds as
well as on environmental grounds.

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
4. Competitive advantages exist for sustainable
businesses.
Firms that are ahead of the sustainability curve will have
an advantage serving environmentally-conscious
consumers, as well as enjoying a competitive advantage
attracting workers who will take pride and satisfaction in
working for progressive firms.

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
5. Sustainability is a good risk management strategy.
There are many downsides in refusing to move towards
sustainability that will be avoided by innovative firms.
Avoiding future government regulation is one obvious
benefit.
Firms that take the initiative in moving towards
sustainability will also likely be the firms who set the
standards of best-practices in the field. Thus, when
regulation does come, these firms will likely play a role
36 in determining what those regulations ought to be.
 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
5. Sustainability is a good risk management strategy
(cont.)
Avoiding legal liability for unsustainable products is
another potential benefit.
As social consciousness changes, the legal system may
soon begin punishing those firms who are now negligent
in failing to foresee harms caused by their unsustainable
practices.
Consumer demand and consumer boycotts of
37 unsustainable firms are also a risk to be avoided.
 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 Business’ opportunities for the sustainability – based
approach
1. Sustainability is a prudent long-term strategy.
2. There is a huge unmet market potential among the
world’s developing economies that can only be met in
sustainable ways.
3. Significant cost savings can be achieved through
sustainable practices.
4. Competitive advantages exist for sustainable businesses.
5. Sustainability is a good risk management strategy.

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 3. Business’s environmental responsibility
3.3 The sustainability-based approach
 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.

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