6.

2 Environmental
and ethical issues
Learning Outcomes
1. how business activity can impact on the environment, for
example, global warming
2. the concept of externalities; possible external costs and external
benefits of business decisions; sustainable development – how
businesses’ activity can contribute to this
3. how and why business might respond to environmental pressures
and opportunities e.g., pressure groups
4. the role of legal controls over business activity affecting the
environment, for example, pollution controls
5. ethical issues a business might face; conflicts between profits and
ethics
6. how business might react and respond to ethical issues, for
example, child labour
AN ENVIRONMENTALLY FRIENDLY
SCHOOL

• Is our classroom green?

• Is our school green?
• Think about your school on a day to day basis. Does it behave in an
environmentally friendly way? List the good and bad environmental
practises?
• Could it do better? Could you contribute towards a better environment?
• Does our school act in an ethical way (morally correct)? Why?… why not?
 CHANGES IN THE
ENVIRONMENT
The environment encompasses the surroundings in which we live.
Firms will have to operate within and take account of environmental issues.
This will include how they impact on:

❖ The natural environment – the natural resources that firms exploit to

produce goods and services

❖ The built environment – the man-made surroundings that provide the

setting for the production of goods and services

The World’s resources are running out.

• What natural resources do firms use?
• Do firms have a duty to limit their use of natural resources?
• Is it the Government’s responsibility to intervene and protect these natural
resources?
 HOW BUSINESS ACTIVITY CAN IMPACT ON
THE ENVIRONMENT
There are a number of short-term environmental effects that impact on
society. Research examples of statistics in Vietnam or other countried

• Traffic congestion causes problems for both customers and staff, which may
mean lost sales and late employees.

• Businesses that cause air pollution face heavy fines and a bad reputation.
They will look to use greener production methods.

• Businesses that cause water pollution e.g. in rivers and the sea are subject
to heavy fines and bad publicity so will try to use environmentally friendly
processes.
• Recycling means that businesses will try to reuse materials rather than
dispose of them. This can reduce costs and be used to promote the
business.
 HOW BUSINESS ACTIVITY CAN IMPACT ON THE
ENVIRONMENT - RESEARCH
There are also long-term environmental effects that impact on society.
Global warming is a rise in the Earth’s temperature.
It is caused by greenhouse gases produced by
human activities. These include deforestation and
the use of fossil fuels. In 80 years time the world is
expected to be 6 degrees warmer than it is now.
Business will be affected through legislation and
opportunities for new products.

Resource depletion is caused as we use up finite

resources such as petrol and coal. With
decreasing supply and increasing demand, as the
world gets richer, prices have risen dramatically.
Greater emphasis has been placed on using
renewable resources such as solar power and
wind energy.
 HOW BUSINESS ACTIVITY CAN IMPACT ON THE
ENVIRONMENT … IN A GOOD WAY!

Business activity impacts on the environment in a number of areas causing pollution

and waste as well as providing society with its needs. A number of issues have arisen
which affect the way businesses operate in today’s society:

◎ Renewable clean energy sources – wind, solar and hydro power

◎ Waste management – recycling and composting rather than landfill

◎ Eco-friendly products – green cleaning such as soap powders

◎ Organic produce – foods produced using natural pest control

As society becomes increasingly concerned about environmental issues this

can create both opportunities and threats to businesses. Can you identify one
opportunity and one threat?
 EXTERNALITI
ES
◎ Externalities are the costs and benefits to a third party
created by a business when undertaking its activities

◎ These costs and benefits can be negative or positive

◉ Negative externalities are those costs to a third
party that are not included in the price of the
activity

◉ Positive externalities are those benefits to a third

party that are not included in the price of the
activity
 NEGATIVE
EXTERNALITIES
Negative externalities take a variety of forms e.g.
different types of pollution, road congestion etc.
◉ A firm might create air pollution by using a factory to produce
a good

◉ The private cost to the firm is the cost of making that good
◉ However, additional social costs have been created due to
society suffering from poor air quality
 POSITIVE
EXTERNALITIES
Positive externalities take a variety of forms e.g. an educated
workforce or a neighbour’s beautifully kept garden etc.

◉ A local firm might invest heavily into training its workforce

◉ The private benefit to the firm is that received by having well-
trained employees

◉ However, additional social benefits have been created due to

the local community having a pool of better trained workers
 SUSTAINABLE
DEVELOPMENT
Green working practices Green consumerism

◎ Reduce carbon footprint ◎ Buying eco friendly

◎ Recyclable packaging ◎ Supporting local suppliers –

food miles
◉ Wrapping on products
◎ Solar or wind power
◉ Use of carrier bags
◎ Hybrid cars
◎ Saving energy

◎ Car pools or cycle schemes

• Can environmental issues create opportunities for businesses as well as

threats?
• Can you name any new products that have been designed to exploit
environmental concerns?
 PRESSURE
GROUPS
Pressure groups are people with a common cause or interest.
They act collectively to create public awareness and try to
change the behaviour of business, consumers and government.
Examples of pressure groups in the UK include Amnesty
International, Greenpeace and trade unions.

Research
 ENVIRONMENTAL
•
LAW - RESEARCH
Legislation designed to influence the behaviour of individuals
and firms in order to reduce the negative impacts on the natural
environment
 Limits to emission levels to sea, rivers and air
 Guidelines, limits and bans on waste disposal
 Quotas on use of finite resources e.g. fishing quotas
• Government can inspect firms and impose fines on those failing
to comply
• Compliance can often increase costs to firms
 QUESTION
Marks and Spencer believe in “doing the right TIME
thing”. Some of the steps taken
include charging 5p for plastic carrier bags, launching a range of carbon neutral
chocolate and reducing the use of glass in packaging. The website states that
“through Plan A we are working with our customers and our suppliers to combat
climate change, reduce waste, use sustainable raw materials, trade ethically, and
help our customers to lead healthier lifestyles.”

1. M&S has clearly taken steps to reduce the effect of its business activities on
the environment. Explain one way in which it has achieved this. (2
marks)
2. Assess two potential benefits to M&S of “doing the right thing”. (8
marks)
3. Is it businesses responsibility to help customers lead a healthier life style?
Justify your view. (6 marks)
 QUESTION
TIME
Marks and Spencer believe in “doing the right thing”. Some of the steps taken
include charging 5p for plastic carrier bags, launching a range of carbon neutral
chocolate and reducing the use of glass in packaging. The website states that
“through Plan A we are working with our customers and our suppliers to combat
climate change, reduce waste, use sustainable raw materials, trade ethically, and
help our customers to lead healthier lifestyles.”

1. M&S has clearly taken steps to reduce the effect of its business activities on
the environment. Explain one way in which it has achieved this. (2
marks)

5p charge for plastic bags

Carbon neutral chocolate
Reducing glass in packaging
 QUESTION
Marks and Spencer believe in “doing the right TIME
thing”. Some of the steps taken
include charging 5p for plastic carrier bags, launching a range of carbon neutral
chocolate and reducing the use of glass in packaging. The website states that
“through Plan A we are working with our customers and our suppliers to combat
climate change, reduce waste, use sustainable raw materials, trade ethically, and
help our customers to lead healthier lifestyles.”

1. Assess two potential benefits to M&S of “doing the right thing”. (8

marks)
Increased brand loyalty
Good public relations
Grants and subsidies from the government
A more sustainable business
 QUESTION
Marks and Spencer believe in “doing the right TIME
thing”. Some of the steps taken
include charging 5p for plastic carrier bags, launching a range of carbon neutral
chocolate and reducing the use of glass in packaging. The website states that
“through Plan A we are working with our customers and our suppliers to combat
climate change, reduce waste, use sustainable raw materials, trade ethically, and
help our customers to lead healthier lifestyles.”

1. Is it businesses responsibility to help customers lead a healthier life style?

Justify your view. (6 marks)
 ETHICS IN BUSINESS – RIGHT AND
WRONG
Is it ethical to sell fake Louie Vuitton bags goods?

Is it ethical to knowingly buy fake fake Louie Vuitton bags ?

Is it ethical to copy a friends pirated movie?

Is it ethical to charge 100,000 VND for a can of Coke at a concert or sport venue?

Is it ethical to tell a customer a dress looks great when it doesn’t fit just to make
the sale?

Is it ethical to buy tickets for a concert and then sell them on at a much higher
price once they have all sold out?
Ethics looks at morality in decision making
i.e. what is thought to be right and wrong
ETHICAL
TRENDS

Destroying
Child Ethical resources
labour
Trends

Supporting
the
Carbon
Animal community
footprint
welfare
 BUSINESS
ETHICS
Business Ethics looks at morality in decision-making. This infers doing what
is ‘right’.
Of course, peoples’ views can differ on what is right or wrong.
Whenever a firm makes a decision there will be conflicts between
stakeholders.

Remember, every decision made has an opportunity cost.

◎ Profits for a firm or higher wages for staff
◎ Cheaper production or less pollution
◎ Supplier benefits or lower consumer prices
◎ Survival of the business versus needs of other stakeholders
 BUSINESS
ETHICS
Most large firms will produce an ethical code of practice. This
will detail the steps that a firm will take to be ethical and to
uphold the firm’s social responsibilities. This might include:
 To take responsibility for the stakeholders of the business
 To be environmentally friendly wherever possible
 To promote products with integrity, honesty and accuracy
 To compete within legal and moral guidelines
 BUSINESS
ETHICS
• Is ethical behaviour simply a form of Public Relations (PR)?
• There are a number of reasons for a firm to have an ethical business culture.
• These range from the profit motive to wanting to ‘do the right thing’.

Why be ethical? Why not be ethical?

 Build loyal customer base
through USP
 Attract best workers who
want to work for a company 
with high standards
 Lower costs through recycling
and less waste
 Motivation across the
company
 More expensive to source raw materials
 More expensive capital goods to cut pollution
Training workers to be ethical costs money
 Losing custom to unethical practices from more
ruthless competitors
 Providing better facilities for staff costs money
 Higher costs lead to higher prices and lower
revenues
 DO YOU RECOGNISE THESE
LOGOS?

Should ALL businesses have an objective of behaving in an environmentally

friendly and ethical way?
How might this impact on their ability to achieve other objectives?
 ACTIVITY
◎ Choose a business that attracts high profile media attention e.g.
VinCom, Vietnam Airways, Asics, GAP, Shell

◎ Carry out some independent research into its approaches

towards its social responsibilities and/or its ethics

◎ Produce an article for a business magazine evaluating how they

have responded to social and ethical factors
 QUESTION
TIME
SuperGroup prides itself on maintaining high standards of integrity and
honesty in carrying out its business activities. It expects the support of its
managers, employees and business partners.
The Group expects its suppliers to adopt ethical labour practices and respect
the rights of their employees.
1. What is meant by the term “ethics” in business? (2
marks)
2. Explain one advantage to SuperGroup of being an ethical business. (2
marks)
3. State one disadvantage to SuperGroup of being an ethical business.
Explain the effect on the business. (4 marks)
 UNFORESEEN
EVENTS
Environmental factors can also be outside of the control of businesses
and consumers
These include:
◉ Natural disasters e.g. earthquakes or Iceland ash cloud
◉ Adverse weather conditions e.g. flash floods or hurricanes
◉ Outbreaks e.g. foot and mouth or bird flu
These can also have a major impact on businesses:
◉ Loss of customers
◉ Damage and repair bills
◉ Government enforced restrictions
◉ Loss of supplies halting production

Can you think of any local stories where businesses

have been affected by unforeseen circumstances?
Solution – exam style question paper 1
Solution – exam style question paper 1

a. Sustainable development – a business is said to be sustainable if it has a positive

overall impact on the environment and its stakeholders, ensuring its survival in the
future.
b. Cutting down trees, air pollution by trucks and ships, air pollution by burning
waste wood
c. Source more sustainable materials than wood, source local materials to limit the
use of trucks and ships, recycle the waste wood (mulch) or any other relevant answer
d. Better reputation and good public relations, they may avoid fines from the
government, avoid conflict with pressure groups, save costs, governments may
provide financial incentives, improved staff motivation, give them a competitive
advantage.
Solution – exam style question paper 1

e. Introduction
Yes
• Conserve natural resources
• Higher life expectancy by generating less pollution
• Social cost benefit
• Or any of the points in part d
No
• High initial cost
• Resistance to change
• OR any other relevant point
Conclusion
Learning Outcomes
1. how business activity can impact on the environment, for
example, global warming
2. the concept of externalities; possible external costs and external
benefits of business decisions; sustainable development – how
businesses’ activity can contribute to this
3. how and why business might respond to environmental pressures
and opportunities e.g., pressure groups
4. the role of legal controls over business activity affecting the
environment, for example, pollution controls
5. ethical issues a business might face; conflicts between profits and
ethics
6. how business might react and respond to ethical issues, for
example, child labour