Business Ethics And Sustainability

This unit has the following learning objectives:

1. To recognise the problems in defining of Sustainability.

2. To examine the relationship between sustainability, ethics and CSR

3. To recognise global sustainability issues

4. To consider key environmental issues and their impact on business and society

5. To examine organisational responses to sustainability as corporate strategy

When someone mentions the word Sustainability, many different meanings and contexts come to mind. For some it tends to mean recycling, for others it means minimising our “carbon footprint.” Concepts such as renewable energy, extending the life of finite resources through greater efficiencies or the impact of global warming also are linked to sustainability.

McDonald (2015) identifies that the sustainability movement actually grew from Environmentalism with its primary concerns of pollution prevention and waste minimisation. She also notes that the literature tends to prefer the term sustainable development, rather than just sustainability, which emphasises the ongoing nature of the task. However, we do recognise that the terms sustainability and sustainable development are used interchangeably.

More recently, attention is being given to ways of mitigating climate change, notably by reducing carbon production and committing to renewable energy.

Scoping Sustainability

The World Business Council for Sustainable Development states that sustainable development involves the simultaneous pursuit of economic prosperity, environmental quality and social equity. According to Repetto, (1985, p. 10) “The core idea of sustainability . . . is the concept that current decisions should not impair the prospects for maintaining or improving future living standards . . . . This implies that our economic systems should be managed so that we live off the dividend of our resources, maintaining and improving the asset base.”

“Sustainable development implies using renewable natural resources in a manner which does not eliminate or degrade them, or otherwise diminish their usefulness to future generations. . . Sustainable development further implies using non-renewable (exhaustible) mineral resources in a manner which does not unnecessarily preclude easy access to them by future generation . . . . Sustainable development also implies depleting non-renewable energy resources at a slow enough rate so as to ensure the high probability of an orderly societal transition to renewable energy sources” (Goodland and Ledec, 1987, p. 37). “Sustainable utilization is a simple idea: we should utilize species and ecosystems at levels and in ways that allow them to go on renewing themselves for all practical purposes indefinitely.” (Allen, 1980), p. 18) “Sustainability might be redefined in terms of a requirement that the use of resources today should not reduce real incomes in the future.” (Markandya and Pearce, “1988, p. 11

A Sustainable Future- Looking towards 2050

Jonathon Porritt, is the Co-Founder of Forum for the Future, Co-Director of The Prince of Wales's Business and Sustainability Programme, was formerly Director of Friends of the Earth (1984-90) and co-chair of the Green Party (1980-83 In 2009 he stood down as Chair of the UK Sustainable Development Commission after nine years providing high-level advice to UK Government Ministers. Jonathon received a CBE in January 2000 for services to environmental protection. In this TEDX address he canvasses the possibility of a sustainable future the entire global through to 2050 and the challenges that will hamper and help this goal.

https://www.youtube.com/watch?v=39bPjnFBt-o

Ferrell, Fraedrich and Ferrell (2015) suggest that Sustainability, from a strategic business perspective is the potential for the long-term well-being of the natural environment, including all biological entities. It also involves the mutually beneficial interactions among nature and individuals, organizations, and business strategies .It meets the needs of the present without compromising the ability of the future generations to meet their own needs.

As we noted in our second Unit, McDonald (2015) suggests that while sustainability initially referred predominantly to environmental issues, the concept has now broadened to incorporate activities that:

· extend the longevity of organisations

· maintain and renew the biosphere and protect all living species

· enhance society’s ability to maintain itself and solve its major problems

· maintain appropriate levels of welfare for present and future generations.

Major Sustainability Issues

Carroll and Buchholz (2015) suggest that business’s approach to the environment has been historically exploitative conduct their operations with little concern for environmental consequences. They consumed significant amounts of materials and energy, causing waste accumulation and resource degradation.

They highlight major air, water and land pollution problems with business and economics, labeling the negative consequences of their actions as externalities – side-effects or by-products not intended, and often disregarded. Changes to these practices occurred only when it became illegal or unprofitable to do so.

According to Carroll and Buchholtz (2015) there are as many as 10 critical environmental Issues that are major concerns:

1. Climate Change: The Greenhouse effect - the prevention of solar heat absorbed by our atmosphere from returning to space, causing an unprecedented rate of warming.

2. Energy: A major environmental issue is energy inefficiency, wasting nonrenewable sources of energy such as fossil fuels- they also contribute significantly to pollution, ozone layer depletion and the greenhouse effect

3. Water: The earth is a closed system with a fixed water supply; growing populations use more water, yet more than a billion people lack clean water. The Degradation of oceans & waterways can be traced to poor infrastructure, poor farming practices deforestation and over-irrigation

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. Ecosystem and habitat destruction, pollution, other excesses in individual and organizational activities are responsible. The current rate of extinction is 1,000 times higher than the natural 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 disorders - & the environment. As an example dioxin, a toxic chemical has been found in small traces in human breast milk.

6. Air Pollution: The continued use of fossil fuels, despite emission improvements cause major problems for human and animal health. Consider the smog and pollution problems in China which during the 2012Olympc game could only be ameliorated by the temporary closing of factories in the region.

7. Waste Management; Recycling and minimizing waste has developed into major industries- however the challenge of who is responsible for the creation and cost of the waste remains- the producer or the consumer or a third party who can make a profitable business from the waste?

8. Ozone Layer Depletion: Ozone is made up of three oxygen atoms and is a naturally occurring gas. At the earth’s surface it can be extremely hazardous to life, however in the stratosphere, 25 kilometres - it plays a critical role in deflecting dangerous ultraviolet radiation from the sun. The ozone layer has been thinning with several holes appearing above the poles. The major factor causing the destruction of the ozone layer has been chemical such as hydro fluro carbons used as a refrigerant and halons used in fire extinguishers- outputs of production and industrialization.

9. Oceans and Fisheries: the pollution and poor waste management issues identified above have ended up in earth’s oceans severely impacting on marine life. In addition over fishing has resulted in 85% of the world’s fisheries being at capacity, over capacity or have collapsed. The oceans are running out of fish to meet human needs. A major problem is the accurate measurement of fish stock and the over harvesting of some slow reproducing species. Some conservation measures have resulting in positive signs however greater management is required.

10. Deforestation: Humans depend on forests for many commodities, building materials, animals, medicines, the storage of C02, the purification of the atmosphere in addition to recreation and natural beauty. However deforestation is a major contributor to soil erosion and greenhouse emissions- Dead and felled trees can no longer absorb carbon and this combined with burning of forests in clearing accounts for 20% of global carbon emissions – more than the world’s trains, boats and planes combined.

Ferrell, Fraedrich and Ferrell (2015) identify two additional issues of concern being:

Urban sprawl: the significant growth in urban centres, with cites now topping 10 million people- bigger than some countries, places addition strain on key issues of food resources, infrastructure and resources, waste management and contributes to greenhouse gases and global warming.

Genetically Modified Organisms: whilst some advocate disease resistant crops or animals modified with human DNA to increase suitability for transplant as major opportunities to redress some of these concerns, others question the ethics of such genetic manipulation and the guarantees of no significant side effects.

Does this make economic sense?

As most of you would know Gross Domestic Product is a figure or percentage that represents the total value of production of all goods and services in a country. It is perhaps the most widely used economic indicator of economic “health” However, GDP only counts production and expenditure- it does not include the negative and un-costed aspect of production, such as environmental degradation or deforestation are rarely accounted for in GDP. For example, two of the most the infamous oils spill sin recent memory highlights the major problem with GDP. Exxon Valdez oil spill in Prince William Sound in Alaska in 1989 showed up as a net economic gain in the US because of the expenditures associated with the clean-up effort. These expenditures outweighed the eleven million gallons of oil spilled into Alaskan waters. Similarly a story in the Wall Street Journal in June 2010, highlighted that the BP Deepwater Horizons; oils Spill of 2010, citing chief U.S. economist Michael Feroli, who said that “The spill clearly implies a lot of economic hardship in some locations, but given what we know today”, however with the employment of clean up specialists, new jobs surrounding the clean up the establishment of a $20 billion trust fund by BP to pay for compensation and clean-up, it is likely that the net impact on the U.S. economy will be positive?

How can such destruction and decimation of wildlife and peoples livelihood actually end up being recorded as an economic gain?

Natural Resources

The core idea of sustainable development is that future generations will have the means to meet their own needs better than we are able to meet our own today without degrading the natural environment.

This implies that there will be adequate resources for future generations and that sufficient care should be taken not to pollute our air and water, and not to despoil our forests and biological habitats. This suggests that the question can be divided into two halves: resource use and pollution.

Resources can be classified as two categories

1. Renewable resources: forests, water, food supplies, and animal species, and people

2. Non- renewable: fossil fuels and minerals are examples.

1. The price of the product should rise to reflect the decrease in supply

2. The market price signals suppliers to increase supplies of renewables, eg grow more or release more energy from renewable sources etc or find alternative- because they can-

However when non-renewable resources are used in an unsustainable manner the market , in theory, should continue to increase the price, exponentially to reflect the disappearing resource.

This parallel’s the late economist Herbert Stein’s memorable dictum:

“If something can’t go on forever, it won’t.”

However, as we discussed in an earlier unit dealing with capitalism and the concept of the market, the issue of setting an appropriate price for resources assumes that that economics actually works and that the market reflects true equilibrium prices. On the surface, it is obviously impossible to use a non-renewable resource “sustainably” as each unit of a non- renewable resource used is one less unit from a finite pool. But it is not immediately clear whether and how non-renewable resources such as oil, gas, and minerals should be conserved. It is not even self-evident that running out of a resource necessarily impinges on the ability of future generations to meet their needs. We are clearly seeing the development of alternative energy sources including renewables such as solar and bio-fuels. However the latter is also a cause for concern with crops such as corn being diverted from food production to biofuel production.

Another example was the use whaling industry of the nineteenth century drove many whales to the point of extinction- why? Largely because the whale was an abundant source of a number of products that ranged from meat to chemicals to cosmetics and oil for lighting. The whale as an input for energy or manufacturing was clearly unsustainable and it wasn’t. Do we view the decline in whale hunting and the slow recovery of the species as a victory for the market to find alternatives? Or was it simply a matter of luck?

A Unifying Framework for Sustainable Development

The Natural Step is a non-profit organization founded in Sweden in 1989 by scientist Karl-Henrik Robèrt. It has affiliates all over the world and seeks to education and developing thinking about sustainable development. IN this video, its founder Karl-Henrik Robèrt, MD, PhD, cancer scientist, Professor of Sustainability at Blekinge Institute of Technology (BTH), and the Chairman of the International Research Program Real Change, outlines the history of the Natural Step organisation and its framework for sustainable development.

https://www.youtube.com/watch?v=_WqRhxLftAg

The Phases of Sustainability

McDonald (2015) notes that the way organisations and thus the business community have approached sustainable development can be described along a continuum or a series of phases. She cites Dunphy, Griffiths & Benn (2003) six stage model that highlights these organisational responses r positions.

1. Rejection – the organisation holds a strong belief that organisations exist to maximise profit and that the environment is a free good to be exploited.

2. Non-responsiveness – there is ignorance or a lack of awareness rather than active opposition to a corporate ethic that is broader than financial gain.

3. Compliance – the focus is on reducing the organisation’s risk of sanctions for failing to meet minimum standards.

4. Efficiency – a growing awareness by managers in the organisation that there are real advantages to be gained by proactively instituting sustainable practices.

5. Strategic sustainability – sustainability now becomes an important part of the organisation’s business strategy.

6. The sustaining corporation – there is a strong internalised ideology of working for a sustainable world.

She notes that Sustainable business development (SBD) – is a term is relevant for the latter two phases: phase 5 (strategic sustainability), and phase 6 (the sustaining corporation). SBD is perceived as a subset of the broader concepts of sustainability and sustainable development, with sustainable business development articulating and achieving social, economic and environmental objectives to protect human kind and the natural world.

Required Reading

Reading 1

Ferrell, O.C., Fraedrich J. and Ferrell, L. (2015). Business ethics: Ethical decision making and cases, Cengage Learning, Stamford. Ch. 12

This chapter from the Ferrell et al. (2015) text covers the broad concept of environmentalism and sustainability providing a summary of the key issues and challenges facing the globe as well as a summary of US and Global legislation that have been introduced to address these challenges. The final sections of the chapter relate to business initiatives and applications including the strategic importance of sustainability and the need for a systematic approach through stakeholder and risk analysis.

Additional Reading

Reading 2

Carroll, A. and Buchholz, A. (2015) Business and Society: Ethics, sustainability and stakeholder management, Cengage, Stamford. Ch. 15

·

This chapter from the Carroll and Buchholz text is actually titled Sustainability and the Natural Environment. Similar to the Ferrell et al. (2015) text it identified a range of sustainability issues and legislative frameworks designed to address these challenges. It provides more information about environmentalism and highlights some useful case examples such as 3M, Patagonia and the Silicon Valley coalition of companies who have banded together to develop more environmentally friendly approaches to business development.

Reading 3

McDonald, G. (2015) Business ethics: A contemporary approach, Cambridge, Port Melbourne. Ch 2.

·

We have previously listed Chapter 2 as suggested reading for the second unit of the course so this should be a simple review- McDonald provides a brief overview of sustainability which includes the 6 phase model and concludes with the measurement approach of the Triple Bottom that was canvassed in our previous topic.

Journal Reading 1

Zsolnai, L. (2011) "Environmental ethics for business sustainability", International Journal of Social Economics, 38(11), pp.892 – 899

This article is available for download through the CQU Library via Emerald.

The paper analyses different levels on which business affects the natural environment. It identified that animals, insects etc. are affected by business through practices such as hunting, fishing, agriculture, animal testing, etc., and that natural ecosystems are affected by business activities such as mining, deforestation, rivers management and dams, building, polluting the air, water and land, etc. The purpose of this paper is to determine operational principles from environmental ethics for business organizations to achieve sustainable development.

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