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Chapter 28 : Environmental and ethical issues - Coggle Diagram
Chapter 28 : Environmental and ethical issues
How business activity can impact on the environment
social responsibility - prioritizing benefits of stakeholder before shareholders
negative impact on environment such as :
air pollution (factory chimney)
dirty rivers (from waste disposal)
road transport (logistics) creates noise and air pollution; may even contribute to global warming
airplane engine emissions
businesses do not need to worry about environment as
:
protecting environment can be expensive
may have to increase selling price to pay for policies
may make firms uncompetitive; lose sales; or relocate to another country
consumers less willing to purchase with higher prices
if pollution is a problem, government should clean it up
some owners may not admit or claim there is not enough proof that shows their business activity is damaging the environment
businesses need to worry about environment as
:
global warming affects everyone
using scarce resources may leave less for future generation, raises prices
proven that business activity may damage environment
consumers gradually demand environmentally friendly products (may become marketing advantage)
pressure groups could take action to harm the business activity
The concept of externalities
private costs (costs to the business) :
cost of land
cost of construction
labour costs
etc.
private benefits (benefits to the business):
revenue
etc.
external costs (costs to others beside the business) :
waste product - pollution
smoke and fumes - air pollution / disturb health
noise pollution
external benefits (benefits to others beside the business) :
job openings
other business may move into the area
government tax revenue may increase
external costs + private costs =
social costs
external benefits + private benefits =
social benefits
Sustainable development
1. use renewable energy
- to prevent scarce resources to be all used up
2. recycle waste
- total use of resources is reduced
3. use fewer resources
- lean production
4. develop new 'environment friendly' products and production method
How and why business might respond to environmental pressure and opportunities
consumers :
bad publicity may lead to fall in sales
damaging the environment in the process of production will be a turnoff to consumers and they may stop buying the product
businesses then may have to change its production process or product
pressure groups
:
may conduct consumer boycott if the business activity is against their policies
- likely for them to change business actions when :
has popular public support and media coverage
consumer boycotts reduce much sales
the group is well organized and financed
- unlikely for them to change business actions when :
the firm's activity is unpopular but legal
cost to the business changing its method is more than the cost of poor image and lost sales
business sells to other businesses rather than consumers (public pressure will be less effective
**governments
- can make business activities illegal when they :**
locate in environmentally sensitive areas
dumping wastes products to rivers or sea
making products that are hard to recycle
laws like this have made it more expensive to produce, raising price levels, that is why in order to encourage output, governments do not pass strict laws to the businesses
one financial penalty is
pollution permit
, this discourages businesses to damage the environment as it raises the business costs
Ethical issues a business might face :
bribes?
employ child workers?
buy supplies that may damage environment?
agree to fix 'high prices' with competitors?
paying large bonuses and large profit payouts by reducing workforce?
drawbacks on ethical decisions :
higher costs
selling prices may be higher because of higher costs
if consumers are not interested in the ethical side, sales may fall due to high prices
short-term profit may fall
if children are not employed, the incomes of their families may fall to very low levels
benefits on ethical decisions:
consumers interested in ethical decisions may change, increasing sales
good publicity may serve as free promotion
long-term profits may increase
may find it easier to recruit best workers and raise capital from investors that are interested in ethical business
less risk of legal action being taken