Please wait while we create your Custom Book...

Table of Contents

Try our new reader! Click here

The Business Ethics Workshop, v. 1.0

by James Brusseau

14.3 Three Models of Environmental Protection for Businesses

Learning Objective

  1. Outline three business responses to environmental responsibility.

The Role of Businesses in Environmental Protection

Protecting the environment is itself a business, and many organizations, especially nonprofits, take that as their guiding purpose. The World Wildlife Fund, the Audubon Society, and National Geographic exemplify this. Their direct influence over the natural world, however, is slight when compared against all the globe’s for-profit companies chugging away in the name of earning money. Whether the place is Cancun, or China, or the United States, the condition of the natural world depends significantly on what profit-making companies are doing, the way they’re working, the kinds of goods they’re producing, and the attitude they’re taking toward the natural world. Three common attitudes are

  1. accelerate and innovate,
  2. monetize and count,
  3. express corporate responsibility.

Business and Environmental Protection: Accelerate and Innovate

There’s a subtle difference between environmental conservation and protection. Conservation means leaving things as they are. Protection opens the possibility of changing the natural world in the name of defending it. One way for a business to embrace the protection of nature is through technological advance. New discoveries, the hope is, can simultaneously allow people to live better, and live better with the natural world. Looking at a stained paradise like Cancun, the attitude isn’t so much worry that we’re ruining the world and won’t be able to restore a healthy balance, it’s more industrially optimistic: by pushing the accelerator, by innovating faster we’ll resolve the very environmental problems we’ve created.

Examples of the progressive approachAs an approach to environmental protection, the attitude that technological advance will resolve problems. to environmental protection—as opposed to the conservative one—include solar and wind power generation. Both are available to us only because of the explosion of technology and knowledge the industrialized, contaminating world allows. Because of them, we can today imagine a world using energy at current rates without doing current levels of environmental damage. Here’s a statement of that aim from a wind power company’s web page: “Our goal has always been to produce a utility-scale wind turbine that does not need subsidies in order to compete in electricity markets.”The Wind Turbine Company home page, accessed June 8, 2011, http://www.windturbinecompany.com.

The idea, in other words, is that electricity produced by this company’s windmills will be as cheap (or cheaper) than that produced from fossil fuels, including coal. To reach that point, the development of very strong yet lightweight materials has been necessary, along with other technological advances. If they continue, it may be that American energy consumption can remain high, while pollution emitted from coal-burning electricity plants diminishes. One point, finally, that the wind turbine company web page doesn’t underline quite so darkly is that they’ll make a lot of money along the way if everything goes according to plan. This incentive is also typical of an accelerate-and-innovate approach: not only should industrialization go forward faster in the name of saving the environment, so too should entrepreneurialism and profit.

In broad terms, the business attitude toward employing innovation to protect the environment acknowledges that human activity on earth has done environmental damage, and that matters. The damage is undesirable and should be reversed. The way to reverse, however, isn’t to go backward by doing things like reducing our energy use to previous levels. Instead, we keep doing what we’re doing, just faster. The same industrialization that caused the problem will pull us out.

Business and Environmental Protections: Monetize and Count

A cost-benefit analysisThe summing of an action’s costs and its weighing against summed benefits. is, theoretically, a straightforward way of determining whether an action should be undertaken. The effort and expense of doing something is toted on one side, and the benefits received are summed on the other. If the benefits are greater than the costs, we go ahead; if not, we don’t. Everyone performs cost-benefit analyses all the time. At dinner, children decide whether a dessert brownie is worth the cost of swallowing thirty peas. Adults decide whether the fun of a few beers tonight is worth a hangover tomorrow or, more significantly, whether getting to live in one of the larger homes farther out of town is worth an extra half-hour in the car driving to work every morning.

Setting a cost-benefit analysis between a business and the environment means adding the costs of eliminating pollution on one side and weighing it against the benefits of a cleaner world. The ethical theory underneath this balancing approach to business and nature is utilitarianism. The right act is the one most increasing society’s overall happiness (or most decreasing unhappiness), with happiness measured in this case in terms of the net benefits a society receives after the costs of an action have been deducted.

The most nettlesome problem for businesses adopting a cost-benefit approach to managing environmental protection is implementation. It’s hard to know exactly what all the costs are on the business side, and what all the benefits are on nature’s side. Then, even if all the costs and benefits are confidently listed, it’s equally (or more) difficult to weigh them against each other. According to a report promulgated by the nonprofit Environmental Defense Fund, North Carolina’s coal-fired electricity plants could install smokestack scrubbers to significantly reduce contaminating emissions. The cost would be $450 million. The benefits received as a result of the cleaner air would total $3.5 billion.“The North Carolina Clean Smokestacks Plan,” Environmental Defense Fund, March 2001, accessed June 8, 2011, http://apps.edf.org/documents/700_NCsmokestacks.PDF. This seems like a no-brainer. The problem is that when you dig a bit into the report’s details, it’s not entirely clear that the benefits derived from cleaner air add up to $3.5 billion. More troubling, it looks like it’s hard to put any price tag at all on them. Here are a few examples:

  • According to the report, “It is estimated that pollution from power plants triggers more than 200,000 asthma attacks across the state each year and more than 1,800 premature deaths.” The word estimated is important. Further, how do you put a dollar total on an asthma attack or a death?
  • According to the report, “One should be able to see out 93 miles on an average day in the Smoky Mountains, but now air pollution has reduced this to an average of 22 miles.” How do you put a dollar total on a view?
  • According to the report, “Air pollution contributes to significant declines in populations of dogwood, spruce, fir, beech, and other tree species.” What is “significant?” What’s the dollar value of a dogwood?“The North Carolina Clean Smokestacks Plan,” Environmental Defense Fund, March 2001, accessed June 8, 2011, http://apps.edf.org/documents/700_NCsmokestacks.PDF.

The list of items goes on, but the point is clear. A cost-benefit analysis makes excellent sense in theory, but it’s as difficult to execute as it is to assign numbers to human experiences. If the attempt is nonetheless made, the technical term for the assigning is monetizationAssigning dollar values to human experiences..

A final set of hurtles to clear on the way to implementing a cost-benefit approach to business and the environment involves formalizing mechanisms for paying the costs. Two common mechanisms are regulation and incentives.

RegulationsRequirements for action imposed by governmental bodies. are imposed by federal or local governments and come in various forms. Most directly, and staying with electrical plants in Carolina, the plants could be required to install smokestack scrubbers. Costs of the installation would, to some significant extent, be passed on to consumers as rate hikes, and the benefits of cleaner air would be enjoyed by all. It’s worth noting here that the contamination producers in question—coal-burning electricity plants—are pretty much stuck where they are in geographic terms. You can’t produce electricity in China and sell it in the States. Other kinds of businesses, however, may be able to avoid regulations by packing up and heading elsewhere. This, of course, complicates the already knotted attempt to tote up the benefits and costs of environmental protection.

A more flexible manner of regulating air and other types of pollution involves the sale of permits. There are multiple ways of mounting a permit trade, but as a general sketch, the government sets an upper limit to the amount of air pollution produced by all industry, and sells (or gives) permits to specific operating businesses. In their turn, these permits may be bought and sold. So an electric company may find that it makes economic sense to install scrubbers (limiting its pollution output) and then sell the remaining pollution amount on its license to another company that finds the cost of limiting its emissions to be very high. One advantage of this approach is that, while it does limit total contamination, it allows for the fact that it’s easier for some polluters than others to cut back.

As opposed to regulations that essentially force businesses to meet social pollution goals, incentivesOffered by government agencies and other institutions, they provide reasons for organizations to voluntarily cooperate with environmental protection efforts. seek the same results cooperatively. For example, tax incentives could be offered for environmental protection efforts; money paid for the scrubbers a company places in their smokestacks may be deducted from taxes at a very high rate. Similarly, matching funds may be offered by government agencies: for every dollar the company spends, the government—which in this case means you and I and everyone who pays taxes—chips in one also.

Alternatively, government agencies including the Environmental Protection Agency may provide public recognition to anticontamination efforts undertaken by a business, and in the hands of a strong marketing department those awards may be converted into positive public relations, new consumers, and extra profits that offset the original pollution control costs.

Specific awards tied to government agencies may not even be necessary; the incentive can be drawn from a broad range of sources. A good example comes from the Washington Post. A long and generally quite positive news story recounts Walmart’s efforts to encourage suppliers in China to increase energy efficiency while decreasing their pollution output. Basically, Walmart told suppliers that they need to clean up or they’ll get replaced. According to the account, not only is the effort bearing fruit, but it’s working better than government regulations designed to achieve similar ends: “In many cases, Walmart is first trying to bring firms up to government standards. Suppliers may not care about government fines, but they care about orders from the buyers.”Steve Mufson, “Wal-Mart Presses Vendors in China to Meet Higher Standards,” Washington Post, February 26, 2010, accessed June 8, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022603339_pf.html.

As for Walmart, their cause is served by the free publicity of the story when it’s distributed to almost a million newspaper readers in the Washington, DC, area and then projected broadly on the Internet. Further down the line, the good publicity ended up getting cited here. Going back to the specific newspaper story, it finishes with a clear acknowledgment of the public relations dynamic. These are the article’s last lines: “Wal-Mart sees this not just as good practice but also good marketing. ‘We hope to get more customers,’ said Barry Friedman, vice president for corporate affairs in Beijing. ‘We’re not doing it solely out of the goodness of our hearts.’”Steve Mufson, “Wal-Mart Presses Vendors in China to Meet Higher Standards,” Washington Post, February 26, 2010, accessed June 8, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022603339_pf.html.

One notable problem with the incentive approach is identical to its strength: since participation is voluntary, some heavy polluters may choose not to get involved.

As a final point about incentives, many industrial plants already receive incentives to not protect the environment. To the extent they’re allowed to simply jet sulfur and other contamination into the air, they are, in effect, forcing society generally to pay part of their cost of production. Every time someone in Carolina falls ill with an asthma attack, the consequences are suffered by that individual while the profits from electricity sales go to the electric company. As previously discussed, these externalitiesBusiness costs borne by third parties.—these costs of production borne by third parties—actually encourage businesses to follow any route possible to make outsiders pay the costs of their operations. One route that’s frequently possible, especially for heavy industry, involves letting others deal with their runoff and waste.

Business and Environmental Protections: Corporate Social Responsibility

The third posture an organization may adopt toward environmental protection falls under the heading of corporate social responsibility. The attitude here is that companies, especially large, public corporations, should humanize their existences: an attempt should be made to see the corporation, in a certain sense, as an individual person. Instead of being a mindless machine built to stamp out profits, the business is reenvisioned as a seat of economic and moral responsibility. Responding to ethical worries isn’t someone else’s concern (say, the government’s, which acts by imposing regulations), instead, large companies including Walmart take a leading role in addressing ethical issues.

The Washington Post’s flattering presentation of Walmart in China fits well here. The story actually presents Walmart as transitioning from a vision of itself as a pure profit enterprise to one exercising corporate citizenship. Originally,

Walmart only cared about price and quality, so that encouraged suppliers to race to the bottom on environmental standards. They could lose contracts because competition was so fierce on price.

Now, however,

Walmart held a conference in Beijing for suppliers to urge them to pay attention not only to price but also to “sustainability,” which has become a touchstone.Steve Mufson, “Wal-Mart Presses Vendors in China to Meet Higher Standards,” Washington Post, February 26, 2010, accessed June 8, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022603339_pf.html.

SustainabilityThe concept of acting to protect both the environment and people surrounding an operation, so that they may continue to contribute to the enterprise. means acting to protect the environment and the people surrounding an operation so that they may continue to contribute to the profit-making enterprise. As a quick example, a logging operation that clear-cuts forests isn’t sustainable: when all the trees are gone, there’s no way for the company to make any more money. Similarly in human terms, companies depending on manual labor need their employees to be healthy. If a factory’s air pollution makes everyone sick, no one will be able to come in to work.

For Walmart in China, one step toward sustainability involved energy efficiency. A supplier installed modern shrink-wrapping machines to replace work previously done by people wielding over-the-counter hair dryers. In theoretical terms at least, the use of less energy will help the supplier continue to produce even as worldwide petroleum supplies dwindle and energy costs increase. Steps were also taken, as the newspaper story notes, to limit water pollution: “Lutex says it treats four tons of wastewater that it used to dump into the municipal sewage line. That water was supposed to be treated by the city, but like three-quarters or more of China’s wastewater, it almost certainly wasn’t.”Steve Mufson, “Wal-Mart Presses Vendors in China to Meet Higher Standards,” Washington Post, February 26, 2010, accessed June 8, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022603339_pf.html.

More examples of Walmart suppliers making environmentally conscious decisions dot the newspaper story, and in every case these actions may be understood as serving the long-term viability of the supplier’s operations.

StakeholderAll those who have a stake in an organization’s decisions. theory is another way of presenting corporate social responsibility. The idea here is that corporate leaders must make decisions representing the interests not only of shareholders (the corporation’s owners) but also of all those who have a stake in what the enterprise is doing: the company exists for their benefit too. Along these lines, Walmart encouraged farmers in China to abandon the use of toxic pesticides. The corporation contracted with farmers under the condition that they use only organic means to kill pests and then allowed their products to be sold with a label noting their Walmart-confirmed clean production. The real lives of locals who eat that food and live on the now less-contaminated land are markedly improved. As another farming-related example of dedication to the well-being of the Chinese making up their manufacturing base, Walmart sought “to help hundreds of small farmers build rudimentary greenhouses, made of wood and plastic sheeting, in which they grow oranges in midwinter to sell to Walmart’s direct farm program. Zhang Fengquan is one of those farmers; he gathers more than three tons of nectarines from more than 400 trees in his greenhouse. Asked what he did during the winter before the greenhouse was built, he said he worked as a seasonal laborer. Or played the popular Chinese board game mah-jongg.”Steve Mufson, “Wal-Mart Presses Vendors in China to Meet Higher Standards,” Washington Post, February 26, 2010, accessed June 8, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022603339_pf.html.

In both cases, Walmart is not simply abandoning its workers (or its suppliers’ workers) once they punch out. As stakeholders in the company, Walmart executives feel a responsibility to defend employees’ well-being just as they feel a responsibility to bring good products to market in the name of profit.

The fact that Walmart’s recent actions in China can be presented as examples of a corporation expressing a sense of responsibility for the people and their natural world that goes beyond immediate profit doesn’t mean that profit disappears from the equation. Shareholders are stakeholders too. And while corporate attitudes of social responsibility may well result in an increasingly protected environment, and while that protection may actually help the bottom line in some cases, there’s no guarantee that the basic economic tension between making money and environmental welfare will be resolved.

Conclusion. Businesses can react to a world of environmental concern by trusting in technological innovation, by trusting in governmental regulation, and by trusting in a concept of corporate responsibility. It is currently uncertain which, if any, of these postures will most effectively respond to society’s environmental preoccupations.

Key Takeaways

  • One business response to concerns about the environment is to participate in the process of technological innovation to produce cleaner, more efficient ways of living.
  • One business response to concerns about the environment is to participate in, and act on cost-benefit studies of environmental protection.
  • One business response to concerns about the environment is to express corporate responsibility: to make the business a seat of economic and ethical decisions.

Review Questions

  1. What’s the difference between environmental protection and environmental conservation?
  2. How has industrialization caused environmental problems? How can it resolve those problems?
  3. What is a cost-benefit analysis?
  4. With respect to the environment, how can a cost-benefit analysis be used to answer questions about business and environmental protection?
  5. What is practical problem with the execution of a cost-benefit analysis strategy for responding to environmental problems?
  6. What’s the difference between a corporation guided by profit and one guided by a sense of social responsibility?
  7. Why might a stakeholder theory of corporate decision making be good for the environment?