Chapter 13 Ecological challenges for business and society : Learning Objectives: To identify the changes taking place in the ecological environment, and their impacts on human well-being To gain an overview of the roles of national governments and international bodies in environmental regulation To assess the impact of environmental factors in international business strategy and operations To examine environmental management in practice To form an clearer picture of the challenges and policies needed for environmentally sustainable economic activities, on the part of businesses, governments and consumers

Aims of the lecture To identify the changes taking place in the ecological environment, and their impacts on human well-being To gain an overview of the roles of national governments and international bodies in environmental regulation To assess the impact of environmental factors in international business strategy and operations To examine environmental management in practice To form an clearer picture of the challenges and policies needed for environmentally sustainable economic activities, on the part of businesses, governments and consumers

Elements of the natural environment Ecosystem – set of relationships between living organisms and their habitat Includes human, plant and animal life Biodiversity – variety of living organisms co-existing in the same habitat Environmental changes are now taking place more rapidly than in previous periods, and... The causes are largely associated with human activity.

Figure 13.1: Environmental indicators

Industrialization and social impacts Economic growth has brought improvements in human well-being, including... Improved health, life expectancy, education, housing The processes: Industrialization – factory production brought rising incomes Increase in power generation Urbanization – changing lifestyle from rural to urban Expansion of commercial agriculture – bringing more land into agricultural use

Figure 13.2: Industrialization and its impacts

Pollution Pollution – the release of harmful substances through air, soil or water Air quality – poor air quality is harmful to health, a growing problem in urban areas of developing countries Transboundary pollution – pollution extending across national borders, a form of which is… Acid rain – accumulation of pollutants in atmospheric water, caused mainly by burning fossil fuels

Figure 13.3: Air pollution in selected cities Source: World Bank (2007) ‘Pollution in China’,

Climate change Global warming – global rise in temperatures, of both air and water, impacting on all forms of life and ecosystems Caused by build-up of greenhouse gases (ghg), mainly CO 2, in turn caused by emissions from industrial activities, energy generation and transport Associated with extreme weather events, droughts, desertification, floods, storm surges, high sea levels Likely effects are food and water scarcity, especially in the poorest regions Developed and emerging economies have the highest emissions.

Figure 13.4: Rising levels of greenhouse gases Source: HM Treasury (2006) Stern Review on the Economics of Climate Change,

Figure 13.5: Global CO 2 emissions, 2006 Source: Netherlands Environmental Assessment Agency (2007) ‘China now no. 1 in CO 2 emissions’,

Figure 13.6: Greenhouse gas emissions per capita in EU, 2004 Source: European Environment Agency (2006) Greenhouse gas emission trend and projections in Europe 2006,

Governance and the environment National governments use legal and policy tools to Control emissions and other pollution, regulate planning, control waste disposal Governments have also devised additional green policies: Emissions trading scheme – a firm can buy credits to offset emissions from less pollutant firms Recycling requirements, environmental taxes, funding for R&D into clean technology International co-operation – stems from the UN’s Rio Summit of 1992

International governance Rio Summit introduced the ‘polluter pays’ principle. Concept of sustainable development (stemming from the Brundtland Report of 1987): Development that meets the needs of the present without compromising those of future generations Kyoto Protocol of 1998 – target for developed countries Reduce emissions to 5% below 1990 levels by Became law in 2005 After Kyoto? Developing countries now account for ¾ of the increase in CO 2 emissions.

Business strategy and sustainability Changes in environmental policies are usually seen as a cost, potentially reducing a firm’s competitiveness. Why would it seek to improve its environmental credentials? Legislation by governments, both current and anticipated. Concern that the firm’s current business model will not be sustainable in the long term – the business case. Ethical strategy – associated with CSR, which commits the company to standards beyond compliance with the law.

Figure 13.7: Determinants of corporate environmental strategy

Competitive advantage and environmental strategies Traditional view of a conflict between ecological and economic goals is giving way to competitive advantage built on sustainability: Innovations in clean technology and resource efficiency Developing core competencies in ecological management Product differentiation based on green credentials Possibilities of first-mover advantages The business case is merging with the ethical case.

Environmental management in practice The challenges: Water scarcity Habitat change Climate change Overexploitation of the oceans Depletion of natural resources Loss of biodiversity Environmental management involves... Assessing and monitoring environmental impacts Making changes in processes which improve environmental performance.

Figure 13.8: Identifying and responding to environmental impacts

Monitoring environmental performance Measuring, monitoring and disclosure of all processes in the business... Involves setting targets and adapting to new situations Third-party verification – the use of independent specialist bodies enhances credibility Triple bottom line reporting on... Financial Social Aspects of corporate performance Environmental

Meeting energy needs Growth in GDP and energy consumption move together. Two major issues: 1)Depletion of non-renewable sources of energy (eg coal) 2)Climate change Reducing reliance on fossil fuels is essential to a sustainable energy policy. The solutions? Nuclear power – low carbon, but costly and entails safety risks Renewable energy – wind turbines and solar; also biofuels, especially in transport

Figure 13.9: Share of total greenhouse gas emissions in the EU 25 countries by sector, 2004 Source: European Environment Agency (2007) Europe’s Environment: the Fourth Assessment,

Figure 13.10: Shifting sources of power generation in the UK Source: UK Department for Business, Enterprise and Regulatory Reform (2006) Energy Review 2006,

Waste and recycling Industrial processes, urban living and increased volumes of packaging add up to mountains of waste Landfill & incineration produce greenhouse gas emissions, but there are other ways of dealing with waste: Entire life of the product is under scrutiny Producers’ responsibility for using recyclable materials Recycling – paper, wood, glass, plastic, textiles, metal Waste can be used as renewable energy Regulation at national and EU level – By 2020, half of all EU municipal waste to be recycled

Figure 13.11: Hierarchy of waste treatment methods

What about consumers? Households responsible for 15.5% of EU ghg emissions. Consumers in emerging markets are rapidly adopting lifestyles of older industrialized societies, especially the BRIC countries (Brazil, Russia, India & China). How consistent are consumers? Concerned about the environment, but reluctant to pay more for renewable energy. Sustainable consumption – living standards which are no higher than needed for long-term sustainability.

Conclusions Changes in the ecological environment, largely attributable to human activity, have led to environmental degradation and climate change. Governments, businesses and consumers all have a role to play in attenuating environmental damage – in both developed and developing economies. Ecological concerns now impact on corporate strategy, from both business and ethical perspectives. Environmental management is directed towards sustainability in both economic and environmental goals.