Managing Environmental Issues CHAPTER 11 Managing Environmental Issues McGraw-Hill/Irwin Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

Ch. 11: Key Learning Objectives Knowing the main features of environmental laws in the United States and other nations Understanding the advantages and disadvantages of different regulatory approaches Assessing the costs and benefits of environmental regulation Defining an ecologically sustainable organization and the stages through which firms progress as they become more sustainable Understanding how businesses can best manage environmental issues Analyzing how effective environmental management makes firms more competitive 11-2

Role of Government In many nations government regulates business activity in order to protect the environment By setting common standards, governments can take cost of pollution control out of competition Governments can also provide economic incentives and offer systems for resolving disputes 11-3

Major Areas of Environmental Regulation Environmental Protection Agency (EPA), main agency charged with pollution control, was established in 1970 In the United States, the federal government regulates in three major areas of environmental protection: Air pollution Water pollution Land pollution (including solid and hazardous waste) 11-4

Leading U.S. Environmental Protection Laws Figure 11.1 11-5

Major Areas of Environmental Regulation Air pollution Occurs when more pollutants are emitted into the atmosphere than can safely be absorbed and diluted by natural processes A special problem of air pollution is acid rain The efforts of the U.S. government to reduce acid rain illustrate some of the difficult trade-offs involved in environmental policy Water pollution Occurs when more wastes are dumped into waterways than can be naturally diluted and carried away 11-6

Major Areas of Environmental Regulation Land pollution The contamination of land by both solid and hazardous waste Movement for environmental justice – efforts to prevent inequitable exposure to hazardous risks in disadvantaged communities Superfund or CERCLA legislation passed in 1980 Established fund to clean up the most dangerous toxic waste sites in the U.S. Of 1,200 sites put on National Priority List, by 2008 only 332 of them had been fully cleaned up As many of 10,000 other sites might need clean-up Program is regarded as public policy failure 11-7

Alternative Policy Approaches Environmental standards Standard allowable levels of various pollutants are established by legislation or regulatory action Also called command-and-control Can be environmental quality standard or emission standard Market-based mechanisms Based on the idea that the market is a better control than extensive standards that specify precisely what companies must do Tradable permits - allows businesses to buy and sell the right to pollute, a process known as cap-and-trade Emissions charges or fees Government incentives 11-8

Alternative Policy Approaches Information disclosure The government encourages companies to pollute less by publishing information about the amount of pollutants individual companies emit each year Also called regulation by publicity or regulation by embarrassment Civil and criminal enforcement The threat of fines or even prison can be an effective deterrent to corporate outlaws who would otherwise degrade the environment European regulators have actively pursued environmental criminals U.S. Sentencing Commission has established guidelines for sentencing environmental wrongdoers 11-9

Advantages and Disadvantages of Alternative Policy Approaches to Reducing Pollution Figure 11.2 11-10

Costs and Benefits of Environmental Regulation Figure 11.3 11-11

Greening of Management Environmental regulations establish minimum standards for environmental performance Many firms are now voluntarily moving beyond compliance to improve environmental performance in all operational areas This is referred to as the greening of management Three reasons companies take this path Gain competitive advantage Gain legitimacy Moral commitment to ecological responsibility 11-12

Stages of Corporate Environmental Responsibility Clean technology Businesses develop innovative, new technologies that support sustainability Product stewardship Managers focus on all environmental impacts associated with the full life-cycle of a product Pollution prevention Focuses on minimizing or eliminating waste before it is created 11-13

Ecologically Sustainable Organization Companies that operate consistently with principles of sustainable development Is an “ideal,” absolute standard against which real organizations can be measured Some visionary companies are trying to achieve this Supportive government policies and widespread movement among many businesses and other social institutions will be needed for ESOs to succeed 11-14

Environmental Partnerships Voluntary, collaborative partnerships with environmental organizations and regulators to achieve specific objectives Draw on the unique strengths of the different partners to improve environmental quality or conserve resources 11-15

Environmental Management in Practice Organizational elements of many proactive green companies Top management involvement in sustainability Line manager involvement Codes of environmental conduct Cross-functional teams Rewards and incentives Environmental audits to track progress Publish combined “sustainability reports” integrating social, economic and environmental performance 11-16

Environmental Audits A way for green companies to track their progress toward meeting environmental goals More recently, many firms have moved to integrate their social and environmental reporting into a single sustainability report 11-17

Environmental Management as a Competitive Advantage Cost savings Companies that reduce pollution and hazardous waste, reuse or recycle materials, and operate with greater energy efficiency can reap significant cost savings Product differentiation Companies that develop a reputation for environmental excellence and that produce and deliver products and services with concern for their sustainability can attract environmentally aware customers 11-18

Environmental Management as a Competitive Advantage Technological innovation Technological innovation can lead to imaginative new methods for reducing pollution and increasing efficiency Reduction of regulatory risk Companies that are proactive with respect to their environmental impacts are often better positioned than their competitors to respond to new government mandates Strategic planning Companies that cultivate a vision of sustainability must adopt sophisticated strategic planning techniques 11-19