Chapter 9 BUSINESS AND ENVIRONMENTAL SUSTAINABILITY.

Chapter 9 BUSINESS AND ENVIRONMENTAL SUSTAINABILITY

ETHICS IS TOUGHER THAN YOU THINK . . .
“A thing is right when it tends to preserve the integrity, stability and beauty of the biotic community. It is wrong when it does otherwise.” - Aldo Leopold “Growth for the sake of growth is the ideology of the cancer cell.” - Edward Abbey “Waste equals food.” - William McDonough “Environmental regulation is a signal of design failure.”

CHAPTER OBJECTIVES After exploring this chapter, you will be able to:
Explain how environmental challenges can create business opportunities. Describe a range of values that play a role in environmental decision making. Explain the difference between market-based and regulatory-based environmental policies. Describe business’s environmental responsibilities that flow from each approach. This chapter will introduce a range of ethical issues that will accompany this transition to an environmentally sustainable future. Environmental issues are not longer at the periphery of business decisions, as burdens to be managed if not avoided altogether. Environmental sustainability must accompany financial sustainability for business to survive in the 21st century. For reasons of both deontological principles and for the overall social good, sustainable business is the wave of the future.

CHAPTER OBJECTIVES Identify the inadequacies of sole reliance on a market-based approach. Identify the inadequacies of regulatory-based environmental policies. Define and describe sustainable development and sustainable business. Highlight the business opportunities associated with a move towards sustainability. Describe the sustainable principles of eco-efficiency, biomimicry, and service.

OPENING DECISION POINT: WHEN IS BUILDING DESIGN AND CONSTRUCTION AN ETHICAL ISSUE?
Is the decision to meet LEED building standards a business decision or an ethical decision? Should every new building project be required to meet LEED standards, or is this best left to individual businesses? Who are the stakeholders in this decision?

OPENING DECISION POINT: WHEN IS BUILDING DESIGN AND CONSTRUCTION AN ETHICAL ISSUE?
Are you aware of any controversies with regard to the LEED standard or certification process? Environmental architect William McDonough (see his essay included at the end of this chapter) once claimed that government regulation is evidence of a design problem and a failure to property design a product or building. Can you imagine any regulations that might be avoided by designing a building to LEED certification?

INTRODUCTION There is a tendency to believe that environmental challenges always create a burden on business and that environmental and business interests are always in conflict. While environmental regulation can add costs to business operations and restrict business choice, they can also provide opportunities for business. We have entered the sustainability revolution—an age where creating environmentally and economically sustainable products/services is creating unlimited business opportunities. The way we have done business over the last two centuries has brought us up against the biophysical limits of the earth’s capacity to support all human life. As described by geographer Jarad Diamond in his in the best-selling book Collapse, human history provides many examples of societies that have run up against the environmental limits of their lifestyles. But the Industrial Revolution of the eighteenth and nineteenth centuries brought with it the ability to degrade the natural environment to a greater extent and at a faster rate than ever before. The industrial model of growth and productive efficiency and seemingly unlimited energy supply continued along almost unchecked by environmental regulation until the latter half of the twentieth century. By the start of the twenty-first century, the earth was experiencing the greatest period of species extinction since the end of the dinosaurs 65 million years ago. Humans are also threatened by global climate change. Each of these monumental environmental events is largely due to human activity, and specifically to our present arrangements of modern industrial society. For a business leader’s perspective on this question, see the Reality Check, below. Refer to: REALITY CHECK What do Business leaders think? 7

INTRODUCTION Throughout the history of industrial economies, business most often looked at environmental concerns as unwanted burdens and barriers to economic growth. The sustainable business and sustainable economic development seek to create new ways of doing business in which business success is measured in terms of economic, ethical, and environmental sustainability, often called the Triple Bottom Line approach. The major ethical question of this chapter is what responsibilities contemporary businesses have regarding the natural environment. The sustainability paradigm sees environmental responsibilities as a fundamental part of basic business practice. Indeed, sustainable business ventures may find that environmental considerations offer creative and entrepreneurial businesses enormous opportunities. 8

FIGURE 9.1 - THE NATURAL STEP FUNNEL

INTRODUCTION The environmental research and consulting group The Natural Step uses an image of a funnel, with two converging lines, to help business understand the opportunities available in the age of sustainability. The resources necessary to sustain life are on a downward slope. The second line represents aggregate worldwide demand, accounting for both population growth and the increasing demand of consumerist lifestyles. Barring an environmental catastrophe, many but not all industries will emerge through the narrowing funnel into an era of sustainable living—innovative and entrepreneurial business will find their way through.

INTRODUCTION The Natural Step challenges business to “backcast” a path towards sustainability. Backcasting examines what the future will be when we emerge through the funnel. Knowing what the future must be, creative businesses then look backwards to the present and determine what must be done to arrive at that future. In simple terms, sustainable business must use resources and produce wastes at rates that do not jeopardize human well-being by exceeding the earth’s capacity to renew the resources and absorb the wastes.

BUSINESS ETHICS AND ENVIRONMENTAL VALUES
Deciding what we should do is the ultimate goal of practical reason; our values are standards that encourage us to act one way, not another. Given this objective, which values and decisions are supported by the natural environment? Why should we act in ways that protect the natural environment from degradation? Why should business be concerned with, and value, the natural world?—Human self-interest is the most obvious answer. Environmental concerns are relevant to business because human beings, both presently living humans and future generations of humans depend on the natural environment in order to survive. Humans need clean water to drink, healthy air to breathe, fertile soil and oceans to produce food, an ozone layer to screen out solar radiation, and a biosphere that maintains the delicate balance of climate in which human life can exist.

Two aspects of contemporary environmental realities underscore the importance of self-interested reasoning. Past human societies have often run up against the limits of the local environment’s ability to sustain human life. In these historical cases, environmental degradation has been localized to a particular region and has seldom affected more than a generation. In contrast, some contemporary environmental issues have the potential to adversely affect the entire globe and change human life forever. The science of ecology and its understanding of the interrelatedness of natural systems have helped us understand the wide range of human dependence on ecosystems. Consider the basic issue of the environment’s impact on breast milk, discussed in the Reality Check, below. Refer to: REALITY CHECK Breast Milk Toxins Pollutants in the biosphere will tend to accumulate in the fatty tissue of species at the top of the food chain. In mammals, fatty tissue is especially broken down as a source of energy during lactation. As a result, breast milk is a particularly significant resource for studying toxins that have been absorbed by the body. The following is a list of synthetic toxins that one study found in human breast milk. Chlordane (a compound used in pesticides) DDT (a pesticides that has been banned in the United States for decades) Dieldrin, Aldrin and Endrin (insecticides) Hexachlorobenzene (pesticides and an industrial chemical) Hexachlorocyclohexane (insecticide) Heptachlor (insecticide) Mirex (insecticide) Nitro Musks (used as a fragrance in household products such as detergents, soaps) Toxaphene (agricultural insecticide) Dioxins and Furans ( any of a number of polychlorinated compounds produced as by-products from industry and combustion) PBDEs (used as flame retardants in clothes and other fabrics) PCBs (no longer manufactured, but persistent toxins used in for a wide variety of industrial uses) Solvents (any of a number of chemical compounds used to dissolve or stabilize other complex chemical compounds) Lead, Mercury, Cadmium and Other Metals (can be especially toxic to the developing brain)

By the late nineteenth century, humans came to recognize the self-interested reasons for protecting the natural environment. The conservation movement—the first phase of modern environmentalism—advocated a restrained and prudent approach to the natural world. From this perspective, the natural world was still valued as a resource. Conservationists argued against the exploitation of natural resources as if they could provide an inexhaustible supply of material. The natural world, like capital, had the productive capacity to produce long-term income but only if managed and used prudently.

Besides self-interested reasons to protect human life and health, the natural environment is essential and valuable for many other reasons. The beauty and grandeur of the natural world provide great aesthetic, spiritual, and inspirational value. Parts of the natural world can have symbolic value, historical value, and such diverse psychological values as serenity and exhilaration. These values can conflict with the use of the earth itself as a resource to physically, as opposed to spiritually, sustain those who live on it. Aesthetic and inspirational values often play out in public debates about economic development. The 1970s song “Big Yellow Taxi” captured this sentiment with the well-known lyric “they paved paradise and put up a parking lot.” Many critics fault business for destroying natural beauty and replacing it with strip malls, neon signs, fast-food restaurants and, yes, parking lots. Consider these debates as you review the Decision Point, “Commercialize a Historic Civil War Site?”

DECISION POINT: COMMERCIALIZE A HISTORIC CIVIL WAR SITE?
What facts would be helpful to know before making a decision? What values are in conflict in this case? Take a look at Disney’s environmental policy. How might its policy guide its decisions or present conflicts in the current dilemma? Who are the stakeholders in this case? What would be the consequences if all public land uses were decided by the market? What are the rights and duties involved in this case?

A final set of values that we will consider involves the moral status of animals and other living beings. Variously referred to as the animal rights, animal liberation, or animal welfare movement, this approach attributes a moral standing to animals. According to many people, animals, and all other living things, deserve to be respected and treated with dignity. Such a status would create a wide variety of distinctive ethical responsibilities concerning how we treat animals and would have significant implications for many businesses.

Distinctive ethical responsibilities concerning how we treat animals has significant implications for many businesses. Some argue that many animals, presumably all animals with a central nervous system, have the capacity to feel pain—reminiscent of the utilitarian tradition—asserts an ethical responsibility to minimize pain. Acts that inflict unnecessary pain on animals are ethically wrong. A second approach argues that at least some animals have the cognitive capacity to possess a conscious life of their own—reminiscent of the Kantian ethical tradition—asserts that we have a duty not to treat these animals as mere objects and means to our own ends.

BUSINESS’S ENVIRONMENTAL RESPONSIBILITY: THE MARKET APPROACH
Historically, debate has focused on whether efficient markets or government regulation is the most appropriate means for meeting the environmental responsibilities of business. If the best approach to environmental concerns is to trust them to efficient markets—responsible business managers simply ought to seek profits and allow the market to allocate resources efficiently. By doing this, business fills its role within a market system, which in turn serves the greater overall (utilitarian) good. If government regulation is a more adequate approach, then business ought to develop a compliance structure to ensure that it conforms to those regulatory requirements.

A market-based approach to resolving environmental challenges—reminiscent of the narrow, economic view of CSR—contends that environmental problems are economic problems that deserve economic solutions. Fundamentally, environmental problems involve the allocation and distribution of limited resources. Whether we are concerned with the allocation of scarce nonrenewable resources such as gas and oil, or with the earth’s capacity to absorb industrial by-products such as CO2 or PCBs, efficient markets can address environmental challenges.

In his book, People or Penguins: The Case for Optimal Pollution, William Baxter argued that there is an optimal level of pollution that would best serve society’s interests. This optimal level is best attained by leaving it to a competitive market. Baxter begins with a goal of “safe” air and water quality, and translates this goal to a matter of balancing risks and benefits. Society could strive for pure air and water, but the costs (lost opportunities) that this would entail would be too high. A more reasonable approach is to aim for air and water quality that is safe enough to breathe and drink without costing too much. Society, through the activities of individuals, will be willing to pay for pollution reduction as long as the perceived benefits outweigh the costs.

The free market provides an answer for resource conservation. From a strict market economic perspective—resources are “infinite.” As the supply of any resource decreases, the price increases—providing a strong incentive to supply more or provide a less costly substitute. In economic terms, all resources are “fungible”—can be replaced by substitutes, and in this sense resources are infinite. A similar case can be made for the preservation of environmentally sensitive areas. Preservation for preservation’s sake would be wasteful since it would use resources inefficiently. Thus, to return to the Manassas Battlefield development plan described previously, preserving open space surrounding the area rather than developing the land as a theme park should be done only if people are willing to pay more for open space than for a park.

Challenges to this narrow economic view of corporate social responsibility are familiar to both economists and ethicists. A variety of market failures, many of the best known of which involve environmental issues, point to the inadequacy of market solutions. E.g. Existence of externalities. Since the “costs” of such things as air pollution, groundwater contamination and depletion, soil erosion, and nuclear waste disposal are typically borne by parties “external” to the economic exchange (e.g., people downwind, neighbors, future generations), free market exchanges cannot guarantee optimal results.

A second type of market failure occurs when no markets exist to create a price for important social goods. Endangered species, scenic vistas, and biodiversity are just some environmental goods that typically are not traded on open markets. Public goods such as clean air and ocean fisheries also have no established market price. With no established exchange value, the market approach cannot even pretend to achieve its own goals of efficiently meeting consumer demand. Markets alone fail to guarantee that such important public goods are preserved and protected.

A third way in which market failures can lead to serious environmental harm involves a distinction between individual decisions and group consequences. We can miss important ethical and policy questions if we leave policy decisions solely to the outcome of individual decisions. Consider the calculations that an individual consumer might make regarding the purchase of an SUV and the consequences of that decision on global warming—The additional CO 2 that would be emitted by a single SUV is miniscule enough that an individual would likely conclude that her decision will make no difference. However, if every consumer made exactly the same decision, the consequences would be significantly different.

A number of alternative policies (e.g., restricting SUV sales, increasing taxes on gasoline, treating SUVs as cars instead of light trucks in calculating Corporate Automotive Fuel Efficiency [CAFE] Standards) that could address pollution and pollution-related disease would never be considered if we relied only on market solutions. Markets are incomplete (at best) in their approach to the overall social good. In other words, what is good and rational for a collection of individuals is not necessarily what is good and rational for a society.

Internalizing external costs and assigning property rights to unowned goods such as wild species—two responses to market failures by the defenders of a narrow economic view of CSR. But there are good reasons for thinking that such ad hoc attempts to repair market failures are environmentally inadequate. One important reason is what has been called the first-generation problem. Markets can work to prevent harm only through information supplied by the existence of market failures. We learn about market failures and thereby prevent harms in the future only by sacrificing the “first generation” as a means of gaining this information. When public policy involves irreplaceable public goods such a reactionary strategy is ill advised.

BUSINESS’S ENVIRONMENTAL RESPONSIBILITY: THE REGULATORY APPROACH
A broad consensus emerged in the United States in the 1970s that unregulated markets are an inadequate approach to environmental challenges. Much of the most significant environmental legislation in the United States was enacted during the 1970s. The Clean Air Act of 1970, Federal Water Pollution Act of 1972 (amended and renewed as the Clean Water Act of 1977), and the Endangered Species Act of 1973 were part of the national consensus for addressing environmental problems. Before this legislation was enacted, the primary legal avenue open for addressing environmental concerns was tort law.

Before this legislation was enacted, the primary legal avenue open for addressing environmental concerns was tort law. Only individuals who could prove that they had been harmed by pollution could raise legal challenges to air and water pollution—legal approach placed the burden on the person who was harmed and, at best, offered compensation for the harm only after the fact. Except for the incentive provided by the threat of compensation, U.S. policy did little to prevent the pollution in the first place. Because endangered species themselves had no legal standing, direct harm to plant and animal life was of no legal concern and previous policies did little to prevent harm to plant and animal life.

The laws enacted during the 1970s—shifted the burden from those threatened with harm to those who would cause the harm. Government established regulatory standards to try to prevent the occurrence of pollution or species extinction rather than to offer compensation after the fact. Business was free to pursue its own goals as long as it complied with the side constraints these minimum standards established.

The consensus emerged that society had two opportunities to establish business’s environmental responsibilities. As consumers, individuals could demand environmentally friendly products in the marketplace. As citizens, individuals could support environmental legislation. As long as business responded to the market and obeyed the law, it met its environmental responsibilities.

Several problems suggest that the regulatory approach will prove inadequate over the long term. First, it underestimates the influence that business can have in establishing the law. Second, this approach also underestimates the ability of business to influence consumer choice. To conclude that business fulfills its environmental responsibility when it responds to the environmental demands of consumers is to underestimate the role that business can play in shaping public opinion. Further, if we rely on the law to protect the environment, environmental protection will extend only as far as the law extends. Yet, most environmental issues, pollution problems especially, do not respect legal jurisdictions. Example: First, The CAFE standards mentioned previously provide a good example of how this can occur. A reasonable account of this law suggests that the public very clearly expressed a political goal of improving air quality by improving automobile fuel efficiency goals (and thereby reducing automobile emissions). However, the automobile industry was able to use its lobbying influence to exempt light trucks and SUVs from these standards. Second, Advertising is a $200 billion a year industry in the United States alone. It is surely misleading to claim that business passively responds to consumer desires and that consumers are unaffected by the messages that business conveys. Assuming that business is not going to stop advertising its products or lobbying government, this model of corporate environmental responsibility is likely to prove inadequate for protecting the natural environment. Third, New York State might pass strict regulations on smokestack emissions, but if the power plants are located downwind in Ohio or even further west in the Dakotas or Wyoming, New York State will continue to suffer the effects of acid rain.

Similarly, national regulations will be ineffective for international environmental challenges. Finally—most troubling from an environmental standpoint—this regulatory model assumes that economic growth is environmentally and ethically benign. Regulations establish side constraints on business’s pursuit of profits and, as long as they remain within those constraints, accept as ethically legitimate whatever road to profitability management chooses. Refer to: REALITY CHECK “Cap and Trade—A Mixed Approach?” One strategy that combines elements of both market and regulatory approaches is the so-called “cap and trade” model that has been proposed as part of U.S. federal legislation to address carbon emissions. Under the cap and trade model, government sets an overall annual target, or ‘cap,” on the amount of CO2 emissions nationally. Companies then buy government-issued permits to emit pollution. The permits limit the total amount of pollution to the national cap. Individual businesses are free to buy or sell their permits in such a way that an efficient. company that emits less pollution than its permits allow can sell its remaining pollution credits to a less efficient company. By thus creating a market for pollution credits, government regulation creates an incentive for individual businesses to reduce its own pollution. Government can then slowly reduce the overlap pollution target annually to achieve its public policy goal. Defenders see this approach as a powerful way to use market incentives to reduce pollution. Critics see it as government issuing a “license to pollute.”

BUSINESS’S ENVIRONMENTAL RESPONSIBILITIES: THE SUSTAINABILITY APPROACH
Beginning in the 1980s, a new model for environmentally responsible business began to take shape—one that combines financial opportunities with environmental and ethical responsibilities. The concept of sustainable development and sustainable business practice suggests a radically new vision for integrating financial and environmental goals. These three goals, economic, environmental, and ethical sustainability, are often referred to as the three pillars of sustainability. Assessing business activity along these three lines is often referred to as the “triple bottom line.” Refer to: REALITY CHECK Why Sustainability? Three factors are most often cited to explain and justify the need for a model of economic development that stresses sustainability rather than growth. First, billions of human beings live in severe poverty and daily face real challenges associated with the lack of food, water, health care, shelter. Addressing these challenges will require significant economic activity. Second, world population continues to grow at a disturbing rate, with projections of an increase from 6 billion people in 1998 to 7 billion shortly after 2010 and 8 billion before Most of this population growth will occur within the world’s poorest regions, thereby only intensifying the first challenge. Even more economic activity will be needed to address the needs of this growing population. Third, all of this economic activity must rely on the productive capacity of the earth’s biosphere. Unfortunately, there is ample evidence that the type and amount of economic activity practiced by the world’s economies has already approached if not overshot the earth ability to support human life. Given these realities, citizens within developed economies have three available paths. We can believe that developing economies in places such as China, India, and Indonesia cannot, will not, or should not strive for the type of economic prosperity enjoyed in developed economies. Second, we could believe, optimistically, that present models of business and economic growth can be extended across the globe to an expanding population without degrading the natural environment beyond its limits. Third, we can search for new models of economic and business activity that provide for the needs for the world’s population without further degrading the biosphere. Sustainable development and the connected model of sustainable business choose this third path.

The concept of sustainable development can be traced to a 1987 report from the United Nations’ World Commission on Environment and Development (WCED), more commonly known as the Brundtland Commission The commission was charged with developing recommendations for paths towards economic and social development that would not achieve short-term economic growth at the expense of long-term environmental and economic sustainability. The Brundtland Commission offered what has become the standard definition of sustainable development. “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Economist Herman Daly has been among the leading thinkers who have advocated an innovative approach to economic theory based on the concept of sustainable development. What is sometimes called the “circular flow model” explains the nature of economic transactions in terms of a flow of resources from businesses to households and back again. Two aspects of the circular flow model are worth noting. First, it does not differentiate natural resources from the other factors of production—does not explain the origin of resources. They are simply owned by households from which they, like labor, capital, and entrepreneurial skill, can be sold to business. A second observation is that this model treats economic growth as both the solution to all social ills and also as boundless—the possibility that the economy cannot grow indefinitely is simply not part of this model. Daly makes a convincing case for an understanding of economic development that transcends the more common standard of economic growth. Unless we make significant changes in our understanding of economic activity, unless quite literally we change the way we do business, we will fail to meet some very basic ethical and environmental obligations. According to Daly, we need a major paradigm shift in how we understand economic activity. A second observation is that this model treats economic growth as both the solution to all social ills and also as boundless. To keep up with population growth, the economy must grow. To provide for a higher standard of living, the economy must grow. To alleviate poverty, hunger, and disease, the economy must grow. The possibility that the economy cannot grow indefinitely is simply not part of this model.

FIGURE 9.2 - THE CIRCULAR FLOW MODEL
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The three points summarized in the Reality Check, “Why Sustainability?” suggest why the circular flow model will be inadequate. Daly argues that neoclassical economics, with its emphasis on economic growth as the goal of economic policy, will inevitably fail to meet these challenges unless it recognizes that the economy is but a subsystem within earth’s biosphere. We need to develop an economic system that uses resources only at a rate that can be sustained over the long term and that recycles or reuses both the by-products of the production process and the products themselves. Refer to: REALITY CHECK Why Sustainability? Three factors are most often cited to explain and justify the need for a model of economic development that stresses sustainability rather than growth. First, billions of human beings live in severe poverty and daily face real challenges associated with the lack of food, water, health care, shelter. Addressing these challenges will require significant economic activity. Second, world population continues to grow at a disturbing rate, with projections of an increase from 6 billion people in 1998 to 7 billion shortly after 2010 and 8 billion before Most of this population growth will occur within the world’s poorest regions, thereby only intensifying the first challenge. Even more economic activity will be needed to address the needs of this growing population. Third, all of this economic activity must rely on the productive capacity of the earth’s biosphere. Unfortunately, there is ample evidence that the type and amount of economic activity practiced by the world’s economies has already approached if not overshot the earth ability to support human life. Given these realities, citizens within developed economies have three available paths. We can believe that developing economies in places such as China, India, and Indonesia cannot, will not, or should not strive for the type of economic prosperity enjoyed in developed economies. Second, we could believe, optimistically, that present models of business and economic growth can be extended across the globe to an expanding population without degrading the natural environment beyond its limits. Third, we can search for new models of economic and business activity that provide for the needs for the world’s population without further degrading the biosphere. Sustainable development and the connected model of sustainable business choose this third path. Economist Herman Daly’s explanation for Economy as a Subset of the within earth’s biosphere Economic activity takes place within this biosphere and cannot expand beyond its capacity to sustain life. All the factors that go into production— natural resources, capital, entrepreneurial skill, and labor—ultimately originate in the productive capacity of the earth. In light of this, the entire classical model will prove unstable if resources move through this system at a rate that outpaces the productive capacity of the earth or of the earth’s capacity to absorb the wastes and by-products of this production.

FIGURE 9.3 - A MODEL OF THE ECONOMY (OR ECONOMIC SYSTEM) AS A SUBSET OF THE BIOSPHERE (OR ECOSYSTEM)
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Figure 9.3 differs from Figure 9.2 in several important ways. First, the sustainable model recognizes that the economy exists within a finite biosphere that encompasses a band around the earth that is little more than a few miles wide. From the first law of thermodynamics (the conservation of matter/energy)—matter nor energy can truly be “created,” it can only be transferred from one form to another. Second, energy is lost at every stage of economic activity. Consistent with the second law of thermodynamics (entropy increased within a closed system), the amount of usable energy decreases over time. “Waste energy” is continuously leaving the economic system and thus new low-entropy energy must constantly flow into the system. Ultimately, the only source for low-entropy energy is the sun.

Third, the sustainable model no longer treats natural resources as an undifferentiated and unexplained factor of production emerging from households. Natural resources come from the biosphere and cannot be created ex nihilo. Finally, it recognizes that wastes are produced at each stage of economic activity and these wastes are dumped back into the biosphere. Over the long term, resources and energy cannot be used, nor waste produced, at rates at which the biosphere cannot replace or absorb them without jeopardizing its ability to sustain (human) life. These are what Daly calls the “biophysical limits to growth.” The biosphere can produce resources indefinitely, and it can absorb wastes indefinitely, but only at a certain rate and with a certain type of economic activity. This is the goal of sustainable development. Finding this rate and type of economic activity, and thereby creating a sustainable business practice, is the ultimate environmental responsibility of business.

THE “BUSINESS CASE” FOR A SUSTAINABLE ECONOMY
Regulatory and compliance model—interprets environmental responsibilities as constraints upon business, the sustainability model—more forward looking and may present business with greater opportunities than burdens. First, sustainability is a prudent long-term strategy. As the Natural Step’s funnel image suggests, business will need to adopt sustainable practices to ensure long-term survival. Firms that fail to adapt to the converging lines of decreasing availability of resources and increasing demand risk their own survival. Second, the huge unmet market potential among the world’s developing economies can only be met in sustainable ways. For some clarity on the circumstances under which it is not, take a look at the next Reality Check following this discussion. Refer to: REALITY CHECK Is Everything Sustainable? It is worth reflecting on what we – or what the average person – thinks of upon hearing the word “sustainability.” The traditional usage refers to environmental sustainability. Some commentators want to use the word to refer to a whole bundle of interrelated things, including as some say “people, planet, and profits,” because no one of those things can be “sustainable” without the others. Which usage is most appropriate if our intention is to communicate clearly?

Third, significant cost savings can be achieved through sustainable practices. Savings on energy use and materials will reduce not only environmental wastes, but spending wastes as well. Minimizing wastes makes sense on financial grounds as well as on environmental grounds. Fourth, competitive advantages exist for sustainable businesses. Firms that are ahead of the sustainability curve will both have an advantage serving environmentally conscious consumers and enjoy a competitive advantage attracting workers who will take pride and satisfaction in working for progressive firms.

Finally, sustainability is a good risk management strategy. Refusing to move towards sustainability offers many downsides that innovative firms will avoid. Avoiding future government regulation is one obvious benefit. Avoiding legal liability for unsustainable products is another potential benefit. Consumer boycotts of unsustainable firms are also a risk to be avoided. Avoiding future government regulation is one obvious benefit. Firms that take the initiative in moving towards sustainability will also likely be the firms that set the standards of best practices in the field. Thus, when regulation does come, these firms will likely play a role in determining what those regulations ought to be. Avoiding legal liability for unsustainable products is another potential benefit. As social consciousness changes, the legal system may soon begin punishing firms that are now negligent in failing to foresee harms caused by their unsustainable practices.

PRINCIPLES FOR A SUSTAINABLE BUSINESS
The precise implications of sustainability will differ for specific firms and industries, but three general principles will guide the move towards sustainability. Firms and industries must become more efficient in using natural resources. They should model their entire production process on biological processes. They should emphasize the production of services rather than products.

Firms and industries must become more efficient in using natural resources—sometimes called eco-efficiency, have long been a part of the environmental movement. “Doing more with less” has been an environmental guideline for decades. Some estimates suggest that with present technologies alone, business could readily achieve at least a fourfold increase in efficiency and as much as a tenfold increase. Eco-efficiency example: On an individual scale, it is environmentally better to ride a bike than to ride in a bus, to ride in a fuel-cell or hybrid-powered bus than in a diesel bus, to ride in a bus than to drive a personal automobile, and to drive a hybrid car than an SUV. Likewise, business firms can improve energy and materials efficiency in such things as lighting, building design, product design, and distribution channels. The LEED building standards described in this chapter’s opening Decision Point incorporate many such eco-efficiency ideas. Consider that a fourfold increase, called “Factor-Four” in the sustainability literature, would make it possible to achieve double the productivity from one-half the resource use. When applied to the additional costs for buildings associated with LEED standards, for example, such a return on investment means that companies can quickly recoup this environmental investment.

The second principle of business sustainability—firms should model their entire production process on biological processes—can be easily understood by reference to Figure 9.2. “Closed-loop” production seeks to integrate what is presently waste back into production. In an ideal situation, the waste of one firm becomes the resource of another, and such synergies can create eco-industrial parks. Just as biological processes such as photosynthesis cycle the “waste” of one activity into the resource of another, this principle is often referred to as biomimicry. Refer to Figure 9.2: The Circular Flow Model 47

The ultimate goal of biomimicry is to eliminate waste altogether rather than reduce it. If we truly mimic biological processes, the end result of one process (e.g., leaves and oxygen produced by photosynthesis) is ultimately reused as the productive resources (e.g., soil and water) of another process (plant growth) with only solar energy added. 48

The evolution of business strategy towards biomimicry can be understood along a continuum. The earliest phase has been described as “take-make-waste”—business takes resources, makes products out of them, and discards whatever is left over. A second phase envisions business taking responsibility for its products from “cradle to grave”—sometimes referred to as “life-cycle” responsibility. It holds that a business is responsible for the entire life of its products, including the ultimate disposal even after the sale. A cradle-to-grave model would hold a business liable for groundwater contamination caused by its products even years after they had been buried in a landfill. 49

Cradle-to-cradle responsibility extends this idea even further and holds that a business should be responsible for incorporating the end results of its products back into the productive cycle—it would create incentives to redesign products so that they could be recycled efficiently and easily. A third sustainable business principle involves a shift in business model from products to services. Traditional economic and managerial models interpret consumer demand as the demand for products—washing machines, carpets, lights, consumer electronics, air conditioners, cars, computers, and so forth. A service-based economy interprets consumer demand as a demand for services—for clothes cleaning, floor covering, illumination, entertainment, cool air, transportation, word processing, and so forth. Cradle-to-cradle responsibility: The environmental design company McDonough and Braungart, founded by architect William McDonough and chemist Michael Braungart, has been a leader in helping businesses reconceptualize and redesign business practice to achieve sustainability. Their book, Cradle to Cradle, traces the life cycle of several products, providing case studies of economic and environmental benefits attainable when business takes responsibility for the entire life cycle of products. Among their projects is the redesign of Ford Motor Company’s Rouge River manufacturing plant. McDonough and Braungrat provide greater details about their design principles in the reading at the end of this chapter. A service-based company example: One well-known innovator in this area is Interface Corporation and its CEO, Ray Anderson. Interface has made a transition from selling carpeting to leasing floor-covering services. On the traditional model, carpet is sold to consumers who, once they become dissatisfied with the color or style or once the carpeting becomes worn, dispose of the carpet in landfills. There is little incentive here to produce long-lasting or easily recyclable carpeting. Once Interface shifted to leasing floor-covering services, it created incentives to produce long-lasting, easily replaceable and recyclable carpets. Interface thereby accepts responsibility for the entire life cycle of the product it markets. Because the company retains ownership and is responsible for maintenance, Interface now produces carpeting that can be easily replaced in sections rather than in its entirety, that is more durable, and that can eventually be remanufactured. Redesigning carpets and shifting to a service lease has also improved production efficiencies and reduced material and energy costs significantly. Consumers benefit by getting what they truly desire at lower costs and fewer burdens. 50

CHAPTER NINE VOCABULARY TERMS
After examining this Chapter, you should have a clear understanding of the following Key Terms and you will find them defined in the Glossary: Backcasting Biomimicry Corporate Automotive Fuel Efficiency (CAFE) Standards Cradle-to-cradle responsibility Eco-efficiency LEED certification Service-based economy Sustainable business practice Sustainable development Three pillars of sustainability 51

Chapter 9 BUSINESS AND ENVIRONMENTAL SUSTAINABILITY.

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Chapter 9 BUSINESS AND ENVIRONMENTAL SUSTAINABILITY.

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