1. Ethics and Environment British Money in the Asia Pulp and Paper The Pistoleros presents

2. Agenda 1.Description of the case 2.Ethical issues at stake 3.Relevant facts 4.Decisions to be made 5.Relevant stakeholders 6.Effect of the decisions on stakeholders 7.Moral Reasoning 8.Organisational culture 9.Answers

3. Description of the Case Asian Pulp & Paper Company (APP) in a depressed market with massive debts. Government intervention save them from bankruptcy in the past. Need to continue cutting trees to pay debts total deforestation of Indonesian rainforest. British investors and banks have exposures and interests in APP.

4. Ethical Issues at Stake How accountable should financial institutions be for the range of actions of their customers? Should banks lend money when it is evident that such money may be used to support palpably unethical activities? Would a more hard-line approach by the banks at this stage be devoid of moral worth? Should there be more to corporate environmental responsibility than the desire to secure long-term profits? Should firms take environmental issues seriously?

5. Relevant Facts APP is in financial distress If the current state of resource anarchy continues, the richest forests on earth will be destroyed in four years in Sumatra. Indonesian government has kept APP afloat and it’s now the major creditor. An important distinction should be made between shareholders and debt holders at APP.

6. Decisions to be made 1.What to do with the company: –Keep it afloat as it is (i.e maintain status quo)? –Keep it afloat and implementing changes? –Sell the company 2.Measures to be taken to discourage misconduct and encourage ethical conduct?

7. Relevant Stakeholders APP’s employees Shareholders Debt holders Local & global community (e.g. friends of the earth forests) Government

8. How will they be affected? StakeholderAPP stays as it is (chopping trees) APP disappearsAdoption of ethical measures APP’s employees ☺ X ☺ S/H ☺ X½ D/H ☺ X½ Local & Global Community X½ ☺ Government ☺ X½

9. Moral Reasoning Utilitarian Approach Look for the greatest good for the greatest number Cost- Benefit analysis –Externalities –Redundancy costs –Direct benefits from timber, paper, etc.

10. Why is this sound? Utilitarian conception is sound because: We’re making decisions that will affect a large number of people. We’re focusing on the “big picture”, i.e. the society as a whole. The rule is clear and relatively “easy” to follow: do what benefits the most.

11. Organisational Culture Defined by leadership and affects decision making. Ethical leadership will foster an ethical culture that will drive ethical decisions.

12. LendingInvesting Investment Approach DiscretionaryPer Mandate Selection Criteria Risk βRate of return & code of ethics Unethical Company Approved Should banks lend money when it is evident that such money may be used to support palpably unethical activities?

13. 1.Financial institutions should develop its own code of ethics 2.Before signing a deal with a customer the institution should complete an ethical review of their customer’s operations to ensure compliance with its internal code of ethics. 3.Customers should be continuously reviewed. 4.Having taken this precautions, the financial institution should not be held accountable for its customer’s actions. How accountable should financial institutions be for the range of actions of their customers?

14. Why should firms take environmental issues seriously? Externalities and public good. Business landscape requires firms to operate in a complex & evolving set of economic, environmental and social challenges & address stakeholder demands for greater transparency, accountability and responsibility. To compete successfully, a company needs to develop responsible business policies & practices & make them an integral part of its mission, values, strategy and operations. Taking environmental issues seriously will have a positive impact in a firm’s bottom line & will also benefit public in general.