Chapter 11

Ecology and Sustainable Development in Global Business

McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, All Rights Reserved.

Ch. 11: Key Learning Objectives

Defining sustainable development Understanding the obstacles to developing the

world’s economy to meet the needs of the present without hurting future generations

Assessing the major threats to the earth’s ecosystem. Recognizing the ways in which population growth,

inequality, and industrialization have accelerated the world’s ecological crisis

Examining common environmental issues that are shared by all nations

Analyzing the steps the global business community can take to reduce ecological damage and promote sustainable development

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Ecological Challenges

Ecology The study of how living things – plants and animals –

interact with one another in an ecosystem By some measures the demands of human society

have already exceeded the carrying capacity of the earth’s ecosystem

Global Commons A commons is a shared resource that a group of

people uses collectively Paradox that if all individuals maximize their own

advantage in short term, commons will be destroyed

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Ecological Challenges Preserving our common ecosystem and assuring its

continued use is a new imperative for business, government, and society

Sustainable development Development that meets the needs of the present without

compromising the ability of future generations to meet their own needs

• Protecting the environment will require economic development

• Economic development must be accomplished sustainably

• Accomplishing both involves a paradox

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Threats to the Earth’s Ecosystem Sustainable development requires that human society

use natural resources at a rate that can be continued over an indefinite period Renewable resources (water, forests) can be naturally

replenished Nonrenewable resources (fossils fuels like oil, coal) once

used are gone forever

Examples of threats Water resources Fossil fuels Arable land

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Forces of Change Accelerating Ecological Crisis

1. Population Explosion World population in 1950 was 2.5 billion, in 1999

reached 6 billion, estimated will be almost 10 billion in 2150 (see Figure 11.1)

95% of population growth over next 30 years is projected to be in less developed countries

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World Population GrowthFigure 11.1

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Forces of Change Accelerating Ecological Crisis

2. World Income Inequality About 40% of world’s population has income below

international poverty line ($2/day) World’s income is not distributed equally

(see Figure 11.2) Countries at either extreme of income level tend to

behave in more environmentally destructive ways

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World Income DistributionFigure 11.2

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Forces of Change Accelerating Ecological Crisis

3. Industrialization Parts of the third world are industrializing at a rapid

pace, which is a positive trend for reducing poverty and slowing population growth

This economic development, however, has also contributed to the ecological crisis

Example of China: Dramatic industrial development, yet significantly increased pollution

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Limits to Growth

The world resource base is essentially finite, or bounded Earth’s ecosystem has limited carrying capacity One way of measuring is Ecological footprint (see Exhibit

11.B)

Limits to growth hypothesis suggests human society is overshooting earth’s carrying capacity, with drastic consequences if changes are not made

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Ecological Footprint

The term ecological footprint has been defined as the amount of land and water a human population needs to produce the resources it consumes and to absorb its wastes, given prevailing technology.

In 2005, for each living human being, the earth contained 4.4 acres of biologically productive area – farmland, forest, fresh water, and so forth. That year, each person had, on average, an ecological footprint of 5.4 acres. What that means is that human society was using resources at a rate well above what the earth’s ecosystem could sustainably support.

Not surprisingly, some nations and individuals have bigger ecological footprints than others. For example, in the United States the average citizen has an ecological footprint of 24 acres, more than 5 times their share of the world’s resources. By comparison, in Panama the average citizen’s ecological footprint is 4.2 acres, and in Tanzania it is just 1.7 acres.

Individuals can estimate their own ecological footprint by taking a quiz available at www.myfootprint.org.

Exhibit 11.B Excerpts

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Global Environmental Issues Ozone depletion

Chlorofluorocarbons react with, destroy the ozone layer 1985 - scientists discovered a thin spot, or hole, in the ozone

layer over Antarctica 1987 - a group of nations negotiated the Montreal Protocol,

agreeing to cut CFC production, agreement later amended to ban CFCs

As of 2006, 189 countries had signed the protocol The protective layer will gradually recover if regulatory

trends continue Example of world governments coming together to address

an environmental threat

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Global Environmental Issues Global warming

Greenhouse effect occurs when carbon dioxide and other gases in the atmosphere prevent heat from escaping into space (see Figure 11.3)

Since the Industrial Revolution, the amount of greenhouse gases in the atmosphere has increased by as much as 25%

Caused mainly by the burning of fossil fuels such as oil and natural gas

If societal emissions of these gases continue to grow unchecked, the earth could warm by as much as 6 degrees Celsius by 2100

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Figure 11.3 Global Warming

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Causes of Global Warming Burning of fossil fuels

Releases carbon dioxide into the atmosphere and is the leading contributor of global warming

Deforestation Trees and plants absorb carbon dioxide and remove it from

the atmosphere; therefore cutting down trees contributes

to global warming Beef production

Methane, a potent greenhouse gas, is produced as a by-product of the digestion of some animals, including

cows CFCs

Destroy the ozone and are also considered greenhouse gases

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Global Climate Change Initiatives

Kyoto Protocol Multination agreement in 1997, went in to effect in 2005 Requires industrial nations to reduce greenhouse gas emissions 5% below 1990 levels European Union has taken lead on reducing emissions As of 2006, 161 nations, representing 62% of world’s carbon

emissions, had ratified U.S. has not ratified, citing harm to U.S. economy

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More Global Environmental Issues Decline of biodiversity

Refers to the number and variety of species and the range of their genetic makeup

Scientists estimate that species extinction is occurring at 100 to 1,000 times the normal, background rate due to pollution and habitat destruction

A major reason for the decline in the earth’s biodiversity is the destruction of rain forests

Only half of the original tropical rain forests still stand Rain forests have value left standing too, e.g. development of

new medicines

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More Global Environmental Issues

Threats to marine ecosystems Refers to oceans, salt marshes, lagoons, and tidal zones

that border them, as well as diverse communities of life they support

Salt water covers 70% of the earth’s surface and supports many species

Key categories of threats to these ecosystems• Fish populations• Coral reefs• Coastal development

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Response of International Business Community

World Business Council for Sustainable Development One of leaders in effort to promote sustainable business

practices Made up of 180 companies representing 30 countries and

20 industries Goals: To encourage high standards of environmental

management and to promote closer cooperation among businesses, governments, and other organizations concerned with sustainable development

Promotes eco-efficiency and has documented competitive advantages for companies

Advocates revised accounting systems that include costs of environmental damage and lifelong environmental product impacts

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International Codes of Environmental Conduct

International Chamber of Commerce (ICC) Business Charter for Sustainable Development, 16 principles that

identify key elements of environmental leadership Global Environmental Management Initiative (GEMI)

A group of over 40 companies dedicated to fostering environmental excellence, GEMI developed several environmental self‑assessment programs

CERES Principles 10 voluntary principles developed by the Coalition for

Environmentally Responsible Economies that commit signatory firms to protection of the biosphere, sustainable use of natural resources, energy conservation, and risk reduction

International Organization for Standardization (ISO) ISO 14000 is a series of voluntary standards introduced in 1996

by the ISO, an international group based in Geneva, Switzerland, that permit companies to be certified as meeting global environmental performance standards

Exhibit 11.BExcerpts

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Voluntary Business Initiatives Life cycle analysis

Involves collecting information on the lifelong environmental impact of a product, from extraction of raw material to manufacturing to its distribution, use, and ultimate disposal

Industrial ecology Refers to designing factories and distribution systems as if

they were self-contained ecosystems

Design for disassembly Means that products are designed so that at the end of their

useful life they can be disassembled and recycled

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State of Sustainable Development

Will need long-term partnerships between companies and countries to transfer environmental technologies Example in South Africa of successful partnership between

Shell and Eskom, local utility, to provide individual home in rural communities, not on national power grid, power based on advanced solar panels

More business executives are accepting idea of sustainable development Survey of business leaders in 50 countries showed 90% saw

sustainable development as desirable goal, 70% reported environmental performance to stakeholders