Chapter 13

Ecological challenges Ecological challenges for business and societyfor business and societyLearning 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

PollutionPollution

• 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’, www.worldbank.org

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 CO2, 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, www.hm-treasury.gov.uk

Figure 13.5: Global CO2 emissions, 2006 Source: Netherlands Environmental Assessment Agency (2007)

‘China now no. 1 in CO2 emissions’, www.mnp.nl

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, http://reports.eea.europa.eu

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 2008-12

•Became law in 2005

• After Kyoto? Developing countries now account for ¾ of the increase in CO2 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,

www.eea.europa.eu

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

Energy Review 2006, www.dti.gov.uk

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 wastetreatment 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.