Download Chapter 5 Ethics and the Environment

Chapter 5
Ethics and the Environment
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
5-1
Ethical Thought
• “Earth provides enough to satisfy every
man’s need, but not every man’s greed.”
– Mahatma Gandhi
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5-2
Is It Just Me or Is It Getting Hotter
in Here?
• Exxon Mobil claimed it was doing its part to help
foster renewable energy – selling the oil that is
used to help operate wind turbines
• BP and Royal Dutch/Shell have developed
alternative fuel strategies
• Exxon opposed the Kyoto environmental
sustainability accord and disputes that fossil
fuels are the main cause of global warming
Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall
5-3
Is It Just Me or Is It Getting Hotter
in Here?
• Exxon’s research and development budget
focuses on adapting and improving fossil
fuels, not alternative fuels.
• Lee Raymond, CEO of Exxon, was given a
total of $51.1 million in total compensation
in 2005
• In 2005, Exxon announced that it made
$36.13 billion in profits, the highest level
ever for the oil company
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5-4
The Tragedy of the Commons
• Credited to Garrett Hardin, but its roots go
back to Aristotle
• Aristotle stated that what is common to the
most people will receive the least amount
of care
• Underlying belief is that free access with
unrestricted use of any resource that is
finite will ultimately ruin the resource
through overexploitation
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5-5
The Tragedy of the Commons
• From a natural environment context, the tragedy of the
commons would predict the eventual use of all the
natural resources on Earth due to the lack of control over
their use
• Hardin argues that there is a finite amount of energy
available and as the population grows, the human race
needs to reduce its level of energy consumption instead
of increasing it.
• Hardin refutes Adam Smith’s invisible hand by arguing
that the self-interests of each individual do not always
translate into the promotion of the public good for
everyone.
• Hardin recommends privatizing resources, having
polluters pay for their damage, and having government
regulations to control for the use of natural resources.
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5-6
Natural Environment as a
Stakeholder
• Considered a stakeholder without a voice
• Decision makers would only consider the
natural environment as a stakeholder if the
consequences that impact the natural
environment also had an impact on the
performance evaluation of the firm or the
individual decision maker
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5-7
Natural Environment as a
Competitive Advantage
• By focusing on environmentally friendly
strategies, firms are able to market their
goods as ecofriendly which helps
differentiate their products
– Strategy 1: Ecoefficency
– Strategy 2: Beyond Compliance Leadership
– Strategy 3: Ecobranding
– Strategy 4: Environmental Cost Leadership
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5-8
The Cost of Noncompliance
• December 2005:
– EPA levied its largest civil administrative
penalty against DuPont
– DuPont was charged with hiding information
about the dangers caused my one of the
chemicals used to make Teflon
– DuPont paid $16.5 million in fines and
research and education funds
– DuPont’s stock closed down by 10 cents per
share
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5-9
Johnson & Johnson’s Worldwide
Environmental Policy
• Stated commitment to:
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Operating beyond compliance
Maintaining an environmental accountability structure
Integrating environmental goals
Striving for zero waste
Utilizing innovative technologies
Fostering an environmental ethic
Building relationships with appropriate stakeholders
Enhancing corporate social responsibility
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5-10
Employees as Environmental
Stakeholders
•
Three types of environmental initiatives that
can be generated from an employee:
1. Initiatives that decrease the environmental impact of
the company through the policies of reuse and
recycling
2. Initiatives that solve an environmental problem such
as hazardous substance use reduction
3. Initiatives that develop a more ecoefficient product
or service that uses fewer resources and/or less
energy
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5-11
NGOs as Environmental
Stakeholders
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Greenpeace
Sierra Club
Environmental Defense Fund
Friends of the Earth
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5-12
Communicating the Firm’s
Environmental Commitment to its
Stakeholders
• Environmental disclosures are usually the first
information source used by stakeholders.
– Easy to obtain from a company’s website
• Stanwick & Stanwick found that firms that had
both a formal environmental policy and a
detailed description of their environmental
commitment had higher financial performance
levels than firms that were low financial
performers
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5-13
Voluntary Partnerships with the
EPA
• Benefits to companies who participate:
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Cost savings
Increased profits
A cleaner environment
Access to technical assistance
A framework and strategy for improving
environmental performance
– A network of business and industries interested in
becoming better environmental stewards
– Public recognition
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5-14
Environmental Auditing
• Periodic, objective and documented
assessment of an organization’s
operations compared to audit criteria
• Allows management a measure of
ensuring that they are in compliance with
environmental regulations
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5-15
Environmental Justice
• Systematic equal allocation of
environmental benefits and burdens
• Evolved from the perception that lower
income areas with minority ethnic groups
within a community would receive a
disproportionate amount of environmental
burdens and a disproportionately low
allocation of environmental benefits
• NIMBY – Not in my back yard
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5-16
Environmental Sustainability
• Ability of an organization or country to protect
the use of future resources by properly
maintaining and protecting the resources that
are currently being used
• Three major components:
– A system to ensure the sustainable management of
the earth’s natural resources
– The development of social and institutional structures
that would support the sustainable management of
the natural resources
– Changes in the economic framework so it would
support the sustainable management of the earth’s
natural resources
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5-17
Global Environmental Sustainability
• Three types of differences in countries
addressing sustainability:
– Survival economies
– Emerging economies
– Developed economies
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5-18
Triple Bottom Line
• Developed by John Elkington
• 3BL – ‘People, Planet, Profit’
• Focuses on the financial, social, and
environmental performance of the
company
• Centers on the vested interests of all
stakeholders instead of focusing solely on
the interest of the shareholders
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5-19
Equator Principles
• Adopted by financial institutions around
the globe
• Provide a means for monitoring the
potentially adverse risks, both social and
environmental, that come with financing
projects around the globe
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5-20
Ethics and Climate Change
• Kyoto Treaty
– Created in December 1997
– Aim was to have every industrialized nation in the
world involuntarily reduce the level of greenhouse gas
emissions into the atmosphere by 5.2% compared
with 1990 GHG emission levels
– Initially not ratified because the US did not sign the
agreement
– Finally ratified in 2005 when Russia joined the treaty
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5-21
Two Inconvenient Truths
• Al Gore, former US Vice President, won an
Academy Award in 2007 for his documentary ‘An
Inconvenient Truth’
– Focused on global warning
• Luster of the Academy Award rubbed off
because the Tennessee Center for Policy
Research revealed that Gore’s mansion near
Nashville, TN consumed more electricity in one
month than the average American uses in an
entire year
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5-22
Climate Change as a Strategic
Option
• Firms whose assets are directly affected
by weather patterns must plan for
fundamental changes in the global climate
• Firms involved in insurance, real estate,
agriculture and tourism will be impacted by
shifting climate patterns
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5-23
Questions for Thought
1. Explain several ways that companies
‘walk the walk’ and ‘talk the talk’ when it
pertains to corporate environmental
issues.
2. How do companies address climate
change in their annual reports and other
corporate documents? Are these
sources convincing to stakeholders?
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5-24