Global environmental issues are becoming more and more important to various groups of people, and they cannot bypass business professionals. As major corporations are often cited as main culprits of pollution and environmental degradation that in turn causes global warming and ozone depletion and threatens biodiversity, business organisations have begun to address these concerns by showing the world a more responsible attitude. This paper will include background section that will analyze major issues involved in corporate understanding of environmental issues and reaction to them, the analysis section that will analyze the state of the problem to this date, and recommendations for how the issue could have been handled more effectively.
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Most business ethics theorists believe that “has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law” (Wikipedia, 2006). This analysis occurs within the framework of the stakeholder concept, or the notion that a company has multiple stakeholders interested that it has to benefit in its activities. This contrasts with the shareholder concept, or the understanding that a business has to favor its shareholders, maximising profits. Modern environmental issues often demand that organisations forfeit a share of their profits to take measures that will prevent ozone depletion and global warming.
Thus, a company that would undertake a logging project in the Amazon basin will be compelled by ethics consideration to take precautions to preserve biodiversity in the area. This also demonstrates the increasing importance of considering environmental issues in the epoch of globalization when multinational companies begin to exert impact on many parts of the environment in different areas of the globe.
Environmental issues are often debated within the framework of corporate social responsibility. Supporters of this idea argue that corporations can often choose to waste limited natural resources or degrade the environment through their actions if they are left to operate without control. Therefore, society has to put pressure on corporations to behave responsibly toward the environment.
There are at least two ways in which companies can engage in the solution of environmental problems – through conservation projects (such as energy conservation, installation of filters to prevent pollution) and through correacting damage that has already been done to the environment.
The latter can be illustrated by the Capital River Relief Project of the Potomac and Anacostia rivers sponsored by Koch Industries. Although most of the funding for the project came from the business organisation, it also received “and participation from Congress, local government leaders, reality-TV celebrities, local athletes, conservation groups and hundreds of volunteers” (Press release from: Koch Industries, 2004). In this case, the business entity acts as a member of the community, interested in the preservation of the natural habitat around. It is possible that the company is not the main culprit for pollution that is caused by a variety of reasons, but as a responsible community member, it utilizes its resources to make the environment cleaner and safer. It is also true that the company will receive positive publicity in reward for these actions and an improvement in corporate image that can later drive sales up.
In this respect, one can speak of positive externalities of business activities, “benefits to third parties of business activities” (Biz/Ed, 2006). This type of externalities benefits the community in such a way that corporations willingly undertake actions that help communities live in a better environment. However, consumers are not merely a group of observers passively watching corporations undertake actions on their behalf. They can actively shape organisational policies through ethical decision-making. Today, research reveals that “marketing managers have become ethically more sensitive, and they are largely convinced that customers and the public expect them to act in a morally acceptable way” (Srnka, 2004). This idea is aligned with general marketing theory that stipulates that all relations should be built on trust, and the exchanges in business can only occur where the two parties agree about their ethical frameworks. Consumers today have an increasing role in promoting environmentally friendly behavior by favoring companies that engage in environmentally unfriendly policies. Actions similar to the notorious Nestle boycott targeting the producer of baby foods for alleged non-compliance with the World Health Organisation’s code of marketing can be transplanted to boycott companies that negatively impact the environment.
In this respect, it becomes vital that consumers receive adequate information concerning the amount of environmental harm done by the company, its environmental policies, and future strategies to reduce negative environmental impact of its activities. While some researchers express dissatisfaction about the level of environmental reporting done by companies, other studies prove that business organisations “go to considerable efforts, entailing not inconsiderable costs, to supply information” (Stray, Ballantine 2000, p.170). At the same time, middle management seems to be involved in such reporting more often than senior management (46% versus 28%) (Stray, Ballantine 2000, p.169). This seems to suggest that environmental reporting is not considered to warrant the attention of the senior management and is thus relegated to the sidelines of the corporate business. The issue of environmental reporting is closely linked to the general challenge of increasing transparency of business operations, affecting both financial statements and disclosure of environmental policies.
Another issue with reporting is the discrepancy that often exists between the glamorous picture of the company’s environmental and social responsibility and the actual state of affairs. Thus, researchers who compared Coca Cola’s environmental report with the true state of affairs discovered that “Coca-Cola has been accused of dehydrating local communities in its pursuit of water resources to feed its own plants, drying up farmers wells and destroying local agriculture” (Eldis, 2006). There has been a call therefore for integrated reporting that will reveal the financial situation of the organisation in addition to its environmental activities and impact on sustainable development of the regions of the world it affects through its actions.
Multinationals in particular have responsibility to develop policies that will not prove detrimental to developed nations where they operate. These issues surfaced predominantly in the 1990s as global extension of corporate activities became the norm (Ethics Resource Center, n.d.). Despite the obvious ‘greeening’ of corporations in the face of globalization, their financial power is still often used for “draining sovereignty away from the Third World countries, and depleting their resources” (Clapp, 2005, p. 23). To control this process, the shift is now seen from implementation of voluntary environmental policies such as corporate codes and ISO14000 to multilateral environmental governance mechanisms including the UN’s Global Compact and the OECD’s guidelines for multinational enterprises (Clapp, 2005, p. 24).
Coping with the challenge of increasing environmental consciousness of organisations is not easy, given the pressure on corporate management to demonstrate continuous rise in profits, where environmental spending is often considered a drain. Therefore, corporations should be left on their own to decide on the degree of environmental reporting they are willing to do or spending they want to allocate to environmental issues. The government should play a more active role in encouraging positive externalities of corporate activities and suppressing negative ones. The control of the actions of MNEs should evolve in the form of international cooperation between different countries of the world.
In addition, consumer groups and advocacy groups can also play an important role in alerting the corporate executives to the need to cater to the interests of multiple stakeholders. Making decisions on the basis of environmental responsibility demonstrated by companies, consumers can help executives make more responsible decisions.
Within corporations, the implementation of environmentally responsible policies and specific codes governing employees’ activities and decision-making can help improve both corporate image and environmental policies. The focus on the long-term value delivered to shareholders should become the norm of corporate activities. In this respect, pursuit of environmentally friendly policies should become the norm.
Environmental issues like ozone depletion, global warming, and loss of biodiversity have come to dominate social thinking. Slowly but gradually, these issues begin to enter the minds of corporate executives, primarily through shift to the stakeholder concept of business ethics and growing interest in corporate social responsibility. Organisations have become more open to the public through introducing social and environmental reporting and demonstrate greater willingness to contribute to the community through conservation and other environmental projects. Greater involvement in such activities can help corporations become more active members of the community, benefiting many stakeholders and in the long run delivering value to shareholders though improving corporate image. Strengthening reporting norms, shifting it to higher layers within the organisation, and implementation of governmental regulation encouraging positive externalities of corporate activities can become a vital way toward protection of the environment.
Biz/Ed. (2006). Business Ethics, Moral and Environmental Issues. Retrieved May 7, 2006, from http://www.bized.ac.uk/educators/16-19/business/external/presentation/ethics.ppt
Press release from: Koch Industries. (2004, April 28). CSR Wire. Retrieved May 7, 2006, from http://www.csrwire.com/article.cgi/2685.html
Eldis. (2006, April 27). One of the Eldis RSS newsfeeds on major development issues. Retrieved May 7, 2006, from http://www.eldis.org/newsfeeds/rss/2/csr.xml
Ethics Resource Center. (n.d.). Business Ethics Timeline. Retrieved May 7, 2006, from http://www.ethics.org/be_timeline_chart.html
Srnka, K.J. (2004). Culture's Role in Marketers' Ethical Decision Making: An Integrated Theoretical Framework. Academy of Marketing Science Review 1. Retrieved May 7, 2006, from http://www.amsreview.org/articles/srnka01-2004.pdf
Stray, S., & Ballantine, J. (2000). A Sectoral Comparison of Corporate Environmental Reporting and Disclosure. Eco-Management and Auditing 7, 165-177.
Wikipedia. (2006). Business Ethics. Retrieved May 7, 2006, from http://en.wikipedia.org/wiki/Business_ethics
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