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
mans need, but not every mans 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?
Exxons 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
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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 Smiths 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
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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
DuPonts stock closed down by 10 cents per
share
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

5-9

Johnson & Johnsons Worldwide

Environmental Policy
Stated commitment to:

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

Greenpeace
Sierra Club
Environmental Defense Fund
Friends of the Earth

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5-12

Communicating the Firms

Environmental Commitment to its
Stakeholders

Environmental disclosures are usually the first

information source used by stakeholders.
Easy to obtain from a companys 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
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

5-13

Voluntary Partnerships with the

EPA
Benefits to companies who participate:

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 organizations
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
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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 earths 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 earths
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
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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

Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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

Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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 Gores mansion near
Nashville, TN consumed more electricity in one
month than the average American uses in an
entire year
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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

Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

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?
Copyright 2009 Pearson Education, Inc. publishing as Prentice Hall

5-24