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ChapterNine:
BusinessandEnvironmentalSustainabilityCopyright©2021McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.ChapterObjectives1Afterreadingthischapter,youwillbeableto:Explainhowenvironmentalchallengescancreatebusinessopportunities.Describearangeofvaluesthatplayaroleinenvironmentaldecisionmaking.Explainthedifferencebetweenmarket-basedandregulatory-basedenvironmentalpolicies.Describebusiness’senvironmentalresponsibilitiesthatflowfromeachapproach.Identifytheinadequaciesofsolerelianceonamarket-basedapproach.Identifytheinadequaciesofregulatory-basedenvironmentalpolicies.ChapterObjectives2Afterreadingthischapter,youwillbeableto:Defineanddescribesustainabledevelopmentandsustainablebusiness.Highlightthebusinessopportunitiesassociatedwithamovetowardsustainability.Describethesustainableprinciplesofeco-efficiency,biomimicry,andservice.Explainhowmarketingcanbeusedbothtosupportanddetractfromthegoalsofsustainablebusiness.BusinessandEnvironmentalSustainability1Youcannotgetthroughasingledaywithouthavinganimpactontheworldaroundyou.Whatyoudomakesadifference,andyouhavetodecidewhatkindofdifferenceyouwanttomake.JaneGoodallIntroduction1Manyobserversbelievewehaveenteredthesustainabilityrevolution.Theracetocreateenvironmentallyandeconomicallysustainableproductsandservicesiscreatingunlimitedbusinessopportunities.TheIndustrialRevolutionbroughtwithittheabilitytodegradethenaturalenvironmentatafasterratethaneverbefore.Bythestartofthe21stcentury,theearthisexperiencingahighspeciesextinctionrate,whichalsothreatenshumansduetotheglobalclimatechange.Introduction2Themajorethicalquestionofthischapteriswhatresponsibilitiesbusinesseshaveregardingthenaturalenvironment.Sustainablebusinessandeconomicdevelopmentseekstocreatenewwaysofdoingbusinessinwhichsuccessismeasuredintermsofeconomic,ethical,andenvironmentalsustainability.Oftencalledthetriplebottomlineapproach.Figure9.1:TheNaturalStep’sFunnelSource:Reprintedwithpermission.Accessthetextalternativeforslideimage.Introduction3TheNaturalStepchallengesbusinessto“backcast”apathtowardsustainability.Backcasting:TheNaturalStepchallengesbusinesstoimaginewhatasustainablefuturemusthold.Fromthatvision,creativebusinessesthenlookbackwardtothepresentanddeterminewhatmustbedonetoarriveatthatfuture.Sustainablebusinessmustuseresourcesandproducewastesatratesthatdonotjeopardizehumanwell-being.Businessesthatdosowillsucceedinmovingthroughthefunnelandemergingassuccessfulintheageofsustainability.BusinessEthicsandEnvironmentalValues1Earlierchapterstalkedofethicsintermsofpracticalreasoning.Ourvaluesarethosestandardsthatencourageustoactonewayratherthananother.Giventhisobjective,whichvaluesanddecisionsaresupportedbyaconcernwiththenaturalenvironment?Whyshouldbusinesswith,andvalue,thenaturalworld?BusinessEthicsandEnvironmentalValues2Humanself-interestisthemainreasonwhybusinessesneedtobeconcernedwith,andvalue,thenaturalworld.Twoenvironmentalrealitiesunderscoretheimportance.Globalclimatechange,speciesextinction,soilerosionandnuclearwastesthreatenfuturegenerations.Scienceofecologyanditsunderstandingoftheinterrelatednessofnaturalsystemsshowthewiderangeofhumandependenceonecosystems.Theconservationmovementadvocatedarestrainedandprudentapproachtothenaturalworld.BusinessEthicsandEnvironmentalValues3Besidestheself-interestedreasonstoprotecthumanlifeandhealth,thenaturalenvironmentisessentialandvaluableforotherreasons.Theseothervaluesoftenconflictwiththedirectvaluethatcomesfromtreatingthenaturalworldasaresource.Thebeautyandgrandeurofthenaturalworldprovidesgreataesthetic,spiritual,andinspirationalvalue.Manypeopleviewthenaturalworldasamanifestationofreligiousorspiritualvalues.Partsofthenaturalworldcanhavesymbolicvalue,historicalvalue,andpsychologicalvaluessuchasserenityandexhilaration.Theanimalrightsmovementattributesamoralstandingtoanimals.BusinessandEnvironmentalSustainability2Growthforthesakeofgrowthistheideologyofthecancercell. EdwardAbbeyTheMarketApproach1Debatecontinuesonwhetherefficientmarketsorgovernmentregulationisbestwhenmeetingtheenvironmentalresponsibilitiesofbusiness.Eachapproachhassignificantimplicationsforbusiness.Ifthebestapproachtoenvironmentalconcernsistotrustthemtoefficientmarkets,thenbusinessesshouldseekprofitsandallowthemarkettoallocateresourcesefficiently.Ifgovernmentregulationisamoreadequateapproach,thenbusinessshouldcomplytoregulatoryrequirements.Defendersofamarketapproachcontendthatenvironmentalissuesareeconomicproblemsthatdeserveeconomicsolutions.TheMarketApproach2WilliamBaxterarguedforanoptimallevelofpollution,whichisbestattainedbyleavingittoacompetitivemarket.Societycouldstriveforpureairandwater,butthecoststhatthiswouldentailwouldbetoohigh.Areasonableapproachistoaimforairandwaterqualitythatissafeenoughtobreatheanddrink.Fromamarketperspectiveresourcesare"infinite."Historyshowsthathumaningenuityandincentivehavealwaysfoundsubstitutesforanyshortages.Allresourcesare"fungible"astheycanbereplacedbysubstitutes,andthus,infinite.Resourcesnotbeingusedtomeetconsumerdemandarebeingwasted.TheMarketApproach3Avarietyofmarketfailurespointtotheinadequacyofmarketsolutions.Oneexampleistheexistenceofexternalities.The“costs”ofenvironmentaldegradationisbornebyparties"external"totheeconomicexchange,suchasfuturegenerations.Asecondtypeofmarketfailureoccurswhennomarketsexisttocreateapriceforimportantsocialgoods,suchasscenicvistas.Marketsalonefailtoguaranteethatsuchthingsarepreservedandprotected.Athirdmarketfailureinvolvesadistinctionbetweenindividualdecisionsandgroupconsequences.Importantethicalissuesmaybemissedifpolicydecisionsaresolelytheoutcomeofindividualdecisions.TheMarketApproach4Corporateaveragefueleconomy(CAFE)standardswouldnothappeninamarketapproach.EstablishedbytheU.S.EnergyPolicyConservationActof1975,CAFEisthesales-weightedaveragefueleconomy,expressedinmilespergallon(mpg),ofamanufacturer’sfleetofpassengercarsorlighttrucks.Responsestothechallengesfacedduetothemarketapproach.Internalizingexternalcostsandassigningpropertyrightstounownedgoodsaretworesponsestomarketfailures.Marketscanpreventharmthroughinformationsuppliedbytheexistenceofmarketfailures.Knownasthefirst-generationproblem.BusinessandEnvironmentalSustainability3Humankindhasnotwoventheweboflife.Wearebutonethreadwithinit.Whateverwedototheweb,wedotoourselves.Allthingsareboundtogether...allthingsconnect.ChiefSeattleTheRegulatoryApproach1MuchofthemostsignificantenvironmentallegislationintheU.S.wasenactedduringthe1970s.Beforetheselaws,theprimarylegalavenueopenforaddressingenvironmentalconcernswastortlaw.Thelawsestablishedstandardsthatshiftedtheburdenfromthosewhoharmedtothosewhowereharmed.TheonlyincentivethatU.S.policyprovidedwascompensation.Businesswasfreetopursueitsowngoalsaslongasitcompliedwiththesideconstraintstheseminimumstandardsestablished.TheRegulatoryApproach2Societyhadtwoopportunitiestoestablishbusiness’senvironmentalresponsibilities.Asconsumers,individualscoulddemandenvironmentallyfriendlyproductsinthemarketplace.Ascitizens,individualscouldsupportenvironmentallegislation.TheRegulatoryApproach3Severalproblemssuggestthattheregulatoryapproachwillproveinadequateoverthelongterm.First,itunderestimatestheinfluencethatbusinesscanhaveinestablishingthelaw.TheautomobileindustryusedlobbyinginfluencetoexemptlighttrucksandSUVsfromCAFEstandards.Second,thisapproachalsounderestimatestheabilityofbusinesstoinfluenceconsumerchoice.Itismisleadingtoclaimthatbusinesspassivelyrespondstoconsumerdesiresandthatconsumersareunaffectedbytheadvertisingthatbusinessconveys.Finally,thismodelassumesthateconomicgrowthisenvironmentallyandethicallybenign.Therearemanyroadstoprofitanddifferentroadscanhaveverydifferentenvironmentalconsequences.BusinessandEnvironmentalSustainability4Environmentalregulationisasignalofdesignfailure.WilliamMcDonoughTheSustainabilityApproach1The1980sbroughtanewmodelwhichcombinedfinancialopportunitieswithenvironmentalandethicalresponsibilities.Sustainabledevelopment.Meetspresentneedswithoutcompromisingthefuturegeneration’sneeds.Sustainablebusinesspractices.Amodelinwhichbusinessactivitiesmeetthestandardsofsustainability.ThreepillarsofsustainabilityThreefactorsthatareusedtojudgetheadequacyofsustainabledevelopment.Sustainabledevelopmentmustbeeconomically,environmentally,andethicallysatisfactory.TheSustainabilityApproach2TheconceptofsustainabledevelopmentcanbetracedtotheBrundtlandCommission'sreportin1987.Thecommissionprovidedthestandarddefinitionofsustainabledevelopment.EconomistHermanDalyisamongtheleadingthinkerswhohasadvocatedaninnovativeapproachtoeconomictheorybasedontheconceptofsustainabledevelopment.Hemadeaconvincingcaseforanunderstandingofeconomicdevelopmentthattranscendsthemorecommonstandardofeconomicgrowth.Accordingtohim,weneedamajorparadigmshiftinhowweunderstandeconomicactivity.TheSustainabilityApproach3Circularflowmodelexplainsthenatureofeconomictransactionsintermsofaflowofresourcesfrombusinessestohouseholdsandbackagain.Twoaspectsofthiscircularflowmodelare:Itdoesnotexplaintheoriginofresources.Ittreatseconomicgrowthasboththesolutiontoallsocialillsandalsoasboundless.Figure9.2:TheCircularFlowModelAccessthetextalternativeforslideimage.TheSustainabilityApproach4Dalystatedthatneoclassicaleconomicswillinevitablyfailtomeetthechallengesofthesustainabilityapproachunlessitrecognizesthattheeconomyisbutasubsystemwithinearth’sbiosphere.Overthelongterm,resourcesandenergycannotbeused,norwasteproduced,atratesatwhichthebiospherecannotreplaceorabsorbthemwithoutjeopardizingitsabilitytosustainhumanlife.Thisisknownasthebiophysicallimitstogrowth.Thebiospherecanproduceresourcesindefinitely,anditcanabsorbwastesindefinitely,butonlyatacertainrateandwithacertaintypeofeconomicactivity.Thegoalofsustainabledevelopmentisfindingthatrateandtypeofactivity,therebycreatingasustainablebusinesspractice,whichistheultimateenvironmentalresponsibilityofbusiness.Figure9.3:AModeloftheEconomy(orEconomicSystem)asaSubsetoftheBiosphere(orEcosystem)Accessthetextalternativeforslideimage.The“BusinessCase”foraSustainableEconomyWhiletheregulatoryandcompliancemodel,thesustainabilitymodelmaypresentgreateropportunitiesthanburdens.First,sustainabilityisaprudentlong-termstrategy.Businesseswillneedtoadoptsustainablepracticestoensurelong-termsurvival.Second,thehugeunmetmarketpotentialamongdevelopingeconomiescanonlybemetinsustainableways.Thebaseoftheeconomicpyramidrepresentsthelargestandfastestgrowingeconomicmarketinhumanhistory.Third,significantcostsavingscanbeachievedwithsustainablepractices.Fourth,competitiveadvantagesexistforsustainablebusinesses.Finally,sustainabilityisagoodriskmanagementstrategy.Avoidingfuturegovernmentregulationandavoidinglegalliabilityarebothpotentialbenefitsofsustainableproductsandpractices.PrinciplesforaSustainableBusiness1Resourcesshouldnotenterintotheeconomiccyclefromthebiosphereatratesfasterthantheyarereplenished.Ideally,wasteshouldbeeliminated,ornotproducedataratefasterthanthebiospherecanabsorbit.Finally,theenergytopowertheeconomicsystemshouldberenewable,ultimatelyrelyingonthesunorwind.Threegeneralprinciplesthatfirmsandindustriesshoulddothatwillguidethemovetowardsustainability.Mustbecomemoreefficientinusingnaturalresources.ShouldmodeltheirentireproductionprocessonbiologicalprocessesShouldemphasizetheproductionofservicesratherthanproducts.PrinciplesforaSustainableBusiness2Eco-efficiency:IntroducedattheRioEarthSummitin1992,theconceptisawaybusinesscancontributetosustainabilitybyreducingresourceusageinitsproductioncycle."Doingmorewithless"isalong-standingenvironmentalguidelineandagoodmanagementpractice.Firmscanimproveenergyandmaterialsefficiencyinsuchthingsaslighting,buildingdesign,productdesign,anddistributionchannels.A“FactorFour”increaseinefficiencywouldachievedoubletheproductivityfromhalftheresources.Closedloopproduction:Seekstointegratewhatispresentlywastebackintoproductioninmuchthewaythatbiologicalprocessesturnwasteintofood.PrinciplesforaSustainableBusiness3Theultimategoalofbiomimicryistoeliminatewastealtogetherratherthanreducingit.Theevolutionofbiomimicrycanbedescribedintwophases:Take-make-waste:Businesstakesresources,makesproductsoutofthem,anddiscardswhateverisleftover.Cradletograve:Cradle-to-graveorlife-cycleresponsibilityholdsthatabusinessisresponsiblefortheentirelifeofitsproducts,includingtheultimatedisposalevenafterthesale.Acradle-to-cradleresponsibilityholdsthatabusinessshouldberesponsibleforincorporatingtheendresultsofitsproductsbackintotheproductivecycle.PrinciplesforaSustainableBusiness4Thethirdsustainablebusinessprincipleinvolvesashiftfromproductstoservices.Service-basedeconomy:Interpretsconsumerdemandasademandforservicessuchasclothescleaningratherthanademandforproductssuchaswashingmachines.Thischangeproducesincentivesforproductredesignsthatcreatemoredurableandmoreeasilyrecyclableproducts.Onewell-knowninnovatorinthisarea,TheInterfaceCorporation,madeatransitionfromsellingcarpetingtoleasingfloor-coveringservices.SustainableMarketingThemarketingofproductsonthebasisoftheirenvironmentallyfriendlynature.Thefourcharacteristicsofmarketing—product,price,promotion,andplacement—helpinunderstandingsustainable,greenmarketing.Product.Themostsignificantprogresstowardsustainabilitywilldependonthesustainabilityoftheproductsthemselves.Marketingshouldbeinvolvedinidentifyingtherealneedsofconsumers.Anotheraspectofmarketinginvolvesthedesignandcreationofproducts.Marketingdepartmentsshouldbeinvolvedinthedesignoftheproduct.Finally,marketingprofessionalshaveanopportunitytoinfluencethepackagingofproducts.SustainableMarketing:PriceMarketingprofessionalsshouldplayaroleinsettingpricesthatreflectaproduct’strueecologicalcost.Businessesnormallytakealossonanewproductuntilsuchtimeaseconomiesofscalekicksinandlowerscosts.Sustainablemarketerscontributeinestablishingpricesthatprotectsustainableproductsfromshort-termcost-benefitanalyses.Priceismanipulatedincludingpromotiontohelpgainafootholdinamarket.Priceismostcrucialwhenmarketingtothebaseoftheeconomicpyramid.SustainableMarketing:Promotion1Marketinghasaresponsibilitytoshapeconsumerdemand,encouragingconsumerstodemandsustainableproducts.Sustainablemarketingcanhelpcreatethesocialmeaningsandconsumerexpectationssupportiveofsustainablegoals.SustainableMarketing:Promotion2Consumerslearnfromadvertisingandmarketershavearesponsibilityaseducatorstohelpconsumersbecomesustainableconsumers.Pressuremaycreateapublicdemandforenvironmentalandsustainablelabeling.“Greenwashing”isthepracticeofpromotingaproductbymisleadingconsumersabouttheenvironmentallybeneficialaspectsoftheproduct.SustainableMarketing:PlacementProfessorPatrickMurphysuggesttwodirectionsinwhichmarketingcandevelopsustainablechannelsofplacement.Murphyforeseesnewoptionswhichemphasize:Fuelefficiencyandalternativefueltechnologies.Morelocalizedandefficientdistributionchannels.Agreaterrelianceonelectronicratherthanphysicaldistribution.Murphyalsodescribesanotherchannelvariableinmarketingthatpromisessustainabilityrewards—"reversechannels."Itreferstothepracticeoftakingbackone’sproductsaftertheirusefullife.Thelife-cycleresponsibilityand"take-back"modelswilllikelyfalltomarketingdepartments.AccessibilityContent:TextAlternativesforImagesFigure9.1:TheNaturalStep’sFunnel-TextAlternativeTheleftcornerofthefunneldepictsthegapbetweenresourcesanddemand.Lifesuppo
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