Environmental Issues
Business activities can affect the natural environment. Some effects are harmful, while others can be reduced through changes in the way a business operates.
→ Businesses use natural resources to produce goods and services.
→ Production, transport and disposal of products can create environmental problems.
→ Businesses may need to balance their objectives with the need to protect the environment.
How Business Activity Can Negatively Affect the Environment
Pollution
Pollution occurs when business activities release harmful substances into the environment.
→ Air pollution can be caused by factories, power stations and vehicles.
→ Water pollution can occur when chemicals or waste enter rivers, lakes or oceans.
→ Noise pollution can be caused by factories, construction and transport.
→ Land pollution can result from waste being dumped or chemicals contaminating land.
Example: A factory that releases untreated chemicals into a river may damage aquatic life and affect communities using the river.
Depletion of Natural Resources
Natural resources are resources provided by nature, such as water, forests, minerals and fossil fuels.
→ Businesses may use large quantities of resources.
→ Resources may become scarce if they are used faster than they can be replaced.
Example: Excessive extraction of groundwater by factories can reduce the amount of water available to local communities.
Deforestation
→ Businesses may clear forests to obtain land for farming, construction or mining.
→ This can destroy habitats and reduce biodiversity.
Waste
→ Production can create waste materials.
→ Packaging and unwanted products can increase the amount of waste sent to landfill.
→ Some waste may take many years to break down.
Greenhouse Gas Emissions
→ Businesses may burn fossil fuels for production and transportation.
→ This releases greenhouse gases.
→ These emissions contribute to climate change.
Why Businesses May Respond to Environmental Issues
Improved Reputation
→ Customers may prefer businesses that demonstrate environmental responsibility.
→ A positive environmental reputation can strengthen the brand.
Example: A clothing business using recycled materials may attract customers who value sustainable products.
Increased Sales
→ Environmentally conscious consumers may be more willing to buy products from businesses that reduce environmental damage.
→ This can increase sales and market share.
Reduced Costs
→ Reducing energy and water use can lower operating costs.
→ Reducing waste can reduce disposal costs.
Example: Installing energy-efficient lighting can reduce electricity costs.
Competitive Advantage
→ Environmental improvements can help a business differentiate its products from competitors.
→ A business may use environmentally friendly production as part of its marketing strategy.
Government Regulations
→ Businesses may have to meet environmental laws and regulations.
→ Failure to comply can result in fines or other penalties.
Pressure from Stakeholders
→ Customers, employees, investors and local communities may expect businesses to reduce environmental damage.
→ Businesses may respond to protect relationships with these stakeholders.
Long-Term Availability of Resources
→ Using resources more carefully can help ensure that they remain available in the future.
→ This is particularly important for businesses that depend heavily on raw materials, water or energy.
How Businesses May Respond to Environmental Issues
Use Renewable Energy
→ Businesses can use solar, wind or other renewable energy sources.
→ This can reduce dependence on fossil fuels.
Example: A factory installs solar panels to generate some of its electricity.
Reduce Energy Use
→ Businesses can use energy-efficient machinery and lighting.
→ Production processes can be redesigned to use less energy.
→ This can reduce both environmental impact and energy costs.
Reduce Waste
→ Businesses can redesign production processes to produce less waste.
→ Waste materials can be reused or recycled.
Reuse Materials
→ Materials can be used again rather than discarded.
Example: Packaging containers can be cleaned and reused.
Recycle
→ Materials such as paper, glass, metals and some plastics can be collected and processed for reuse.
→ This reduces the need for new raw materials.
Use Sustainable Raw Materials
→ Businesses can purchase materials from sources that replace or manage resources responsibly.
Example: A furniture business may use timber from sustainably managed forests.
Develop Environmentally Friendly Products
→ Businesses can design products that use fewer resources or create less pollution.
→ Products may be made from recycled or biodegradable materials.
Environmentally Friendly Packaging
→ Businesses can reduce unnecessary packaging.
→ They can use recyclable, reusable or biodegradable packaging.
Change Transportation Methods
→ Businesses can use electric vehicles, efficient delivery systems or rail transport where suitable.
→ This can reduce emissions from transportation.
Costs and Benefits of Responding to Environmental Issues
| Response | Possible benefit | Possible disadvantage |
|---|---|---|
| Renewable energy | Lower emissions and possible long-term energy savings | High initial investment |
| Reduce waste | Lower waste-disposal costs | May require new production methods |
| Recycling | Less use of raw materials | Collection and processing can be costly |
| Sustainable materials | Improved reputation | Materials may be more expensive |
| Eco-friendly packaging | Reduced environmental damage | Packaging may cost more |
| Energy-efficient machinery | Lower energy use | High replacement or installation cost |
Legal Controls Over Business Activity and the Environment
Governments may introduce legal controls to reduce the environmental damage caused by businesses.
→ Businesses must follow environmental laws.
→ These laws can influence how, what, where and where products are sold.
How Legal Controls Affect How Businesses Produce
Governments may control the methods businesses use for production.
→ Factories may be required to reduce pollution.
→ Businesses may have to treat waste before disposing of it.
→ Certain production methods may be restricted.
→ Businesses may need pollution-control equipment.
Example: A factory may be required to install equipment that reduces harmful emissions.
Effect on Costs
→ Installing new equipment increases costs.
→ Training employees may increase costs.
→ Changing production processes may increase operating costs.
→ However, reducing waste and energy use may reduce costs in the long term.
How Legal Controls Affect What Businesses Produce
Governments may restrict certain products because of their environmental impact.
→ Businesses may be required to change the materials used in products.
→ Some environmentally harmful products may face restrictions.
→ Businesses may need to develop alternative products.
Example: A government may restrict certain single-use plastic products, encouraging businesses to use alternative materials.
Effect on Costs
→ Research and development costs may increase.
→ New machinery or materials may be required.
→ Existing products may need to be redesigned.
→ Businesses may need to train employees.
How Legal Controls Affect Where Businesses Produce
Environmental regulations may influence where businesses locate production.
→ Some environmentally sensitive areas may have restrictions on industrial activity.
→ Businesses may need to locate away from residential areas.
→ Planning and environmental approval may be required before establishing a factory.
Effect on Costs
→ Suitable locations may have higher land or transport costs.
→ Businesses may need to spend more on waste treatment and environmental protection.
→ Delays in obtaining approval can also increase costs.
How Legal Controls Affect Where Businesses Sell
Governments may restrict the sale of products that cause environmental harm.
→ Certain products may be banned or restricted.
→ Businesses may have to provide environmental information to customers.
→ Packaging and labelling requirements may increase.
Effect on Costs
→ Businesses may need to redesign packaging.
→ New labels and information may need to be produced.
→ Some products may need to be removed from certain markets.
→ Marketing strategies may need to change.
Overall Effects of Environmental Legal Controls on Businesses
Increased Costs
→ New machinery may be required.
→ Production processes may become more expensive.
→ Compliance and monitoring costs may increase.
Changes in Production
→ Businesses may need to change how they produce.
→ Some production methods may no longer be permitted.
Changes in Products
→ Businesses may need to change what they produce.
→ Environmentally friendly alternatives may need to be developed.
Changes in Location
→ Businesses may need to change where they produce.
→ New environmental restrictions can influence location decisions.
Changes in Markets
→ Businesses may not be allowed to sell certain products in some markets.
→ They may need to adapt products to meet environmental regulations.
Possible Long-Term Benefits
→ Less waste may reduce costs.
→ Greater efficiency may reduce resource use.
→ Improved reputation may increase sales.
→ Compliance can help businesses avoid fines and protect their long-term ability to operate.
Environmental Decisions and Business Objectives
Environmental decisions often involve a trade-off.
→ Short term: environmental improvements may increase costs.
→ Medium term: greater efficiency may reduce resource and energy costs.
→ Long term: a better reputation, lower environmental impact and compliance with regulations may support the survival and growth of the business.
The most appropriate response depends on the cost of the change, legal requirements, customer expectations, environmental impact and likely effect on sales and profits.