This document discusses how business activity can impact the environment through pollution and waste, the concept of sustainable development and how businesses can contribute to it, and how increasing environmental concerns and pressure groups are influencing business decisions through public opinion, consumer behavior, and government regulations. It provides examples of managers with different approaches to environmental issues and defines key related terms.

1. • how business activity
can affect the
environment and the
concept of externalities
• what sustainable
development means and
how businesses can
contribute to this
• how increasing
concern for the
environment and
pressure groups are
influencing business
decisions
• how legal controls can
be used to influence
business decisions to
protect the environment
• how ethical issues
might affect business
decisions.

2.  Consider these two statements by different
factory managers:
 • Manager A: ‘I know that my factory pollutes the
air and the river with waste products but it is very
expensive to use cleaner methods. We make a
profit from making cheap products and these are
what consumers want.’
 • Manager B: ‘We recently spent $10 million on
new low energy boilers that produce 90 per cent
less pollution than the old ones. We now recycle
75 per cent of our waste — consumers prefer
firms that are aware of their social responsibility.’

3.  Business activity aims to satisfy customers’ demand
for goods and services — but it often has an impact
on the environment. The ‘environment’ means our
natural world.
 Here are some examples of how business activity
impacts on the environment:
 • Aircraft jet engine emissions damage the
atmosphere.
 • Pollution from factory chimneys reduces air quality.
 • Waste disposal can pollute rivers and seas.
 • Transport of goods by ship and trucks burns fossil
fuels such as oil which create carbon emissions and
may be linked to ‘global warming’ and climate
change.

4. Air pollution damages
the environment
Dirty rivers are
expensive to clean up

5. Road transport creates noise and
air pollution and adds to global warming

6. Definitions to learn
Social responsibility is when a business decision
benefits stakeholders other than shareholders, for
example, a decision to protect the environment by
reducing pollution by using the latest and
‘greenest’ production equipment.
Environment is our natural world including, for
example, pure air, clean water and undeveloped
countryside.
Private costs of an activity are the costs paid for by
business.
Private benefits of an activity are the gains to a
business.

8. External costs are
costs paid for by
the rest of society,
other than the
business, as a result
of business activity.
External benefits
are the gains to the
rest of society,
other than the
business, resulting
from business
activity.
Social costs =
external costs +
private costs.
Social benefits =
external benefits +
private benefits.

9. Sustainable development
Look at the following information about the world’s demand for energy
and carbon dioxide emissions:
*million barrels per day of oil equivalent
World energy demand

10. Global population and
carbon dioxide
emissions since 1900
These graphs show some of the problems that world economic and
population growth is resulting in. Many economists and
environmentalists argue that this rapid rate of energy use and pollution
cannot continue if the world is to enjoy the same living standards as we
have today. Using up scarce resources at a very fast rate will mean that
there may be many fewer resources in the future. Creating so much
pollution may lead to health and climate problems that put at risk the
wellbeing of millions of people.
Sustainable development means trying to achieve economic growth but
without damaging the environment and society for future generations.

11. Sustainable development: what can business do?
1 Use renewable energy — by fitting solar panels or buying energy that
uses renewable sources such as wind or tidal power.
2 Recycle waste — by re-using water and other products that would
otherwise be wasted or disposed of, total use of resources is reduced.
3 Use fewer resources — lean production is about managing production
so efficiently that the minimum quantity of resources is used.
4 Develop new ‘environmentally friendly’ products and production
methods — for example, replacing drink cans and bottles with
biodegradable packaging that will not damage the environment.
By using these sustainable production methods businesses respond
positively to environmental pressures and opportunities.

13. Bad publicity is bad news! If a firm is reported as destroying an
important natural site or dumping waste in the sea, then many
consumers will stop buying its products.
An increasing proportion of consumers are becoming concerned about
their environment. Firms obviously want to sell goods profitably. If sales
of a product fall because consumers think it is harmful to nature, then
the business may have to quickly change its products or its production
methods.
Pressure groups are becoming increasingly powerful. They can take
some very effective actions against businesses that are not socially
responsible. Pressure groups such as Greenpeace and Earth First! have
tried to block up firms’ waste pipes or organise consumer boycotts.

14. Pressure group activity is likely to change business actions
when:
• they have popular public support and receive much media coverage
consumer boycotts result in much reduced sales for the firm
• the group is well organised and financed.
Pressure group activity is unlikely to result in a change in
business actions when:
• what the firm is doing is unpopular but not illegal, such as testing drugs on
animals
• the cost to the business of changing its methods is more than the possible
cost of poor image and lost sales
• the firm sells to other businesses rather than to consumers — public pressure
will be less effective.

15. A pressure group is made up of people who want to change
business (or government) decisions and they take action
such as organising consumer boycotts.
A consumer boycott is when consumers decide not to buy
products from businesses that do not act in a socially
responsible way.
Laws passed by government
Governments can make business activities illegal, For example:
• locating in environmentally sensitive areas such as national parks
• dumping waste products into rivers or the sea — though it is
sometimes difficult to prove which firm is responsible for this
• making products that cannot easily be recycled.

16. I t i s o f t e n d i f f i c u l t f o r g o v e r n m e n t s t o f i n d o u t w h i c h f i r m s
a r e r e s p o n s i b l e f o r d u m p i n g c h e m i c a l w a s t e

17. Financial penalties, including pollution permits
Pollution permits are licences to pollute up to a certain
level. Governments can sell a permit to a factory that
produces pollution. If it produces more pollution than the
permit allows, it must either buy more permits from ‘clean’
firms or pay heavy fines. Either way, the costs of the
business increase. Firms producing much less pollution can
sell their permits to ‘dirty’ firms. This encourages firms to
produce goods in less polluting ways. Other financial
penalties could be additional taxes on goods or factories
that create pollution.
These three types of controls help to explain why many
businesses now respond to environmental pressures. Being
‘environmentally friendly’ can create a positive public
opinion of a business and lead to opportunities for
sustainable growth.