BUSINESS, ETHICS & THE

ENVIRONMENT

RAJ SHARMA
What is Ethics?
An array of definitions exists
•A system of moral principles, rules and standards
of conduct
•With regard to professions, a code of professional
standards, containing aspects of fairness and duty to
the profession and the general public
•system or code of morals of a particular religion,
group, or profession
•The branch of philosophy that deals with issues of
right and wrong in human affairs
•Personal code of conduct based on respect for one's
self, others, and your surroundings
•Classified into Deontological and Utilitarian ethics
•Deontological Ethics focuses on the concept of
moral obligation and duty, regardless of the outcome
•Stems from the Greek word "deon", meaning duty
•Utilitarian Ethics: A set of ethical beliefs based on
maximizing good for the greatest number of people
•Concerned with the equitable and consistent distribution of
restricted public resources - hence “evidence based”
•A form of consequentialism, utilitarianism is sometimes
summarized as "The greatest happiness for the greatest
number"
•Business Ethics is the branch of ethics that examines
ethical rules and principles within a commercial context : the
various moral or ethical problems that can arise in a
business setting
•Any special duties or obligations that apply to persons who
are engaged in commerce
•Those who are interested in business ethics examine
various kinds of business activities and ask, "Is the conduct
ethically right or wrong?"
Environmental Ethics
•A search for moral values and ethical principles in
human relations with the natural world
•Analyzes the issues regarding our moral obligations to
future generations with respect to the environment
•Environmental ethics is the ethical relationship between
human beings and the environment in which they live
•It exerts influence on a large range of disciplines including
law, sociology, theology, economics, business and geography
•There are many ethical decisions that human beings make
with respect to the environment. For example: “Should we
continue to clear cut the forests for the sake of human
consumption?” Or “Should we maximize profits in a business
enterprise by cutting down expenses on pollution control and
abatement?”
 Business Ethics

Rules or standards governing the conduct of a

business
Moral code – what is ‘right’ and what is ‘wrong’?
How to balance the often conflicting commitments
to the large number of stakeholders?
Highly subjective nature
Tension between different stakeholders
Environment including biodiversity is often the
worst-affected
Absence of or poor lobbying
Marginal communities and cultural minorities also
bear the brunt
Stakeholders
 Stakeholders

Responsibilities to stakeholder groups:

Shareholders – Generate profits and pay dividends
Customers – provide good quality products at
reasonable prices. Safety, honesty, decency and
truthfulness
Employees – health and safety at work, security, fair
pay
Suppliers – pay on time, pay fair rates for the work
done, provide element of security
Local Community – provide employment, safe
working environment, minimise pollution and negative
externalities – provide external benefits?
Government – abide by the law, pay taxes, abide by
regulations
Management – their aims versus those of the
organisation as a whole
Environment – limit pollution, congestion,
environmental degradation, development, etc.
Provide social, economic and cultural safeguards to
marginal communities and minorities
 Business Ethics

Tensions:
Profits versus higher wages
Expansion versus development
Production versus pollution
Expansion versus rehabilitation
Homogenization versus diversity
Supplier benefits versus consumer
prices/lower costs
Survival of the business versus needs of
stakeholders
Social and Environmental Audits
 Environment

Urban blight – excessive development,

inappropriate development, use of greenbelt land,
forest land, wetland, agricultural land
Waste – land-fill? re-cycling? burning?
Energy use – renewable energy, non-renewable
resources
Global Warming – Production of Greenhouse
Gases
Ozone Layer Depletion – Generation of CFCs
Acid Rain – Fossil fuel burning
Pollution:
Noise Air
Land Sea
Freshwater Radioactive
 Externalities

Impact on a third party of a business decision

Those affected not involved in the decision
Negative externalities – negative effects of
business activity – pollution, urban
development and loss of wetlands,
agricultural land, forests, biodiversity
Negative impact on marginal communities
due to land-grabbing and distress sales
e.g. out of town shopping centres – impact
on city centres on the one hand and the
environment on the other
Also displace traditional small markets and
traders
Positive Externalities:
•Benefits to third parties of business activity
•e.g. new infrastructure as a result of
development, side effects of research and
development, technology (the Internet?),
convenience, improved standards of living
•Investment in conservation and ecorestoration
•Investment in protection of cultural heritage
•Out of town shopping centres – greater ease of
access, everything in one place, pleasant
environment to shop in,
•Reduction in traffic congestion in downtown
areas, decreasing pollution levels
•Opportunities to local entrepreneurs, traders and
artisans
•Employment to suburban and rural populace
 •Complexity of the interaction of positive and
negative externalities need to be understood
to frame appropriate strategies
•Ethical Best Practices – encourage business
activity that leads to more of positive
externalities and discourage those that lead to
more of negative externalities
•To be achieved through government legislation,
regulation and punitive measures?
•Or should the business and industry be self-
disciplined and take the onus of enhancing
positive externalities and reduce negative ones?
•Depend on the priority identified by the
captains of business and industry: Profit vs.
Social Responsibility
100 Best Corporate Citizens for 2004
•Modine Manufacturing of Racine, Wisc., USA (No. 32)
•Annual auto parts sales in excess of $1 billion
•Hydrogen Fuel cells can not only "supplement the electricity
grid," they also have the potential to replace the polluting
internal combustion engine
•Newcomer Trex Co. (No. 50), which manufactures building
products from recycled wood and plastic wastes, brought in
very high return to its shareholders
•"Over 2 million children in developing countries die each
year from water-borne diarrheal diseases," said P&G (No. 1)
spokesperson Terry Loftus. "We have developed a
technology that allows people in the developing world to
clean and disinfect water in their homes at low cost.“
•Environmental Progress Award to Dell Inc., for computer-
recycling initiatives: safe recycling of computer equipments
Some Case Studies
•Winemakers Fetzer Vineyards, in Hopland, Calif., USA: 93
% waste reduction between 1991 and 2005
•Aims to become a ‘zerowaste’ company by 2009
•All materials such as cardboard, etc. are recycled
•Organic wastes turned into compost and used as fertilizer
•Oak barrels restored and reused rather than discarded
•Entire administrative building made of recycled wood
•Carpets are of natural fibre
•Lights on motion sensors- go off when people leave the
room
•The building uses night-air cooling
•Landscaping with drought-resistant plants to conserve water
•Photovoltaic array on the roof meet ¾ th of energy needs
•Grapes grown organically with natural pest control and soil
management
•Cover crops grown between vines: attract beneficial insects
Canopy management: leaf and cane canopy is opened to bring
in more sunlight: checks fungal infections naturally – less use
of toxic fungicides
Farmers/ managers spend more time in the vineyard
The grapes taste better: provides better financial payoffs
20-30 % grapes are organic now: Fetzer aims to become 100
% organic by 2010
And Fetzer is "very profitable." Over the last six years, profits
and revenues have grown at a 15% annual compounded rate
Environment and Garment Trade
Cotton growing involves heavy use of pesticides and synthetic
toxic fertilizers that pollute the environment
Companies like Nike, Gap Inc., and Levi-Strauss have begun
to blend a small percentage (typically 1% to 6%) of organic
cotton in with the traditional cotton they use
•Patagonia: outerwear makers have gone 100 % organic since
•1996
•Raised the price by $ 2-$10: $ 24 shirts and $ 70 jeans
•Organic cotton costs 50-60 additional cents a pound
•Patagonia sells directly through catalogues and own retail
stores
•Not so the case for Apparel Source Inc: cotton shirt-makers
•Sells $50 million a year through two retailers only at a price
starting from $ 3.70
•Trying to influence one of the retailers for introducing organic-
blended shirts at an average price of $ 6.99
•Nobody can fault you for wanting to make a profit. But are
there times when the bottom line isn't only about money?
•This perhaps is the million $ question in Business Ethics!
•While many business enterprises are now trying to spend on
environmental protection even at the expense of their profit, the
other side of the story is also galore
One glaring example is the tea industry in Assam
•Robert Bruce, a Scotsman, “discovered” Assam tea plant in
1823 from a Singpho tribe chief who gave him a few plants on
good faith
•By 1850-60, scores of tea gardens cropped up in Brahma-
putra and Barak Valleys and in Sylhet district
•By 1900, tea became a 14 m pound sterling industry
•But no direct or indirect benefits went to the Singphos who
were conveniently forgotten!
•Then thousands of people from Chhotanagpur plateau, parts
of Bengal, Central and South India were uprooted from their
land and culture and lured to work as labours for meagre
sums of money: the problems persist till today!
•Huge amounts of pesticides are being sprayed in tea
gardens, with residues persisting beyond acceptable levels in
many tea samples
•And tea is being promoted as a health drink at the same time!
Another case is that of MNCs exporting complex technologies to
developing countries for obvious reasons of cheap labour and
low operating costs
•But the infrastructure to safely operate these technologies to
reduce risks are not developed commensurately
•The Bhopal MIC disaster on 4th December, 1984 remains a
glaring example of such ethical inconsistencies
•The plant was operated by Union Carbide of India Limited
(UCIL): controlled (via 50.9 % stock ownership) by the Union
Carbide Corporation (UCC), an American chemical company
•UCC provided the basic design, engineering and operating
procedures for running the Bhopal plant
•Before the catastrophe, major personnel reductions
•Important safety devices out of commission and supervised by
largely untrained staff who could not prevent the disaster
In contrast, different standards were followed at UCC’s sister
plant at Institute, W. Virginia
Even after the disaster, UCIL and UCC did not publicly accept
responsibility for the leak
Poor people were the worst sufferers as slums were allowed to
come up along the walls of the UCIL Plant in Bhopal
A local example is that of the Cachar Paper Mill at Panchgram
that releases effluents into Barak river
People many km downstream cannot use the water because of
bad smell and skin itches after bathing
Again, the poorer sections are the worst-affected
Gobbling up of agricultural land by brick-kilns
Viewed against the ethical precept of “The greatest happiness
for the greatest number”, such business practices are grossly
unethical
Corporate Social Responsibility (CSR) and Socially Responsible
Investment (SRI): two very relevant concepts
 Corporate Social Responsibility (CSR) and
Socially Responsible Investment (SRI)
• Corporate Responsibility
Corporate responsibility refers to fulfilling the
responsibilities or obligations that a company has
toward its stakeholders
• When examining a particular corporate practice, like
profit versus environmental protection, corporate
responsibility can help distinguish between a
stakeholder expectation and a corporate obligation,
i.e., is the company obligated to provide absolute
environmental protection at all cost or is it obligated to
maximize profits for its investors at the cost of
damaging the environment?

• It is very difficult to predict the answer (s) to this

question
•Corporate Social Responsibility
Corporate social responsibility can be understood in
terms of corporate responsibility, but with greater
stress laid upon the obligations a company has to the
community, particularly with respect to charitable
activities and environmental stewardship
•Corporate and social responsibility is sometimes
described as being a tacit contract between business
and a community, whereby the community permits the
business to operate within its jurisdiction to obtain
jobs for residents and revenue through taxation
•Additionally, the community expects the business to
preserve the environment and to make the community
a better place to live and to work through charitable
activities
CSR AND SRI ARE AT CROSSROADS: THEIR
CONTINUITY WILL DEPEND ON THE
PRIORITIES SET BY THE FUTURE
MANAGEMENT PROS

THANK YOU