copyright © 2009 pearson education, inc. publishing as prentice hall 5-1 chapter 5 ethics and the...

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 5-1

Chapter 5Ethics and the Environment


Ethical Thought

• “Earth provides enough to satisfy every man’s need, but not every man’s greed.”– Mahatma Gandhi


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


Is It Just Me or Is It Getting Hotter in Here?

• Exxon’s 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


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


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 Smith’s 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.


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


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


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

– DuPont’s stock closed down by 10 cents per share


Johnson & Johnson’s 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


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


NGOs as Environmental Stakeholders

• Greenpeace

• Sierra Club

• Environmental Defense Fund

• Friends of the Earth


Communicating the Firm’s Environmental Commitment to its

Stakeholders• Environmental disclosures are usually the first

information source used by stakeholders.– Easy to obtain from a company’s 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


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


Environmental Auditing

• Periodic, objective and documented assessment of an organization’s operations compared to audit criteria

• Allows management a measure of ensuring that they are in compliance with environmental regulations


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


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 earth’s 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 earth’s natural resources


Global Environmental Sustainability

• Three types of differences in countries addressing sustainability:– Survival economies– Emerging economies– Developed economies


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


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


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


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 Gore’s mansion near Nashville, TN consumed more electricity in one month than the average American uses in an entire year


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


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 5-1 chapter 5 ethics and the...

Documents

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prentice hall

environment slide

overexploitation slide

natural environment

use of natural resources

use hardin

mahatma gandhi slide