5) Responsible Business an Environmental Study

What is repsonsible management

Recognising trade-offs when economic performance, stakeholder expectations and environmental impacts may pull in different directions

Assessing the evidence and considering who benefits/pays from a decision

Organisations as open systems

Organisations are dependant on external forces, and their choices have consequences back into that environment

Environmental force include:

• Environment (Nature)

• Social Forces (Society)

• Market Forces (Economy)

• Regulatory Forces (Laws)

A products lifecycle

Materials (Extraction and production of raw materials)

Production (Producing the good/service)

Transportation (Delivering through supply chains)

Use (Resources consumed by using the product)

End of Life (Disposal, recycling, waste)

Externalities

When the cost/benefit of a product extends beyond the cost and revenue

Externalities include: Pollution, R&D, Health concerns, etc

Social vs Private Costs

Private Costs = The cost paid by a business/customer as part of an activity

Social Costs = Private Cost + Impact on society

Time Horizon

Sustainability is about meeting current needs, without compromising the ability of future generations to meet their needs

Triple Bottom Line

A business should analyse 3 impacts before making a decision:

• Social Performance (People)

• Economic Performance (Performance)

• Environmental Impact (Planet)

Indicators of Business Priorities

What a business says matters may not be what they acutally prioritise

The 4 key priority indicators are:

• Captial (Does the organisation invest in sustainability)

• Incentives (Are employees and managers rewarded for sustainabiliity)

• Attention (Does the company devote time/attention to the environment)

• Metrics (Does the organisation monitor sustainability)

Perspectives on Corporate Responsibility

Shareholder Perspective

• Goal is to maximise profit within the bounds of the law

• Considers social norms, if breaking them would risk backlash/loss

Stakeholder Perspective

• Identifies all stakeholders and how each opinion affects them

• Chooses the best ethical option

When can responsibility create business value

Reducing Waste (Can reduce associated costs)

Innovation (Improves society aswell as improving performance)

Customer Value (Customers value more aware businesses)

Long-Term Value (Other factors help to strengthen a business overtime)

Who should adress Externalities

Markets:

• Price signals and consumer choice can influence firm behaviour

Firms:

• Can respond flexibly and experiment with new practices and tech

States:

• Governments can tax and regulate production

Evaluating claims of sustainability

Scope: What is being claimed (Determine the specific improvement claimed)

Boundary: What is included/omitted (has the business missed anything)

Materiality: Does it adress a significant impact

Resources: Has firm resource allocation actually changed

Greenwashing

When environmental claims exceed their actual evidence

Although a business may actually be improving, they cannot exagerate their claims

Weak vs Strong Sustainability

Incremental/Weak:

• Improve the existing Model gradually

Disruptive/Strong

• Change the full process where sustainability rrequires it

3 Ways Managers respond to Environmental Problems

Precaution: Acting under uncertainty when harm may be irriversable

Polluter Pays: Move external costs into decisions (taxes, fees, etc) for impacts

Circular Design: Keep products and materials in use through recycling

From Linear to Circular Design

Linear:

• Take → Make → Use → Waste

Circular:

• Design → Use →Repair → Resell / Reuse → Recycle

Analysing a Change

Externalities: Firms total impact on society

Responsibility: Is the firm responsible for its actions

Evidence: Statistics/Data

Weak/Strong Sustainability: Is it taking strong measures