The quality of the existing environment and improvements in it would be regarded by economists as a form of public good. This is a good for which the principle of exclusion does not apply; it can be jointly consumed by many individuals simultaneously, at no additional cost and with no reduction in the quality or quantity of the public good consumed by any citizen. The fact that the principle of exclusion does not apply creates the ‘free-rider’ problem because some groups will believe that others will take on the burden of paying for the public good: in this case the extra cost incurred to improve the quality of the environment. Historically, the government has taken charge of public goods (e.g. the fire and police services or the provision of street lighting) in order to ensure that they are provided and not left to the vagaries of the market. Recent events suggest, however, that state intervention in the future cannot be taken for granted, particularly in areas where market solutions appear possible.
Direct action by government within the business sector has not led to improved environmental responsibility. Nationalized industries have not been the bastions of the ecological environment and in some instances in the United Kingdom (e.g. the‘tall stacks’ policy) have appeared to disregard the environmental degradation that they created. Indirect action through regulation or legislation may be more effective, but this is not in keeping with the general policy of laissez-faire which operated in the United Kingdom under the Conservative government throughout the 1980s and in the 1990s and has been largely followed by the Labour government post-1997.Furthermore, there are a number of dangers associated with a reliance solely upon a regulatory system as a means of control. Laws tend to be reactive and there may be significant differences between the letter and the spirit of the law. Industry may hold a monopoly of expertise, making government regulation in effective. Finally, transnational issues (e.g. leaks from nuclear power stations, global warming, acid rain) are far too multifarious and intricate to resolve through regulation. This is not to say that the legal system is always in effectual, but simply that it is not a precise means of control, often providing the unscrupulous with scope to act as they please. Indeed, regulation has become an increasingly complex tool to control business practice. The globalization of business means that organisations are having to deal with different legislative controls and requirements in different countries. In some instances, company policies change from country to country to meet the lowest standards possible. The tragedy at Bhopal, in India, illustrated how the multinationalorganisation Union Carbide was willing to accept lower standards of safety in a ThirdWorld plant than would have been deemed appropriate for a domestic plant in theUnited States. It pursued a policy of satisfying the law or regulatory frameworks of the individual host country. Similar arguments can be made for the many shipping organisations registering under flags of convenience which allow cost reductions.Alternatively, to sell in all markets may require working to the highest common denominator.
Not all countries operate the same environmental standards and, although the EU has attempted to standardize some legislation there are still differences in what environmental requirements organisations must fulfil in different countries. Conforming to the stringent requirements of certain markets may improve the competitive position of firms in other markets.Proposed or possible regulation may also persuade organisations to consider the impact of their activities, particularly if in future more stringent legislation looks likely as governments accept the principle of the polluter paying for any environmental damage caused. To judge by recent American experience, it is possible that retrospective action may be taken, with companies being penalized for decisions taken years previously.For some organisations legal compliance is an end in itself, for others regulations form a minimum standard of behaviour. The culture of the organisation, within obvious cost constraints, will determine the level of behaviour above the law. For the organisation that sees its responsibilities over and above the law, there may be some additional benefits. Those organisations that develop environmentally sensitive processes and systems first will have greater experience than those slower to react, who may find themselves overtaken by the quickening rate of new legislation. It may also be the case that those firms that undertake environmental initiatives first are able to develop a competitive advantage over other businesses in the same sector because they are able to take advantage of benefits associated with experience andlearning curve effects. There is, however, a danger that organisations view the use of environmental management tools as a one-off measure. Like any business plan, such a process must be regularly reviewed in order to take account of our increasing knowledge of this subject and the changing needs of the organisation.To summarize, legislation and regulation do have an important role to play in improving the environmental performance of business overall; this is most evident when governments have the relevant information concerning business practice and process. Frequently, however, business possesses the necessary information and the government has to incur a significant resource cost to acquire the relevant knowledge; suggesting that other tools of control are necessary to instil within business the required corporate responsibility. A strong argument can be made for providing greater information concerning products to the consumer, thereby offering the opportunity to individuals to make more informed decisions about which products to consume. Such a policy would reduce the level of government involvement and help to educate individuals as to the part they play in creating environmental hazards and damage.
The increased level of environmental awareness among the population owing to the easier availability of information has already led to more informed choices being made by various stakeholder groups that interact with business. Customers, suppliers, employees and investors are all more aware of their responsibilities to the environment, and there are various ways in which their considered decisions can influence the overall objectives of business and ensure that the organisation is corporately responsible for its actions. Increasingly, discerning consumers offer a powerful inducement to firms and despite the lack of perfect information some product switching is already occurring. Firms seeking to maintain current market share, or looking for new opportunities, must be aware of these changes. There has been a number of eco-labelling schemes that have been developed which have assisted consumers in identifying products which are thought to have the least impact upon the environment in their particular class.An EU eco-label was launched in 1993, but take-up has been slow across EUmembers and only around 200 products have been successfully introduced and certified under the scheme. In the UK the Department of the Environment, Transport and the Regions (DETR) decided in 1998 no longer to continue with the scheme and called upon the EU member states to push for an ‘integrated product policy’. Well-labelled eco-friendly products are far more prevalent in Europe, where there is a much broader view of nature rather than a focus upon particular issues, such as animal rights or certified forestry schemes. This has led to better-regulated and publicized initiatives on encouraging and labelling eco-friendly products. For example, nine national eco-labels are currently operated in seven EU member states (TheNetherlands and Spain each have two) and eco-label schemes in Europe are generally well respected, with certification controlled by independent bodies.The fore runner of these various labels was established in Germany in 1978 and was colloquially known as the ‘Blue Angel’.
The label has been adopted by more than 4300 products and 90 product groups; and it is claimed that the majority of households lookout for the Blue Angel when choosing environmentally friendly products. Other labels include, in the Netherlands, StichtingMilieukeur; in France, NF Environment; inFinland, Norway and Sweden, the Nordic White Swan. Most importantly, businesses that wish to apply for these labels will have to provide proof of environmental performance from their suppliers to qualify. In this way products will be evaluated using life-cycleanalysis, a cradle-to-grave assessment of a product’s impact upon the environment.Further emphasis upon the environment has been created with the introduction of a number of environmental management systems (EMS) standards. The UK developed the first EMS (British Standard 7750) but this has subsequently been replaced by ISO 14001 to allow the introduction of a common international EMS standard. There is, however, a European Union EMS standard known as the Eco-Management and Audit Scheme (EMAS) which is generally regarded as the most demanding EMS standard. EMS standards have followed the same basic approach as the quality standards and it is hoped that these EMS standards will be able to enjoy the same level of success as the quality standards (BS 5750/ISO 9001). This theme is highlighted by the actions of the Body Shop which demanded that Peter Lane, the organisation chosen to distribute its stock, had satisfactorily to pass an environmentalaud it before being given the contract. The point is further supported by theactions of B&Q, a UK chain of hardware stores, which has audited not only its own products but those of its suppliers. These audits were the precursor of implemented ‘environmental’ policies, including the delisting of a large peat supplier whore fused to desist from sourcing from Sites of Special Scientific Interest. It seems safe to argue that business will in future face greater pressures to meet new demands from the more discerning customer, be they individuals or other businesses.It is interesting to note that premiums paid to insurance companies have increased in line with losses incurred for environmental damage caused by normal business activity. In the same way that householders who can demonstrate increased security measures in their homes are rewarded with lower premiums, companies which demonstrate evidence of environmental safeguards may also reap such rewards. Morecritically, failure to demonstrate extensive environmental management systems may lead to a refusal to offer insurance cover. Moreover, lending institutions may not wish to be associated with ‘poorly safeguarded’ organisations. In the United States, a further development in legislation means that lending institutions may be held liable for environmental damage caused by plant held as collateral for loans. As a result there has been a significant tightening in the flow of funds to polluting industries such as scrap merchants, businesses dealing with hazardous waste, pulp and paper.
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Business Environment Tutorial
Business Organisations: The External Environment
Business Organizations: The Internal Environment
The Political Environment
The Macroeconomic Environment
The Demographic Environment Of Business
The Resource Context
The Legal Environment
Size Structure Of Firms
Government And Business
The Market System
International Markets And Globalization
Governments And Markets
The Technological Environment: E-business
Corporate Responsibility And The Environment
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