I. Benefits of Going Green
With the rising significance of sustainable development in recent years, all companies’ environmental policies have undergone significant changes based on the sustainable development approach. In this regard, the main initiatives by corporate managers include the inclusion of ecological vision along with other managerial issues into corporate culture, integration of environmental policy and environmental management system, continuous monitoring of the environmental management system and careful decision on problems strategic by considering ecological impacts also (Liu,2002). However, the critics of this approach show that there are severe costs associated with going green that may outweigh the benefits. In some cases, they show that this can lead to sacrificing economic growth in developing nations (Prasad and Kochher, 2009). Given this background, this essay examines whether going green is an empty fad or a powerful tool for competitive advantage in modern organizations. Case studies of organizations are utilized for this purpose.
Going Green Policy
At a global level, sustainable development has gained importance ever since the United Nations Framework Convention on Climate Change (1992). Based on the UNFCC (1992) Article 3.4, sustainable development needs to be integrated with national development policies by considering the need for economic growth to address climate change problems (Winkler et al., 2002). In this convention, the focus has been more on reducing greenhouse gas emissions and their targets than on sustainable development. After this, much discussion has been done on the links between sustainable development and climate change and the inclusion of sustainable development concepts in environmental policy.
The sustainable development requirements approach to environmental policy started in developed nations first. Reports indicate that greenhouse gas emissions continue to increase with the ongoing economic reforms aimed at improving economic growth (Mc Kibbin, 2004). Based on economic theory, there are two main mitigation measures to reduce greenhouse gas emissions. One is a tradable permit system for emission rights, and the other is taxing carbon emissions (Mc Kibbin, 2004).
Studies have shown that the permit system for emission rights developing nations will result in a rise in costs in terms of sacrificing economic growth since most economic activities rely on energy here. The transition from inexpensive fossil fuels to costly non-carbon resources would have a detrimental impact on economic growth and development (Prasad and Kochher, 2009). Recent estimates show that the cost of reducing greenhouse gas emissions by 550 MtCO2 in the significant energy emitting sectors costs $ 25billion, which is equivalent to the amount needed for the development goals here (Prasad and Kochher, 2009).
The next possible option is carbon taxing. Taxing can be practically problematic since the taxes will be imposed on not only the emissions that are removed on the margin but all emissions. Consequently, the income transfers from the firms to the government will be very much larger than the costs of greenhouse gas emission abatements (McKibbin, 2004). Thus it can be shown that any form of abatement measure will impose high costs in sacrificing economic growth and development in developing nations. This will not be a problem for developing countries, which have already achieved a high level of development in terms of all the indicators. In contrast, in developing nations, where most people live below the poverty line, sacrificing growth means a lot.
Based on the different scandals that arose in recent years like the Enron scandal, it is argued that business ethics is essential, which plays a significant role in the functioning of companies (Broomhill, 2007). Studies show the beneficial effects of green policy depend on the expectations of stakeholders and the constraints placed by the restrictive legislation produced by the states (Broomhill, 2007). Moreover, the green system is reported as a kind of risk management strategy by some authors (Porritt,2005). Other benefits include fostering creativity, mitigating risk, fostering entrepreneurial ethics, and promoting social sustainability (Broomhill, 2007). Thus the main benefits of adopting green policy practices include assistance in recruitment processes, risk management, differentiating between brands, diversion of attention from the negative externalities of more prominent corporations (Broomhill, 2007).
The critics of the green policy argue it as preventing competition and economic freedom (Henderson, 2001). In addition to these studies show the need for regular monitoring of the voluntary green policy activities for becoming successful. These do not happen in many cases, as shown in many studies (Christian Aid, 2004).
Based on the entity theory, the business entity and the owners of an object have separate identities and existence. Hence, all the stakeholders have the right to have equal access to information. All the stakeholders are considered to be the providers of capital for the business and are supposed to get equal access to information according to this perspective. This is based on the argument that information asymmetry is one of the leading causes of market inefficiency, which can lead to the failure of an entity (Kabalski, 2009).
Moreover, even among the stakeholders themselves, some stakeholders concerned about environmental protection and stakeholders leading information providers of an entity’s human resource and management may claim to be included as the primary users of financial information (ICAEW,2003; Kabalski,2009). Based on these, it can be argued that though it can be argued that the new framework can act to the interests of multiple stakeholders, it cannot satisfy the needs of all stakeholders to the same degree. For example, Natura, Brazil’s leading cosmetics company, has many stakeholders, including domestic and foreign stakeholders. This has created many challenges, including lack of organized production chains, logistics constraints, difficulty accessing the communities due to their remote location, and low technical training (Smith, 2009). Thus studies show that prioritizing specific stakeholders as primary users of financial information need not conflict with the other groups’ interests (Kabalski, 2009).
Based in Louisville, Kentucky, KFC Corporation is one of the most popular chicken restaurant chains in the world with very high financial performance. Though one of KFC’s chief aims is to promote animal welfare, there have been a lot of criticisms on KFC’s treatment of animals for their products by organizations like People for the Ethical Treatment of Animals (PETA). Though KFC has responded to it by arguing that its suppliers meet all legal requirements, PETA still criticizes their cruel treatment to animals (Kentucky fried cruel.com, 2009). Further, the customers complain about the cleanliness in KFC also. Another example is the manipulation of Enron’s electricity for profit maximization purposes at the expense of California citizens. All these give importance to shareholder wealth maximization as the main aim of their businesses.
Another example is the adverse effects on small businesses by Wal-Mart and the resulting adverse impact on communities in rural areas (Vedder and Cox, 2006). Moreover, the treatment of the workers has been subject to heavy criticism, according to many reports (Wittman, 2006). These include overtime work without pay that is enforced illegally, discrimination against disabled and nonprivileged people, evil pay scale, costly insurance packages which are not affordable to even full-time workers, lack of recognition, etc. (Wittman, 2006).
Rather than merely concentrating on financial performance, Natura, Brazil’s leading cosmetics company focused on personal, business, and public relationships, which has been one main contributing factor for its success. Hence, the company has been in the social service field, including educating poor children and training school teachers in Brazil and other parts of the world. The company has followed a sustainable business development model, which gave it a self-identified image (Smith, 2009). The company’s environmentally friendly policies include stopping testing on animals, becoming carbon neutral in 2007 through Carbon Neutral Programme as a result of the Climate Change Project, etc. The company’s environmentally friendly principles have been the main factor behind the success of the company. The company’s central values include humanism, which provides for establishing and maintaining relationships between human beings. This balance promotes harmony and the natural dynamics of men, transparency, which means transparently conducting business processes, and creativity based on innovation (Smith, 2009).
The main problems associated with this approach include accounting for various stakeholders’ conflicting interests, the relative importance to be given to different stakeholders, etc. Another plan called the radical political economy approach takes a very critical stand on green policy. This approach criticizes voluntary green policy and sees the green system as a method to escape from regulation by outsiders and corporate control. That way, destructive social and environmental activities are focused on the name of the green system (Broomhill, 2007).
In this essay, the benefits and costs of going green policy based on different case studies are discussed. It can be recommended that the benefits of going green policy depend on how they are implemented. Proper implementation of the green plan is therefore needed for the company’s improved performance based on the above discussion. Stakeholder interests need to be considered in the decision making processes. Business ethics is necessary for the effective functioning of a company in the cross border settings.
II. Organizational Strategies to Improve Environmental and Ethical Stance
The guiding principles of sustainable development are classified into ethical principles and operating principles (Chiras, 1991). In this essay, the practices to improve the ethical and environmental stances of a UK hotel chain are discussed.
The ethical principles are the following.
- Natural rules compliance is needed since men being a part of nature are subject to rules of life. Otherwise, it will lead to their destruction
- Cooperation with natural forces by humans is needed and not domination over natural forces
- Fair sharing of limited resources is required due to everybody’s need for these resources and are closely interrelated
- Material and intellectual needs have to be adequately balanced to reduce the environmental impact based on environment-friendly practices
- Global cooperation and consensus are needed to reduce the environmental problems since irrespective of the nation of origin; all human beings are subject to environmental issues. Hence, global cooperation and consensus is needed to tackle this issue effectively
Based on the neoliberal definition, however, the primary social responsibility of business is shareholder wealth maximization utilizing its resources, giving importance to the shareholders in a transaction. On the other hand, neo Keynesian approach defines CSR as “a company’s commitment to operate in an economically, socially and environmentally sustainable manner recognizing the interests of stakeholders” (Broomhill, 2007, p7). Thus this approach gives importance to stakeholders in contrast to the shareholders as emphasized by the neoliberal approach. The stakeholders include investors, clients, staff, government, local communities, and the environment. This is based on the stakeholder theory developed by Freeman (1984). Based on this approach, the interests of stakeholders need to be considered in the decision making the setting of an organization. The primary ethical practices include humanism, which provides for establishing and maintaining relationships between human beings. This balance promotes harmony and the natural dynamics of men, transparency, which means conducting all the business processes in a transparent manner and creativity based on innovation.
Based on the different scandals that arose in recent years like the Enron scandal, it is argued that business ethics is essential, which plays a significant role in the functioning of companies (Broomhill, 2007). Studies show that CSR’s beneficial effects depend on the expectations of stakeholders and the constraints placed by the restrictive legislation produced by the states (Broomhill, 2007). Moreover, some authors reported CSR as a kind of risk management strategy (Porritt,2005). Other benefits include fostering creativity, mitigating risk, fostering entrepreneurial ethics and promoting social sustainability (Broomhill, 2007). Thus the main benefits of adopting CSR practices include assistance in recruitment processes, risk management, differentiating between brands, diversion of attention from the negative externalities of more prominent corporations (Broomhill, 2007).
The operating principles of sustainable development are the following (Liu, 2002).
- Population control is necessary for a sustainable future due to the rapidly growing population seen in many nations
- Unnecessary energy consumption is essential for sustainable development
- The waste products can be recycled and used and use them as energy
- The need to use renewable energy sources like wind, solar energy, trees, etc. is preferred over using nonrenewable energy sources like plastic, fossil fuels, synthetic cloth, etc. Nuclear energy is considered to have the lowest lifecycle greenhouse gas emissions compared to the other technologies generating electricity. Reports show that the emission of CO2 from nuclear power is only about 25g equivalent per kWh compared to the discharge by fossil fuel chains of 450 to 1 250 gCO2-equiv./kWh(Nuclear Energy Agency,2006) Moreover, it gives a robust and reliable baseload output (Weisser et al., 2008). Other advantages are suggested as less environmental burdens like acid rains, ozone layer depletion or urban smog, and strict monitoring of the radioactive emission (Nuclear Energy Agency, 2006). According to the proponents of nuclear energy, disposal of wastes from nuclear plants is not very problematic compared to the placement of large volumes of debris from the coal energy system (Nuclear Energy Agency, 2006).
Sovacol (2008), in a critical survey of 103 greenhouse gas equivalent emissions for nuclear power plants, reports that though nuclear power plants do not directly contribute to greenhouse gas emissions, the life cycle emissions arise through plant construction, operation, uranium mining, and milling, and plant decommissioning. According to the International Energy Agency (2007) estimates, the role of nuclear energy in electricity generation will decline to 13 percent. The reasons for this decline are the safety concerns due to the significant accidents occurred in many nations, health concerns due to a nuclear disaster, problems related to the disposal of radioactive waste, transport of nuclear materials, issues like terrorism, economic issues like the need for financing decommissioning and disposal of nuclear waste, and rising safety needs for new and existing nuclear plants(Ball Foundation, 2005). Hence, atomic energy’s adoption as an alternative source needs many factors like intergovernmental and national efforts, public support, technology advancement, and substantial safety requirements (IAEA, 2007).
In addition to these, some fundamental rules for sustainability have been identified as mechanisms through which nature purifies air and water, the natural mechanisms of supplying nutrients to all species on earth like carbon and nitrogen cycles, the existence of food chains or food webs in which men are at the top as well as decomposer food chains (Chiras, 1991; Peavy et al., 1995; Liu, 2002, etc.).
There are two main mitigation measures to reduce greenhouse gas emissions. One is a tradable permit system for emission rights, and the other is taxing carbon emissions (McKibbin, 2004). The companies are also entitled to emit greenhouse gases, especially CO2, up to a specified ceiling by many developed nations’ national governments. Those companies which exceed their quotas can buy their excess credits form the carbon market, and those below the credits can sell in the carbon markets. Thus a nation can reach the Kyoto Protocol quota if all companies and individuals balance their quota. Therefore these carbon credits are meant to reduce the emissions by providing monetary value to the cost of pollution (Ratnatunga, 2007).
The discussion shows that sustainable development emphasizes the need for economic development and environmental policy to go together rather than mutually exclusive objectives. Since the rapid industrialization, population growth, and other human-made activities like fossil fuel burning, deforestation, etc., have created a substantial environmental impact on future generations, they will stand as a stumbling block in meeting the development objectives of the next generations. Hence environment-friendly practices need to be practiced for achieving development objectives. The need for a sustainable development approach in environmental policy has been recognized worldwide and is being practiced at the corporate and national levels.
A sustainable development-based approach has been included in most companies’ corporate culture and the policies of national governments. The primary ethical practices include humanism, which provides for establishing and maintaining relationships between human beings. This balance promotes harmony and the natural dynamics of men, transparency, which means conducting all the business processes in a transparent manner and creativity based on innovation.
Based on the different scandals that arose in recent years like the Enron scandal, it is argued that business ethics is essential, which plays a significant role in the functioning of companies. Some fundamental rules for sustainability have been identified as mechanisms through which nature purifies air and water, the natural mechanisms of supplying nutrients to all species on earth like carbon and nitrogen cycles, the existence of food chains or food webs in which men are at the top as well as decomposer food chains. There are two main mitigation measures to reduce greenhouse gas emissions. One is a tradable permit system for emission rights, and the other is taxing carbon emissions. The report shows that CSR as a means for profit maximization alone needs not to be beneficial and can have several adverse consequences affecting the stakeholders’ wellbeing. This focuses only on the shareholders and not the broader category of stakeholders.
On the other hand, the CSR focusing on the interests of stakeholders can be beneficial to the society as shown from the report. The main limitation associated with this is to account for the conflicting interests of various stakeholders. Moreover, the relative importance of multiple stakeholders is a matter of concern, as discussed in the report. The discussion shows the need for CSR to be based on business ethics for becoming beneficial to society. These are particularly demonstrated by the various scandals that emerged all over the world in recent years.