CHAPTER 11

Managing Environmental Issues

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Ch. 11: Key Learning Objectives

Knowing the main features of environmental laws in the United States and other nations

Understanding the advantages and disadvantages of different regulatory approaches

Assessing the costs and benefits of environmental regulation

Defining an ecologically sustainable organization and the stages through which firms progress as they become more sustainable

Understanding how businesses can best manage environmental issues

Analyzing how effective environmental management makes firms more competitive

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Role of Government In many nations government regulates business

activity in order to protect the environment

By setting common standards, governments can take cost of pollution control out of competition

Governments can also provide economic incentives and offer systems for resolving disputes

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Major Areas of Environmental Regulation

Environmental Protection Agency (EPA), main agency charged with pollution control, was established in 1970

In the United States, the federal government regulates in three major areas of environmental protection:

Air pollution Water pollution Land pollution (including solid and hazardous waste)

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Leading U.S. Environmental Protection LawsFigure 11.1

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Major Areas of Environmental Regulation Air pollution

Occurs when more pollutants are emitted into the atmosphere than can safely be absorbed and diluted by natural processes

• A special problem of air pollution is acid rain• The efforts of the U.S. government to reduce acid rain

illustrate some of the difficult trade-offs involved in environmental policy

Water pollution Occurs when more wastes are dumped into waterways than

can be naturally diluted and carried away

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Major Areas of Environmental Regulation

Land pollution The contamination of land by both solid and hazardous waste Movement for environmental justice – efforts to prevent

inequitable exposure to hazardous risks in disadvantaged communities

Superfund or CERCLA legislation passed in 1980• Established fund to clean up the most dangerous toxic waste

sites in the U.S.

• Of 1,200 sites put on National Priority List, by 2008 only 332 of them had been fully cleaned up

• As many of 10,000 other sites might need clean-up

• Program is regarded as public policy failure

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Alternative Policy Approaches Environmental standards

Standard allowable levels of various pollutants are established by legislation or regulatory action

Also called command-and-control Can be environmental quality standard or emission standard

Market-based mechanisms Based on the idea that the market is a better control than

extensive standards that specify precisely what companies must do

Tradable permits - allows businesses to buy and sell the right to pollute, a process known as cap-and-trade

Emissions charges or fees Government incentives

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Alternative Policy Approaches Information disclosure

The government encourages companies to pollute less by publishing information about the amount of pollutants individual companies emit each year

Also called regulation by publicity or regulation by embarrassment

Civil and criminal enforcement The threat of fines or even prison can be an effective deterrent

to corporate outlaws who would otherwise degrade the environment

European regulators have actively pursued environmental criminals

U.S. Sentencing Commission has established guidelines for sentencing environmental wrongdoers

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Advantages and Disadvantages of Alternative Policy Approaches to Reducing Pollution

Figure 11.2

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Costs and Benefits of Environmental Regulation

Figure 11.3

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Greening of Management Environmental regulations establish minimum

standards for environmental performance

Many firms are now voluntarily moving beyond compliance to improve environmental performance in all operational areas This is referred to as the greening of management

Three reasons companies take this path Gain competitive advantage Gain legitimacy Moral commitment to ecological responsibility

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Stages of Corporate Environmental Responsibility

Clean technologyBusinesses develop innovative, new technologies that support sustainability

Product stewardshipManagers focus on all environmental impacts associated with the full life-cycle of a product

Pollution preventionFocuses on minimizing or eliminating waste before it is created

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Ecologically Sustainable Organization

Companies that operate consistently with principles of sustainable development

Is an “ideal,” absolute standard against which real organizations can be measured

Some visionary companies are trying to achieve this

Supportive government policies and widespread movement among many businesses and other social institutions will be needed for ESOs to succeed

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Environmental Partnerships Voluntary, collaborative partnerships with

environmental organizations and regulators to achieve specific objectives

Draw on the unique strengths of the different partners to improve environmental quality or conserve resources

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Environmental Management in Practice

Organizational elements of many proactive green companies Top management involvement in sustainability Line manager involvement Codes of environmental conduct Cross-functional teams Rewards and incentives Environmental audits to track progress

• Publish combined “sustainability reports” integrating social, economic and environmental performance

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Environmental Audits

A way for green companies to track their progress toward meeting environmental goals

More recently, many firms have moved to integrate their social and environmental reporting into a single sustainability report

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Environmental Management as a Competitive Advantage

Cost savings Companies that reduce pollution and hazardous waste,

reuse or recycle materials, and operate with greater energy efficiency can reap significant cost savings

Product differentiation Companies that develop a reputation for environmental

excellence and that produce and deliver products and services with concern for their sustainability can attract environmentally aware customers

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Environmental Management as a Competitive Advantage

Technological innovation Technological innovation can lead to imaginative new

methods for reducing pollution and increasing efficiency

Reduction of regulatory risk Companies that are proactive with respect to their

environmental impacts are often better positioned than their competitors to respond to new government mandates

Strategic planning Companies that cultivate a vision of sustainability must

adopt sophisticated strategic planning techniques

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