Ethical and Environmental Considerations
Ethical considerations refer to the moral principles and values that guide business decision-making. They involve doing what is 'right' rather than simply what is legal or profitable. Businesses face ethical choices in how they treat workers, suppliers, and customers, how they source materials, and how they market their products.
How businesses treat their employees has significant ethical implications. This includes fair wages, safe working conditions, reasonable working hours, job security, and opportunities for development.
M&S has a strong ethical reputation for worker treatment. They pay all UK staff above the Living Wage (higher than minimum wage), offer generous staff discounts, and provide extensive training programmes. This has helped M&S maintain low staff turnover and a positive brand image, though it does increase their labour costs compared to competitors who pay minimum wage.
Sports Direct faced severe criticism in 2016 when investigations revealed workers in their Shirebrook warehouse were effectively paid below minimum wage due to strict security searches and "six strikes" policies. Workers were on zero-hours contracts with no guaranteed hours. The negative publicity damaged their reputation, led to Parliamentary inquiries, and forced the business to implement reforms including guaranteed hours contracts and improved working conditions.
Ethical treatment of suppliers involves paying fair prices, honouring contracts, maintaining long-term relationships, and ensuring suppliers also meet ethical standards.
Cadbury committed to using only Fairtrade cocoa in their Dairy Milk chocolate bars. This means paying cocoa farmers in developing countries a fair price that covers production costs and provides a decent income. While this increases Cadbury's costs, it ensures reliable cocoa supply, improves farmers' livelihoods, and enhances Cadbury's reputation with ethically-minded consumers, particularly younger demographics.
Online fashion retailer Boohoo faced a major crisis when investigations revealed that suppliers in Leicester were paying garment workers as little as £3.50 per hour (well below minimum wage) in poor conditions. Although Boohoo didn't directly employ these workers, their reputation was severely damaged for not adequately monitoring their supply chain. Their share price fell 40%, major retailers dropped their products, and they were forced to implement extensive supply chain reforms.
Ethical customer treatment involves honest communication, fair pricing, protecting customer data, and prioritising customer safety over profits.
John Lewis has built its reputation on ethical customer treatment with its "Never Knowingly Undersold" promise and generous returns policy. They provide honest product information and excellent customer service. This ethical approach has created strong customer loyalty, though it increases costs. Customers are willing to pay slightly higher prices because they trust John Lewis to treat them fairly, creating a sustainable competitive advantage.
In 2015, Volkswagen admitted to installing "defeat devices" in 11 million diesel vehicles worldwide that made emissions appear lower during testing than in real-world driving. This deliberately misled customers who thought they were buying environmentally-friendly cars. The scandal cost VW over £30 billion in fines and compensation, severely damaged their reputation for honesty and engineering excellence, and led to declining sales. It demonstrates how unethical customer treatment can have devastating long-term consequences.
Ethical sourcing involves ensuring materials are obtained from suppliers who treat workers fairly, respect the environment, and operate legally.
Starbucks sources 99% of its coffee through ethical sourcing programmes (C.A.F.E. Practices) that ensure fair wages for farmers, prohibit child labour, and protect the environment. They pay premium prices for ethically-sourced coffee beans. While this increases costs, it ensures supply chain security, appeals to ethical consumers, and protects Starbucks' reputation. It's a core part of their brand identity and competitive positioning.
Primark has faced challenges in ensuring ethical cotton sourcing while maintaining low prices. They've invested heavily in their "Primark Cares" initiative to source more sustainable cotton and monitor supplier conditions. However, maintaining ethical standards while keeping prices extremely low remains challenging, and they've faced criticism when supply chain issues are discovered. This demonstrates the tension between ethical sourcing and price competition.
Ethical marketing involves honest advertising, not exploiting vulnerable groups, respecting privacy, and avoiding harmful products or practices.
Dove launched ethical marketing featuring women of all shapes, sizes, ages, and ethnicities rather than traditional models. This challenged beauty stereotypes and resonated with customers tired of unrealistic standards. The campaign significantly increased Dove's sales and brand loyalty, particularly among women who appreciated the authentic representation. It proved that ethical marketing can be both socially responsible and commercially successful.
The gambling industry has faced increasing criticism for marketing tactics that target vulnerable people, including advertising during sports events watched by children and offering inducements to problem gamblers. This led to voluntary restrictions and the "Whistle" campaign during football matches. Companies like Paddy Power have faced backlash and fines for controversial campaigns. Unethical marketing damaged the industry's reputation and prompted regulatory intervention, forcing companies to adopt more responsible marketing practices.
Businesses must balance ethical considerations with commercial realities. Ethical practices often increase costs, which can make businesses less price-competitive. However, the long-term benefits of reputation, customer loyalty, and reduced risks often outweigh short-term cost increases. Different stakeholders may have conflicting views on what is ethical, requiring businesses to carefully navigate competing demands.
Environmental considerations involve how business activities impact the natural world. Increasingly, businesses are expected to minimise negative environmental effects and contribute to sustainability. Key areas include sustainability, waste disposal, pollution, and responses to climate change.
Sustainability means meeting present needs without compromising the ability of future generations to meet their needs. It involves using resources responsibly, minimising environmental damage, and ensuring long-term viability of business operations.
Patagonia, the outdoor clothing company, has built its entire business model around sustainability. They use recycled materials, offer lifetime repairs, and even encourage customers to buy less through their "Don't Buy This Jacket" campaign. They donate 1% of sales to environmental causes. While their products are premium-priced, customers are willing to pay for sustainability. This approach has created fierce brand loyalty and consistent growth, proving sustainability can be commercially viable.
Unilever committed to sourcing 100% of agricultural raw materials sustainably and halving environmental impact by 2030. Their sustainable brands (like Dove, Ben & Jerry's) grew 69% faster than the rest of the business. They've reduced costs by £1 billion through efficiency improvements while enhancing reputation. This demonstrates that sustainability can drive both environmental benefits and business growth, though it requires significant long-term investment and commitment.
Waste disposal involves how businesses handle waste materials from production and products after use. Responsible waste management includes reducing waste, reusing materials, and recycling.
IKEA has committed to becoming a circular business by 2030, meaning all products will be made from renewable or recycled materials and designed to be reused, refurbished, or recycled. They've launched furniture buy-back schemes and are testing rental models. Their waste-to-energy programmes convert unusable materials into energy. While requiring significant investment, this reduces waste disposal costs, appeals to environmentally-conscious customers, and future-proofs the business against resource scarcity.
Fast fashion companies like Boohoo and Shein have faced criticism for contributing to waste, with the fashion industry producing 92 million tonnes of textile waste annually. Many clothes are worn only a few times before disposal. Brands have been exposed for burning unsold stock rather than recycling. This has damaged reputations and led to regulatory pressure. In contrast, H&M's garment collection scheme (where customers can return old clothes) has improved their environmental credentials, though critics argue it doesn't solve the overproduction problem.
Pollution includes air pollution (emissions), water pollution (discharge into rivers/seas), noise pollution, and land contamination. Businesses must minimise pollution to protect the environment and communities.
Thames Water has been repeatedly fined for discharging raw sewage into rivers, receiving record penalties including a £20 million fine in 2021. The pollution damaged ecosystems and violated environmental regulations. This severely damaged their reputation, led to customer complaints, and the cumulative fines significantly impacted profitability. It demonstrates how pollution can result in both financial penalties and reputational harm, even for utility companies with less direct competition.
Tesla built its entire brand around producing zero-emission electric vehicles to combat air pollution from traditional cars. This positioning helped Tesla become the world's most valuable car manufacturer despite producing fewer vehicles than competitors. Their focus on reducing vehicle emissions appealed to environmentally-conscious consumers and positioned them ahead of regulatory changes requiring lower emissions. However, they face criticism over the environmental impact of battery production and electricity generation, showing that even "green" businesses face environmental challenges.
Climate change refers to long-term shifts in global temperatures and weather patterns caused by greenhouse gas emissions. Businesses contribute to climate change through their operations and face increasing pressure to reduce their carbon footprint.
BP (formerly British Petroleum) announced plans to become net-zero by 2050 and transform from an oil company to an "integrated energy company" investing heavily in renewable energy like wind and solar. They're reducing oil and gas production while expanding renewable capacity. This is driven by both climate concerns and recognition that fossil fuels face declining demand. While the transition is costly and risky, BP argues it's essential for long-term survival as the world moves away from carbon-intensive energy.
Drax, once the UK's largest coal-fired power station, converted to burning biomass (wood pellets) to reduce carbon emissions. They claim to be the UK's largest renewable power generator. This transition helped them comply with climate regulations, access government subsidies, and improve their environmental reputation. However, they face controversy over whether biomass is truly sustainable, demonstrating the complexity of climate solutions. The conversion required massive investment but was necessary to avoid closure as coal becomes unviable.
Businesses face significant tensions between environmental responsibility and profitability. Environmental improvements often require substantial upfront investment with long payback periods. However, businesses that ignore environmental considerations face increasing regulatory, reputational, and operational risks. Many successful businesses are finding that environmental responsibility can drive innovation, efficiency, and competitive advantage, though this requires long-term commitment and strategic planning.
GreenGlow Electronics manufactures smartphones in the UK. The business sources lithium for batteries from mines in South America, where workers earn £2 per day in dangerous conditions. GreenGlow recently faced criticism when environmental groups revealed that toxic waste from their production facility was being illegally dumped in local rivers, causing pollution and harm to wildlife.
The company's marketing campaign claims their phones are "eco-friendly" because they use 10% recycled plastic in cases. However, their phones are not designed to be easily repaired, and most customers replace them every two years, creating significant electronic waste. GreenGlow's CEO argues that making phones more repairable would increase costs and make them less competitive against cheaper imports.
Following negative media coverage, GreenGlow's sales fell 15% in six months. The local council fined them £500,000 for illegal waste disposal. Several major retailers, including TechWorld and Phones4U, removed GreenGlow products from their stores. Employee morale has declined, with several experienced engineers resigning to join competitors with better environmental and ethical reputations.
Identify two ethical or environmental issues facing GreenGlow Electronics.
Acceptable answers (any two for 2 marks):
Note: Students must identify specific issues, not general statements. "Environmental problems" would not be sufficient - they must specify the type of issue.
Explain one impact on GreenGlow Electronics of the negative publicity about their ethical and environmental practices. (2 marks)
This question requires:
"GreenGlow's sales have fallen, which will reduce their revenue and profit."
Why only 1 mark?
This response demonstrates understanding of the business concept (sales falling reduces revenue and profit - AO1B ✓), but fails to apply specific evidence from the case study. The student hasn't used the "15% in six months" data or linked it specifically to the negative publicity about ethical and environmental practices. To achieve AO2, they needed to reference specific details from the case study.
"One impact is that GreenGlow's reputation has been damaged, leading to major retailers like TechWorld and Phones4U removing their products from stores. This will significantly reduce their distribution channels and make it harder for customers to purchase their phones, leading to declining sales."
Why full marks?
This response demonstrates clear understanding of business concepts - reputation damage leading to loss of distribution channels and reduced sales (AO1B ✓). It also effectively applies specific evidence from the case study by naming the actual retailers mentioned ("TechWorld and Phones4U") and linking this to the negative publicity (AO2 ✓). The response shows how the specific details from the case study support the explanation.
Analyse one reason why GreenGlow Electronics might find it difficult to improve their ethical and environmental practices. (3 marks)
This question requires:
"One reason GreenGlow might find it difficult to improve their practices is cost. The CEO states that making phones more repairable would increase costs and make them less competitive against cheaper imports. This would mean higher prices for customers."
Why only 2 marks?
This response shows understanding of the cost challenge and competitiveness (AO1B ✓) and applies specific evidence from the case study about the CEO's concerns regarding repairability (AO2 ✓). However, it lacks clear analytical reasoning. The student makes a simple statement "this would mean higher prices" but does not develop a chain of reasoning explaining WHY this makes improvement difficult. For AO3A, they needed to explain the logical connections: how increased costs → need to raise prices → but already losing customers and retailers → price increases would worsen their position → making it even harder to afford improvements. The response lacks this depth of cause-and-effect reasoning and does not clearly demonstrate why the cost issue creates a significant difficulty.
"One reason GreenGlow might find it difficult to improve is cost. The CEO states that making phones more repairable would increase costs and reduce competitiveness. This is problematic because GreenGlow has already lost 15% of sales and major retailers have removed their products, so their revenue has fallen. This means they have worsening cash flow to invest in improvements like better waste disposal. If they raise prices to cover the costs of improvements, they could lose even more customers, making their cash flow worse and making it even harder to afford the changes needed."
Why full marks?
This response demonstrates understanding of business concepts including costs, competitiveness, revenue, and cash flow (AO1B ✓). It applies specific evidence from the case study: the CEO's concerns, the 15% sales decline, and loss of retailers (AO2 ✓). Most importantly, it provides clear analysis with a logical chain: improvements cost money → sales already falling → worsening cash flow → raising prices would lose more customers → worsens cash flow further → makes improvements harder. The response shows cause-and-effect reasoning explaining WHY improvement is difficult (AO3A ✓).
AO1B (Understanding): Demonstrating knowledge of business terminology and concepts. For example, understanding that reputation affects sales, or that costs impact competitiveness.
AO2 (Application): Using specific information from the case study to support your answer. This means referencing actual details like "15% sales decline," "£500,000 fine," or "TechWorld and Phones4U."
AO3A (Analysis): Developing a chain of reasoning that shows cause and effect. This means explaining "because... this means that... therefore... which leads to..." - showing how one point connects logically to the next.