11.2 Business Ethics and the Environment

In our last chapter we considered the ethical issues arising from the relationship between businesses and society in general. We'll continue with this general look at ethical issues, but the relationship we'll focus on next is that between businesses and the environment.

By the term environment The natural world, including all kinds of living organisms, the atmosphere, and the earth., we mean the natural world—and that term includes all of what we see in the world around us, from local plants and animals to the Amazon rain forests to the oceans and the atmosphere and everything else in- between, including all kinds of living organisms. Humans are also part of the natural world, and therefore part of the environment, understood in this broad way. As we’ll see, many of the effects businesses have on the environment affect both non-human animals and humans alike.

It isn’t difficult to find the ethical issues in the relationship between business operations and the environment. The most obvious and perhaps most pressing of all these issues is climate change, and especially the marked increase in the average global temperature since the early twentieth century. According to data gathered by US government agencies, 2023 was the warmest year ever recorded.1 In the next section, we will explore climate change in greater detail.

Apart from climate change, though, we also find ethical issues concerning business and the environment on other scales. Some of these have to do with specific events brought about by the actions of specific companies or corporations, such as when, in 1989, the oil tanker Exxon Valdez ran aground in Prince William Sound on the southern coast of Alaska. The accident released an estimated 11 million gallons of oil into the water and surrounding coastlands, resulting in the deaths of hundreds of thousands of birds, thousands of otters and seals, billions of fish eggs, and thousands of other animals.2

Another facet of the relationship between business and the environment is government regulation of business activities. While we’ve discussed government regulation before, here we’ll see how it targets specific industries and specific industry practices in order to reduce, eliminate, or penalize environmental damage. For example, partly in response to what happened in Prince William Sound, the US government passed the Oil Pollution Act (OPA) in 1990.3 This legislation governs the liability companies have for polluting water with oil. It involves provisions for oil recovery and foreign businesses, as well as for the associated financial liabilities. A passage early in the OPA stipulates that "each responsible party for a vessel or a facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon the navigable waters or adjoining shorelines or the exclusive economic zone is liable for the removal costs and damages...that result from such incident."4

While such catastrophic environmental damage is, at least for now, an exceptional case, the Exxon Valdez spill and related regulation prompt several of the crucial ethical questions we’ll ask in this chapter. These include:

• What obligation do businesses have to protect the environment?

• What obligation do businesses have to make amends for environmental damage they cause?

• What obligation do businesses have to prevent possible environment damage in the future?

• What is the proper role of government in regulating how business activities affect the environment?

These questions, and others that we’ll take on in this chapter, all belong to a broad area of moral concern: the place of humans in the natural world, and their treatment of that world. The natural world is a living world, and what businesses do, both locally and globally, affects all life. These are moral and ethical issues, in addition to being business and resource management issues. Sometimes the effects of business operations are direct, as in the case of the Exxon Valdez, while other times the effects are indirect. But they all have moral dimensions, and ought to be an important part of how businesses think about what they do now and what they intend to do in the future.

Some of the environment-related ethical issues for businesses arise due to conflicts between certain profit-seeking activities, along with the environmental consequences associated with them, and more environmentally friendly ways of doing business, which often increase costs. We have seen similar issues before: in chapter 7, for example, we covered the issue of fast fashion, and discussed how many clothing companies opt to have their products made in countries such as Bangladesh, where they will be able to pay lesser wages to workers who labor in worse conditions. These companies save money on production costs, which leads to greater profits, but contribute to an ethical problem elsewhere.

The same thing can happen in relation to the environment. The United States has certain regulations to govern the amount of pollutants or other waste that companies can generate in their production processes. But other countries don’t necessarily follow the same regulations—and so, just as some companies have done in Bangladesh, an American manufacturing operation could choose to base itself in another country, where weaker oversight will make it both cheaper and easier to turn a profit. If such a company then pollutes much more than it otherwise would, were it based in America, then we see a conflict between an ethically dubious action—significant amounts of pollution—and a company’s primary goal, which is to make money.

The possibility of a situation like this sometimes leads to a race to the bottom A competition in which the players “win” by making increasingly greater concessions.. A race to the bottom is a competition in which the players “win” by making increasingly greater concessions. Suppose that an American company is looking to build a new manufacturing facility overseas, in a country with fewer environmental regulations. In order to lure the business and secure the resulting jobs and taxes, countries may vie against each other by agreeing to successively lower amounts of oversight or regulation. The “winner” of this competition is the country that gets the contract and the new facility, but at the cost of allowing greater pollution or environmental contamination than another country would have allowed. The race to the bottom can have catastrophic effects in different industries, as we’ll see.

Racing to the bottom over environmental issues is one manifestation of more general phenomena known as collective action problems. A collective action problem is one where a group as a whole would benefit if each of its members performed a certain action, but the individual actions themselves make little difference to the outcome. Only the coordinated efforts of many group members can bring about a change, and individual actions taken in isolation do almost nothing. As a result, individual group members have little reason to change their behavior, both because their individual actions accomplish so little and because it is unlikely that other people will change their behavior.

A race to the bottom is a collective action problem because it would be better if environmental regulations were in place throughout the world—but individual countries have little incentive to adopt those regulations, because doing so would make it difficult to lure business operations.

More generally, many ethical problems of the environment and business are also collective action problems. Yes, it would be better if all American businesses agreed to even higher standards of clean manufacturing and environmental care—but individual companies have little incentive to take that path, because doing so would cost more money and put them at a disadvantage relative to their competitors. Similarly, the country would be better off if more people recycled and chose more sustainable materials and products—but individual people have little incentive to do so, because many other people will not and because an individual person’s recycling habits make no difference at all to large-scale sustainability issues.

We’ll return to the topic of races to the bottom in the next chapter, but throughout this current one we’ll see the ethics of collective action problems again and again. As we do, we must remember that, for any given collective action problem, there is a limited amount of time that group members have to take a collective action. If the problem grows too large, it may not be possible for group coordination to solve it.

The issue of collective action problems also raises another question about environmental ethics and business: who, specifically, bears the responsibility for taking care of the environment?

This question has various possible answers. The first and most obvious is that individual people have the responsibility of caring for the environment. And in a sense this is true, since the only organisms on our planet that can make long-term plans to care for the environment are humans. It is therefore our responsibility to do so. But it is also true that the individual actions we take make virtually no impact on the environmental causes we care about.

We can put the point more sharply by asking, how can I be responsible for taking care of the environment, when my actions make no difference to the outcome? That is, how can I carry the ethical obligation to recycle or use less water or electricity, when what I do won’t change anything? And, to be clear, it won’t: while me not recycling might cause bottles to pile up in my house, actually recycling them makes no measurable difference to the overall amount of reusable material available in the future.

There are two other obvious answers to the question about who bears responsibility for the environment: businesses and governments. Businesses may bear this responsibility because of their size—if they produce more, then they use and pollute more, and are therefore able to make more impactful changes than individual people. Governments can also take more impactful action, either by setting up infrastructure to responsibly use resources or by regulating the way businesses interact with the environment.

We will focus on the business side of this responsibility here. There is a strong case to be made for seeing businesses as the entities primarily responsible for caring for the environment; if they do have that responsibility, then environmental concerns ought to be some of their most important priorities.

As you explore the ethical issues of business and the environment in this chapter, keep these questions in mind: who is responsible, and why? What can those responsible do about these problems, and how should they best act?