Globalization and the Natural Environment

1
Globalization and the Natural Environment

• Trevor Hunter
• Kings University College

2
Globalization and the Environment

• One of the biggest ethical dilemmas companies
  face today
• Different countries place different value on
  clean environments not always by choice however
• Rich countries tend to value environmental
  protection more than poor ones they can afford
  to

3
Globalization and the Environment

• In the latter half of the 20th century, the
  perspective of environmental concerns has changed
  from local to global
• Things are no longer someone elses problem

4
Globalization and the Environment

• This perspective arises from three
  conceptualizations
• Finiteness
• Interdependence
• Sustainable development

5
Finiteness

• Can the earth as a whole (not just one country)
  continue to absorb the damage we inflict?
• A notion of limits to the carrying capacity of
  the global ecosystem
• Challenges the status quo of expansion equalling
  progress bigger is not always better

6
Interdependence

• Global village, spaceship earth, shrinking world
  etc. the notion that we are dependent upon each
  other arises from economic connections and
  information dissemination
• As we know more about others, we realize how
  connected we are and how we depend upon each other

7
Sustainable Development

• Development which meets the needs of the present
  without compromising the ability of future
  generations to meet their own needs - World
  Commission on Environment and Development (WCED),
  1987

8
Sustainable Development

• Development includes
• Societal
• Economic
• Industrial
• Differs from how developed countries developed

9
Sustainable Development

• Tragedy of the commons (Garrett Hardin)
• Grazing cattle in a common pasture
• Individual incentive to overuse the pasture leads
  to collective overuse, leading eventually to the
  destruction of the pasture and an end of the
  resource for all

10
Sustainable Development

• A developed world concept being applied to the
  developing world
• North/West vs. South/East debate developed vs.
  developing
• North/West emphasis on global environmental
  protection (now that they are developed)
• South/East emphasis on right to develop just the
  way North/West did but, what if China used as
  much fossil fuels as US?

11
Globalization and the Environment

• Ironically, environmental degradation was mainly
  caused by local problems, but affect the world,
  and may be stopped through globalization
• However, due to their scope, local problems have
  become global problems

12
Impact of Human Systems

• Increase in greenhouse gases
• Carbon dioxide
• Methane
• Nitrous oxide
• Ozone
• CFCs
• Water vapour
• Causing
• Acid rain
• Depletion of the ozone layer
• Depletion of critical resources e.g. energy, fish
  stocks

13
Globalization and the Environment

• Air pollution
• Carbon Dioxide from US factories causes
• Poor air quality days in Canada
• Acid rain dying trees, dead lakes
• Deforestation in Brazilian rainforest causes
• Reduced oxygen production/carbon dioxide cleaning
  globally

14
Globalization and the Environment

• Global warming
• Greenhouse effect So-called greenhouse gases
  (carbon dioxide, methane, Chlorofluorocarbons,
  CFCs etc) block infrared radiation that normally
  escapes raising the global temperature
• Melting ice caps and glaciers rising sea levels
• Drying out of arable farmland

15
Globalization and the Environment

• Ozone depletion
• Protective layer in atmosphere that reflects
  harmful radiation (like UV rays) away from planet
• Increase in skin cancer
• Reduced immunity in food crops
• Destruction of low-level food chain organisms

16
Globalization and the Environment

• Land pollution
• Garbage dumping and soil degradation
• Where does it go Toronto shipping garbage to
  Michigan
• Topsoil overuse and erosion means less arable
  land
• Increase in irrigation requirements

17
Globalization and the Environment

• Water pollution/over use
• Only 1.1 of all water is fresh, of this 92 is
  used for agriculture or industrial purposes
• Once water is used for industry it is essentially
  dead
• Disproportionate distribution of fresh water
  water wars?

18
Globalization and the Environment

• Water pollution
• Lake Karachai in Russia most polluted site in
  the world
• Aral Sea 65 000 km2 in 1964, less than half of
  that now
• Cuyahoga river fire - 1969

19
Aral Sea - 1987
http//edcwww.cr.usgs.gov/earthshots/slow/Aral/Ara
l1987
20
Aral Sea - 1997
http//edcwww.cr.usgs.gov/earthshots/slow/Aral/Ara
l1997
21
The Aral Sea
April 8, 2005
Sourcehttp//www4.gvsu.edu/lioubime/CentralA_file
s/aral_sea_links.htm and http//www.redtailcanyon.
com/items/919511.aspx
22
(No Transcript)
23
(No Transcript)
24
(No Transcript)
25
Costs of Inaction

• Stern Review concluded that, over next 50 years,
  if nothing done to stem climate change
• Output per head could fall permanently by 20
  i.e. everyone in the world would be a fifth
  poorer than they would otherwise have been
• Agricultural productivity will drop ? effects on
  farmers ? increases in cost and reductions in the
  supply to food processing industries

26
Costs of Inaction

• Fishing catches will decline
• Increased costs of damage from hurricanes,
  flooding and forest fires ? increases in the
  costs of insurance and more volatile financial
  markets
• Major victims developing countries - in deaths
  and as a of GDP
• Implications for business operating in developing
  countries

27
Costs of Action

• 1 of GDP costs of stabilizing CO2 at
  500-550ppm by 2050
• BUT costs could range from -2 to 5 of GDP
  (Stern)

28
Environmental Sceptics

• Lomborg argues that
• Global warming is occurring but claims
  exaggerated
• Resources spent reducing greenhouse gases better
  used improving the health, welfare and economies
  of DCs (opportunity cost)
• Future generations should not be denied fruits of
  economic growth
• Other sceptics claim that
• Global warming a natural phenomenon and not
  man-made

29
Environmental Policies

• Green taxes e.g. congestion charges
• Controlling emissions e.g. using emissions
  trading schemes (ETS) as in the EU
• Setting quantitative limits on emissions
• Switching to low carbon technologies
• Increasing energy efficiency
• These policies more effective with greater
• international cooperation

30
International Cooperation

• Kyoto protocol
• signed by 37 industrialised countries the EC
• signatories legally committed to cut GHG
  emissions
• US not a signatory
• protocol ran to 2012

31
Durban Climate Conference 2011

• 194 participants agree to start talks on new
  accord
• Aim a legally binding accord to cut GHGs
• To take effect by 2020 at the latest
• Poor countries to receive financial aid to help
  reduce emissions
• US a signatory
• Kyoto commitments re GHGs extended for 5 years
  for industrialised countries

32
Policy Implications for Business

• Policies can impose costs on business through
• Imposition of taxes
• The need to buy emissions credits
• Having to change production techniques
• Causing firms to relocate production
• But also provide opportunities
• New markets for alternative technologies

33
Globalization and the Environment

• Implications for global managers
• While environmental protection is now a global
  phenomenon, different national standards exist
  will you take advantage of them?
• Environmental protection costs increase the
  liability of foreignness
• Ethics and reputation vs. short term
  competitiveness

34
Globalization and the Environment

• How will NGOs and regulations affect your
  international expansion?
• Standards ISO 14001
• Legitimacy expression
• Pollution havens national comparative
  advantages
• Competitiveness drivers

35
Ethics in International Business

• Trevor Hunter
• Kings University College

36
Ethics vs. Laws and Institutions

• Laws
• Rules developed and enforced by governments and
  legal systems the regulate the behaviour and
  actions of actors within a given jurisdiction
• Are relatively closed to interpretation
• Often codified

37
Ethics vs. Laws and Institutions

• Ethics
• The study of moral judgements about the rightness
  of actions and rules of behaviour
• Intended to contribute to mutually beneficial
  modes of conduct as an alternative to government
  prescription and enforcement.1
• 1Source Baron, 2000

38
Ethics vs. Laws and Institutions

• In other words, ethics is a system to which we
  can all subscribe to avoid the need for
  government intervention and force
• Supposedly reflect universals that allow for
  interaction without regulation and anarchy

39
Problems with Acting Ethically

• Ethical behaviour does not always make the firm
  better off
• Refusing to make payments to government officials
  to facilitate business can result in lost
  opportunities or business failure
• Paying workers uniform salaries around the world
  can make product prices uncompetitive

40
Problems with Acting Ethically

• Ethical behaviour may not always be self-evident
  or rewarded
• Being green in a country that does not expect
  environmental protection is costly and may not
  provide a good reputation
• Paying more than standard wages (but still lower
  than Western rates) could still lead to boycotts
  or be seen as helping the locals

41
Problems with Acting Ethically

• May conflict with the business profit objectives
  or managements self interest
• Agency risk incentives, self-interest with
  guile, bounded rationality
• Ethics sometimes cost money shareholders or
  customers may not be forgiving

42
Problems with Acting Unethically

• Although ethics cost money, unethical behaviour
  can result in greater losses if and when it is
  discovered
• Reputation effects no customers
• Bad apple spoiling the bunch leading to over
  regulation and industry suspicion (accounting,
  corporate governance)

43
Ethics in International Business

• Ethics are culturally and socially based
• Cultures and societies differ
• Ethics differ between cultures and societies
• Ethical differences further complicate
  international business

44
Ethics in International Business

• Three major perspectives of ethics that are
  relevant
• Utilitarianism
• Contractarianism
• Pluralism

45
Ethics in International Business

• Utilitarianism
• Founded on ideal of maximizing net expectable
  utility for all parties affected.
• In a situation, the costs and benefits are
  weighed so that the outcome is in the best
  interests of all
• Global managers act ethically when everyone wins

46
Ethics in International Business

• Utilitarianism - Problems
• How do you assess welfare maximization? How can
  you measure the net contributions to social
  welfare?
• Equal pay vs. equal prices globally who wins
  and who loses?

47
Ethics in International Business

• Contractarianism
• What is ethical is what is fair to everyone (note
  that fairness is not the same as interests)
• Global managers act ethically when everyone is
  treated fairly and everyones rights are respected

48
Ethics in International Business

• Contractarianism - Problems
• Whose rights take precedence when crossing
  borders and interests disagree? Each has equal
  rights but different interests

49
Ethics in International Business

• Pluralism
• It is the individuals duty to act morally
• Focuses on rightness or wrongness of actions,
  distinct from interests and rights
• Global managers act ethically when they do the
  right thing, regardless of who has the right or
  wins moral integrity

50
Ethics in International Business

• Pluralism - Problem
• Moral integrity is difficult to define when what
  is right and wrong is perceived differently in
  different countries

51
Ethics in International Business

• Corporations have to define their ethics systems
• Ethical global managers combine contractarianism
  and pluralism to develop company ethics systems
  that guide behaviour

52
Ethics in International Business

• Good ethics systems
• Define company rights that transcend borders and
  extend them to all stakeholders that are narrow
  but consistent with company strategy
• Embrace moral absolutes which are independent of
  country norms and are applied to everyone equally
  and therefore may be at times, higher than what
  are embraced in a given country

53
Ethics in Business

• The firm develops ethical standards that are
  absolute by evaluating all the perspectives of
  stakeholders around the world to find the
  highest standard.
• Members are then socialized to that standard
  (affects hiring and filtering mechanisms).
• Standards are communicated and incentives are
  created to support desired ethical behaviours.

54
Ethics in International Business
55
Ethics in International Business

• Integrity
• Having and demonstrating a strong commitment to
  personal morals and company standards
• Reflects the need for absolute standards
  (separate from the company) and relative
  standards (reflecting what the company does).

56
Ethics in International Business

• Integrity is demonstrated at two levels
• External interactions
• Activities through which the company is
  represented to the outside world
• Internal interactions
• Activities involving groups or individuals within
  the company

57
External Interactions

• Big challenge when there are large differences
  between the dominant behaviours in a situation
  and what the mangers judgement of what the
  behaviours should be.
• So. . .managers must understand the ethics of the
  country in which they are operating and those of
  their company and how they differ

58
External Interactions

• Cultural relativism You do what is appropriate
  in a given culture. If it is ok for members of a
  given society to do something, it is ok for you
  to do it.
• Often used as an excuse but is it ethical?

59
External Interactions Cultural Relativism
60
External Interactions

• If ethics are universal (i.e. go beyond values
  and norms which differ between cultures) then
  cultural relativism is not an ethical perspective
• What to do?

61
External Interactions

• Acting ethically raises the level of ethical
  performance of supporting industries ultimately
  improving the conditions of the country
• Only dealing with ISO 14001 suppliers better
  environmental conservation
• Only dealing with non-sweatshop produced goods
  higher disposable income for workers

62
Internal Interactions

• Since these actions are internal to the firm,
  external stakeholders are less likely to know
  about unethical practices and firms face less
  scrutiny and pressure to act ethically
• However, companies still should have ethical
  standards that govern internal interactions

63
Internal Interactions

• Common ethical situations
• Worker safety less is cheaper
• Equity in hiring hire the cheapest
• Equality of opportunity only some get promoted
• Comparable compensation sweat shops and
  disproportionate pay
• Freedom of expression why is it needed?

64
Ethical Decision-making

• Ethical decision-making depends upon three
  competencies
• Good observations skills internally and
  externally
• Asking tough questions
• Understanding what standards are core to the
  company knowing what NOT to compromise

65
Ethical Decision-making

• Determining what are core standards
• Is it strategic can we survive without it?
• Is the standard as high as possible?
• Are people (animals, the environment) being put
  before the company?

66
Ethical Decision-making
Global Standards Local Standards
Core to competitiveness
Non-core to competitiveness
Morrison, 2001
67
Ethical Decision-making

• For activities that are non-core to the success
  of the firm and do not go against the core
  standards use local standards, otherwise, use
  global standards.

68
Why Ethics Are Important to Business

• When facing an ethical problem in a country,
  there are three basic choices
• Avoid doing business in the country
• Maintain standards and risk putting the firm at a
  competitive disadvantage
• Change standards

69
Why Ethics Are Important to Business

• From an ethics perspective only options 1 2 are
  ethical
• Option 3 is risky
• Reputation effects
• Stakeholder perceptions
• Impression management problems
• Boycotts etc. etc.

70
Why Ethics Are Important to Business

• Short-term gains not worth the long term pain
  (losses)
• Information travels fast and it is difficult to
  hide
• Stakeholders have long memories so do the press
• Public perception is important (avoid, change
  values, change perception, confront)

71
What do Businesses do?

• They create, maximize and transfer wealth
• They also
• Create most of the worlds products, innovation,
  food, pharmaceuticals, etc. to allow people to
  live
• Provide most employment to allow people to live
• Provide investment opportunity to spur innovation
  and economic growth
• Provide the bulk of governmental revenue to fund
  social programs, educational institutions, to
  deal with societal problems
• Theyre kind of important

72
Why do We Expect Businesses to act Ethically?

• The answer
• We are irrational hypocrites!

73
Why do Businesses Act Unethically?

• They have no choice! Businesses are in a no-win
  situation. We expect them to do the impossible
• Businesses are expected to hire a lot of people,
  at home, pay everyone a living wage, provide a
  broad selection of the highest quality goods for
  the lowest price, produced sustainably, fairly,
  locally and organically while providing a
  quarterly return on investment in the
  double-digits and support social causes!
• Irrational!

74
Why do Businesses Act Unethically?

• In the mean time we benefit from business
  activities and have the luxury of criticizing
  them because their operations (that we despise)
  allow us a lifestyle that is cushy enough to have
  no other cares than to worry about how bad
  businesses are.
• Hypocrisy!