This post introduced The STEEPLE Analysis – Environmental Opportunities and Threats.
Natural environment brings both opportunities and threats to businesses. And businesses can also have both the positive and negative impacts on the natural environment around them, and the whole society in which they operate.
Because there are so many different issues that need to be considered in business decision-making when it comes to nature and dealing with all of those environmental concerns, more and more businesses these days are becoming increasingly aware of the environmental impact of their business activities.
It is also because Corporate Social Responsibility (CSR) impacting the general public is at the heart of business decisions being one of the business objectives for companies in the private sector.
In fact, every business activity in either the primary, secondary, tertiary or quaternary sector has a tremendous influence on the natural environment.
How business activity impacts on the environment?
A business’s activity will have impact on natural environment and other related and unrelated parties through externalities.
A business that is environmentally friendly will have a positive image in the society. Also, favorable weather conditions and seasonal changes may bring new opportunities to increase sales revenue. For example, cold and snowy winters will bring benefits to ski resorts and travel agencies specializing in selling ski holidays, while hot and sunny summers will benefit beach resorts.
A business that fails to recognize the importance of being environmentally friendly will most likely have negative publicity resulting in bad image, therefore leading to loss of sales for the business. Also, any unfavorable weather conditions or natural disasters will cause threats to a business resulting in an increase in business costs. For example, torrential rain and tornadoes will threaten farms and outdoor entertainment activities while health epidemic will negatively impact food producers, retailers and any public activities.
Businesses will of course try to work in such a way that their impact on the natural environment is minimized, and that any threats from the natural environment will not disrupt normal operations of the business. Managers will also try to exploit the possibilities that natural environment brings to increase sales
Positive business impact on the natural environment
Positive externalities mean the positive impact of business decisions on society. They contribute to the social benefits of a business project. For example, the construction of a new hospital in a residential area that is fully powered up by energy from renewable energy sources, will not only provide local residents with easier access to healthcare and create more jobs, but will also contribute to reducing pollution levels.
Positive externalities may include:
- Setting socially responsible business objectives. The managers of the business are aware of its effect on society and consider the interests of society and environment by taking responsibility for their decisions.
- Spreading awareness. By spreading awareness about acting socially responsible towards the natural environment, the business can help in the conservation of scarce natural resources and wildlife.
- Promoting organic food. By producing food using methods complying with the standards of organic farming, the business can give customers a better mix of nutrients and reduce their likelihood of exposure to pesticides.
- Using recycling materials to produce new products. Manufacturing in this way can cost less and requires less energy than using new raw materials. Recycling can also greatly reduce pollution as the amount of pollution produced during the manufacturing process is minimized.
- Employment creation. Employment generated through tourism may help in reducing other activities such as overfishing that are bad for the environment.
- Reducing packaging. Using bio-degradable materials to package the products will create positive brand image for the business. Many businesses are also trying to reduce the quantity of packaging materials that they use.
- New business opportunities in renewable energy. This can create additional work for local business that wishes to transform into a new industry.
- Not testing goods on animals. This may apply to the cosmetics industry where many new raw materials are being tried out on animals when they are first introduced.
- Not selling genetically modified food. GM foods are being produced from organisms that have had changes introduced into their DNA using the methods of genetic engineering. Many world’s biggest retailers and wholesalers such as Costco, Kroger, Walmart and Whole Foods maintain that they do not sell genetically modified foods.
Negative business impact on the natural environment
Negative externalities mean the negative impact of business decisions on society. They make up the social cost of a business project. For example, despite the setting up of a new hospital in a residential area that benefits the local community in many ways, it will also cause never-ending traffic jams and increased noise pollution for the residents.
Negative externalities may include:
- Increase in pollution levels. Many countries try to control pollution by charging a levy on the amount of pollutants released to the atmosphere or by introducing laws to completely ban the release of dangerous chemicals into water and soil. However, in some countries, laws are not that strict as in developed countries. Business activity indeed increases pollution levels and is responsible for a range of pollutions:
- Air pollution is caused by fumes from manufacturing units and exhaust fumes created by vehicles. It reduces air quality leading to respiratory disorders in humans, affects plants and animals, causes damage to buildings.
- Soil pollution is caused by factory waste that is not recycled properly finding its way into landfills causing toxic substances to decompose into the land.
- Water pollution is caused by improper chemical waste water disposal from factories into rivers, lakes, seas and oceans. Toxic water can be life-threatening, if consumed by humans and seriously damaging to the plant and animal life in the water.
- Thermal pollution means that exhaust fumes in the air are trapped causing that heat to increase air temperatures. Water that is used as a coolant in crude oil refineries and paper production is then returned to the environment at a higher temperature.
- Light pollution mainly comes from electronic billboards used by businesses for advertising. It causes over-illumination that interferes with human biological clocks and can influence air traffic systems and astronomical observations.
- Noise pollution is caused by manufacturing plants, highways full of cars and airplanes. It is irritating and negatively affects people’s quality of daily life.
- Visual pollution is all about unattractive views such as power lines, industrial chimneys and overcrowding that can be unpleasant and prevent people from enjoying the views of natural environment.
- Waste creation. Businesses create an incredible amount of waste. Many different types of waste produced by business activities include:
- Commercial waste. Produced in large amounts by factories and offices.
- Paper, glass, wood and metal waste. As this kind of waste can easily be recycled, businesses around the world are also trying to be more environmentally friendly by reducing, reusing and recycling raw materials.
- Packaging waste. Non-degradable packaging in the form of plastic bags has a serious long-lasting impact on the environment.
- Chemical waste. Hazardous waste in the form of toxic chemicals and harmful gases flowing into the soil, water and air cannot often be recycled, therefore has to be treated by specialized companies.
- Overuse of natural resources. Many production businesses use non-renewable raw materials in their production processes which may lead to complete depletion of those resources. The tourism industry will use huge amounts of water abusing scarce natural resources. Higher demand for dining will increase overfishing while furniture companies will contribute toward deforestation by cutting down trees.
- Use of non-renewable energy sources. Office equipment, production machinery, lightning, heating and air conditioning use large amounts of energy that mainly comes from coal, oil and gas – natural resources that cannot be replaced once they have been used.
- Destruction of the natural environment. Concrete constructions of real estate residential communities, roads, bridges and airports will lead to terminal destruction of arable land, loss of natural habitat for plants, destruction of food sources for animals and large-scale soil erosion.
- Emission of greenhouse gasses. Heating and air conditioning systems release greenhouse gases into the atmosphere, and manufacturing businesses burn fossil fuels such as coal and oil causing the amounts of greenhouse gases (e.g. carbon dioxide and methane) to greatly increase exceeding the levels naturally found in the environment.
In order to reduce negative externalities, e.g. the amount of pollution or greenhouse gasses, the governments around the world can put legal controls on companies that heavily destroy the natural environment. This is called formal controls.
Other business stakeholders such as pressure groups will surely be also involved when it comes to controlling business activity and its impact on the natural environment. This is called informal controls.
If the business decides to be more environmentally friendly by adopting new productions methods to reduce its pollution levels, it will definitely satisfy the local community on one hand, but reduce overall net profits affecting the owners. That kind of action opens the possibility of stakeholder conflict arising from the business trying to be environmentally friendly at the expense of maximizing profits.
Nevertheless, it is reasonable to assume that minimizing negative impact of business activities on the natural environment, must be a combined effort of not only governments and businesses, but also scientists and individuals. Many countries are developing renewable energy sources such as wind energy and solar energy which is a great way to protect natural environment.
