Environmental &
Ethical Issues
Environmental impacts, externalities, sustainable development, pressure groups, legal controls, business ethics, CSR and the profit vs ethics conflict.
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How Business Activity Impacts the Environment
Click each impact to explore its cause and a real-world example.
These environmental impacts are all examples of negative externalities — costs created by business activity that are borne by society, not the business itself. Always link environmental damage to the concept of externalities in exam answers.
A cost or benefit that results from business activity but is experienced by third parties (people outside the business transaction) rather than the producer or consumer.
- Air, water and noise pollution affecting local residents
- Traffic congestion caused by delivery lorries
- Health problems caused by toxic waste or emissions
- Climate change from carbon emissions
- Visual pollution — ugly industrial sites
- Destruction of natural habitats and wildlife
- Job creation reduces unemployment in the local area
- New roads and infrastructure built for business benefit the community
- Training programmes develop skills across the wider workforce
- Innovation and technology that benefits other industries
- Tax revenue funds public services (schools, hospitals)
- Regeneration of deprived areas through investment
Exam key: Always state WHO bears the cost or receives the benefit — it must be third parties / society, NOT the business or its customers. The business does not pay for external costs; society does.
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. (Brundtland Commission, 1987)
How Businesses Can Contribute
The Brundtland definition is examinable. Key phrase: “meets the needs of the present without compromising the ability of future generations to meet their own needs.” It’s about balance — business growth NOW must not permanently damage the planet for LATER.
How & Why Businesses Respond to Environmental Pressures
Businesses face pressure from multiple sources to improve their environmental performance.
| Source of Pressure | How It Pressures Businesses |
|---|---|
| Pressure Groups | Organisations like Greenpeace or Friends of the Earth campaign, protest and generate negative publicity — damaging reputation and sales if businesses don’t act. |
| Consumers | Growing number of ethically-aware consumers choose to boycott or switch to more environmentally responsible brands. |
| Government / Legal Controls | Laws such as pollution controls, carbon taxes and emissions trading schemes force businesses to reduce environmental harm. |
| Investors / Shareholders | ESG (Environmental, Social, Governance) investing means shareholders increasingly expect responsible environmental behaviour. |
| Media | Negative press coverage of environmental damage can quickly destroy brand reputation. |
| Competitors | If rivals adopt greener practices, a business risks losing customers to more ethical alternatives. |
Legal Controls Over Business Activity
Governments use legal tools to force businesses to reduce environmental harm. Click each control to explore.
Laws that set maximum levels of pollution (emissions, discharge into water) that businesses are allowed to produce. Businesses that exceed limits face fines or closure.
Businesses pay a tax based on the amount of CO₂ they emit — this creates a direct financial incentive to invest in cleaner technology and reduce emissions.
Businesses are given a carbon allowance. Those that emit less than their allowance can sell surplus permits to businesses that exceed their limits — creating a market-based incentive to reduce emissions.
Rules governing packaging (e.g. single-use plastic bans), vehicle emissions standards, energy efficiency requirements for buildings and appliances.
Businesses that breach environmental laws face substantial financial penalties or criminal prosecution of directors. Acts as a deterrent against non-compliance.
- Forces all businesses to meet minimum environmental standards — levels the playing field
- Reduces harm to communities and future generations
- Encourages innovation in green technologies
- Generates government revenue (via taxes and fines)
- Increases costs for businesses — may reduce competitiveness
- Compliance costs may be passed on to consumers as higher prices
- Small businesses may struggle to afford compliance
- Can discourage investment if regulations are seen as too strict
A set of moral principles or values that guide how a business behaves — what is considered right or wrong in business decision-making, beyond what is required by law.
The idea that businesses should consider their impact on society and the environment, not just on their shareholders. Going beyond legal requirements to behave responsibly.
Profit vs Ethics — The Key Conflict
Click a card to flip it and see both sides of the conflict.
How Businesses Respond to Ethical Issues
| Response | Example |
|---|---|
| Adopt a Code of Ethics | Publish a formal set of values and ethical standards that all staff must follow. |
| Join Fairtrade Schemes | Pay certified fair prices to farmers and suppliers in developing countries — e.g. Fairtrade coffee, chocolate. |
| Eliminate Child Labour | Audit suppliers and refuse to work with any that use child labour in their operations. |
| Increase Transparency | Publish sustainability reports, supply chain audits and CSR targets annually. |
| Switch to Ethical Sourcing | Source materials from certified sustainable, ethical suppliers only. |
| Respond to Pressure Groups | Engage constructively — change practices rather than ignoring criticism. |
| Pay Fair Taxes | Avoid aggressive tax avoidance schemes; commit to paying taxes in every country of operation. |
Environmental & Ethical Issues as Opportunities AND Constraints
- Develop green products — growing demand from eco-conscious consumers
- Charge a premium for ethically sourced / sustainable products
- Attract ethical investors and ESG funding
- Gain competitive advantage through strong ethical reputation
- Attract talented workers who want to work for responsible employers
- Government grants available for sustainable investment
- Compliance with environmental laws increases costs
- Cannot use cheapest suppliers if they fail ethical standards
- Environmental taxes and levies reduce profit margins
- Pressure groups and media scrutiny limit certain business decisions
- Consumer boycotts can damage sales if ethical failings exposed
- Long-term investment in green tech may reduce short-term profit
Child labour and Fairtrade are the most common ethical issue examples in IGCSE exam questions — learn them well. For evaluation questions: argue that ethical behaviour costs more short-term but builds long-term reputation, customer loyalty and avoids boycott risk.
Global warming, air/water pollution, deforestation, noise, resource depletion — all caused by business activity.
Negative side-effect on third parties — e.g. pollution harming local residents. Business doesn’t pay; society does.
Positive side-effect on third parties — e.g. jobs created for local community or infrastructure built.
Meet present needs without compromising future generations’ ability to meet theirs. (Brundtland 1987)
Campaign and protest to force businesses to improve environmental behaviour — boycotts, negative publicity.
Tax per tonne of CO₂ emitted — creates financial incentive to reduce emissions and invest in clean energy.
Carbon allowances — businesses that emit less can sell permits to those that exceed limits.
Moral principles guiding business decisions — beyond what law requires.
Businesses considering their wider social and environmental impact voluntarily — beyond legal obligations.
Ethical behaviour costs more short-term but builds long-term reputation, loyalty and reduces boycott risk.
Major ethical issues — businesses must audit supply chains. Fairtrade = certified fair prices to developing-country suppliers.
Ethics/environment = opportunity (green products, ESG investors) AND constraint (higher costs, limited suppliers).
GreenLeaf Supermarkets has recently decided to source all its coffee from Fairtrade certified suppliers, paying higher prices than its competitors. It has published a new CSR report pledging to eliminate single-use plastics by 2027.
- Knowledge (K): GreenLeaf attracts ethically-conscious consumers who choose responsible brands (1 mark)
- Application (App): Builds stronger brand reputation and customer loyalty over the long term (1 mark)
- Analysis (An): Increases sales revenue and long-run profit despite higher short-term costs (1 mark)
ChemCo is a chemical manufacturing business. Local residents have complained about toxic fumes from the factory. A pressure group has launched a campaign targeting ChemCo’s social media accounts, and the local newspaper has run several negative articles.
- Knowledge (K): Pressure group generates significant negative publicity about ChemCo’s environmental practices (1 mark)
- Application (App): Consumers boycott ChemCo’s products — sales and revenue fall (1 mark)
- Analysis (An): ChemCo forced to invest in cleaner production to restore reputation and retain customers (1 mark)
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