Business and the environment
Business activity uses resources and can create pollution, waste and damage to habitats. A cost that falls on people who are not part of a transaction, such as a river polluted by a factory, is called an external cost or externality. Sustainable development means meeting the needs of today without harming the ability of future generations to meet their own needs.
Key idea
An externality is a cost or benefit that affects third parties who are not directly involved in an economic activity. Pollution is a common negative externality.
How pollution is controlled
Governments can reduce environmental damage through laws, fines and taxes on polluting activities. Pressure groups are organisations that campaign to change business behaviour, for example by protesting or influencing customers. A business may also recycle materials and cut energy use to lower its impact.
Ethics in business
Being ethical means doing what is morally right, even when it is not the cheapest option. Examples include not using child labour, paying fair wages, and being honest in advertising. Ethical choices can raise short-term costs, but they can also improve reputation and attract customers.
Example
A clothing firm checks that its suppliers do not use child labour and pay fair wages. Costs rise, but its ethical image wins loyal customers.
Remember
- Corporate social responsibility (CSR) means acting in the interests of society, not just profit.
- Ethical and green choices may cost more in the short term.
- A good reputation is a long-term benefit.