Ethics and the Environment

Business ethics refers to the moral principles that guide how a business behaves — what it considers right and wrong when making decisions about how to operate, treat employees, source materials, market products, and interact with communities.

Ethical behaviour goes beyond legal compliance. A business can act legally and still behave in ways many people consider unethical — paying the legal minimum wage in a country where that wage is too low to meet basic needs, for example, is legal, but many would argue it is not ethical.

Areas where ethical decisions arise:

• Supply chain: are workers in overseas factories paid fairly and working in safe conditions?
• Pricing: is the business charging prices that exploit vulnerable customers?
• Marketing: is advertising honest? Does it target children or exploit insecurities?
• Employment: does the business pay fair wages? Is it inclusive and non-discriminatory?
• Products: does the business sell products that may harm health, even if legal?

Key term — business ethics: the moral principles and values that govern the behaviour and decisions of a business.

The fundamental challenge is that ethical behaviour typically costs money, creating a tension between doing the right thing and maximising profit.

Acting ethically often costs a business more than acting unethically. This creates a genuine trade-off.

Why ethical behaviour costs more:

• Paying fair wages (above the legal minimum) increases the wage bill
• Sourcing materials from ethical suppliers costs more than sourcing from the cheapest available supplier
• Monitoring and auditing supply chains to ensure fair labour practices requires investment
• Using sustainable packaging costs more than conventional plastic packaging

Why ethical behaviour can benefit a business:

• Brand reputation: businesses known for ethical behaviour attract consumers who are willing to pay a premium, increasing revenue
• Customer loyalty: ethically-minded consumers may remain loyal even if a rival offers a lower price
• Attracting talent: many employees prefer to work for businesses with strong ethical values, reducing recruitment and retention costs
• Reducing risk: unethical behaviour that is exposed (by journalists, pressure groups, or social media) can cause rapid, serious reputational damage

The trade-off in practice: A business that pays its supply chain workers fairly may have higher production costs, compressing its profit margin on each unit sold. However, if it can use its ethical reputation to charge a premium price, the impact on overall profitability may be neutral or even positive.

Exam tip: Questions about ethics often involve a trade-off between ethical behaviour and profit. The best answers acknowledge both sides — the cost of ethical choices and the potential long-run benefits — before making a justified conclusion about which outweighs the other for the specific business.

Businesses have an impact on the natural environment through their operations — the energy they use, the waste they produce, the raw materials they consume, and the emissions they generate.

Key term — sustainability: using natural resources at a rate that does not deplete them for future generations. A sustainable business operates in a way that can continue long-term without causing irreversible environmental damage.

How businesses affect the environment:

• Carbon emissions from manufacturing, logistics, and energy use contribute to climate change
• Waste from packaging, production offcuts, and end-of-life products pollutes land and water
• Extraction of raw materials (mining, deforestation, fishing) can permanently damage ecosystems

What businesses can do:

• Switch to renewable energy sources
• Redesign packaging to use less material or fully recyclable alternatives
• Source raw materials from sustainable, certified suppliers
• Reduce food waste in agriculture and retail
• Offset unavoidable emissions through verified environmental schemes

The environment vs profit trade-off:

Environmentally responsible action	Additional cost	Potential benefit
Switch to recyclable packaging	Higher material cost per unit	Improved brand reputation; meeting retailer requirements
Install solar panels	High upfront capital cost	Lower energy bills long-term; lower carbon footprint
Source sustainable timber	Higher procurement cost	Avoids reputational risk; meets customer demand
Reduce delivery fleet emissions	Invest in electric vehicles	Long-run fuel savings; lower carbon tax exposure

The trade-off is real: environmental improvements often require upfront investment or higher ongoing costs. The payback may come in the form of cost savings, premium pricing, or reputational benefits — but these take time and are not guaranteed.

The fast fashion industry provides a clear example of how ethical and environmental considerations create genuine business trade-offs.

The business model: Fast fashion retailers design, produce, and sell new clothing ranges rapidly — sometimes launching hundreds of new styles per week. Clothes are produced cheaply (often in countries with lower wages) and sold at low prices, encouraging frequent purchasing and disposal.

Ethical concerns:

• Workers in manufacturing countries may be paid very low wages and work in unsafe conditions
• Extremely high volume production generates significant carbon emissions and water use
• The business model is built on clothes being discarded quickly, generating textile waste

The case for maintaining current practices (profit argument):

• Low prices are the core reason customers choose the brand — raising prices to fund higher wages would reduce sales volume significantly
• Competitors who do not adopt ethical practices will undercut on price, taking market share
• Shareholders expect profit growth; ethical investment reduces short-term profitability

The case for adopting ethical practices (ethical and long-run business argument):

• Growing consumer awareness of fast fashion's impact is already affecting some brands' reputations
• Regulatory risk: governments may impose stricter rules on supply chain practices or textile waste, making proactive change cheaper than reactive compliance
• Sustainable product lines can attract premium-paying customers, opening a higher-margin segment
• Talented employees increasingly prefer to work for businesses with genuine ethical commitments

Exam tip: On a 6-mark evaluate question about ethics, present both sides of the trade-off (as above), then conclude by explaining which argument is stronger for the specific business type, size, and market described in the question. A small business may need short-term profit to survive; a large established brand has more to lose reputationally.

A pressure group is an organisation that campaigns to change business or government behaviour in line with a particular cause or interest. They are external stakeholders who can influence a business without being directly involved in its operations.

Key term — pressure group: an organisation that seeks to influence business or government decisions in order to promote a cause or protect shared interests.

Examples of pressure groups and their causes:

• Environmental organisations that campaign against pollution, deforestation, or carbon emissions
• Consumer rights groups that expose misleading marketing or unsafe products
• Trade unions that campaign for better pay and working conditions
• Animal welfare groups that campaign against certain farming or testing practices

How pressure groups can affect a business:

Pressure groups can target the marketing mix specifically:

Marketing mix element	Pressure group impact
Product	Campaign to have a harmful product withdrawn or reformulated
Price	Campaign against pricing practices (e.g. ticket scalping, fuel poverty)
Promotion	Boycott campaigns reduce advertising effectiveness; negative coverage counters ads
Place	Pressure retailers to delist the business's products

Methods used by pressure groups:

• Boycotts: organising consumers to refuse to buy the business's products
• Social media campaigns: rapidly amplifying negative stories to millions of followers
• Protests and demonstrations: attracting media attention to embarrass the business publicly
• Lobbying: pressuring governments to legislate against certain business practices
• Exposé campaigns: partnering with investigative journalists to reveal damaging information

Worked example: A cosmetics company is targeted by an animal rights group after an investigation reveals that a supplier used animal testing. The pressure group organises a social media boycott campaign that trends nationally for three days. Several major retailers threaten to delist the product. The business responds by terminating the supplier contract, commissioning an independent audit of all supply chain practices, and relaunching the product range as certified cruelty-free. Sales dip in the short term but recover as the brand rebuilds trust.

Businesses can respond to ethical and environmental pressure in different ways. The response chosen reflects the business's values, financial position, and strategic priorities.

Possible responses:

1. Genuine change

The business makes real changes to its practices — paying higher wages, switching to sustainable materials, reducing emissions. This is the most credible response and reduces long-term risk but involves real cost.

2. Rebranding without substantive change ("greenwashing")

The business uses marketing language about sustainability or ethics without fundamentally changing its practices. This may work short-term but carries serious reputational risk if exposed.

3. Ignoring the pressure

If the business judges that the pressure group does not represent its core customer base, it may choose to do nothing. This is viable if the pressure group is small and the issue does not resonate with mainstream consumers — but it is a risk if the issue escalates.

What determines the appropriate response?

• Scale of the reputational threat: a small local protest has less impact than a national social media campaign
• The business's target market: if core customers are ethically motivated, ignoring pressure is more costly
• Financial position: a business with strong margins can absorb the cost of genuine change; a business fighting for survival may not be able to
• Regulatory direction: if legislation is moving towards tighter rules, proactive ethical change is likely cheaper than reactive compliance

Exam tip: Questions about pressure groups often ask how a business should respond. The best answers evaluate whether responding is worth the cost, for the specific business type and customer base described. Reference the specific pressure group methods and which elements of the marketing mix are most at risk.

Exam tip slide

Common mistakes to avoid:

• Treating ethics as entirely separate from business strategy. The best answers frame ethical decisions as business decisions with trade-offs, not just moral choices in isolation.
• Saying a business "should" act ethically without acknowledging the cost. The exam rewards recognition that ethical behaviour is a genuine trade-off, not a cost-free good.
• Confusing pressure groups with other stakeholders. A pressure group is specifically an organisation campaigning for a cause — it is not the same as customers, employees, or shareholders, though it may represent their interests.
• Describing "greenwashing" as though it is a safe strategy. Examiners reward candidates who recognise that it carries significant reputational risk if discovered.
• Generic answers about the environment that do not link to a specific business. Use the details given in the question — the type of product, the target market, the size of the business — to make your analysis specific.

On the environment vs profit trade-off:

The most likely question framing is: "Evaluate whether [business] should [adopt ethical/environmental practice]." Structure your answer as: benefit of doing it → cost of doing it → net judgement for this specific business.