The Impact of Environmental Issues on Managing Business - Literature review Example

The impact of environmental issues on managing business Introduction Sustainability is a fast becoming an important topical issue in corporate governance today. This is because sustainability has been used to define the extent to which corporations around the world can be guaranteed of continual and perpetual growth in all sectors and areas of their operations (Blackman, 2008). Harding (2006) observed that when sustainability is mentioned, attention of corporate leaders goes to three major areas which are economic sustainability, social sustainability and environmental sustainability. Mitchell (2003) was however worried that in years past, corporate leaders were cleared biased towards the promotion of economic sustainability and social sustainability to the neglect and disadvantage of environmental sustainability. This is because most global businesses saw the reason for their existence as the need to make profits, whiles society tasked the companies to give back to them, hence fostering economic and social sustainability. In the past few years however, the trend seems to have changed as global businesses are now being tasked to be focused on environmental sustainability as much as they have given attention to economic and social sustainability. This is because greater part of environmental problems including degradation and depletion of the ozone layer has been directly linked to the activities of these companies. As most companies have started responding to calls for environmental sustainability, this paper looks at the impact that environmental issues have created on the management of modern business. Businesses and environmental sustainability The environment has been defined as anything that is found around us as humans (Solomon, 2010). The environment therefore comprises both natural and artificial components. This study however puts particular emphasis on the natural environment, as it happens to be the worse affected when it comes to the environment. Since the 1970s, there has continued to be major depletion of the natural environment, creating the fear the generations unborn may not have sufficient natural resources to serve their needs (Zhang and Wen, 2008). Apart from the depletion of natural resources, increasing temperatures also happens to be a major issue facing the natural environment. Pallangyo (2007) therefore explained environmental sustainability as a conscious approach that is put in place with the intention of stopping the increasing rate at which the natural environment is being depleted or destroyed. The topic of the impact of environmental issues on managing businesses is thus seen as an important topic that relates modern businesses to the role they have to play about environmental issues. There are many who have said that businesses only suffer negatively from addressing environmental issues. This is because their approach to addressing environmental issues cost them so much money, increasing their spending by the year (Karamanos, 2001). This paper this therefore being written to expose the benefits that businesses will also derive from environmental sustainability after they have committed all forms of needed financial and non-financial resources into environmental protection. Environmental challenges faced by businesses There are several challenges or impacts faced by businesses as they attempt to respond to environmental issues. Some of these challenges and impacts are financial while others are nonfinancial. Below, three key environmental challenges faced by businesses in responding to modern environmental issues are discussed. Impact of public perception on marketing There are two schools of thought when it comes to how responding to environmental issues by businesses affect the way they approach customers through marketing. In the first school of thought, it is argued that businesses are judged by the extent of their commitment to environmental sustainability (Chunmei and Zhaolan, 2010). To this end, the public has its own perception about companies whereby buyer behaviour is even affected by the perceptions of the public. In effect, the impact or challenge that this creates for businesses is for them to position their marketing based on the public’s perception about their commitment to environmental issues. A typical example of the impact of public perception on marketing can be given with the infamous oil spill event involving the oil industry giants BP Oil. Around the time, there was a public perception developed about the company, which was such that the public perceived the company as being uncommitted to environmental sustainability. In a spate of few days, the company’s share prices started falling sharply, which was seen by analysts as a direct reaction of the public’s perception (Short and Smith, 1994). In the long run, the company had to restructure its marketing strategy to educate the public about its environmental commitments (Johnson, 2006). It can therefore be indicated that companies that are perceived to be environment conscious can have easier approaches to marketing than those not perceived as such. Impact of cost and profit Within modern companies, especially those in the manufacturing sector whose production and business operations has to do with direct exposure to the environment, Adams and Geoffrey (2008) noted that they have a thin line between cost and profit, all of which is determined by their approach to environmental issues. Explaining in a similar context, Kangalawe and Lyimo (2010) indicated that the extent of financial commitment that modern companies are making to environmental sustainability have increased in the past decade. On the surface, this is something that impacts on expenditure and thus increases the cost of production for companies. For example, in a bid to promote environmental sustainability, companies choose environmentally friendly sources of energy even when these cost them more. Altman et al. (2005) however saw a different side of this debate, where the cost incurred through environmental sustainability can be transformed into profits in the long run. This is so because as it has been explained earlier, public perception alone determines buyer and investor behaviour, where the probability that companies seen to be environmentally concerned will get better buyer and investor endorsement than those who are not seen as such (Huntington, 2013). By implication, in the modern management of businesses, environmental issues come as a cost at the initial stage and in the short term but has long term benefits of profitability. Such profitability can be secured especially if the companies are able to promote their environmental commitment well enough to create an environmental brand. Energy and material security It is said that there is energy and material security when industries can be guaranteed of sustained presence and availability of energy and raw materials to power their production (Sen, 2013). Meanwhile, Shiller (2003) saw a looming problem with energy and material security where the rate of depletion of natural resources has been likened to a possible blackout from availability of these resources. This situation has been illustrated in the figure below where from 1970, there has continued to be decreasing quantum of natural resources available. Figure 1: Reduction in forest land due to depletion Source: Bates (Lecture Notes) Going into the future, there is a major challenge for industries to have sufficient amounts and quantities of energy and materials to power their production, given the high rate at which the depletion is taking place. Meanwhile, when industries cannot land on natural resources to use as energy and raw materials, the direct consequence that they are likely to face is increased cost of energy and materials. This is because Baumgärtner and Quaas (2010) regarded the natural sources of energy and raw materials as the cheapest that industries can have access to. What is more when energy and material sources become limited, bargaining power of suppliers will increase. This is because there will be few suppliers serving several companies. Once this happens, the cost of production will go up and affect the industries as well their end users. Approaches to responding to environmental issues Having stressed on the challenges faced by the corporate world as a result of environmental issues, it is very clear that the need for businesses to attempt to tackle environmental issues is a responsibility that they cannot shy away from. Based on this, three major approaches to responding to environmental issues are identified and discussed. These approaches are seen as systematic steps that can be followed in an orderly manner. Environmental impact assessment The first approach to responding to environmental issues is through the use of environmental impact assessment. Writing on environmental impact assessment, Andersen (2010) noted that different industries and sectors of the economy are impacted by environmental issues in different ways. At the same time, the extent of impact that these different industries cause on the environment comes in different dimensions. With this noted, the best way for any individual company can attempt to respond to environmental issues is for them to know exactly how they are affected by environmental issues and how they are also contributing to environmental issues. For this to be possible, environmental impact assessment can be used. There are several ways in which environmental impact assessment may be performed. For best outcome of this assessment however, Aragon-Correa and Sharma (2013) recommended that global companies can resort to third party and independent agencies that are specifically tasked with environmental protection roles to do so. This way, the companies can be assured that the results from their environmental impact assessment can be the exact picture of where they stand with environmental issues. Based on where a company finds itself to stand by way of how it contributes to environmental issues such as degradation, and how it is impacted by environmental issues, it can then take specific steps at solving the issues. Regulatory enforcement After the first step of knowing a company’s stand through environmental impact assessment, regulatory enforcement is expected to be taken as the next approach to responding to environmental issues. Szejnwald, de Jong and Levy (2009) noted a happy trend where various governmental and global agencies such as Environmental Protection Authority and Green Earth Organisation have regulations and guidelines in place for companies that are committed to fighting environmental issues. In the same way, there are policies, regulations and guidelines that protect companies from suffering the effect of various environmental issues on their business. What this means is that after the environmental impact assessment, it is possible to use regulatory enforcement to both protect a company from the negative impacts of environmental issues and also help prevent the company from becoming part of those who put the environment at risk. Willis (2013) noted that regulatory enforcement may come with some cost to the companies and also require a lot of stakeholder commitment. However, it has already been mentioned that once such commitments are honoured and the costs are borne, there will be long term benefits that the companies will enjoy. In effect, the commitment to becoming environmentally responsible company is something that requires long term planning from the companies. As such long term planning is employed, the companies come to terms with what they will get in return in the long run. Global environmental reporting For multinational companies, there is a reporting concept known as Global Reporting Initiative (GRI) that most of them have used to report on a global basis, how sustainable they are. The GRI has several categories of reporting including economic, environmental and social. As far as the environmental category is concerned, corporations are expected to report on indicators such as materials, energy, water, biodiversity, emissions, products and services, compliance, and transport (Jermier, 2008). Rightly in line with these indicators are the regulations, policies and guidelines that the companies are expected to implement in the suggested step above. While writing about how companies can turn their environmental investments, commitments and sustainability into profitability, Sparkes and Cowton (2013) advised the companies to focus on the publicity of what they do. This is because when there is sufficient publicity which creates a positive public perception, the perception can be turned into marketing benefits as it has been stated already. It is therefore admonished that one of the best ways for global companies and other smaller companies to approach the issue of responding to environmental issues is for them to clearly report on what they are doing as far as the environment is concerned. Also writing on the advantages of reporting, Brady (2011) mentioned that once the companies report, it gives them the opportunity to subject themselves to public scrutiny and advise on how to approach environmental sustainability. The role of leaders and managers in dealing with environmental issues There are a number of things that leaders and managers of businesses can do in dealing with environmental issues. Whiles applying the various approaches to responding to environmental issues, there are two major roles that leaders are expected to play. These two are discussed below. Role models Leaders and managers are expected to be seen as important role models in dealing with environmental issues. When reference is made to role models, the need for leaders and managers to practice what they preach is being recommended. As the whole world becomes highly sensitive to environmental sustainability, it is not expected that leaders and managers will preach virtue and practice vice. Rather, they are expected to take up the mantle in ensuring that their organisations stick with commitments that are made in the public domain. This recommendation is made against the backdrop that Karl-Henrik (2010) observed a situation where most global leaders of companies only present themselves as ambassadors for the promotion of the environment when they are doing so to score propagandist points. To be real changers, these leaders and managers are expected to be at the forefront when it comes to enforcing what is known to be right as far as the environment is concerned. Facilitators The second role expected to be played by the leaders and managers is the role of facilitators. The leaders are expected to be facilitators by not sitting back and observing when their employees or staffs are implementing known procedures for protecting the environment. As facilitators, the leaders are first expected to learn very thoroughly about environmental sustainability so that they can understand what it entails to lead to fight against environmental degradation and other environmental issue. Once the learning is done, the leaders must be facilitators by being ready to support budgets that are specifically prepared for the promotion of environmental sustainability. In effect, it is expected that there will be very strong senior management support when it comes to the implementation of strategies aimed at promoting environmental sustainability. Last but not least, it is expected that there will be leadership facilitation by using leadership styles that easily engages employees and all other stakeholders in the fight against negative environmental issues. Conclusion This study was performed to understand how the performance of modern businesses has changed as a result of environmental issues in which the businesses have now been tasked to focus on. It has been noted throughout the study that as much as the managing of businesses comes with additional cost as a result of the fight against environmental issues through sustainability, these also come with long term benefits. It will therefore be concluded that managers of modern businesses must continue to be focused about the roles they ought to play in ensuring that their companies become environmentally sensitive. As far as the roles are concerned, leaders of businesses must see themselves as role models that others look up to. This way, they must be seen as being the forerunners in the implementation of regulations, policies and guidelines for the protection of the environment. Once this is done, the environment in which we live today can be seen as a better place for everyone. 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