Ethical Concerns: Multinationals and Sustainability – Part 1
Welcome to this session of the International Socio-Economic Context Course. This class starts the review of the Ethical Concerns and Sustainability Chapter that aims for a review of the increasing interest of different business world stakeholders, related to both topics.
In this session, a review of the major environmental concerns affecting the global community and the implications they have for MNCs at home and abroad. This is important because it has been demonstrated that negligence of people, enterprises & Governments have endangered the balance of the world and produced many problems such as pollution, scarcity of resources and extinction of different species of plants & animals.
So, by the end of this class you will be able to recognise the emerging environmental concerns, the concept of social responsibility and some major environmental issues such as greenhouse gasses, depletion of the ozone layer, deforestation, fishing stocks, hazardous waste, pollution as well as some initiatives such as the Kyoto protocol.
As Ajami. & Goddard J. (2015) state, national and international concerns about the environment have increased dramatically over the past decade. Although damage to the earth’s environment has been an issue in development and industrial policies in many countries for the past several years, it has not been in the forefront of international attention; other issues, such as economic growth, industrialization, population growth, and poverty, have occupied center stage.
Concern for the environment has grown for several reasons. First, damage to the environment is becoming increasingly visible. A number of environmental and ecological disasters, including several involving large MNCs, have attracted worldwide attention. Second, environmental action groups have become more powerful. The ability of these groups to influence public policy has increased substantially following sustained support, both political and financial, from different sections of society that are more concerned with the environment than ever before. Third, a number of international bodies, such as the United Nations and the World Bank, and national governments have demonstrated their responsiveness to the issue by establishing environmental guidelines and, in the case of governments, by passing laws aimed at protecting the environment.
Concerns for the environment have wide-ranging implications for MNCs in both their home and host countries because not only are MNCs affected by general environmental guidelines but they are viewed as one of the prime sources of danger to the world’s en- vironment. This view is valid to a significant extent, given the fact that MNCs influence about 25 percent of the world’s assets by their actions and affect, in one way or another, about 70 percent of internationally traded products and 80 percent of the world’s land devoted to the cultivation of export-oriented crops. In many developing countries, MNCs are the prime source of industrial activity. Even where their share in total industrial activity is not large, they are the most visible and therefore the first focus of attention for environmentalists and similar groups.
These developments present both challenges and opportunities for MNCs. The challenges arise in the form of new considerations that MNCs must bear in mind while making investment and operating decisions and the additional costs they must incur to ensure that their operations are environmentally safe and comply with host-country regulations. In some instances, MNCs may be required to close or completely modify the production of certain plants for environmental reasons. Along with these challenges are new opportunities. Concern for the preservation of the environment calls for new types of products and new lines of business and, consequently, creates new markets. A final feature of environmentalism is sustainability. Sustainability concerns maintaining a level of production or harvesting that provides a reasonable supply for current consumption, but not so much today that tomorrow’s supply will be in question.
Social Responsibility of Business
Economists have long debated what constitutes the social responsibility of business. Some believe that the primary purpose of any business is the maximization of corporate profits. Others believe that a business has an inherent responsibility to, for example, maintain an acceptable work environment for its employees, provide a living wage, provide adequate health benefits to its employees, and reduce the amount of pollutants that stem from the manufacturing of its products. Countries experiencing rapid industrialization, such as India and China, often experience deterioration in water- and air-quality levels as a by-product of the increase in the burning of fossil fuels such as coal, petroleum, and natural gas.
There are countless examples of corporations’ ill effects on the environment, and there are almost as many responses to such problems. Some countries, such as those in the European Union, believe in taking unilateral action to reduce their levels of pollution, while other countries, such as the United States and Australia, have expressed the desire to include the rapidly industrializing countries in any agreement regarding pollution control. While economists still debate whether a business has the moral responsibility to protect the environment, it seems that many nations of the world have already assigned this task to manufacturers the world over. Supranational organizations such as the WTO and NGOs such as Greenpeace have also entered the fray regarding environmental addendums to trade agreements and support of environmentally friendly causes.
Major Environmental Issues
Greenhouse gasses contribute to global warming by trapping heat in the earth’s atmosphere. It is predicted that if such gasses continue to accumulate at the present rate, they will lead to an increase in global temperatures by 2°C to 3°C relative to preindustrial times. A 3° increase would melt the ice caps of Greenland, which would have a disastrous impact on the world’s ecological systems, rising sea levels by as much as 20 feet (6 meters) and flooding low-lying coastal areas, many of which are industrial and urban centers with a high population concentration. To put things in historical perspective, the average global temperature in 1800 was 13.52°C (56.24°F), while today it is 14.48°C (58.06°F). Other worst-case scenarios predict temperature rises by 2°C by 2035, when the ice caps would start to melt. Some experts forecast a rise in average global temperatures to 16.5°C (61.7°F) by 2050 or even a rise to 18.6°C (65.5°F) by 2100.
The gasses that contribute most to global warming and the greenhouse effect include carbon dioxide, methane, and nitrous oxide, with the first two accounting for about 75 percent of the warming effects. Presently, we are experiencing the highest level of carbon dioxide in the atmosphere in the last 800,000 years. A major source of carbon dioxide accumulation in the atmosphere is industrial combustion of fossil fuels. MNCs are major users of fossil fuels in a number of ways. They extract, refine, and transport much of the world’s supply of fossil fuel and are significant consumers of such fuels, both as an intermediate and final source of energy.
Depletion of the Ozone Layer
The earth’s environment is protected by a layer of ozone gas in the stratosphere that shields the earth’s surface from potentially deadly ultraviolet radiation. In recent years the ozone layer has been seriously damaged by human-made chemicals, especially chlorofluorocarbons (CFCs). CFCs are used to lower temperatures in refrigerators and air conditioners and are utilized in making aerosol and foam propellants. Some CFCs also contribute to global warming, and these and similar chemicals are projected to account for 10 to 15 percent of global warming between now and the middle of the twenty-first century. The depletion of stratospheric ozone leads to the accumulation of tropospheric ozone, which is a contributor to global warming through the greenhouse effect.
MNCs have been found responsible for a large proportion of this damage, because they were the main producers of products using and producing CFCs and other chemicals that damage the ozone layer. In fact, all major manufacturers of CFCs were multinational corporations, and the focus of world attention has been quite sharp on this aspect of their activity. In 1987, the Montreal Protocol banned the future production of CFCs. Much of the effect has already been experienced, however. Thus, the level of CFCs already released into the atmosphere will account for one-ninth of global warming over the next 100 years.
The disappearance of the world’s forests has had and is likely to continue to have extremely dangerous ecological consequences. The scale of the problem has already assumed alarming proportions. According to one source, every year 129,000 square kilometers (50,000 square miles) of forest is destroyed, while only 56,000 square kilometers (22,000 square meters) is replenished. This results in a net loss of between 73,000 square kilometers (28,000 square miles) and 84,000 square kilometers (32,000 square miles) each year, depending on the source of the estimates. The higher of these two net loss figures, 84,000 square kilometers (32,000 square miles), equates to an area approximately the size of Ireland.
Deforestation has a number of adverse global environmental effects. The loss of forest cover on mountains and hillsides decreases the soil retention capacity, which leads to rainwater washing valuable topsoil into rivers, reducing their depth and making them prone to flooding. The lack of forest cover reduces an area’s potential rainfall and limits the supply of oxygen, which means that carbon dioxide increases proportionately and adds to global warming.
MNCs have been viewed as responsible for deforestation in many countries for a va- riety of reasons. Many MNCs are large producers and transporters of timber and timber products. Others have been associated with large industrial and civil construction projects that have been established on former forestlands. If deforestation ended entirely, man-made emissions of carbon dioxide would fall by seventy gigatons by 2050.
An additional environmental issue concerns the sustainability of the world supply of fishing stocks. In recent decades, the world’s supply of various fishing stocks has deteriorated rapidly. Some species, such as the blue fin tuna, have seen stocks drop by 70 percent over the last fifty years. Reasons for overfishing are numerous, with blame spread among various governments, private fishermen, multinational corporations, and stock regulation agencies. Additionally, with the health benefits of fish consumption well-known, and with the rise in popularity of tuna and sashimi consumption, typical market mechanisms such as increased prices have not stemmed the rise in demand. Consumers appear willing to pay sometimes exorbitant prices in order to maintain current consumption levels of fish. Quotas set by international fish regulation agencies have continually been breached by illegal, unreported, or underreported fishing activities. The inability to achieve scientifi- cally based quotas for fishing specific types of fish threatens the availability of these species for consumption in the future.
The production, handling, transport, and disposal of hazardous industrial waste have become of serious concern in many countries, given the risks they carry both for the quality of the local environment and for general public health. According to the US Environmental Protection Agency, “Uncontrolled hazardous [waste] sites may present some of the most serious environmental and human health problems the nation has ever faced.”
Concerns about hazardous industrial waste are now worldwide, the problem being equally serious in many less-developed countries, where regulations relating to the disposal and treatment of hazardous waste are not as well established. Hazardous wastes are generated by a wide variety of industries, in both developed and developing countries.
Several ecological accidents and disasters involving hazardous industrial wastes have shown how serious this threat is becoming. For example, thirteen children died in 1981 from mercury poisoning in Indonesia after eating fish caught in a tributary of Jakarta Bay. Mercury levels in the water, polluted by chemical and heavy-metal wastes from nearby factories, were found to be more than sixty times those deemed safe by international standards. Similarly, a company in Mexico was forced to close after it was discovered to have been pumping highly toxic chromium wastes directly into the aquifer in the Mexico Valley area, threatening the water supply of nearly 20 million people. A critical issue in hazardous waste disposal is the transport of the waste. Companies in countries with heavily regulated hazardous waste disposal methods attempt to circumvent the regulations by transporting the wastes to other developing countries with little or no regulations.
MNCs have been accused of not paying enough attention to the problems of hazardous waste in host countries that do not have well-developed environmental control regulatory frameworks. This issue has been brought into the spotlight by several ecological problems and disasters in developing countries that have occurred because of MNC laxity in observing environmentally safe procedures for the disposal and treatment of hazardous wastes generated by their overseas plants. Perhaps the most tragic environmental disaster was the leak of lethal methyl isocyanate gas from Union Carbide’s pesticide plant in Bhopal, India, in 1984, which caused more than 2,500 deaths and serious impairment to several thousand more people.
The problems of industrial pollution became increasingly serious in the late 1980s as industrialization expanded and intensified. Air pollution is caused primarily by emissions from factory chimneys, while water pollution is caused primarily by the discharge of industrial effluents into local bodies of water. In many countries the air has been so pol- luted at industrial centers that the local residents have increased incidence of respiratory and other diseases. In other countries, water pollution has ended the use of local rivers, lakes, and bays.
In an attempt to curb the collective emissions of greenhouse gasses in order to achieve cleaner air worldwide, a multinational agreement called the Kyoto Protocol was adopted in the third session of the Conference of Parties to the United Nations Framework Conven- tion on Climate Change, in Kyoto, Japan, in 1997. The agreement required that fifty-five countries, which must represent at least 55 percent of the industrial world’s greenhouse-gas emissions in 1990, must ratify the agreement for it to take effect. The goal of the Kyoto Protocol is to reduce the collective emissions of greenhouse gasses by 5.2 percent from 1990 levels, while the European Union has agreed to reduce its carbon dioxide emissions by 20 percent relative to 1990 levels and to raise renewable energy to 20 percent of total energy consumption by 2020.
The European Union has been a strong proponent of the Kyoto Protocol, and the agreement has also been ratified by Japan and Canada, among other nations. The United States has not ratified the agreement, and India and China are not subject to reduced emission targets. Canada withdrew from the Kyoto Protocol in 2011, while Japan and Russia could not promise participation in further reduction targets.
Some experts have said that the Kyoto Protocol is doomed to failure, as non-Kyoto countries account for 70 percent of global carbon dioxide emissions. Some observers have also identified a green paradox: announced green policies by governments tend to increase global warming as more fossil fuels are brought to market before any intended sustainable alternatives materialize. The majority of government environmental policies focus on reducing demand, while the supply is left alone. Thus, reduced consumption of fossil fuels in Kyoto-participating nations is replaced with increased consumption elsewhere. A new Kyoto Agreement is planned by 2015, but if these major omissions are not corrected, future success is not assured.
In this session, a review of the major environmental concerns affecting the global community was presented and also, the implications particularly for MNCs.
Also, the emerging environmental concerns as a global trend was introduced at the time that this was related to the social responsibility term. The main focus of this session was the recognition of some of the main environmental issues such as greenhouse gasses, depletion of the ozone layer, deforestation, fishing stocks, hazardous waste, pollution and finally, the Kyoto protocol was presented as an example of the initiatives that tends to reduce the general deterioration of the Earth by human activities.
Ajami R., & Goddard J. G. (2015). International Business: Theory and Practice. Routledge (321-328).
Ebbs, S. (December 11th, 2019). 5 of the biggest environmental and climate change stories over the last decade and what’s changed. abc News. https://abcnews.go.com/US/biggest-environmental-climate-change-stories-decade-whats-changed/story?id=66765643