Environmental issues and fair trade significantly influence how businesses operate, shaping everything from supply chains to brand reputation, consumer loyalty, and long-term strategy.
Environmental Issues
What Are Environmental Issues in Business?
Environmental issues in business refer to the challenges, responsibilities, and pressures that organisations face in minimising their negative impact on the natural world. These challenges are increasing in importance due to global concerns about climate change, resource depletion, pollution, and biodiversity loss.
Businesses must consider how their operations affect the environment across a range of areas:
Carbon emissions from transport, production, and logistics.
Waste generation from production processes and packaging.
Resource use, such as water, energy, and non-renewable raw materials.
Pollution, including chemical, noise, air, and water pollution.
Deforestation due to land use and agriculture.
Loss of biodiversity from overexploitation of natural resources.
Environmental issues are not just ethical concerns—they have direct implications for a firm’s legal compliance, operating costs, marketing strategy, and reputation.
Sustainability Pressures and Their Effects on Business Operations
The pressure to operate sustainably comes from multiple sources:
Government regulations and environmental legislation.
Consumer demand for greener products.
Shareholder expectations for ESG (Environmental, Social, and Governance) practices.
NGOs and activists raising awareness of unethical practices.
Employee values, especially among younger workers who prioritise sustainability.
How Sustainability Affects Business Operations
Compliance Costs
Businesses are often required by law to comply with environmental regulations. This may involve:
Installing pollution control systems.
Purchasing carbon credits.
Conducting environmental audits.
For example, factories may have to reduce emissions of nitrogen oxide and carbon dioxide, increasing operational costs.
Packaging and Waste Reduction
Pressure from consumers and governments has led many firms to switch to eco-packaging—biodegradable, recyclable, or reusable packaging.
While eco-friendly materials often cost more upfront, they can improve brand image and reduce waste disposal costs in the long run.
Energy Efficiency and Technology Upgrades
Businesses are investing in energy-efficient machinery, LED lighting, and smart meters.
Some install renewable energy systems such as solar panels or wind turbines, reducing long-term energy bills and emissions.
For instance, a warehouse upgrading its refrigeration system to a more energy-efficient model may save thousands annually.
Green Supply Chain Management
Firms may choose suppliers that follow environmentally responsible practices, such as sustainable farming, ethical sourcing, or reduced transport emissions.
Switching to local suppliers can reduce the carbon footprint and also lower transport costs.
Product Design and Lifecycle
Businesses are designing products that last longer, are easier to repair, or are made from recycled materials.
For example, clothing brands may shift towards circular fashion, where garments are recyclable or made from recycled fibres.
Corporate Environmental Goals
Many firms set internal goals such as:
Achieving net zero emissions by a certain year.
Reducing plastic use by a set percentage.
Committing to zero waste to landfill operations.
Reporting and Transparency
Firms often publish sustainability reports to show progress on environmental goals, appealing to investors and customers.
Stakeholder Expectations and External Pressures
Stakeholders—anyone with an interest in the business—now demand greater transparency and ethical behaviour regarding environmental practices.
Consumers: Expect eco-friendly products, and may boycott businesses with poor environmental records.
Employees: Want to work for companies whose values align with their own.
Shareholders: Focus on long-term risk, including climate risk and ESG performance.
Governments: Use legislation and incentives to encourage sustainable business practices.
Media and NGOs: Can expose bad practices and hold businesses accountable.
Failing to address environmental concerns can lead to reputational damage, legal penalties, and loss of market share.
Fair Trade
What Is Fair Trade?
Fair trade is a global movement aimed at improving the living standards of producers in developing countries by ensuring they receive fair payment, safe working conditions, and sustainable livelihoods.
Fair trade principles include:
Paying a fair price that covers production costs and supports living wages.
Providing safe and ethical working conditions.
Prohibiting child labour and forced labour.
Supporting community development projects.
Encouraging environmental sustainability in production.
Offering direct trade relationships and transparency.
The Fairtrade Foundation, Rainforest Alliance, and World Fair Trade Organization (WFTO) are key certifying bodies. Products meeting their standards can carry a certification label, increasing consumer trust.
How Businesses Respond to Ethical Sourcing Demands
Many businesses have modified their operations to include fair trade practices due to increasing pressure from:
Consumers who want ethical products.
NGOs campaigning for producer rights.
Shareholders seeking ethical investments.
Key responses include:
Sourcing from certified fair trade suppliers (e.g. cocoa, coffee, tea, bananas).
Displaying fair trade logos to attract conscious consumers.
Creating direct trade links with producers to ensure transparency and fair pricing.
Offering fair trade product lines alongside regular offerings.
Auditing supply chains to ensure compliance with ethical standards.
Example:
CaféDirect works directly with smallholder farmers and reinvests profits into producer communities.
Marks & Spencer sells Fairtrade certified tea, coffee, wine, and cotton products.
Some businesses build entire brands around fair trade values, while others offer limited fair trade ranges to test consumer response.
Costs vs Benefits of Ethical and Environmental Practices
Costs to Businesses
Adopting environmentally and ethically responsible practices involves a number of short-term costs:
Higher input costs: Fair trade and sustainable materials usually cost more.
Capital investment: Technology upgrades, eco-packaging machines, and supply chain audits require funding.
Training and education: Staff must be trained in sustainable practices and fair trade compliance.
Operational changes: Switching suppliers or production methods may reduce short-term efficiency.
Certification and inspection fees: Registering for fair trade or environmental certifications carries a cost.
For small businesses, these costs can be a barrier. However, many find that long-term benefits outweigh the expense.
Long-Term Benefits to Businesses
Despite the initial financial outlay, many businesses gain significant strategic advantages from responsible practices:
Brand Differentiation
Ethical and eco-friendly practices can distinguish a brand in a competitive market.
Example: Lush uses ethical sourcing and eco-packaging as central brand values.
Increased Consumer Loyalty
Customers are more loyal to brands that align with their values.
Example: The Body Shop has a strong customer base built on ethical and fair trade principles.
Operational Efficiency
Sustainable operations, such as reducing energy and waste, often lead to lower long-term operating costs.
Investor Confidence
Many investors look for firms with strong ESG credentials.
Ethical performance can improve access to capital and share valuation.
Reduced Regulatory Risk
Meeting or exceeding environmental standards reduces the risk of fines, sanctions, or forced operational changes.
Employee Satisfaction and Retention
Ethical firms are often more attractive to high-quality employees, reducing recruitment costs and turnover.
Balancing the Trade-Off
Businesses must weigh costs vs benefits through:
Cost-benefit analysis: comparing financial outlay to potential returns.
Market research: identifying consumer demand for ethical products.
SWOT analysis: understanding how ethical practices fit within strengths, weaknesses, opportunities, and threats.
A key consideration is price elasticity of demand: consumers may be willing to pay a premium for fair trade or eco-friendly goods if they perceive added value.
Stakeholder Pressure and Reputational Impacts
Stakeholder Influence
Stakeholders can have both direct and indirect influence on a business’s ethical and environmental strategies:
Customers: Can support or boycott brands.
Employees: Can demand change from within or leave companies that don’t align with their values.
Government bodies: Regulate and inspect environmental and labour practices.
NGOs and campaigners: Influence public opinion and may initiate media investigations.
Shareholders: Can propose or vote on ESG-related policies at annual general meetings.
Businesses seen as unethical face public backlash, loss of reputation, and potential financial decline.
Reputational Risk
Firms found using exploitative labour or polluting excessively may suffer media scrutiny, customer boycotts, or loss of investor trust.
Example: Boohoo Group plc experienced major fallout after a report revealed poor working conditions in their supply chain. This led to:
Share price fall.
Brand damage.
Retail partners withdrawing support.
Reputational Opportunity
On the other hand, companies that lead in sustainable and ethical practices often enjoy brand loyalty, media praise, and market growth:
Example: Patagonia reinvests profits in environmental causes and uses only sustainable materials.
Example: Unilever’s brands with a sustainability mission grow faster than its other products.
Real-World Examples of Business Action
Environmental Strategies
Unilever:
Committed to reducing greenhouse gas emissions and achieving net zero by 2039.
Uses sustainable palm oil, certified by the Roundtable on Sustainable Palm Oil (RSPO).
Apple:
Uses 100% renewable electricity in production facilities.
Invested in closed-loop recycling for components.
IKEA:
Committed to sourcing all wood from sustainable forests by 2030.
Offers buy-back and recycling schemes for old furniture.
Fair Trade Commitments
Starbucks:
Sells Fairtrade-certified coffee in multiple markets.
Invests in farmer training and community development projects.
Ben & Jerry’s:
Uses Fairtrade-certified sugar, cocoa, vanilla, and bananas in their ice cream.
Publicly supports progressive social and economic policies.
Divine Chocolate:
Partly owned by Ghanaian cocoa farmers.
Entirely fair trade certified and focused on female farmer empowerment.
Certification Bodies
Fairtrade Foundation:
Certifies that producers receive fair prices and decent working conditions.
Rainforest Alliance:
Focuses on both fair working conditions and environmental conservation.
B Corporation (B Corp):
Certifies firms meeting high standards of social and environmental performance, public transparency, and legal accountability.
FAQ
Businesses use tools such as environmental audits, carbon footprint calculations, and sustainability reporting frameworks like the Global Reporting Initiative (GRI) to assess their impact. These methods help firms track emissions, energy consumption, waste output, and water usage. Many also monitor supply chain sustainability and use lifecycle analysis to evaluate a product's environmental effects from production to disposal. Data collected is used to identify areas for improvement, comply with regulations, and demonstrate accountability to stakeholders.
Some businesses avoid Fairtrade certification due to high costs, complex application processes, or limited availability of certified suppliers for their products. Certification may not align with a firm's sourcing strategy or market positioning, especially if consumer demand for ethical products is low in their target market. Additionally, companies might prefer alternative ethical sourcing models or certifications they feel better fit their brand, such as Rainforest Alliance or in-house sustainability programmes, which offer more flexibility or reduced costs.
Government policy plays a crucial role through regulation, taxation, subsidies, and legal enforcement. Environmental legislation may require businesses to reduce emissions, manage waste, or use sustainable materials. Governments can also incentivise green investment through tax breaks or grants for energy efficiency projects. Policies like carbon pricing or plastic bans create financial motivations for change. These interventions shift business behaviour by raising the cost of polluting and rewarding sustainable innovation, driving firms to align with national environmental goals.
Fair trade ensures consistent, ethical relationships with suppliers, often resulting in long-term contracts and predictable costs. By paying fair prices and supporting producer development, businesses reduce the risk of supply disruption caused by poor labour conditions or financial instability among suppliers. Stable relationships also allow for better communication, quality control, and transparency. This reliability strengthens the business’s ability to forecast supply, maintain ethical brand standards, and respond flexibly to market changes without compromising core values.
Greenwashing—misleading claims about a business’s environmental practices—can severely damage trust. If consumers or watchdogs expose exaggerations or false sustainability claims, the company may face public backlash, negative media coverage, and legal scrutiny. This can lead to loss of customer loyalty, declining sales, and long-term brand damage. In some cases, regulatory fines or shareholder action may follow. Businesses found greenwashing often struggle to rebuild their reputation, especially in sectors where ethical standards are highly valued.
Practice Questions
Analyse how pressure to operate sustainably could affect a business’s operational costs and reputation. (10 marks)
Sustainability pressures can increase operational costs due to investment in eco-friendly technologies, waste reduction, and compliance with regulations. For instance, switching to biodegradable packaging may raise material costs. However, these actions can enhance a firm's reputation by appealing to environmentally conscious consumers and investors. Improved public image can lead to increased customer loyalty and competitive advantage. In the long term, sustainable operations may also reduce energy costs and attract top talent. Overall, although initial costs may rise, reputational benefits and long-term efficiencies can outweigh these, supporting improved stakeholder relationships and potentially increasing profitability.
Evaluate the impact of adopting Fairtrade practices on a business’s competitiveness. (12 marks)
Adopting Fairtrade practices may raise production costs due to higher supplier payments and certification fees. This could reduce price competitiveness, especially in price-sensitive markets. However, offering Fairtrade products can differentiate the brand, appeal to ethically minded consumers, and justify premium pricing. It may also improve stakeholder trust, enhance reputation, and increase customer loyalty. Firms like Ben & Jerry’s have successfully built ethical branding around Fairtrade. Nonetheless, businesses must assess demand for Fairtrade goods within their market. While it may limit competitiveness on price, it can strengthen non-price factors such as brand loyalty and ethical appeal.
