0264 · 6.3.1Environmental issues

Pollution and resource depletion

0:00A factory can make products customers want while also releasing harmful waste into a nearby river. Its owners then face decisions about equipment, materials and waste disposal. Customers and the government may also respond to the damage. By the end of this video, you will understand how environmental problems influence business decisions, sales and costs. Production is using resources to make goods or provide services. Those resources include materials, water and energy, and business activity also creates waste.

0:28Environmental effects can arise when materials are extracted, products are manufactured, orders are delivered or packaging is discarded. This means businesses across different sectors need to consider their environmental impact. Pollution is the release of harmful substances or energy into the environment. Business activity can cause air, water, land and noise pollution. Depletion of resources is the reduction in available natural materials through their use. Using oil and minerals, cutting forests and catching fish can all reduce the resources available for future production.

1:00Dunmore Works manufactures metal components for cars. Its furnaces burn fuel, and gases escape through chimneys into the surrounding air. Some emissions damage air quality, while greenhouse gases increase global warming. The business therefore affects the environment through the energy used to make its products. Water pollution occurs if Dunmore Works releases untreated chemical waste into a river. Harmful substances can damage aquatic organisms and reduce the suitability of that water for other uses.

1:26Waste dumped on nearby ground can also cause land pollution. Chemicals may enter the soil and harm plants or contaminate groundwater. Noise pollution can come from machinery, construction work or delivery vehicles. Heavy presses at Dunmore Works create loud sounds that disturb nearby residents. The environmental effect comes from the sound itself, even where the production process releases few harmful substances. Each type of pollution has a different source, so each needs its own solution.

1:52Valemont Freight delivers parcels using diesel vehicles. Oil is a non-renewable resource because its natural replacement takes far longer than a human lifetime. Burning fuel uses up part of the available supply. Eastwick Metals extracts copper from underground deposits, and each load removed reduces the minerals remaining at that site. Underhill Furnishings makes wooden tables from timber. If its suppliers cut trees faster than replacement forests grow, the available woodland declines.

2:19Seabrook Trawlers supplies fish to restaurants, and catching too many can reduce fish populations faster than they reproduce. Forests and fish can recover, but their continued availability depends on how quickly businesses use them.

Why businesses respond

2:30Businesses may respond because of reputation, sales, legal requirements, employees and investors, pressure group campaigns, or long-run costs. These reasons can reinforce one another. A change that reduces waste might improve public opinion and save money at the same time. The strength of each reason depends on the business and its circumstances. A business’s reputation is how others view its behaviour and performance. Clear evidence of reduced environmental damage can improve that reputation.

2:58Customers may feel more confident about buying from a business they regard as responsible. That confidence lasts only when the business's actual methods match its environmental claims, so repeat purchases continue. Revenue is the income a business receives from selling goods or services. Bluebell Kitchen serves meals and drinks to customers. Some environmentally aware visitors choose it because it reduces disposable packaging and separates waste for recycling. Their extra purchases increase its sales, so its revenue rises.

3:26The sales effect depends on customer priorities and the alternatives available. Environmentally aware buyers may accept a higher price for a product with less damaging packaging. Other customers place greater weight on affordability or convenience. Managers therefore need evidence about their customers before predicting how much sales will rise. Legal requirements give businesses another reason to act. Environmental laws can require treatment of waste, restrict emissions or prohibit particular materials.

3:52Compliance allows the business to continue its activities within those rules. Breaking the law can lead to fines, and serious breaches may result in restrictions on operations. Environmental improvements can also help attract employees and investors. Applicants who value responsible behaviour may prefer to work for that business. Investors may favour firms with lower exposure to environmental penalties or future restrictions. These responses can make recruitment easier and improve access to finance, although individual priorities differ.

4:21A pressure group is an organisation of people with a common interest who try to influence the decisions of businesses and governments. Campaigns can draw attention to environmental damage and encourage customers to change their buying behaviour. A business may respond to protect demand and its reputation. You will explore these organisations further in the video on pressure groups. Lower costs in the long run provide a financial reason to respond.

4:44Using less electricity reduces energy bills, while wasting fewer materials lowers the amount that must be purchased. Reducing waste can also lower disposal charges. These savings must be considered alongside the initial cost of equipment and changes to working methods.

Reducing environmental damage

4:57Businesses can use cleaner technology and filters, renewable energy, recycling and less waste, less packaging, and sustainable sourcing. Each response addresses a particular source of environmental damage. A useful decision begins with identifying the problem. Managers can then choose a method that changes the activity responsible for it. Cleaner technology reduces harmful waste or emissions during production. Dunmore Works could install filters to capture particles before gases leave its chimneys.

5:25Wastewater treatment equipment could remove harmful substances before discharge. The business pays for installation and maintenance, while the surrounding environment benefits from reduced releases of those substances. Renewable energy comes from sources that are naturally replenished, such as sunlight and wind. A business could install solar panels or purchase electricity generated from these sources. This can reduce reliance on fossil fuels and associated emissions. Its financial effect depends on installation costs, energy prices and the electricity available when operations require it.

5:56Recycling is processing discarded materials so they can be used again. Dunmore Works could send suitable metal offcuts for processing into new material. Preventing waste also reduces the resources required for each finished component. Accurate cutting helps the business obtain more usable pieces from the same amount of metal. Less packaging reduces the materials needed to prepare products for sale. Bluebell Kitchen could remove unnecessary layers around takeaway orders. It still needs packaging that protects food and meets relevant safety requirements.

6:23If the replacement causes more damaged orders, managers must consider the additional waste and costs that result. Sustainable sourcing means obtaining materials in ways that support their continued availability and reduce environmental damage. Underhill Furnishings could choose timber suppliers that replace harvested trees and manage woodland responsibly. Purchasing decisions then influence environmental practices further along the supply chain. You will examine these production choices further in the video on methods of sustainable production.

Environmental laws and business decisions

6:52Environmental legal controls can change how, what and where a business produces or sells, as well as its costs. The exact requirements depend on the location and activity. A business must consider the rules applying to its premises and products. These controls influence decisions that managers might otherwise make mainly on price or convenience. Rules about emissions or wastewater can change how a business produces. Dunmore Works might need treatment equipment and regular checks of discharged water.

7:19Restrictions on harmful chemicals can also change what it produces or sells. The company may need to replace an input, redesign a component or stop supplying an affected product. Planning rules and protected areas influence where activities are permitted. A business may be refused permission to build premises near a sensitive habitat. Restrictions on particular products can also limit where they may be sold. Managers must check those conditions before committing money to a site or entering a new market.

7:45Compliance can raise costs through equipment purchases, maintenance, testing and approved waste disposal. Businesses that break the rules may face fines as an additional cost. Higher costs can reduce competitiveness against overseas rivals operating under weaker environmental laws. The effect depends on whether savings, customer demand or higher selling prices offset those additional costs.

Worked example: costs and profit

8:06Hollybrook Colours makes paint and must introduce wastewater treatment to meet a new environmental rule. Its annual revenue is fifty thousand dollars, and original annual total costs are thirty-five thousand dollars. For the year considered, revised annual total costs are thirty-nine thousand dollars. Sales volume and selling prices stay unchanged, and the revised figure includes all treatment costs for that year. The new rule changes how the company handles waste, because wastewater from production must now be treated.

8:33Paying for that treatment raises its total costs by four thousand dollars. Profit is total revenue minus total costs. Original profit equals fifty thousand dollars minus thirty-five thousand dollars. The result is fifteen thousand dollars for the year. With treatment included, fifty thousand dollars minus thirty-nine thousand dollars gives eleven thousand dollars. Profit therefore falls by four thousand dollars, because revenue stays the same while total costs rise by that amount.

8:58The environmental outcome is cleaner wastewater, while the financial outcome is lower profit during the year considered. Longer-term results depend on later costs and any changes in sales. Customer support or resource savings could improve those results, but the case gives neither. A sound answer follows the information available and states the conditions supporting its conclusion. Every question on Paper One and Paper Two is built on stimulus material about a business.

9:24Connect environmental knowledge to the particular business described. Explain means set out purposes or reasons, say why and how, supported with relevant evidence. A developed answer traces a clear link from the action to the business consequence. Puffin Retreat provides accommodation near a beach, and its guests value clean coastal water. A new environmental rule requires the business to treat sewage before discharge. An exam-style question asks you to explain one effect of this legal control on its costs.

9:52Select a specific expense and connect it to the requirement in the case. Puffin Retreat must pay for sewage-treatment equipment to meet the new requirement. Installing that equipment raises its costs because the business must purchase the system and arrange its fitting. Regular servicing adds further expense to keep it operating correctly. The increased costs reduce profit if revenue remains unchanged. Keep three distinctions clear when checking an answer. Sales concern purchases by customers, while profit depends on revenue and total costs.

10:20Environmental improvements can involve an immediate expense alongside savings in later years. Finally, match the solution to the damage, because air filters capture airborne particles while wastewater treatment removes harmful discharges into water.

Key terms and recap

10:32Production is using resources to make goods or provide services. The release of harmful substances or energy into the environment is called pollution. Depletion of resources, meanwhile, is the reduction in available natural materials through their use. Business decisions affect the environment through extraction, manufacturing, delivery and disposal. Renewable energy comes from sources that are naturally replenished, such as sunlight and wind. Processing discarded materials so they can be used again is called recycling.

11:01With sustainable sourcing, a business obtains materials in ways that support their continued availability and reduce environmental damage. These responses work by changing the resources used or the waste released. How others view a business’s behaviour and performance is called its reputation. Revenue is the income a business receives from selling goods or services, while profit is total revenue minus total costs. Environmental improvements can strengthen reputation and sales. Legal controls, in contrast, change production choices and raise costs.

11:32A pressure group is an organisation of people with a common interest who try to influence the decisions of businesses and governments. Its campaigns are one possible reason for a business to respond to environmental damage. Always trace the connection from the problem to the response and then to the outcome. That chain explains why the environment matters for business decisions.