We recalled that CSR is no more a voluntary activity in India; as per the Companies Act, 2013, CSR is mandatory for certain types of companies. We also recalled that CSR has come a long way from purely a philanthropic activity to a strategic management process focusing on economic, environmental and social performance of the company. As understood today CSR is also understood as "Sustainability". We identified many issues that arise at the interface between the company and its stakeholders and defined Sustainability as the process of managing the interface between the company and the stakeholder in order to ensure long term survival of the organization.
We agreed to discuss the environmental, economic and social issues one after another. I explained to you that environmental management (& sustainability) is about thinking differently from the business as usual approaches. We discussed the new meaning of pollution: the resource at the wrong place. We also recognized that "environmental issues" provide us business opportunities. At this point we closed the first lecture.
I explained to you the link between business and the physical environment. The three main functions of environment are:
1. The physical environment or nature, i.e. air, water, soil, flora, fauna etc., that surround us, provides the resources required for business; these resources may be "renewable" or "non-renewable. Examples of renewable resources are air and water. These resources can be renewed (or got back) if we work within the carrying capacity of the ecosystem. Non-renewable resources, like minerals, petroleum products, coal etc., are lost once we use them; they cannot be got back in the form in which we used them. By converting these resources into products or services, business organizations engage in business.
2. The physical environment also acts as a sink for the waste generated by business. The waste is generated in the form of effluents, emissions, solid and hazardous wastes etc. All these finally reach the physical environment (in air, water or soil). Waste is not only generated during manufacturing, it is also generated throughout the life-cycle of a product or a service. For example, at the end-of-life of the product, it becomes a waste and finally reaches the physical environment in one form or the other (e.g land fill , incineration).
3. The physical environment provides the amenity value, which business uses for its economic activities. Amenity value is related to the natural beauty that attracts people to a place or area due to its pleasant, aesthetic and cultural characteristics.
While one cannot imagine any business without the contribution of the physical environment, the very characteristics of the physical environment may cause conflicts between the business and its stakeholders.
There are three main characteristics of the physical environment that contribute to the potential conflict between the business and the stakeholder.
1. Common Property: The very fact that air, water, soil, flora and fauna belong to the whole humanity and not to any individuals or groups make it a potential cause for conflict between business and its stakeholders. When something belongs to everybody, everybody thinks that someone else will take care of the property. We see this in our day-to-day life in the misuse of roads, common areas etc. No one takes ownership of such common properties. Business especially is vulnerable when stakeholders believe that the common property is misused by the business. Many of the disputes relating to large development projects (e.g. nuclear projects, ports, river valley projects etc.) may be attributed to the way common properties are used or perceived to be used by different stakeholders.
2. Multiple Use: The elements that form the physical environment have multiple uses. For example, water is used for irrigation, horticulture, transportation, sports, cleaning, cooking, drinking, as a solvent, as a source for steam etc. Different stakeholders have different use of the same element of the physical environment. When the resource is scarce and there are many stakeholders requiring the same for different uses, a conflict situation arises. For example, if water is scarce, there is a potential for conflict between a manufacturing industry requiring plenty of water (e.g. paper and pulp) for its processes and the villagers who require the water for irrigation and their day-to-day life.
3. Uncovered Cost: The third characteristics of the environment is the "Uncovered Cost". I asked the students to tell me as to how they would calculate the cost of their travel to IndSearch from their house. The answer was typical: they would include the cost of petrol, cost of their time, cost of repairs and maintenance, cost of insurance, depreciation and interest etc. But the cost of someone getting ill because of the emission of pollutants from their vehicle, someone taking leave because of illness caused by vehicular pollution, loss of productivity due to systems affected by vehicular pollution etc., are not included in the cost calculation. In fact, this cost is distributed among the society. That is the cost of pollution due to travel (externality) which has not been internalized. I gave you an estimate of about US $ 2,200,000,000,000,000 as the uncovered cost of the environmental damage caused by the 3000 largest corporations of the world in a year. This amount is much higher than the GDP of many countries. When such un-accounted damage is caused to the environment there is always a likelihood of conflict
Any society would like to avoid conflicts for development/ progress. Societies use three different methods to avoid conflicts: a. Command and Control, b. Economic instruments and c. voluntary initiatives.
1. Command and Control refers to the acts, rules and regulations that are enacted or published by the Government. This can be from the National Government (in our case Governmet of India) such as the Environment (Protection) Act, Water (Prevention and Control of Pollution) Act, Air (Prevention and Control of Pollution) Act, Hazardous Waste (Management & Handling) Rules etc. Some of the rules may be published by the State Government. For example, Maharastra Motor Vehicles Rules, Maharashtra Factories Rules etc. Still more such command and control measures can come from the Municipalities, such as the Municipal Rules requiring housing societies to segregate waste into wet and dry waste and to have vermicompost pits for wet waste.
Command and Control is also applied by the international community. For example, Kyoto protocol requires countries to cut down on their greenhouse gas emissions; some countries can get carbon credits for their GHG emissions reductions (CDM). The Montreal Protocol is about the elimination of the use of chlorofluoro carbons (CFCs) which were responsible for reducing the ozone layer in the stratosphere; this ozone layer effectively blocked the ultraviolet radiation from the SUN from reaching the earth. We have many such international conventions like the Basel Convention, dealing with trans-boundary movement of hazardous waste.
Command and Control measures are also used by countries to restrict the entry of products having certain characteristics from other countries. For example, the EU has Restriction of Hazardous Substances Directive (RoHS), which requires that any product that is exported to Europe does not contain substances like cadmium, lead, mercury, chromium (VI), polybromobiphenlys, polybromobiphenylethers. polychlorobiphenyls etc. (there are exemptions to this general rule). Similarly the WEEE directive (Waste Electric and Electronics Equipment Directive) requires exporters to be responsible for taking back the product once the useful life of the product is over. There are such rules/directives on energy use, asbestos, pentachlorophenol , packaging etc., throughout the world.
Such command and control measures help countries to have a control over the emissions and discharges and use of resources by business organizations in that country without causing the businesses excessive cost. Sometimes these rules are used as "non-tariff" trade barrier in the post WTO free trade regime, even though WTO is against such a practice.
2. Economic instruments are used generally influence the way people and organizations behave. By providing tax concessions and cess reductions companies are encouraged to spend money on environmental technologies and improving environmental performance. Some of the other economic instruments are a. Deposit - Refund system (returning of soft drink cans and get an amount in return), b. Emission trading (e.g. instead of spending money in control measures and becoming economically unviable, Government may allow businesses to purchase emission points from low emissions organization and maintain the overall concentration in the ecosystem within the allowed limit), etc. Another economic instrument is Preferential Purchase, where the Government or a private company insists on purchasing products from a company whose environmental performance is good or its product is environmentally sound. Concessional interest rate is another economic instrument used by banks for environmentally sound investments.
3. While the business organization does not have control over command and control measures and the economic instruments in the domain of Government, it can have voluntatry initiatives positioning them above the requirement of the Government in terms of compliance and policy. One such initiative is the establishment of ISO-14001, Environmental Management System.
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