Environmental protection in German and Australian companies

A comparison

Bachelor Thesis 2017 104 Pages

Business economics - Business Management, Corporate Governance



1 Introduction

2 Theoretical Background
2.1 Definitions
2.2 Origins of the mismatch
2.3 The most severe environmental concerns
2.3.1 Pollution
2.3.2 Climate Change
2.3.3 Loss of biodiversity
2.3.4 Ozone layer depletion
2.3.5 Toxins
2.3.6 Dying oceans
2.3.7 Waste and littering
2.3.8 Natural Resource Depletion
2.3.9 Deforestation
2.4 The IPAT Equation
2.5 Environmental economists on the rise
2.6 The role of trade agreements and globalisation

3 Drivers for corporate environmental protection
3.1 Green stakeholders
3.1.1 Government regulators
3.1.2 Green Consumers
3.1.3 Ethical Investors
3.1.5 Environmental interest groups
3.1.6 Lenders and Insurers
3.1.7 Environmental standard setters
3.2 Benefits of going green
3.2.1 Cost savings
3.2.2 Product differentiation
3.2.3 Improved public image
3.2.4 Other benefits
3.3 Summary

4 Obstacles to corporate environmental management
4.1 No need
4.2 No resources
4.3 High costs
4.4 Greenwashing
4.5 SMEs

5 Environmental Management Tools
5.1 Environmental Management Systems
5.1.1 Which requirements must be met?
5.1.2 How can an EMS be developed?
5.1.3 ISO 14000 certification
5.2 Life cycle analysis
5.3 Environmental auditing
5.4 Environmental reporting
5.5 Environmental Impact Assessment
5.6 Change management and conclusion

6 Green Supply Chain Management
6.1 Introduction
6.2 Eco-design
6.3 Green procurement
6.4 Green manufacturing
6.5 Green distribution
6.5.1 Green packaging
6.5.2 Green Logistics Management
6.5.3 Reverse logistics
6.6 End-of-life management
6.6.1 Product Stewardship
6.6.2 Extended producer responsibility
6.7 Summary

7 Survey evaluation
7.1 Methodology
7.1.1 Purpose of the study
7.1.2 Definition of the target group
7.1.3 Type of survey
7.1.4 Survey generation
7.1.5 Power up
7.1.6 Distribution
7.1.7 Processing answers
7.1.8 Analysing data
7.2 Results and analysis
7.2.1 Company details
7.2.2 The most severe environmental problems
7.2.3 Drivers and obstacles of corporate environmental protection
7.2.4 Environmental standards
7.2.5 Production processes and green supply chain management
7.2.6 Solutions
7.3 Conclusion and Recommendation

8 Summary and conclusion


Executive Summary

Diese Arbeit befasst sich mit der Rolle des Umweltschutzes in Unternehmungen. Die Kombination von theoretischen Überlegungen des Umweltmanagements mit der prakti­schen Anwendung einer Umfrage steht im Fokus. Der Theorieteil legt die Grundlagen und bietet eine umfangreiche Ausarbeitung der Gründe, Hindernisse und Werkzeuge des be­trieblichen Umweltschutzes. Außerdem wird besonders auf das Konzept des Green Supply Chain Managements eingegangen. Ziel der Umfrage, gerichtet an deutsche und australische Unternehmen, ist sowohl die Ausarbeitung der Umsetzung von Umweltschutzmaßnahmen als auch das Widerspiegeln eines aktuellen Meinungsbilder der Wirtschaft zum Umwelt­schutz.

This paper deals with the role of environmental protection in companies. The focus is on the combination of theoretical considerations of environmental management and the practi­cal application of a survey. The theoretical part lays the foundation and presents a compre­hensive elaboration of motivations, obstacles and tools of corporate environmental protec­tion. Furthermore, particular attention will be drawn to the concept of Green Supply Chain Management. The aim of the survey of German and Australian companies is to elaborate the implementation of environmental protection measures and to reflect current views of the economy on environmental protection.


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List of Figures

Figure 2.1: Sustainability

Figure 2.2:The Treadmill of Production

Figure 2.3: SD curve of the externality of pollution

Figure 2.4:Total acidifying gas emissions (EU 2008 - 2014) in thousand tonnes

Figure 2.5: Level of C02 in the atmosphere

Figure 2.6: Comparison of population growth and waste generation in Australia (1996-2015)

Figure 2.7: Environmental Kuznets curve

Figure 3.1: EMAS as an enhancement to ISO 14001

Figure 3.2: Drivers of corporate environmental management

Figure 5.1: The concept of EMS based on the approach of TQM

Figure 5.2: PDCA cycle to develop an EMS

Figure 6.1: Prioritisation matrix of eco-design strategies

Figure 6.2: Elements of Green Supply Chain Management

Figure 7.1: Response rate of Australia over time

Figure 7.2: Response rate of Germany over time

Figure 7.3: In which business sector is your company operating?

Figure 7.4: In welcher Branche ist Ihre Unternehmung tätig?

Figure 7.5: In which state is the (head) office of your company?

Figure 7.6: In welchem Bundesland ist der Hauptsitz Ihrer Unternehmung?

Figure 7.7: How many employees does your company employ?, Wie viele Mitarbeiter werden durch Ihre Unternehmung beschäftigt?

Figure 7.8: Does your business mainly operate locally, nationally or internationally?, Ist Ihre Unternehmung hauptsächlich lokal, national oder international tätig?

Figure 7.9: Which of the following environmental problems do you consider as the most severe?

Figure 7.10: How many earths would we need if the world's population lived like

Figure 7.11: Welche der folgenden Umweltprobleme sehen Sie als am gravierendsten?

Figure 7.12: What is your main motivation behind environmental protection?

Figure 7.13: Was bewegt Ihre Unternehmung zum Umweltschutz?

Figure 7.14: What negative outcome/s would your company face from incorporating more environmental protections?

Figure 7.15: Welche negativen Folgen des Umweltschutzes könnten sich auf Ihre Unternehmung auswirken?

Figure 7.16: Which of the following is true for your company?

Figure 7.17: Welche der folgenden Aussagen trifft auf Ihre Unternehmung zu?

Figure 7.18: Looking at the life cycle of your main product, how environmentally friendly is it?; Betrachten Sie Ihr Hauptprodukt über die gesamte Produktlebensdauer hinweg. Wie umweltfreundlich ist es?

Figure 7.19: Which actions have you taken to improve resource efficiency during the last two years?

Figure 7.20: FSC label

Figure 7.21: Welche Maßnahmen zur Erhöhung der Ressourceneffizienz wurden in Ihrem Unternehmen in den vergangenen zwei Jahren unternommen?

Figure 7.22: GSCM - at what stage does your company consider environmental aspects?

Figure 7.23: GSCM - In welchen der folgenden Phasen beziehen Sie Umweltaspekte ein?

Figure 7.24: How should industry go about protecting our environment?

Figure 7.25: Wie sollte die Wirtschaft die Problematik des Umweltschutzes angehen?

List of Tables

Table 2.1: Examples of environmental aspects and impacts

Table 3.1: Numbers of valid ISO certificates in a selection of industrial sectors

Table 3.2: EMAS certifications by numbers of employees

Table 6.1: Consequences of design strategies on the stages of supply chains

Table 7.1: Response rate

List of Abbreviations

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1 Introduction

"You cannot get through a single day without having an impact on the world around you.

What you do makes a difference, and you have to decide what kind of difference you want to make."

- Dr. Jane Goodall (primatologist and environmentalist)[1]

Every individual, every government and every company has an impact on the environment - and the environment has an impact on our life and the economy. This report focuses on the relationship between the environment and the economy, two interconnected systems that too often seem to work against each other instead of with each other.

In regards to environmental protection, the world is split. Are we becoming greener or pol­luting more? Some consider the 350-year experiment of the industrial revolution as a threat to our planet,[2] others try hard to get around environmental regulations. Well before the Volkswagen emissions scandal in 2015, corporate environmental protection has been and will be an important but also problematic topic.[3]

In this study, questions on the current value of environmental protection in companies will be answered. The goal is to develop a profound theoretical and practical insight into the role of corporate environmental protection.

To start with, the theoretical background introduces current environmental problems, fol­lowed by drivers and obstacles of the implementation of corporate environmental protec­tion. Subsequently, environmental tools will be outlined, including the ISO 14000 series of standards. After having a closer look at Green Supply Chain Management, this report will focus on the survey. This survey, sent to German and Australian companies, will be evalu­ated to gain an overview of the current status of the implementation of corporate environ­mental protection. The aim is to identify similarities and differences, and to reveal weak spots and potential for optimisation. Finally, the main findings of the study will be summed up and an outlook will be presented.

2 Theoretical Background

This chapter aims to set the basics that will be relevant for the following chapters. After defining some terms, the need for environmental protection will be outlined by critically reviewing the current economic system.

2.1 Definitions

Even though a lot of terms and concepts will be explained in this chapter, a few fundamen­tal expressions need to be defined beforehand.

Environmental management: As the name suggests, it deals with two areas, the environ­ment and management. The environment can be defined as "our surroundings, especially the biological and physical elements of our lives, including air, water, plants and animals”[4] and management, meaning the control of these elements.[5] In practice, environmental man­agement develops, implements and monitors environmental strategies in order to achieve environmental objectives. In general, they aim to prevent, abate, and remedy environmental damages that were caused by organisational operations.[6]

Although the two most important environmental managers are governments and corpora­tions, this reports will be focusing on businesses. The goal of environmental managers is to support sustainable development,[7] which is development that "meets the needs of the pre- sent without compromising the ability of future generations to meet their own needs."[8] An­other definition is that economic development should proceed in a manner that conserves the environment and its depletable resources.[9] Sustainability aims to create a win-win-win situation for the organisation, the environment and the society.[10] Those three elements are overlapping each other and need to be considered as a whole, a separation is not sustainable (see figure 2.1 below).

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Source: Adams 2006, p. 2

Furthermore, it is important to distinguish two expressions: environmental aspects and en­vironmental impacts. An environmental aspect can be defined as "an element of an organi­sation's activities, products or services that can interact with the environment."[11] The im­pact on the environment (or, environmental impact) is any change - adverse or beneficial - caused by an organisation's activities, products or services. Several environmental aspects and impacts can result from a company's activities, products or services. Simple examples can explain this relation:

Table 2.1: Examples of environmental aspects and impacts

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Source: Thomas /Murfitt 2011, p. 210f.

2.2 Origins of the mismatch

”[Y]ou can tell which institution a society considers most important by the relative height of its buildings. In medieval times, the churches were the tallest buildings. After the Re­naissance, the tallest buildings were the seats of government. Today, the tallest buildings are the centers of economic activity.”[12]

This quote expresses the gravity to which our society revolves around the concept of eco­nomic wealth. More consumption and production are good, less consumption and produc­tion are bad. We live in a world were economic systems require endless growth - on a plan­et with limited resources.[13] It is only logical that this concept has a major problem.

The following illustration, called ”the Treadmill of Production” represents a theory devel­oped by Schnailberg in 1976.[14] It shows a society that is running on spot. ”Big labor” and ”big government” feed the earth' resources to the treadmill of production, lead by ”big busi­ness”. The goal is to "keep everyone happy” not considering that the environment is being polluted.[15]

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Figure 2.2:The Treadmill of Production

Source: http://clogic.eserver.org/3-1 %262/foster.html

The underlying problem has two main components: Open access and public goods.

- Open access: resources such as the air and oceans can be described as common property, they are owned by everyone. They are non-excludable, which means that it is difficult or impossible to restrict their access. Every person or organisation takes as much as they want, there is no incentive for conservation because the next person would act in the same way. This leads to overexploitation and people damag­ing the resources on which they depend (e.g. overfishing).

- Public goods are non-excludable, plus their consumption is non-rival which means that the consumption by one person doesn't limit another person's use. As compa­nies have open access to resources, such as fresh air, they will pollute them without considering the external costs imposed on others. Stopping the pollution of fresh air is difficult, as the motivation of each victim of pollution is not big enough to organ­ise collective action. Everyone hopes to free-ride on another person's action.[16]

This effect can be described as an externality, where the consequences of an economic ac­tivity affect unrelated third parties.[17] Externalities can be either positive or negative and are a type of market failure. Pollution, for example, is a negative externality as the polluting substances, emitted by a company, affect the health and surrounding environment. Those private costs imposed on the society and nature differ from the benefits of the company.[18] Let's say a company produces paper. During the manufacturing process, polluted water is discharged into a river which kills fish and therefore destroys the business of the fishermen. The polluted water also hinders people from having fun and swimming in the river. The graph below demonstrates the situation in a simple supply-demand curve (SD curve). Without any regulations or other incentives for the company to lower their pollution, the company would act with no regard for the environment or other private costs. In this case, they would produce amount q in tons of paper and sell it for price P. Only with government control or regulations by environmental authorities in place, the production, and thus the pollution, can be lowered to a level where social costs are taken into account. The produced amount of paper will be reduced to q' and the price will rise to P'.

The externality could also be internalized by payments or other compensation from the pol­luting company to the society, which is called the polluter-pays-principle. Alternative solu­tions provided by the polluter-pays-principle are avoiding, reusing, recycling or safely dis­posing waste.[19]

Another example of externalities is the use of fossil fuels. Renewable energies are often considered as too expensive. But this is only the case while the environmental costs of car­bon emissions from burning fossil fuels aren't taken into account. When externalities aren't internalized they limit "the opportunities for new eco-efficient industries to emerge.[20] " Prices of traditional goods and services are artificially deflated, so environmentally friendly technologies are hindered from entering the market.

These examples lead Goodstein[21] and Stead/Stead[22] to the conclusion that the free-market system allows companies to pursue their own interests without regard to the environment. The instruments of setting targets and measuring and rewarding performance encourage behaviour that is destructive to the environment. Instead of selling longer-lasting environ­mentally friendly products, companies aim to sell as much as possible and rewards are handed to those that sell the most during a short period of time.[23]

Government regulations are an essential instrument to internalise externalities but on top of that, there are more profound long-term solution needed. "[O]ur current economic systems demand endless growth, continued consumption, and the most profitable pathways"[24] which lead and will lead to negative impacts on the environment, as the following chapter proves.

2.3 The most severe environmental concerns

Because of the problems associated with consumption, exploitation and population growth, humankind exerts an enormous amount of pressure on the natural environment. Every deci­sion made by individuals, organisations and the government can influence and harm the environment causing local and global issues. These concerns can't be considered separately as they consist of complex, interconnected problems, with a multitude of different causes, symptoms and consequences. With this in mind, the following listing provides a summary of the most severe concerns our planet and mankind currently face.[25], [26]

2.3.1 Pollution

Pollution occurs every time a harmful substance is added to the environment. This includes any activity, intentionally or accidentally, that detracts from the quality of the existing envi­ronment. In general, liquids, gases and solids can be described as pollutants. Odour, energy, noise and light can cause harm and therefore be considered as a pollutant. The damage of land, air or water may affect flora and fauna as well as the health of human beings.

In Australia, the public has access to a database by the National Pollutant Inventory (NPI) which provides details about the emission of 93 polluting substances. This information is widely used by industry, government and the communities in Australia.[27]

In 2016, Eurostat published an article about the emissions of selected acidifying gases into the air in European countries. Those gases, once released into the atmosphere can cause ac­id rain which harms plants and animals.[28] As the figure 2.4 shows, the total numbers of SO2 (sulphur dioxide), NOx (nitrogen oxide) and ammonia (NH3) decreased from 2008 to 2014.

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Figure 2.4:Total acidifying gas emissions (EU 2008 - 2014) in thousand tonnes

Source: http://ec. europa. eu/eurostat/statistics-explained/index.php/File:Figure-I - Total_acidifying_gas_emissions,_EU_28,_2008_- _2014,_(thousand_tonnes_of_SO2_equivalents_of_SO2,_NOx_and_NH3).png

The decrease in those acidifying gases represents the positive trend of reduced air pollution in Europe over the past decades. In Australia, sulphur dioxide has been reduced from 1.3 million tonnes in 2011/2012 to 970.000 t in 2015/2016[29].However, the concentrations of air pollutants are still too high and cause problems to health and nature.

2.3.2 Climate Change

Due to its devastating implications and global publicity it seems impossible to write an en­vironmental report without mentioning climate change. It is the reason and the cause of many other described problems in this chapter. Climate change is the biggest and most in­terconnected concern the earth currently faces. The planet's natural cycles are effected, in­fluencing the way in which land, atmosphere, oceans, ice and living things interact.

The origin is simple: climate change is largely caused by burning fossil fuels and the de­struction or damage of natural features that store carbon.[30] This leads to an increase of greenhouse gases (GHG) in the atmosphere. The consequences, in turn, are complex and a threat to humans and nature (e.g. wildfires, sea level rise, drought and heat waves, tropical storms etc.)[31].

The most influential GHG is carbon dioxide (CO2). Figure 2.5 shows that the current amount of CO2 is at its peak level since 400.000 years.

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In 2016, the Australian Conservation Foundation reported that ten companies, all working in the energy or mining sector, cause a third of Australia's climate pollution. "Together, they are responsible for pouring more climate pollution into the atmosphere than Switzer- land, Ireland, and Denmark combined."[32]

However, the renewable energies sector is entering an era of growth and development with more than 20 large scale wind and solar power projects being built across Australia. This, being the biggest investment since the 1970s, is considered as an important step to reach Australia's Renewable Energy Target (RET)[33].The goal is that by 2020, about 23.5 percent of Australia’s electricity generation will be from renewable sources.[34]

In Germany, there is also reason for hope. At the end of April 2017, thanks to its low car­bon energy revolution ("Energiewende"), Germany broke a record and retrieved 85% of the energy from renewables.[35]

To address climate change worldwide, 195 countries adopted a global and legally-binding climate deal, the Paris Agreement in 2015.[36] The main goal is to limit global temperature to raise less than two degrees Celsius since the pre-industrial level.[37]

2.3.3 Loss of biodiversity

Biodiversity can be defined as the variety of life: from microorganisms to plants and ani­mals and their ecosystems. There are two different approaches to view biodiversity:

- Non- anthropocentric point of view: all species have a right to exist
- Anthropocentric / human-centred point of view: biodiversity is essential for eco- nomic activities now and in future[38]

Both approaches emphasise the importance of a great biodiversity and recognise its long­term value for all living beings.

But the loss of biodiversity increases, mainly because of habitat destruction caused by hu­man activity. Now the human-generated extinctions outnumber the natural extinctions of species.[39] The extinction of one species has far-reaching consequences whereby whole eco­systems are endangered.[40]

2.3.4 Ozone layer depletion

The ozone layer depletion was one of the most popular discussions in the 90s and early 2000s. When gases, such as CFC (chlorofluorocarbon), are released into the atmosphere, they react with the ozone molecules and cause a depletion of the ozone layer which allows UVB radiation to reach the earth. According to the U.S. Environmental Protection Agency, one atom of chlorine could destroy more than 100.000 molecules of ozone. Even though CFCs have been banned in many industrialised countries, we will experience the conse­quences for around 50 more years. Increased UVB radiation causes reductions in single- celled organisms like algae which represent the bottom rung of the food chain.[41]

2.3.5 Toxins

Whereas many pollutants can be considered as toxins, this category also refers to radioac­tive materials, pesticides and herbicides that are released into nature and cause harm to the environment on a long-term basis.[42]

2.3.6 Dying oceans

The environmental concern of dying oceans refers to ocean acidification, pollution and overfishing.

Ocean acidification is a direct effect of CO2 being absorbed by sea water. Since the begin­ning of the Industrial Revolution, the surface acidity of ocean waters has risen by around 30%. Acidification threatens the life of plankton and corals as well as causing problems for shellfish to grow or maintain their skeletons. The expected increase of 150% of the surface acidity until 2100 would issue an unbearable challenge to marine life.[43] The consequences also reach out to estuarine areas, coastal lakes and lagoons where the poor water qualities cause a loss of habitat. [44]

Not to forget that dumping waste into the oceans, especially plastic, sickens and kills ma­rine life. The amount of plastic in our oceans outnumbers plankton by six.[45] Also, we catch more fish than the population can naturally replace through reproduction. This unsustainable behaviour is not only dangerous for marine life but also induces eco­nomic and social problems of coastal communities that rely on fishing.[46]

2.3.7 Waste and littering

Waste - a concept that doesn't exist in nature - seems to gain rising popularity. As countries develop and increase their consumption, waste comes along. On a worldwide average, we produce 438kg waste per capita per year.[47] In 2015, Germany was above average with 625kg waste per person, a number which has been stable for the last ten years. In contrast, an average Australian produces more than two tonnes of waste per year.[48] The following fig­ure shows the enormous increase in waste generation compared to population growth.

Waste, especially plastic, is harmful for the environment as it is non-biodegradable. Plastic eventually dissolves into smaller pieces which then enter life cycles (fish eat them, we eat, drink and breathe them) and cause diseases and deaths.[49]

2.3.8 Natural Resource Depletion

Too much of our natural resources such as oil, fresh water, coal and natural gas are being used - our planet can't keep up with our increasing demand. The main causes for this deple­tion are the following:[50]

- Overpopulation
- Overconsumption and waste
- Deforestation (see below)
- Mining
- Technological and industrial development
- Erosion
- Contamination of resources and pollution

As our population continues to grow, the conflicts over natural resources will increase.

2.3.9 Deforestation

"Forests are more than just a collection of trees - they are integrated ecosystems and home to some of the most diverse life on Earth.”[51] This quote of the World Wildlife Fund under­lines the direct connection between deforestation and the loss of biodiversity. The cutting down of trees also goes along with climate change as trees act as a carbon sink. Causes of deforestation are illegal logging, fires, the need for wood and paper products, urban expan­sion and, most importantly, clearing for agriculture.[52] The world rain forests have been halved since 1990[53] and they could be destroyed completely in a hundred years if we con­tinue clearing trees at the current rate.[54]

2.4 The IPAT Equation

In 1971 Paul Ehrlich found a simplified way to describe the effects of technological ad­vancement and economic prosperity on the environment. His mathematical formula de­scribes the influence of Population (P), Affluence (A) and Technology (T) on environmen­tal Impacts (I):

Environmental Impact = Population * Affluence * Technology I = P * A * T

The P refers to the population growth.[55] Whereas in 1900, only two billion people lived on our planet, there is now a population of almost 7.5 billion people.[56] And even though the growth rate slowed down, we are still growing by the population of Germany each year.[57]

The A for affluence refers to the growth in consumption per person. Technology (T) de­scribes the use of resource needed to satisfy consumption. Or, in other words, the damage of the environment per unit of consumption.

Let's have a look at the example of CO2 emissions per year caused by passenger cars:

If we own 132 cars per 1000 people[58] and an average car emits 4.7 tonnes of CO2 per year[59], the equation looks the following:

illustration not visible in this excerpt

This equation can be applied to help understand any impact on the environment by humans. However, it needs to be noted that it only considers three casual factors (PAT) and is there­fore a very simplified representation.

2.5 Environmental economists on the rise

Until the 1960s, environmental impacts were mostly treated as minor. In order to satisfy their needs, people strived for greater consumption and production.[60] In the 1970s, envi­ronmental debates gained importance and the so called Neo-Malthusians developed.[61] Peo- ple realised that their behaviour might have drastic influences on the environment -and the economy: [62],[63]

- As resources become scarce, they become more expensive.
- Population and consumption stress the environment: human welfare might decline on a long-term basis.
- The environment as it is today is essential for the economy.
- Ecosystems are fragile and changes might bring unknown consequences with them.
- Depleting resources (without having a good substitute) is unsustainable.

Those issues raise tensions between economics and social values. What has priority, eco­nomic efficiency or the protection of life and nature? Should economic development be limited to preclude harm to mankind?[64] The term environmental economics describes the area concerned with topics related to the use or abuse of natural resources by humans.[65] So, environmental economists deal with the challenge of matching economic wellbeing with environmental protection. They are not suggesting to replace economics by environmental values, but they claim that a merging of those two positions is needed.[66] Even though issues of the economy affecting the environment have been debated for several decades now, only recently a widespread interest grew amongst governments and the industry.[67] As problems get more complex, the economy and the environment become more interwoven and influ­ence each other, on a regional, national and global level.[68] "Organisations around the world, as well as their stakeholders, are becoming increasingly aware of the need for [...] sustaina­ble growth and development."[69]

2.6 The role of trade agreements and globalisation

Trade agreements, such as the General Agreement on Tariffs and Trade (GATT) have a lot of positive impacts on the economy. But from an environmental point of view, they are rather controversial. Economic agreements favour globalisation, internationalisation and the deregulation of markets. Given that economic activities, in total, are harmful to the envi- ronment, growth tends to reinforce the negative influence on the environment.[70]

However, for some pollutants another hypothesis might hold. The so called environmental Kuznets curve (EKC) states that economic development first leads to environmental degra­dation, but a positive environmental effect arises once a certain level of wealth and economic growth is reached (see figure 2.7 below).[71]

illustration not visible in this excerpt

Figure 2.7: Environmental Kuznets curve

Source: https://upload.wikimedia.org/wikipedia/en/4/4e/Environmental_Kuznets_Curve.png

An example is the decreasing air pollution through sulphur dioxide of the U.S.A. while car usage rose. But it needs to be noted that the EKC is highly controversial and refuted by many economists. The link between environmental degradation and the level of income is rather weak and doesn't apply to several environmental concerns, such as the loss of biodi­versity or CO2 emissions. Also, the economies of many developed countries predominantly shift to the service sector while they still import goods from developing countries. This ex­port of environmental degradation is not taken into account.[72] In addition, as the effects of economic growth on the environment depend on more than one factor it can be concluded that the EKC doesn't hold.[73]

According to Thomas and Murfitt, "[G]lobalisation has accelerated the process of decline of the global environment”.[74] This can be explained with an increase in transportation and a shift of competitive advantages, as countries (or corporations) with poor environmental per­formances are usually able to produce at lower costs.

Also, national standards might be overruled by trade liberalisations. So even though stand­ards of individual countries are still in place, trading partners might have lower standards.

So it lies in the hands of individual corporations to adapt voluntarily to the higher stand­ards, or not.

One way to overcome this dichotomy is to modify international trade agreements to make them compliant with environmental policy and sustainable development.[75] International trade can have positive effects on the environment as the transfer of technological knowledge can aim for environmentally friendly products and production processes.[76] But environmental policies have to be set at the basis of international agreements to allow trade to be sustainable.

3 Drivers for corporate environmental protection

Moving from the bigger picture of an economy as a whole to a more specific insight of cor­porations, this chapter outlines the motivational background of companies to become more environmentally friendly.

3.1 Green stakeholders

Already in 1989, Jenner knew that "[b]usiness cannot ignore environmentalism. No aspect of management remains unaffected: there are consumers who make it part of their buying decision; capitalists who make it part of their investment decision; job applicants who ask about environment policy at interviews. [...] there are politicians passing a steady stream of environment legislation"[77]. He refers to what we call today green stakeholders.

A stakeholder is any individual or group that can affect or is "affected by the achievement of the organisation's objectives".[78]

The earth itself can be seen as a stakeholder, as it is highly affected by the activities of companies. The long-term survival of a company depends on the long-term survival of the earth. Implementing environmental measures in order to create a greener planet means ac­cepting the earth as a stakeholder.

But usually the interests of our planet are represented more indirectly by green stakehold­ers. As Stead points out, there are different groups of stakeholders that influence the deci­sion making of a company and push them to act greener. Those green stakeholders will be examined below and consist of government regulators, green consumers, ethical investors, employees, environmental interest groups, lenders / insurers and environmental standard setters.[79]

3.1.1 Government regulators

As outlined before, governmental regulations are needed to prevent market failures (exter­nalities), where companies can act without taking the environment, or other social aspects into account. So, regulations play an essential role and are fundamental to corporate envi- ronmental protection. There is a few characteristics of good and effective regulations: [80] [81]

- strict, transparent and consistent (no room for uncertainty)
- focussing on outcomes (e.g. setting goals for CO2 reductions instead of dictating a certain type of technology), so the companies get creative and think of solutions that fit best to their organisations (the innovative results might even exceed government regulations)
- foster continuous improvement
- allowing long and well-defined phase-in periods
- using market-incentives (instead of penalties)
- the regulations should be economically feasible for the companies
- the regulator should have the role of a communicator, consultant and educator

This shows the shift from pure command and control (CAC) regulations to a relationship of empowerment, facilitation and partnership.[82] CAC regulations would be an implementation of rules or standards that companies have to obey. As well as this, there are different tools that can be used by the government to create incentives and disincentives for companies. Disincentives include taxes (such as carbon taxes), emission fees[83] and other fines. Exam­ples for incentives are tradable emission permits and subsidies (for example for solar ener­gy). The government can also help to persuade companies of the benefits of environmental protection by the provision of information and education.[84]

Even though government regulations play a major role in environmental protection, they aren't too popular with companies. This is largely because regulations usually come with an increase in direct costs to implement the measures.[85] But well planned and structured regu­lations should promote innovations of products and processes that give firms the opportuni­ty to also benefit from them.[86] There are different ways to offset, or partially offset, the costs of regulations:[87] The most simple step is to improve resource efficiency of existing technologies (e.g. going paperless, energy bulbs). Another option is to invest (more) in smarter innovations. This could lead to new products with lower costs of production or operation, better designs and attributes.[88] Also, customers might be willing to pay a higher price for environmentally friendly products.[89] The Porter hypothesis states that strict regu­lations impose high costs on companies on the short-run, but enhance, through efficiency and innovation, their long-term competitiveness.[90]

This shows that government regulations are an effective tool to protect the environment and act as a catalyst for companies to improve their environmental performance and competi­tiveness.[91]

3.1.2 Green Consumers

Many companies adapt more proactive environmental protection measures that go beyond governmental regulations. One reason for this is the rising demand from customers for en­vironmentally friendly products.[92] Especially young, educated adults become more ecologi- cally aware, which is reflected on their consumption and lifestyle.[93] The message of a green consumer is: long-term over short-term, quality over quantity and 'we' over 'me'. They buy green products (and use them as long as possible before recycling), which have the follow­ing characteristics:[94]

- High quality (fulfilling the needs of the consumer)
- Durability
- Made with nontoxic materials
- Produced and delivered using resource efficient processes
- Recyclable / biodegradable packaging
- Not tested on animals

The problem of green consumerism is that people act less green than they intend to do (atti­tude behaviour gap). They are aware of the importance of environmentally friendly con­sumption but tend to avoid paying higher prices. The price premium, a monetary measure of the sacrifice to buy eco-products, is usually quite low (usually maximum 10% compared to the usual product). Green consumers are also sceptical about environmental claims that companies make.[95] It is hard to identify green products as labels (such as "eco") are often misused as a marketing gimmick.[96]

Not only are the customers of the final products green consumers, other companies, such as suppliers, can act as green consumers. Often large companies implement environmental protection measures and set standards for their suppliers and customers. As a result, smaller companies follow in their footsteps.[97]

3.1.3 Ethical Investors

There are a growing number of investors that see a relationship between environmental quality and business performance. They are aware of the profitability of ethical, environ­mentally friendly investments. On the other side, many companies that act in an environ­mentally irresponsible way, have trouble attracting (new) investors.[98] Ethical investors have several options to foster corporate environmental protection. They can invest directly in companies or mutual funds that are environmentally friendly. For example, Australian Ethical Investments (AEI) sets out a charter of do's and don'ts with consideration of social and environmental aspects and suggests companies to invest in, that act ethically responsi­ble. Ethical investors can fund companies that are in the in the process of offering a green product, e.g. in the commercialising phase.[99] There are also investment portfolios that fo­cus on sound environmental performances, and companies with poor environmental records would be removed from the portfolio. Another possibility for investors is to attend annual shareholder meetings to initiate change and convince the company to change their practices and act more environmentally friendly.[100]

3.1.4 Employees

As employees are immediately affected by environmental protection measures of the com­pany it is essential that they don't disagree with the policy, or even better, support and initi­ate environmental change. Employees increasingly place value on social and environmental performances. They want to work for companies that act environmentally responsible.[101] Companies going green can see a higher staff motivation and satisfaction. Providing a healthy and enjoyable workplace helps companies to become the employer of choice. At­tracting talented, skilled employees helps a company to maintain their competitiveness on the long run.[102] According to the environmental economist Delmas, MBA students now have a different view on their future job. "They don't want to work just to make money. They also want to make a difference.”[103] A process, called a virtuous circle, was the result of a study on French and American companies: Being open-minded allows a company to employ green and highly skilled staff. This leads to the adoption of green standards and practices which attracts even more innovative and environmentally conscious employees. An example is the sports-clothing company Patagonia that is well known for its environ­mentally friendly practices. On average they receive 900 applications for every job opening - a number that shows how eager employees are to work for a green company.[104]

3.1.5 Environmental interest groups

Environmental interest groups are extremely varied - in size, structure and interests. Having different ideals, goals and ways to operate goes along with tackling different companies in different parts of the economy. As a result, relationships between organisations and envi­ronmental interest groups are more or less intense and conflictual. But even though their ideas often oppose each other, the best outcomes can be reached when a cooperative rela­tionship is established.[105] Environmental interest groups can be of great help when infor­mation on the environmental issue is needed. Their consultation can be beneficial and facil­itate the implementation of environmental protection measures.

3.1.6 Lenders and Insurers

Climate change increases the risk of natural disasters such as hurricanes and floods. With every natural catastrophe the costs of insurance companies rise. This explains a general atti­tude of insurers to provide cover to clean companies rather than to environmentally risky ones.[106]

Also, financial institutions are more willing to lend money to companies that prevent pollu­tion than paying for clean ups or investing in environmentally risky projects.[107] [108] A cur­rent example is the new climate policy of Australia's second biggest bank, Westpac. They announced that they won't fund any new coal basins and set higher efficiency standards for existing coal mines.[109] Also, U.S. Bank becomes the first major American bank to stop fi­nancing the construction of oil or natural gas pipelines.[110]

3.1.7 Environmental standard setters

Environmental standards serve to compare and certify environmental performances of companies all over the world from different industrial sectors. The most famous sets of en­vironmental standards are ISO 14000 and, in Europe, EMAS.

ISO stands for International Organisation for Standardization and offers more than 18,000 standards for a sustainable development. ISO 14000 can be described as an internationally agreed group of standards in order to implement an environmental management system (EMS). It was first launched after international environmental experts came together at SAGE (ISO Strategic Advisory Group on Environment) in 1991 to define a toolbox to sup­port sustainable development. ISO 14000 is suitable for any type and size of organisation and can be combined easily with other ISO standards.[111] The reasons for the popularity of ISO 14000 can be summarized to a few arguments:

- Applicable to all types of companies
- Internationality
- Soft rules on documentation, registration and publication
- Low costs[112]

The annual ISO Survey of Certification provides numbers of valid ISO certificates world­wide. In 2014, the number of organisations holding an ISO 14001 certificate was 296,736 compared to 319,324 in 2015. That equals an increase of 7,6%.[113] China is the country with the largest amount of ISO 14000 certificates (132,104), followed by Italy (25,117) and Ja­pan (18,301).[114]

Focussing on Australia and Germany, they reach rank 39 and five respectively worldwide. The numbers of some selected industrial sectors of 2015 show the following:

Table 3.1: Numbers of valid ISO certificates in a selection of industrial sectors

illustration not visible in this excerpt


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[2] Stead/Stead 1996, p. 152

[3] https://www.lecturio.de/magazin/umweltschutz-compliance/

[4] Thomas/Murfitt 2011, p. 1

[5] Thomas/Murfitt 2011, p. 1

[6] Wong/ Lai/Lun/Cheng 2016, pp. 1, 97f.

[7] Thomas/Murfitt 2011, p. 4

[8] World Commission on Environment and Development 1987, p. 16

[9] Bannock/Baxter 2011, p.375

[10] http://www.sciencedirect.com/science/article/pii/S2212827114008488, p.696

[11] Thomas / Murfitt 2011, p. 210

[12] Stead/Stead 1996, p. 3

[13] http://www.smh.com.au/environment/how-to-fix-the-future-saving-the-planet-from-climate-change- requires-action--now-write-david-suzuki-and-ian-hannington-20170327-gv75h8.html

[14] Gould/Pellow/Schnaiberg 2008, p. 9

[15] Gould/Pellow/Schnaiberg 2008, p.12

[16] Goodstein 1999, p. 39

[17] http://www.investopedia.com/terms/e/externality.asp

[18] Goodstein 1999, pp. 32f.

[19] Stead/Stead 1996, p. 156

[20] Angel 2008, p. 214

[21] Goodstein 1999, pp. 32f.

[22] Stead/Stead 1996, pp. 154ff.

[23] Angel 2008, p. 211

[24] http://www.smh.com.au/environment/how-to-fix-the-future-saving-the-planet-from-climate-change- requires-action--now-write-david-suzuki-and-ian-hannington-20170327-gv75h8.html

[25] http://planetearthherald.com/top-10-environmental-issues/

[26] http://www.conserve-energy-future.com/top-25-environmental-concerns.php

[27] CCH 2010, p. 383

[28] https://www.epa.gov/acidrain/effects-acid-rain

[29] http://www.npi.gov.au/npidata/action/load/summary-result/criteria/substance/77/destination/ALL/source- type/ALL/subthreshold-data/Yes/substance-name/Sulfur%2Bdioxide/year/2016

[30] http://www.smh.com.au/environment/how-to-fix-the-future-saving-the-planet-from-climate-change- requires-action--now-write-david-suzuki-and-ian-hannington-20170327-gv75h8.html

[31] https://climate.nasa.gov/effects/

[32] http://apo.org.au/files/Resource/acf_big_polluters_report_2016_0.pdf

[33] http://mpegmedia.abc.net.au/rn/podcast/2017/02/bst_20170213_0751.mp3

[34] www.environment.gov.au/climate-change/renewable-energy-target-scheme

[35] http://www.ecowatch.com/germany-renewable-energy-record-2392212868.html

[36] https://ec.europa.eu/clima/policies/international/negotiations/paris_en

[37] http://unfccc.int/paris_agreement/items/9485.php

[38] Tisdell 2003, p. 28

[39] Tisdell 2003, p. 28

[40] http://planetearthherald.com/top-10-environmental-issues/

[41] http://www.nationalgeographic.com/environment/global-warming/ozone-depletion/

[42] http://inhabitat.com/the-top-5-green-issues-humanity-should-be-thinking-about-in-2013/

[43] http://planetearthherald.com/top-10-environmental-issues/

[44] Tisdell 2003, p. 287-288

[45] http://www.plastic-planet.de/

[46] https://www.worldwildlife.org/threats/overfishing https://www.weforum.org/agenda/2015/08/which-countries-produce-the-most-waste/ http://ec.europa.eu/eurostat/statistics-explained/index.php/Municipal_waste_statistics Boote 2010

[47] http://www.theworldcounts.com/stories/Depletion-of-Natural-Resources

[48] https://www.worldwildlife.org/threats/deforestation

[49] Tisdell 2003, p. 285

[50] http://planetearthherald.com/top-10-environmental-issues/

[51] http://www.nationalgeographic.com/environment/global-warming/deforestation/

[52] Goodstein 1999, p. 105

[53] http://study.com/academy/lesson/what-is-ipat-factors-of-the-human-impact-on-the- environment.html#lesson

[54] http://web.mit.edu/2.813/www/Class%20Slides%202008/IPAT%20Eq.pdf

[55] http://chartsbin.com/view/1113

[56] https://www.epa.gov/greenvehicles/greenhouse-gas-emissions-typical-passenger-vehicle-0

[57] Tisdell 2003, pp. 22f.

[58] Goodstein 1999, p. 106

[59] Goodstein 1999, p. 106

[60] Stead/Stead 1996, p. 13

[61] Thomas/Murfitt 2011, p. 8

[62] Bannock/Baxter 2011, p.123

[63] Thomas/Murfitt 2011, p. 9

[64] Tisdell 2003, p. 20

[65] World Commission on Environment and Development 1987, p. 5

[66] http://www.iso.org/iso/theiso14000family_2009.pdf, p.3

[67] Thomas/Murfitt 2011, pp. 14f.

[68] Productivity Commission 2000, p. 6

[69] http://www.economicshelp.org/blog/14337/environment/environmental-kuznets-curve/

[70] Stern 2003, p. 1

[71] Thomas/Murfitt 2011, p. 16

[72] Thomas/Murfitt 2011, p. 17

[73] Productivity Commission 2000, pp. 5-7

[74] Jenner 1989, p. 109

[75] Freeman 1984, p. 46

[76] Stead/Stead 1996, pp. 152 - 177

[77] Stead/Stead 1996, pp. 159-160

[78] Linde 1993, p. 75

[79] Gunningham/Sinclair 2002, p. 12

[80] Bannock/Baxter 2011, p.123

[81] Thomas/Murfitt 2011, p. 53

[82] Goodstein 1999, p. 154

[83] Stead/Stead 1996, p. 159

[84] Linde 1993, p. 69

[85] Goodstein 1999, p. 153

[86] Linde 1993, pp. 72f.

[87] Goodstein 1999, p. 153

[88] Stead/Stead 1996, p. 159

[89] Thomas/Murfitt 2011, p. 64

[90] Wong/ Lai/Lun/Cheng 2016, pp. 97f.

[91] Stead/Stead 1996, p. 161

[92] Wong/ Lai/Lun/Cheng 2016, pp. 98f.

[93] Stead/Stead 1996, p. 161

[94] Thomas/Murfitt 2011, p. 96

[95] Jenner 1989, pp. 141 ff.

[96] Angel 2008, pp. 218ff.

[97] Stead/Stead 1996, pp. 166f.

[98] Thomas/Murfitt 2011, p. 64

[99] http://www.carbondiet.ca/green_business/green-employee-programs.html

[100] http://newsroom.ucla.edu/releases/study-certified-green-companies-238203

[101] http://newsroom.ucla.edu/releases/study-certified-green-companies-238203

[102] Stead/Stead 1996, p. 172

[103] Thomas/Murfitt 2011, p. 64

[104] Thomas/Murfitt 2011, p. 64

[105] Stead/Stead 1996, p. 173

[106] https://www.theguardian.com/environment/2017/apr/28/big-four-banks-all-refuse-to-fund-adani-coalmine- after-westpac-rules-out-loan

[107] http://www.ecowatch.com/us-bank-divest-pipelines- 2408440397.html?utm_source=EcoWatch%2BList&utm_campaign=d4d1a1a35d- EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_49c7d43dc9-d4d1a1a35d-86104657

[108] http://www.iso.org/iso/theiso14000family_2009.pdf, pp.2-4

[109] Biebeler 2014, p. 24

[110] http://www.iso.org/iso/the_iso_survey_of_management_system_standard_certifications_2015.pdf

[111] http://www.iso.org/iso/home/standards/certification/iso- survey.htm?certificate=ISO%209001 &countrycode=AF)

[112] Biebeler 2014, p. 24

[113] http://www.iso.org/iso/the_iso_survey_of_management_system_standard_certifications_2015.pdf

[114] http://www.iso.org/iso/home/standards/certification/isosurvey.htm?certificate=ISO%209001&countrycode=AF)


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Environmental Management Systems Green Supply Chain Management Survey Environmental protection Environmental Management Australia Germany Externality Resources Green stakeholders SME Environmental impact Environmental standards Reverse logistics Product stewardship



Title: Environmental protection in German and Australian companies