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Business · Growing the business

Ethics, the environment and business

As businesses grow, they face bigger choices about doing the right thing: how they treat workers and suppliers, and what they do to the environment. Behaving ethically can cost money - but so can getting caught behaving badly.

  • 7 key terms
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Teacher resources

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Student handouts

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Last Lesson

Answer from memory before the answers appear.

  • What is globalisation?

    The process by which the world's economies are becoming increasingly connected.

  • What is a tariff?

    A tax on imported goods.

  • What is a multinational company?

    A business with headquarters in one country that operates in several countries.

  • Give one way a business can compete internationally.

    Selling online, or adapting the marketing mix for each country.

Learning Objectives

  1. 1Explain ethical considerations for businesses.
  2. 2Explain the trade-off between ethics and profit.
  3. 3Explain environmental considerations, including sustainability.
  4. 4Explain the impact of pressure group activity on a business's marketing mix.

What Are Business Ethics?

Ethics are moral principles about what is right and wrong. An ethical business does what is morally right, not just what is legal.

  • Employees

    Paying fair wages, providing safe working conditions and treating staff with respect.

  • Suppliers

    Paying a fair price, especially to small producers in poorer countries, and paying on time.

  • Customers

    Honest advertising, safe products and fair prices.

  • Animals and society

    Avoiding animal testing, and not selling products that harm people.

Fair Trade and Ethical Sourcing

Ethical sourcing means making sure products are made in fair and safe conditions.

  • Fair trade

    Schemes that guarantee farmers in poorer countries a fair minimum price for their crops, plus extra money for their communities.

  • Supply chains

    Large businesses buy from factories and farms around the world; ethical businesses check how those workers are treated.

  • Higher costs

    Paying fair prices and checking suppliers costs more, so products may be more expensive.

  • Customer appeal

    Many customers will pay more for products they know are ethically made.

The Ethics-Profit Trade-off

Ethics can REDUCE profit

  • Paying fair wages and prices raises costs.
  • Checking suppliers takes time and money.
  • Ethical materials are often more expensive.
  • Refusing unethical but profitable business loses sales.

Ethics can INCREASE profit

  • Customers prefer ethical businesses and pay more.
  • A good reputation brings loyal customers.
  • Well-treated staff work harder and stay longer.
  • Avoids the costly scandal of being exposed.

Environmental Considerations

Business activity can harm the environment.

  • Pollution

    Air, water and noise pollution from factories and transport.

  • Waste

    Packaging, unsold products and waste sent to landfill.

  • Using up resources

    Raw materials, energy and water that may run out.

  • Climate change

    Carbon emissions from energy use, transport and production.

Sustainability

Sustainability means meeting today's needs without harming the ability of future generations to meet theirs.

  • Renewable energy

    Using solar and wind power instead of fossil fuels.

  • Less waste

    Reducing packaging, recycling and reusing materials.

  • Sustainable materials

    Using materials that can be replaced, such as wood from managed forests.

  • Cleaner transport

    Electric delivery vans and fewer, fuller deliveries.

Going Green: For and Against

Benefits to the business

  • Attracts customers who care about the environment.
  • A better reputation and brand image.
  • Some changes cut costs, such as using less energy or packaging.
  • Avoids fines and future environmental laws.

Costs to the business

  • Greener materials and energy can cost more.
  • New equipment, such as electric vans, is expensive.
  • Higher costs may mean higher prices.
  • Competitors that do not go green may be cheaper.

Pressure Groups and the Marketing Mix

Pressure groups campaign to change how businesses behave on ethical and environmental issues.

  • Product

    A business may change ingredients or materials - removing palm oil, or using recycled plastic.

  • Price

    Ethical changes can raise costs, so prices may rise.

  • Promotion

    A business may promote its new ethical credentials, or pull adverts that caused offence.

  • Place

    A business may stop selling through a retailer, or in a country, that a pressure group has criticised.

Case study

Rana Plaza: The Cost of Cheap Clothes

In April 2013 the Rana Plaza building in Bangladesh collapsed. It housed several clothing factories making cheap clothes for well-known Western brands, and more than 1,100 workers were killed. Cracks had appeared in the building the day before, but workers were ordered back inside. The disaster led to pressure group campaigns, customer anger and a legally binding safety agreement signed by many clothing brands. It showed that the lowest possible cost can come at a terrible human price - and that customers expect brands to know how their products are made.

2013 The Rana Plaza factory building collapses
1,100+ Workers killed

The Ethical Boardroom

A chain of clothing stores could cut costs by 20% by switching to a factory abroad with poor safety records. Split into two sides: one argues for switching (profit), one against (ethics). Then agree a final decision and explain how the business should communicate it to customers.

1. Arguments for switching.

2. Arguments against switching.

3. The final decision, and why.

4. How to tell customers.

A good answer shows: Arguments on both sides linked to costs, reputation, customers and staff, with a justified decision.

Can I...?

  1. 1Explain what business ethics are.
  2. 2Explain ethical treatment of employees and suppliers.
  3. 3Explain fair trade.
  4. 4Explain the ethics-profit trade-off.
  5. 5Explain environmental impacts of business.
  6. 6Explain sustainability.
  7. 7Explain the benefits and costs of going green.
  8. 8Explain how pressure groups affect the marketing mix.

Summary & Exam Focus

  • Ethical businesses treat employees, suppliers and customers fairly - often at a higher cost.
  • Ethics can reduce profit through higher costs, or increase it through reputation and loyalty.
  • Businesses harm the environment through pollution, waste, resource use and emissions; sustainability reduces this.
  • Pressure groups can force changes to the marketing mix.

Exam focus

Explain one way that behaving ethically could increase a business's profit. (3 marks) (3 marks)

Ethics questions reward balance: ethics costs money in the short term, but can win customers and protect reputation. Show you understand both.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Ethics
Moral principles about what is right and wrong.
Ethical business
A business that does what is morally right, not just what is legal.
Fair trade
A scheme guaranteeing farmers in poorer countries a fair price for their products.
Supply chain
All the businesses involved in making a product and getting it to the customer.
Sustainability
Meeting today's needs without harming future generations' ability to meet theirs.
Carbon footprint
The amount of carbon dioxide produced by a business's activities.
Pressure group
An organised group that tries to change the behaviour of businesses or the government.

Questions and answers

7 questions set on this lesson, with the mark schemes and model answers open.

1. Exam question Define 1 mark Foundation

Define the term 'sustainability'.

Mark scheme — 1 mark available

  • Meeting present needs without harming future generations / not using up resources — 1 mark

Model answer

Meeting the needs of today without harming the ability of future generations to meet their needs.

2. Exam question Outline 2 marks Foundation

Outline one way a pressure group could affect a business's marketing mix.

Mark scheme — 2 marks available

  • A way identified linked to one of the 4Ps — 1 mark
  • Developed — 1 mark

Model answer

A pressure group campaign could force the business to change its product (1), for example removing an ingredient such as palm oil that damages rainforests (1).

3. Exam question Explain 3 marks Foundation

Explain one way that behaving ethically could increase a business's profit.

Mark scheme — 3 marks available

  • A way identified, e.g. more customers / reputation / staff loyalty / avoiding scandal — 1 mark
  • First linked point of explanation — 1 mark
  • Second linked point of explanation — 1 mark

Model answer

It could attract more customers (1). Many customers prefer to buy from businesses they see as ethical, and may pay a higher price for ethically made products (1). This increases the business's sales and revenue, which can outweigh the extra costs of behaving ethically (1).

4. Exam question Justify 9 marks Stretch

Source: FreshBite PLC sells sandwiches and salads in 400 shops. It uses single-use plastic packaging. An environmental pressure group has started a social media campaign against it. Option 1: Switch to fully compostable packaging, adding 8p to the cost of each item. Option 2: Keep the plastic packaging but launch a recycling scheme in its shops. Justify which one of these two options FreshBite PLC should choose.

Mark scheme — 9 marks available

  • AO2 (Application, 3 marks): uses the context - 400 shops, the campaign, 8p per item, the two options — Level 1-3
  • AO3a (Analysis, 3 marks): chains of reasoning about each option — Level 1-3
  • AO3b (Evaluation, 3 marks): a justified choice with a supported judgement — Level 1-3

Model answer

Option 1 removes the cause of the campaign. Compostable packaging shows FreshBite is serious about the environment, which should end the pressure group's campaign and attract customers who care about plastic waste. However, 8p per item across 400 shops is a large extra cost, which will either reduce profit or raise prices, and price-sensitive customers may go elsewhere. Option 2 is cheaper, and shows some action. But the pressure group is likely to see it as "greenwashing", continuing its campaign, and customers may still see FreshBite as a plastic polluter, damaging its reputation. On balance FreshBite should choose Option 1, because the social media campaign threatens its reputation across all 400 shops, and a half-measure is unlikely to stop it. However, this depends on whether it can pass on some of the 8p cost without losing too many customers.

5. Multiple choice 1 mark Foundation

What does fair trade guarantee to farmers in poorer countries?

  1. A Free transport for their crops
  2. B A guaranteed job in the UK
  3. C A fair minimum price for their crops Correct
  4. D No competition from other farmers

Why: Fair trade guarantees farmers a fair minimum price for their crops.

6. Multiple choice 1 mark Core

Why might behaving ethically REDUCE a business's profit in the short term?

  1. A It usually increases costs Correct
  2. B It always reduces sales
  3. C It is against the law
  4. D It increases taxes

Why: Fair wages, fair prices and ethical materials all raise costs.

7. Multiple choice 1 mark Stretch

A business switches to electric delivery vans. Which environmental problem does this mainly address?

  1. A Packaging waste
  2. B Air pollution and carbon emissions Correct
  3. C Water pollution from factories
  4. D Landfill

Why: Electric vans produce no exhaust emissions, reducing air pollution and carbon emissions.