The Costs and Benefits of Meeting Social and Environmental Responsibilities

Disadvantages of the Environment for Businesses

• Increased costs: Being environmentally responsible can lead to increased costs for businesses. Waste must be disposed of in an environmentally friendly way, which can be expensive. The "polluter pays" principle means that the more waste a business produces, the higher the disposal costs. These increased costs can lower profits.
• Damaged Reputation: If a business damages the environment, it risks severe damage to its reputation. Bad publicity can lead to consumer boycotts and a loss of customer trust. For example, Volkswagen faced significant backlash and reputational damage after admitting to fitting cars with software to disguise emission levels, leading to consumer distrust and loss of sales.
• Increased Regulation: Environmental responsibility often comes with increased regulation. Governments pass numerous laws to protect the environment, resulting in many rules that businesses must follow. Complying with these regulations can increase operational costs, and failure to comply can result in hefty fines and penalties.

Effects on costs of being a Socially Responsible Business

• Higher Wages: Socially responsible businesses pay fair wages, often higher than the minimum legal requirements, and provide better working conditions, which increases the overall wage bill.
• Higher manufacturing costs: Using recyclable and non-polluting materials can increase manufacturing costs. Additionally, disposing of waste responsibly and investing in eco-friendly machinery can be more expensive.
• Increased material costs: Paying fair prices for ethically sourced materials often leads to higher material costs. For example, The Body Shop pays fair prices for ingredients, supporting suppliers and contributing to community needs.
• Lower legal fees: By adhering to ethical practices and avoiding illegal activities, businesses can reduce the risk of costly lawsuits. For instance, Volkswagen faced severe legal costs for emissions cheating, which a socially responsible business would avoid.