Difficulties Faced by Corporations in Tackling Environmental Challenges - Term Paper Example

ANALYSIS OF DIFFICULTIES FACED BY CORPORATIONS IN TACKLING ENVIRONMENTAL CHALLENGES Student: Course Tutor: Institution: Date: Table of Contents Introduction 3 1Global environmental challenges 4 2Global warming challenge for corporations 5 1Corporations’ agenda regarding global warming 6 2.1Corporate social responsibility 6 2.2Brand image 7 2.3Corporate strategy 7 2.4Challenges faced by Wal-Mart in Tackling Global Warming 8 2.5Challenges faced by IBM in Tackling Global Warming 10 References 14 Introduction Towards the end of the 20th century, the global community was awakened to a new realisation that the environment was changing drastically due to human activities[SAN10]. Corporate and governments have in the recent past engaged in massive exploitation of natural resources and destruction of ecosystems leading to environmental problems. Rapid population growth and urbanisation have also contributed to environmental degradation[Bum14]. However, industrialisation has been the leading source of environmental population and degradation through raw materials extraction methods, energy consumption, carbon emissions and waste disposal. Some industries such as mining, construction and agriculture have a more direct interference with the environment due to the nature of their value chain[Bum14]. There is critical need for businesses, governments, non-governmental bodies and society at large to participate collectively in reducing environmental degradation. Businesses need to participate actively in sustainable operation, protection of ecosystems and environmental conservation[LJa15]. However, it is important to note that businesses face several challenges in their quest to tackle environmental challenges. These challenges include but not limited to; government regulations, lack of capacity and knowledge, managerial and financial (Bumpus et al, 2014). Despite the challenges, several corporations have engaged successfully in environmental conservation activities and integrated sustainability as part of their core values. The private sector has in some occasion cooperated with governments successfully to address environmental challenges[Sep11]. In light of this understanding, it is critically important to analyse the challenges faced by corporations in addressing environmental challenges, given their unique limitation factors that include profit maximisation goals and growth targets. 1 Global environmental challenges The general contention that business should only concern itself with profit maximisation at the expense of any other social or environmental loss is a misguided philosophy in the 21st century[Dav06]. Businesses are faced with new environmental challenges of ensuring that they pursue profitability and growth goals while at the same time engaging in environmental conservation and sustainable activities[Pol11]. Corporations can no longer leave it to the government to protect the environmental and to ensure future sustainability of global ecosystems. Addressing environmental conservation is indeed not the core activity of businesses. Activities in environmental conservation and protection do not generate direct profit to businesses. In fact, they are a negative implication of business operations that corporations have to grapple with[SAN10]. However, an extensive body of research shows that environmental degradation and pollution have led to innumerable problems for human beings and other organisms all over the world[Pol11]. Global temperatures have increased due to massive deforestation and burning of fossil fuels to power industries. This has led to rising sea levels, emergence of diseases including malaria in temperate regions and unpredictable rainfall patterns that impact agricultural activities negatively. Clearly, these problems are global in nature since the effects of environmental interference in one region have far-reaching implication[Pol11]. For example, Africa contributes less that 5% of all industrial air pollution yet global warming and climate change has the most significant impact on the continent than any other region[Oke13]. It is prudent to note that the world shares most of the environmental challenges such as destruction of ecosystems including forests, oceans and rivers. Solving such challenges requires collective efforts through bodies such as United Nations and European Union. Indeed, multinationals including Coca-Cola, Nike, Johnson & Johnson and governments have been actively involved in developing sustainability policies guided by international treaties such as the Kyoto Protocol[BSR14]. Clearly, environmental challenges are not merely business-specific concerns but globally important issues. 2 Global warming challenge for corporations Global warming is perhaps the most prominent environmental challenge for businesses and society in the world today (2014; Pringle, 2001; Okereke & Kung, 2013). Through the activities of corporate bodies and individual members of the society, tonnes of harmful gases are released into the atmosphere every year. The top 1000 greenhouse gases (GHG) emitting companies account for 20% of GHG emissions. Some of the gases produced by these companies have the potential to deplete the ozone layer that protects the earth’s surface from direct exposure to UV radiation[Uni10]. The gases also create a greenhouse effect on the earth’s surface leading to increased temperatures. Consequently, the world temperatures rise leading to “global warming”, which is directly linked to rising sea levels, increased desertification, destruction of ecosystems and drastic reduction in agricultural productivity due to erratic rainfall. Corporations have been blamed for releasing harmful greenhouse gases and air pollution particularly in rapidly developing regions of Asia and Latin America[Dav06]. Due to company-specific, industry-specific and country-specific factors, corporations have responded differently in addressing the challenges of greenhouse gases emissions. In most instances, corporate social responsibility (CSR) is the greatest motivation. However, strategic orientation and company image have emerged as significant corporate agendas in engaging in environmental sustainability[Lam11]. Expectedly, some corporations engage in environmental sustainability practices to simply to comply with the law in specific countries or regions. 1 Corporations’ agenda regarding global warming 2.1 Corporate social responsibility Most corporations regard reduction of greenhouse gases emissions and carbon footprint as a corporate social responsibility (CSR) activity. CSR activities are efforts by the business to take care of societal welfare through activities that are not its core business[Gre15]. Initially CSR was not a prominent concept in the corporate world until the rise of corporations into influential and rich institutions that control more wealth than governments. Corporations engage in CSR activities such as planting of trees and contributing to environmental conservation funds as a way of reducing their collective impact on global warming. Such CSR activities provide an opportunity for businesses to engage with government at different levels in addressing global climate change. Businesses can gain meaningful information from governments on where to direct most of their CSR activities in reducing the impact of global warming[SAN10]. Through CSR, businesses can also sensitize communities on the need to reduce carbon emissions from domestic sources and destruction of trees and other ecosystems that serve as carbon sinks[Oke13]. Involvement of globally popular corporations in CSR activities that seek to sensitize humanity on the need to reduce greenhouse gases emissions can be highly impactful. 2.2 Brand image The 21st-century consumer is very informed in terms of industrialisation impact on the environment. Consumers are not merely interested in goods that meet their needs at the least possible cost. As noted by Green et al (2015), the demand for products and services that are environmentally friendly and produced through processes that do not damage the environment has increased. Therefore, businesses have to align their image and brand with environmental sustainability in order to retain or attract customers to their products or services. In fact, most multinationals engage in environmental sustainability efforts globally in order to improve or sustain consumers’ attachment to their brands[Lam11]. Brands are built on the single premise of appealing to consumers in meeting their needs. Over time consumers also develop emotional attachment to brands that tend to be concerned about society. It is, therefore, in the interest of sustaining brand salience in the market that corporations reduce emissions and engage in low environmental impact production methods to appeal to consumers. 2.3 Corporate strategy Corporations’ involvement in environmental sustainability is also a strategic consideration by top management. Strategy focuses on the long-term goals of a business. The future of the global society engagement with corporations in terms of environmental sustainability will be highly influenced by environmental challenges such as global warming and resource conservation[Kol07]. Currently, sustainability is a crucial success factor for businesses as it reduces risks and increases market opportunities. This implies that businesses that incorporate environment sustainability into their strategy formulation have better chances of remaining profitable in the global market. Accessing some highly regulated markets such as the EU requires businesses to meet certain emissions targets in selected industries[Roo11]. This trend is set to expand globally, and thus businesses have had to approach environmental sustainability as a strategic consideration. 2.4 Challenges faced by Wal-Mart in Tackling Global Warming Wal-Mart Stores Inc is one of the few major multinationals committed to reducing GHG emissions from its operations. Wal-Mart has more than 10,000 stores spread across 28 countries. This extensive scope makes Wal-Mart the largest retailer in the world. Consequently, Wal-Mart’s supply chain contributes quite a substantial amount of carbon and other GHG gases. To reduce its emissions, Wal-Mart had to work closely with its more than 60,000 suppliers in enhancing environmental sustainability[Wal151]. Wal-Mart partnered with Carbon Disclosure Project (CDP) in 2007 to reduce its carbon footprint within its stores and supply chain. Since the partnership, Wal-Mart has been able to reduce its scope 1 and 2 carbon intensity by eliminating 7.7 MMT of GHG from its supply chain. Wal-Mart’s operations are extensive and cover different legal and economic regimes across the world. This is a major challenge for Wal-Mart as it has to ensure all its suppliers engage in environmentally sustainable practices. Wal-Mart has achieved most of sustainability success in Europe and United states. Wal-Mart’s operations in china and the rest of emerging markets face difficulty in ensuring low GHG emissions. However, Wal-Mart partners with nongovernmental organizations in such situations to develop an appropriate policy and operational framework that can help reduce emissions and make Wal-Mart’s operations environmentally sustainable[CPD15]. One of the major challenges Wal-Mart experienced in China was that its suppliers prioritize overall growth and profitability of their businesses over increased energy efficiency and low emissions. This makes it difficult for Wal-Mart to ensure sustainability in its supply chain[BSR14]. In most jurisdictions including china, small and medium businesses often cite lack of incentives from government and large corporations as a major hindrance to emissions reduction[Lam11]. Energy efficiency and emissions reductions are expensive undertakings for any business. Such investments do not result into immediate or tangible benefits for small businesses that struggle to remain profitable in fiercely competitive markets. Interestingly, some local governments in china make energy costs an insignificant operational cost by offering subsidies meant to attract investors. Energy costs savings do not rank as important considerations for such businesses[Cam10]. Businesses in china receive little or no incentives for their energy saving efforts unlike in the UK and US economies. Chinese government incentives on GHG emissions reductions are also not consistent from region to region[Lam11]. Additionally, Wal-Mart had to grapple with the lack of a developed energy-efficiency industry to provide equipment, expertise and measurement tools to analyse GHG emissions in its supply chain. This situation is a great impediment to suppliers’ efforts towards improving their efforts in environmentally sustainable operations. GHG reporting systems are also costly and priced inconsistently across different regions.[Bus10] In china and most other developing economies, there is a general lack of supportive policy framework that can increase costs for businesses that waste energy and reward those to improve on energy efficiency. This means that more businesses are not inclined towards reducing GHG emissions[Kau12]. To overcome this challenge, Wal-Mart had to develop a system through which it could connect suppliers to the benefits of GHG reductions such as cost saving and government incentives. Wal-Mart suppliers in china had to be connected to technical service providers in energy saving projects, emissions reduction and auditing. Wal-Mart also had to review its relationship with suppliers based on their energy saving efforts and emissions audit. This ensured that the best performers improved their business relationship with Wal-Mart. These efforts resulted in improvement of China’s Wal-Mart suppliers’ energy efficiency by 5%. Overall, Wal-Mart was able to overcome supplier challenges to reduce its cumulative carbon footprint[BSR14]. 2.5 Challenges faced by IBM in Tackling Global Warming IBM is another leading example of how multinationals can influence environmental sustainability through reduction of GHG emissions. IBM began to publicly report its energy conservation activities in 1990. Ever since then, IBM claims to have saved 6.4 billion kilowatt-hours of electricity consumption and avoided dumping 4 million metric tonnes of carbon emissions into the global atmosphere[IBM151]. IBM recognizes that it has immense buying power when dealing with its suppliers since it spends well over $3 billion yearly in purchases. IBM uses the Electronic Industry Citizenship Coalition (EICC) code of conduct with its supply base[IBM15]. In 2010, IBM introduced a requirement that its suppliers develop and sustain management systems to address among other things their environmental responsibilities. Subsequently, IBM suppliers are required to publicly disclose their GHG emissions and actions taken to reduce them[Uni10]. In March 2015, IBM committed to source 20% of electricity requirements from renewable sources. Additionally, IBM expects to reduce GHG emissions by 35% by the year 2020. IBM Environmental sustainability progress so far has not been without challenges. Supply chain challenges remain to be the most prominent for IBM in reducing its carbon footprint and energy consumption[IBM151]. In 2009, IBM realized that corporate and supply chain priorities, particularly among its suppliers in India and China, can be of importance thus limiting the progress of GHG emissions reduction. There is also confusion among suppliers on key performance indicators and targets in energy efficiency and environmental sustainability. This problem is not unique to IBM as most multinationals with complex supply chains often underestimate the amount of resources, expertise and cooperation required to achieve environmental sustainability in a supply chain. To overcome this challenge, IBM had to align its suppliers’ sustainability efforts with the company’s supply chain program to ensure coordination and dissemination of vital information at all levels[BSR14]. This kind of internal alignment makes it possible to develop a strategic focus on addressing GHG emissions reduction. This is what led IBM to introduce new requirements to its suppliers in 2010 in increasing GHG emissions reporting transparency. IBM involvement with EICC further reduced its alignment problem since the latter constituted a working group to develop sector-wide strategy for electronics industry suppliers to reduce GHG emissions. EICC education modules have also been highly impactful in assisting supplier track energy use and developing GHG inventories in line with their buyers’ requirements[Uni10]. Clearly, gaps in alignment and clarity of objectives often reduce multinationals’ capability of lowering GHG emissions in their supply chain. This can be overcome through cooperation and continuous engagement among supply chain players. Additionally, IBM recognises the mismatch between short-term gains and long-term supply chain and business sustainability. Most suppliers would easily avoid investing in reducing emissions due to the costs involved[BSR14]. Most emission reduction investments take years to develop, implement and sustain if gains are to be achieved[LJa15]. IBM as the most influential partner in the supply chain has had to lead the way by committing its resources and strategic focus towards reducing greenhouse gases emissions as stated in its sustainability objectives. This commitment to long-term engagement communicates a clear message to suppliers and partners that future business relations will be significantly influenced by environmental sustainability commitment. Through such direct communication, IBM is able to overcome the challenge of partner businesses not prioritising GHG reduction and energy efficiency targets. IBM, Lenovo, IKEA, HP and other multinationals with complex supply chains have to deal with the challenge of suppliers having no actionable plans, experience and standards when it comes to reducing GHG emissions particularly in emerging economies[BSR14]. Europe and North America have fully developed policy frameworks and support ecosystems that facilitate easier GHG emissions measurement, disclosure and reduction. Much of the Asia-Pacific region and the Indian subcontinent including Australia, china and India lack developed GHG reporting systems[Lam11]. The problem is compounded by limited capacities among smaller suppliers that have limited resources to invest in GHG emissions and sustainability projects. To overcome this challenge, buying businesses with substantial influence in the supply chain can set the standards for suppliers. Buyers should partner with suppliers that show the greatest commitment and willingness to lower carbon emissions. This focus is capable of achieving tremendous progress towards lowering carbon emissions by directing incentives and expertise in areas that will achieve the greatest impact[Kol07]. Multinational companies can also use the Scope 3 standard to promote accounting and disclosure of GHG emissions among their suppliers. This would allow suppliers to gain experience and expertise in GHG reporting and possibly upgrade to their own corporate accounting and reporting in environmental sustainability[Sep11]. Industry collaboration would also be critical in overcoming the challenge of lack of knowledge, expertise and resources to achieve tangible GHG emissions[BSR14]. Leading companies such as IBM have realised this need and responded through the EICC initiative that seeks to connect suppliers with technical expertise in reporting and reducing GHG emissions and related environmental sustainability issues[Uni10]. Apart from this challenge, there is no clear framework regarding carbon pricing across different jurisdictions. This creates confusion and uncoordinated efforts in several industries. Industry collaboration efforts can address this challenge as well by influencing political decisions at international levels. From the literature reviewed in this report, it is clearly evident that efforts to reduce environmental degradation and pollution are of prime consideration for business today. Issues such as global warming, deforestation, hazardous waste disposal have warranted global attention due to the irreversible damage they can cause the planet. Consequently, governments, nongovernmental bodies and corporations have been called to task to ensure adequate efforts and resources are committed to environmental sustainability programs. Today, Most of the global corporations such as IBM and Wal-Mart voluntarily report on their GHG emissions in their operations. Clearly, the business community is committed to reduce GHG emissions through review of their operations and use of technology to improve production methods. However, businesses face several challenges including lack of GHG reporting tools, knowledge and expertise across supply chains. Additionally, small players in supply chains lack incentives and supportive policy framework to help them align their operations with efforts to eliminate GHG emissions. Leading corporations have responded to these challenges by dedicated substantial resources towards building the capacity of small supply chain players in order to improve their GHG emission reporting and reduction. Additionally, industry collaboration has been effective in developing tools to measure and report GHG emissions for businesses and offering insightful information on how environmental sustainability can be achieved profitably. There is a critical need for governments to offer much-needed policies and incentives that will support the efforts of businesses in reducing GHG emissions. References SAN10: , (Sandhu, 2010), Bum14: , (Bumpus, Tansey, Henriquez, & Okereke, 2014), LJa15: , (James, 2015), Sep11: , (Sepulveda & Mendizabal, 2011), Dav06: , (Hawkins, 2006), Pol11: , (Polonsky, Miles, & Grau, 2011), Oke13: , (Okereke & Kung, 2013), BSR14: , (BSR, 2014), Uni10: , (United States Environmental Protection Agency , 2010), Dav06: , (Hawkins, 2006; Polonsky, Miles, & Grau, 2011), Lam11: , (Lam, 2011), Gre15: , (Green, Toms, & Clark, 2015), Kol07: , (Kolk & Pinkse, 2007), Roo11: , (Roos, 2011), Wal151: , (Wal-Wart Stores Inc, 2015), CPD15: , (CPD Worldwide, 2015), Cam10: , (Cambridge Econometrics, 2010), Bus10: , (Business for Social Responsibility , 2010), Kau12: , (Kauffmann & Teichmann, 2012), IBM151: , (IBM , 2015), IBM15: , (IBM , 2015), Read More