Revenue from environmental taxation ()
Lastly, stakeholder influences drive change through the need to satisfy stakeholders. There will be different reason for the various stakeholders to apply pressure for change, for example, if a company supplies a supermarket and they want a certain environmentally friendly product, the suppliers has to conform because of the scale of investment involved. Other influences such as this include customers and investors, companies will comply with what these stakeholders want because this is where their cash flow is generated. Other stakeholder pressures include those from community, pressure groups and the media; these stakeholders drive change because if a company does not comply, it will damage a companies reputation which may affect the competitiveness of a company, it also could result in a loss in sales.
3.1 Ecological Influences in the Automotive Industry
“This sector is huge, producing 52 million cars and light vans a year. Dubbed the ‘industry of industries’ by Peter Drucker, the automotive sector is arguably the most competitive industry on earth and is considered as the benchmark for most other industries.” (PA Consulting Group)
In 2003, over 1.65 million cars and 189,000 commercial vehicles were produced in the UK alone; this industry is governed by legislation with regards to safety standards, registration information, design requirements, technical information and environmental regulations, known as the NetRegs of an industry. There are also many pressures that directly affect the automotive industry that drive change. Firstly, the climate change levy has had a massive impact to the industry, as the transport sector accounted for 24% of UK greenhouse gas emissions in 2002 (). The climate change levy was introduced in April 2001 as a taxation of the business use of energy as part of the UK’s Climate Change Programmes, the automotive industry is said to fully recognise the importance of improving climate change and is committed to the continual enhancement of its products to help move towards this factor (). This levy is having a substantial effect upon the car industry during “a particularly challenging time of intense cost pressures and unfavourable exchange rates” (), for some companies within the SMMT, this levy could increase manufacturing costs by 3%, because of this there is huge pressure for the development of new technology. Although it is clear to see that this industry is taking the impact of emissions very seriously and the Government welcomes this action, they also stress that much more has to be done in the move towards a low carbon economy. “In 1998, European, Japanese and Korean vehicle manufactures entered into a unique and groundbreaking voluntary agreement with the European Commission to reduce CO2 emissions from new passenger cars by 25% from 1995 levels by 2008. This agreement is expected to contribute to 15% of the total reduction in CO2 emissions agreed by the EU under the Kyoto Agreement” ().
It is stated by the Environment Agency that around 2million vehicles reach the end of their life each year in the UK alone. Currently around 74-80% if the vehicle is currently re-used or recycled. The End of Life Directive (ELV) was due to be introduced by law in 2002 (www.environment-agency.gov.uk) (although most member states missed this deadline). The requirements of the directive include:
- Producers limit the use of certain hazardous substances in the manufacture of new vehicles and automotive components and promote the recyclability of their vehicles.
- ELV’s are subject to de-pollution prior to dismantling, recycling or disposal.
- Treatment facilities operate to higher environmental standards and have permits if they want to deal with un-depolluted ELV’s.
- Certain recovery and recycling targets are met by 1 January 2006 and 1 January 2015.
- Producers pay ‘all or a significant part’ of the costs of treating negative or nil value ELV’s at treatment facilities by 2007.
Car manufactures will now be expected (by 2006) to have established collection networks to take back their own brands of vehicle at the end of their life cycle, (from 2006) manufactures and importers are to ensure that 85% of the vehicle will be re-used/recycled which is to increase to 95% by 2015 and as of January 2007 manufactures will have to provide free take back on ELV’s when the owner presents the vehicle for recycling. Manufactures were expected to submit a network plan for Authorised Treatment Facilities (ATF’s) and collection points by August 2005, which, in turn were due to be in operation by January 2006. These facilities will enable the ELV’s to be disposed off simply by taking the vehicle to a collection point of treatment facility. All these issues will have to be funded by the companies themselves, therefore creating a huge increase in costs. A driver of change is therefore created in terms of the recyclability of the car, the more recyclable the car is the less costs incurred to the company involved. The start up costs involved in this project are immense, again these costs have to be fronted by the companies involved.
4.0 Ethical Influences in Business
“The term ‘ethics’ can be defined as a code of moral principles that people follow with respect to what is right or wrong.” (Business Ethics and Corporate Social Responsibility Lecture Slides) When considering ethics within any industry it is important to look at both the formal and the informal pressures. There are different levels of analysis that put pressure onto the organisation in different ways. The macro or political level includes things such as governments, NGOs, pressure groups etc. These then create frameworks, codes or agreements which then lead to legally binding laws being passed onto the organisation by the government and non-legally binding codes of conduct by the other groups. This may include laws regarding the sale of goods or health and safety implications. Examples of non–binding requirements may include the need for clear explanations of final prices consumers are expected to pay.
The response by the central organisation is to influence the laws created in the future and to provide the specialist knowledge of the industry. At the other end of the analysis scale is the micro or individual level. Individual employees may in some cases have some professional codes which need to be adhered to and may use these to create the non-legally binding pressure of things such as ethics hotlines onto the central organisation. The organisation responds by issuing individuals with codes of conduct or codes of ethics. Both of these are non-legally binding but are of great importance. They are often required after an external ethical review and/or audit and may include things such as adhering to the Data Protection Act. The following diagram outlines this theory:
Levels of analysis
Frameworks, codes
or agreements
The macro or
political level
Laws Influence
The meso or
Codes of organisational
conduct level
External ethical review and/or audit Codes of Ethics
conduct/ hotlines
ethics, etc
Professional codes The micro or
where relevant individual
level
Key
= Legally binding requirements The competitive environments of both organisations
= Non-legally binding requirements and governments
There are different principles that a company may adopt towards business ethics, they range from the idea that ‘business is business’ and that anything is acceptable practice as long as profits are maximised, at the other end of the scale, the idea of good ethics mean good business suggests that if a company acts ethically it will have a positive affect upon profits, for example, if a company sells items of poor quality customers will not return for a second purchase. It is often thought within business that if one is acting within the law then therefore they are acting ethically, this is not always the case, for example, in some countries it is still legal to sell garments made with animal fur, yet not everyone would class this as ethical/moral. It is important for companies to recognise their practices and how they may be interpreted through the eyes of other people. It is also important for companies and industries as a whole to establish which stakeholder they have duties towards, depending on which stakeholders this may be, could increase or decrease pressures upon that industry to change for the ethical good of that certain stakeholder.
The greatest driver for change in terms of ethics comes from consumers; this may be through avoidance, targeting, political action or direct action by demonstrating. There are many sources in which consumers can access information regarding the policies of companies, for example, consumer magazines such as Ethical Consumer or Which? The way in which business’ can respond to this may be by increasing their ethical profile, by investing in community projects, providing a wider choice of products or even just by making information more available to it’s consumers.
In recent years a set of ethical indices has be created, known as FTSE4Good, this was established in July 2001 and “is about working out what is the globally accepted standard for companies and rewarding those that achieve that standard” Parker, G (2001). There are certain criteria which must be met to appear on the register, which is laid out in Appendix A. There are also exclusions from the register; these include, not being involved in nuclear power, weaponry or tobacco industries. FTSE4Good will be discussed in more detail below.
4.1 Ethical Influences in the Automotive Industry
The FTSE4Good is a good indicator of how ethical the car industry is. The criteria that is set out by the FTSE governing board in order to determine the classifications of different industries, is listed in Appendix A. By using this criterion it is clear to see that the car industry can be classified as a high impact sector. In terms of policy, the car industry is keen to ensure that there is commitment to the use of targets, monitoring and auditing and to public reporting. This is done with regards to such things as CO2 emissions etc and the continuous effort to reduce them. The responsibility for the policy also lies at board or developmental level. The car industry also accepts that there are globally applicable corporate standards. Once again these include reducing CO2 emissions and safety laws concerning such issues as air bags. In terms of management it is important that companies within the car industry have an environmental management system in place. The majority of companies do and it is this system’s job to ensure that there is an environmental policy, to identify the significant impacts and to document objectives and targets in key industries as well as carrying out other important roles. The environmental report is the final section that is looked at in the criteria to determine the impact of the sector. For high impact sectors such as the car industry this means that there must have been a report published within the last 3 years which covers the whole group and meets at least 3 of the 4 indicators set out in Appendix A.
There are many stakeholders within the automotive industry which could impact upon decisions made with regards to ethical issues, the shareholders within each company are massive stakeholders but the industry also gains a lot of publicity about every aspect of the way in which they perform their business, with this in mind it is thought that consumers and the government would inflict huge demands for change within this industry to ensure that all policies were ethical, not just in terms of the environment but also with regards to trade union relations, marketing decisions, wages and conditions, political donations, and such like.
The New Economics Foundation is trying to assist the Government in educating consumers about the ethics of ‘green’ cars and how they help the environment. They believe that by introducing new ‘green labelling’ onto motor vehicles consumers will be able to make an educated decision over their choice of car. “The fuel efficiency labels show information such as how many miles to the gallon a car gets, how expensive it is to run and whether it qualifies for a reduction in road tax due to emissions output.” (). The Government is also encouraging the conversion of vehicles to LPG. “In 2001 grants for LPG vehicles grew by almost 50%, as consumers are more concerned with the environment than ever before.” (www.greenconsumerguide.com)
The Ethical Purchasing Index, which illustrates the amounts of money being spent through ethical consumerism in the UK in regards to green transport (including grants for the purchase of clean fuel vehicles had increased by 4.8% from £21 million to £22 million. (www.co-operativebank.co.uk)
5.0 PESTEL Influences in Business
Political and Legal Drivers
The political environment can create both opportunities and threats for the business environment. There are four different levels (and examples) of policy making (Taken from lecture slides, presented 06/12/05 by Liz Walley);
- Local (Local councils and constituencies)
- National (British Parliament)
- Regional (EU)
- International (UN)
The main issues surrounding this include the possibility for a loss of power at a national level because of the many different levels within a country. Variations in styles and opinions could cause conflict between those with considerable influence. The reason for the different levels is to encourage immediate action when a problem develops, regardless of the level in which it occurs. This doesn’t work when effects surpass jurisdiction. The table below, taken from Kolk, A (2000) outlines the different methods used to implement policies and how effective these are. Obviously, any policies that are introduced that effect a certain industry will act as a driver for change.
Economic Drivers
Economic sustainability is not just about achieving economic growth year on year, it’s about understanding that economic growth is only sustainable if it simultaneously improves our quality of life and the environment. Sustainable economic development is described as the amount that one can consume during a period and still be well off at the end of that period. For an organisation, economic sustainability has two aspects – the financial stability of an organisation and how it manages its assets, and the impact that organisation has on the economy, the environment and society. To manage the first (financial sustainability) without the second is to ignore the community and the resources that an organisation relies upon to exist. Therefore an organisation has to incorporate economic drivers, such as the need of up-to-date non-financial reporting, ensuring that with the economic growth of the business, that the impact of this onto the environment is not being ignored.
Environmental Drivers
Industries are much more aware that adherence to high environmental standards do not have to mean a drop in their profits, they have also realised that there is a consumer base for these products and by not complying they are potentially adding more risk to their business in the form of lost revenue and publicity, in turn, this puts pressure onto the companies and industries to ensure that they are supplying the products that consumers want.
Economic and Environmental Sustainability
Both economic and environmental sustainability are part of the paradigm of sustainable development along with social sustainability (Khan, 1995). These are the 3 main factors of sustainability which need to be addresses when considering pressures from external drivers.
Social Drivers
Social sustainability is about ensuring a better ‘quality of life’ for everyone, now and for future generations to come. It requires a re-thinking in order to create realisable goals, both within communities and globally between nations. According to the UK Government, the 13 ‘Quality of Life’ indicators are;
- Economic growth 8. Air Pollution
- Social Investment 9. Transport
- Employment 10. Water Quality
- Health 11. Wildlife
- Education & Training 12. Land Use
- Housing Quality 13. Water
- Climate Change
(Taken from lecture slides, presented 11/10/05 by Liz Walley)
These indicators highlight what is needed for the economic and environmental worlds to continue without deterioration. Such things as employment and health need to be monitored through governing bodies, other aspects, such as pollution and climate change are regulated through legislation to ensure that standards do not become unsatisfactory.
Technology Drivers
New technologies hold the prospect of providing solutions to some of the most serious environmental problems that society faces. But many such technologies, which may ultimately be cheaper to the user as well as more environmentally sustainable, face serious barriers at the start of their deployment or lack suitable policy support to make them viable, these barriers include cost of implementation as new innovations in technology are not only expensive to purchase but original systems will need to be adapted to accommodate the technology.
Steps have been taken in the UK, such as the creation of the Carbon Trust, to promote the innovation and adoption of low-carbon technologies. But there has also been criticism of policy in promoting innovation for sustainability - while some measures provide incentives, others create barriers to innovation. Recent research suggests that the development of technologies both influences and is influenced by the social, economic and cultural setting in which they develop. This research emphasises that technological change is embedded in socio-economic systems.
5.1 PESTEL Influences in the Automotive Industry
Political and Legal influences in the motor industry
The Cleaner Vehicles Task Force was set up by the UK Government in November 1997 to bring together Government and others with an awareness of more sustainable vehicles, encouraging them to buy and use vehicles which are;
- Fuel-efficient
- Less polluting
- Quieter
- Less resource intensive.
It also sets out ways of improving the environmental performance of existing vehicles. The Task Force proposes practical measures which will help to protect the environment, whilst enabling us to continue to enjoy the benefits of road transport and car ownership. CO2 emissions are directly related to fuel consumption – so the more fuel-efficient a vehicle is, the less CO2 it produces. The European Commission’s (http://europa.eu.int) CO2 from Cars Strategy aims to reduce the average for new cars to 120 g/km CO2 from the current average of 186. Other measures put into place by the Government include a fuel duty escalator, fiscal incentives (ensures that people take account of the environmental impacts of a vehicle when they are choosing which to buy) and environmental labeling.
Economic Influences in the Automotive Industry
Some of the main economic impacts include:
- Economies of scale
- Demand conditions
- Consolidation
- Survival of smaller firms
- Competition issues
Manufacturers seek to recapture economies of scale lost through product differentiation via global models and global platforms. This raises the issue of brand integrity, as well as that of the survival of smaller firms. With the raised awareness of the effect industry has had on the environment, demands for certain products have changed, for example, within the automotive industry there is an increased demand for more fuel efficient vehicles, are mentioned earlier. Clearly this has created a pressure for change within the industry, there are also been other pressures that have impacted upon the car industry yet there may be little they can change to increase the demand, for example the number of people using public transport and walking has increased in recent years, the graph below highlights this fact.
(Taken from www.statistics.gov.uk)
Environmental Influences in the Automotive Industry
The latest sustainability report from the Society of Motor Manufacturers and Traders (SMMT) shows wide-ranging improvements in environmental impact including:
-
Large cuts in CO2 emissions from cars and manufacturing processes
- Continuing improvements in vehicle fuel consumption
- Sharp reductions in the sector’s landfill use resulting from improved manufacturing productivity and recycling processes
There has also been significant progress in environmental performance, less energy is now being used to produce each vehicle. The industry is improving productivity and creating less waste for landfill. In 2004, 70% less waste was produced per vehicle than in 2001.
"We were proud to be the first industry to publish a sustainability report and are committed to reporting annually," said SMMT Chief Executive Christopher Macgowan. "As well as making real progress towards sustainable mobility, it is important that we are absolutely transparent about where we are succeeding and where improvements have to be made."
Social Drivers in the Automotive Industry
Motor vehicles play a leading role on economic development on a local, regional and global basis. A result of this is that the motor industry has become significant contributor to deteriorated air quality, climate change, human health effects, noise, congestion, accident deaths and injuries. The industry has responded to this by producing cleaner, safer and more recyclable vehicles. Environmental legislation affects both the design and performance of motor vehicles and the ways in which motor vehicles are manufactured, for example:
- The availability of hybrid vehicles has risen rapidly with Toyota leading the way, and the rest of the industry working to compete.
-
A voluntary arrangement has been developed with the European Commission. They aim to reduce CO2 emissions by 25% by 2008.
- Increased progress has been made to reduce the levels of pollutant emissions and reduce noise.
Technological Influences in the Automotive Industry
The SMMT (motor industry) has a Future Fuels Strategy Group (FFSG). They have considered the options for a future fuels strategy for the timeframe of the next two decades to meet the need for CO2 reductions, emission control, and security of energy supply. The Department for Transport (DfT) published a review of the long-term energy implications and large-scale use of renewable hydrogen and biomass-based fuel with a time horizon of 2050. The use of renewable hydrogen and biofuels within the car industry could help the UK to achieve its national goal of reducing CO2 emissions by 60 per cent in 2050. The cost of renewable hydrogen and biofuel is likely to be greater than today’s fuels, but the efficiency of the fuel would be greatly improved, leading to lower consumption. This will involve massive new product and fuel infrastructure investment, obviously at a great cost to this industry, therefore creating a resistance to the change needed.
The technology needed for this change is know as Hybrid technology, this saves fuel by storing energy and adjusting intelligently to each situation. A high-performance battery stores energy that is ordinarily wasted while driving or stopping, and then applies the stored energy when starting and to supplement engine power when accelerating. Since the system recharges itself, it never needs plugging in. The market leaders for this are Toyota, but many other companies are following suit. There are many benefits for hybrid technology, some of which include tax credits, savings in lifetime service costs, no need for recharging of battery and better performance.
- Conclusion
- Every aspect of the business environment impacts on the sustainable development of all industries.
- The Government asserts significant pressures upon industries to change environmental policies; this is mainly done through legislation and taxation.
- Customers are increasingly aware of the environmental impacts of industries and therefore demand their products to comply with this. This does not mean a loss in profit as it improves competitive advantage and in some cases reduces cost.
- Industries are more likely to make changes when drivers have a direct impact upon their bottom line.
- Just because an industry operates within the law, does not necessarily mean that they are acting ethically.
- Consumers influence change ethically more than any other factor.
- The political level which policies are addresses, are influenced by their significance. The more significant the driver for change, the higher the political level of debate.
- To sustain the economy, you must ensure what resources are used are still available for the future.
- Advances in technology are needed to ensure progression in regards to all aspects of business. This is important in the car industry, for example the development of hybrids.
Bibliography
Texts and Lecture Slides
- Walley, Liz. Lecture notes:
Business Ethics and CSR, presented 25/10/05
Business Ethics and CSR (2), presented 8/11/05
Development and Green Awareness, presented 18/10/05
The Ecological Environment, presented 04/11/05.
Green Technology, presented 29/11/05
The Political Environment, presented 06/12/05
Sustainable Development and Sustainability, presented 11/10/05
Social Trends and Sustainability, presented 15/11/05
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Walley, L (compiled by), (2006) Business and Sustainability, (2nd Edition), Essex, Pearson Education.
- Welford, R. Gouldson, (2003), A. Environmental Management and Business Strategy, Pitman, London.
Journals
- Fiksel, J, Pure and Applied Chemistry, Vol 73, No 8, pg 1265, 2001
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