Environment and Business

Many Londoners are aware of the Ultra Low Emission Zone (ULEZ) that operates all days of the year except for Christmas. Vehicles emitting CO2 above a certain level have to pay a daily surcharge before entering the ULEZ Zone. This was a necessary measure for the purpose of achieving clean air in London. Do you think this environmental measure affects London's businesses? If you answered yes, then you are one hundred per cent correct. This is just one example of the relationship between the environment and business. Let's now take a look at some other examples.

Environment and Business Environment and Business

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Table of contents

    Relationship between environment and business

    Businesses produce goods and services for profits or other motives. Firms operate on four factors of production: natural resources, human resources, capital, and entrepreneurship. This means that natural resources like land, water, and other raw materials gathered from the environment are essential for businesses.

    On the other hand, the environment may not always be supportive of human habitats. Natural calamities like earthquakes or floods destroy businesses. Sometimes, it is not possible to do business in a region where there are not enough resources. Hence, the environment by nature limits business establishment or expansion.

    Environment and business Pollution StudySmarterFig. 1 - Industries causing pollution

    Importance of the environment on business

    Businesses also affect the environment, insofar as some businesses use excessive natural resources to produce goods.

    Consider businesses in the petroleum industry. Mining and purifying mineral oil are simply not environmentally friendly.

    Some industries produce goods that pollute the environment. You might have heard about the adverse effects of using artificial fertilisers, not only on soil but also on the health of consumers. Hence, many prefer ‘bio’ or organic produce nowadays.

    The general awareness of the importance of the environment is increasing day by day. Governments around the world have implemented strong environmental laws and legislation. Many big companies are working to achieve sustainable production. Companies like Tesla are often favoured by consumers because of their environmentally friendly cars. Hence, businesses and the environment are strongly interrelated.

    Positive and negative effects of business activities on the environment

    Some businesses are environmentally aware and try to become sustainable.

    Sustainability refers to the production of goods and services that can be continued in the long run without damaging the environment.

    Sustainable businesses may have positive or neutral effects on the environment.

    How can businesses achieve sustainability?

    Businesses must change some of their activities to achieve sustainability. Some ways to achieve sustainability are:

    1. Producing goods and services with environmentally friendly raw materials (e.g., omitting the use of chemicals that damage the environment).

    2. Goods should be made from renewable materials or they should be recyclable.

    3. The transportation of goods should be non-polluting (e.g., transportation through electric vehicles).

    4. Use of renewable energy resources for production (e.g., solar, wind, etc.).

    5. Reduced use of packaging.

    6. Reducing waste generated from business activities.

    7. Following environmental policies.

    Environment and Business: External costs

    We have already seen that business activities can damage the environment. Harmful business activities affect all of society, not just the people directly involved. These consequences are called external costs.

    External costs occur when business activities affect individuals who are not involved in the business.

    External costs often impact all of society.

    For example, a paper mill requires wood and water as raw materials. If the demand for paper increases, the papermill will demand more wood. This means more trees need to be cut down to fulfil demand. Excessive deforestation is bad for the environment and impacts local communities due to noise pollution. It also affects wildlife, as their habitat becomes destroyed. These are the external costs of production that society has to bear.

    Business activities and the environmental implications

    Certain business activities can have significant environmental implications. For instance, certain manufacturing businesses may emit many harmful gases and use non-renewable resources, which contribute to climate change.

    Business activities and environmental implications: Pollution

    Air pollution is the most contributing factor to climate change. The following table shows the top 10 countries that contribute the most to air pollution.


    CO2 emissions in million tons



    United States












    South Korea


    Saudi Arabia




    Table 1 - Top 10 polluters, Source: Climate Trade1

    Sources of pollution

    Some of the main sources of pollution are outlined in Figure 2.

    1. Agriculture: Nitrogen fertilizers used to grow crops and animal waste from slaughterhouses cause pollution.

    2. Industries: Factories cause air, water, soil, and noise pollution while producing goods.

    3. Transport: Vehicles running on fossil fuels contribute to air and noise pollution.

    4. Power plants: Traditional power stations burn coal to create electricity (thermal power stations/ hydropower stations), which contributes to pollution.

    5. Natural pollutants: Volcanoes and wildfires are also sources of pollution, though these are most often not caused by businesses.

    6. Non-recyclable products: Do you know that plastic toothbrushes take 500 years to decompose?2 If not recycled, plastic is a major pollutant of land and water.

    Environment and Business, Sources of Pollution, StudySmarterFig. 2 - Sources of Pollution

    Noise pollution affects the environment in equal measure. Because of high-intensity noise from factories and aeroplanes, wildlife is under stress. Noise pollution affects animal breeding patterns and, as a result, some species are on their way to extinction.

    Business activities and environmental implications: Climate change

    Business activities that cause pollution and deforestation are one of the main causes of climate change.

    Long-term changes in the weather pattern are referred to as climate change.

    Many scientists have concluded that the surface temperature of the earth is increasing with the increase in CO2 concentration in the atmosphere. Even though some disagree with the seriousness of global warming, the adverse effects are visible around the world in the form of melting ice in the polar regions, melting glaciers, increasing sea levels, changes in the weather pattern, and severe flooding in some areas and severe droughts in others.

    Business activities and environmental implications: Traffic congestion

    Another adverse effect of business activities, like the transportation of goods, is traffic congestion. Traffic congestion causes vehicles to consume a lot of fuel. An increase in the consumption of fuel means an increase in air pollution. In 2019, Edinburgh and London were ranked 33rd and 45th in a global ranking of the worst cities for traffic congestion3.

    Business activities and environmental implications: Use of non-renewable resources

    Many businesses use natural and scarce resources such as water, land, and fossil fuels. In addition, ore and minerals are also available in limited quantities. Businesses must use such non-renewable resources responsibly; otherwise, there won’t be much left for future generations.

    Business activities and environmental implications: Disposing of waste

    The two waste disposal methods which are most damaging to the environment are:

    1. Landfill method: means burying waste in the barren land, which causes soil and water pollution.

    2. Incineration method: means burning waste, which causes air pollution.

    Hence, businesses must make recyclable or biodegradable products to prevent further pollution of the environment.

    Types of environmental factors affecting business decision making

    Businesses are affected by internal as well as external factors. The external conditions under which businesses operate make up the business environment. Local politics, government intervention, availability of resources, and changes in technology are some examples of external factors that affect business.

    In the context of this explanation, the word 'environment' means nature. Hence, the environment is one of the business environment factors, along with political, economic, social, technological, and legal. Together, they are known as 'PESTLE'. Following are the types of environmental factors that senior management must keep in mind before making decisions.

    1. Availability of natural resources: businesses prefer places where natural resources such as land, water, and raw materials are available, as this can help them save transportation costs.

    2. Climate: businesses (most often) do not place production units in places where the climate is unpredictable. A place with extreme weather conditions seldom has many industries.

    3. Pollution: Businesses may make ethical decisions to change their pollution causing processes. Certain organisations, like hospitals, may choose not to be in a place with a high pollution index. Businesses should be careful about the effects of their operations on their surroundings. They need to make sure that they do not destroy plant life and wildlife in their vicinity.

    Advantages and disadvantages of following environmental policies in business

    Ethical businesses may adopt environmental policies to reduce the damage done by business activities to the environment. Policies like reducing packaging or using renewable resources have a more neutral impact on the environment. Companies often publically share their efforts towards the betterment of the environment by publishing ‘green reports’ similar to business performance reports like annual reports.

    Advantages of following environmental policies in businesses

    1. Publicity: businesses that publish green reports try to attract more environmentally aware customers. This publicity helps build goodwill for the business.

    2. Stand out from the competition: the businesses that follow green policies get more attention from consumers than their competitors that haven’t implemented green policies.

    3. Can charge a premium: companies that follow green policies can charge a premium for their unique products, and customers readily pay for it, as they get a feeling of satisfaction when helping the environment.

    4. Long-lasting processes: Achieving sustainability throughout business processes means that businesses do not have to worry about scarce resources. This benefit allows businesses to run the same production processes in the long term without investing in researching alternative ways.

    Disadvantages of following environmental policies in business

    If following environmental policies are so beneficial, why aren’t all companies following them? Some of the reasons are mentioned below.

    1. Costs: Implementing environmentally friendly policies can be expensive. Likewise, it is costly for companies to use environmentally friendly materials. In today’s world, businesses and consumers usually prefer to buy new products rather than recycled products, as new goods are cheaper.

    2. Extra work burden: If businesses accept green policies, they have to monitor whether every production process falls within acceptable limits. Monitoring and investigating causes additional workload.

    Responsibility of consumers toward the environment

    It is not just businesses that need to change, but we as consumers must also accept the responsibility of saving the environment. Consumers need to choose unpackaged, recyclable goods. We should favour companies that follow green policies over other companies.

    Travelling causes air and noise pollution. Commuters should use public transport, or at least share a ride. Aeroplanes are one of the major contributors to air and sound pollution. Avoiding air travel means helping the environment.

    Following ‘RRR’- Reduce, Recycle, and Reuse can also have a positive impact on the environment.

    Finally, it is important to report businesses that are causing pollution.

    Environment and Business: Pressure groups

    People come together to form different groups that keep a close eye on businesses and government policies. These groups are called ‘pressure groups’ because they can influence the policies and decisions made by governments and businesses. These groups cause awareness by organising rallies, protesting, writing letters, and using social media. Pressure groups shed light on the businesses damaging the environment and demand change. Some names to mention are Camp for Climate Action, Greenpeace, World Wide Fund for Nature (WWF), and Friends of the Earth.


    Greenpeace is a pressure group that has a presence in over 55 countries around the world, including the UK. Recently, Greenpeace campaigned against the plans of the UK Government to approve 16 new oil and gas drilling projects in the North Sea. One of those projects was the Cambo project.

    Greenpeace activists blocked Downing Street with an oil-soaked statue of Prime Minister Boris Johnson. Activists also confronted the ship carrying drilling equipment for the Cambo oil field. The project was undertaken by Siccar Point energy in partnership with oil giant Shell, though it is now on hold after Shell pulled out of the project.⁴

    Flourishing businesses are necessary for any country to grow economically, but an increase in businesses means a resulting increase in pollution and environmental damage. Businesses must consider the adverse effects of their actions on the environment. While companies can implement multiple green policies, it is also the responsibility of consumers to make environmentally friendly decisions.

    Environment and Business - Key takeaways

    • Natural resources like land, water, and other raw materials that are gathered from the environment are of the utmost necessity to run a business.
    • Sustainability means producing goods and services that can continue for a long time without damaging the environment.
    • External costs occur when business activities affect individuals who are not involved in the business.
    • Agriculture, transport, power plants, non-recyclable products, and natural pollutants are some sources of pollution.
    • Long-term changes in the weather pattern are referred to as climate change.
    • The two waste disposition methods which are damaging to the environment are landfill and incineration of waste.
    • Traffic congestion, external costs, pollution, the use of non-renewable resources, and improper waste disposal are some of the adverse effects businesses have on the environment.
    • Businesses can benefit from following environmentally friendly policies. The benefits are good publicity, standing out from the competition, premium prices for products, and sustainable business processes.
    • Pressure groups can influence businesses and governments to set policies that are environmentally friendly.


    1. Which countries are the world's biggest polluters? 2022. climatetrade.com

    2. Brian Armentrout. How long does it take for plastic to decompose? 2021. https://chariotenergy.com.

    3. James Allen. Revealed: The Most Heavily Congested Citites in the UK. 2020. www.driving.co.uk

    4. Krist Scheiby. 7 wins for the planet in 2021. 2022. www.greenpeace.org.uk

    Frequently Asked Questions about Environment and Business

    What is the role of the environment in business?

    Businesses produce goods and services for profits or other motives. Firms operate on four factors of production: natural resources, human resources, capital, and entrepreneurship. This means that natural resources like land, water, and other raw materials gathered from the environment are essential for businesses.  

    How do business activities affect their environment?

    Traffic congestion, external costs, pollution, the use of non-renewable resources, and improper waste disposal are some of the adverse effects businesses have on the environment.

    What is the Importance of the environment to business?

    The environment is important to businesses because natural resources like land, water, and other raw materials gathered from the environment are essential for businesses. It is not possible to do business in a region where there are not enough resources. 

    What are some types of business and environmental relationships?

    Some types of business and environmental relationships are:

    1. Availability of natural resources
    2. Climate
    3. Pollution

    What are some challenges imposed by the environment on businesses?

    Some challenges imposed by the environment on businesses:

    1. Climate change

    2. Pollution

    3. Natural calamities

    4. Lack of natural resources

    5. Traffic congestion

    6. Waste disposal

    Test your knowledge with multiple choice flashcards

    State True or False.Businesses are dependent on the environment to survive.

    State True or False.The petroleum industry is environmentally friendly.

    Which of the following is an example of an external cost if a British company import iPhones from the US? 

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    Team Environment and Business Teachers

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