IGCSE Business Studies 0450 – 6.3.1 Environmental Issues
Learning objective
Explain why businesses may respond to environmental issues (e.g., to improve reputation, increase sales, reduce costs) and link this to the six core areas of the Cambridge Business Studies syllabus.
1. Understanding Business Activity
1.1 Key concepts
- Purpose of business: satisfy needs and wants, achieve organisational objectives and make a profit.
- Needs vs. wants: needs are essential for survival (food, shelter, health); wants are non‑essential desires (designer clothing, luxury cars).
- Opportunity cost: the next best alternative fore‑gone when a resource is used.
- Classification of enterprises:
- Primary, secondary, tertiary sectors
- Private, public and voluntary (non‑profit) sectors
- Size: micro, small, medium, large
- Types of business organisation:
| Organisation type | Ownership | Risk | Key features |
|---|
| Sole trader | One owner | Unlimited personal risk | Simple to set up, full control |
| Partnership | Two or more owners | Unlimited personal risk (shared) | Shared skills, profit split |
| Private limited company (Ltd) | Shareholders | Limited to amount invested | Separate legal entity, can raise capital |
| Public limited company (PLC) | Public shareholders | Limited | Shares traded on a stock exchange |
| Franchise | Franchisor & franchisee | Varies | Use of established brand & systems |
| Joint‑venture | Two or more firms | Shared | Co‑operation for a specific project |
- Business objectives (Cambridge list):
- Profit maximisation
- Growth (sales, market share, assets)
- Survival
- Efficiency (cost reduction)
- Corporate social responsibility (CSR) – increasingly includes environmental responsibility
- Stakeholders and their objectives:
| Stakeholder | Primary objective | Environmental concern |
|---|
| Owners/shareholders | Profit & return on investment | Risk of fines, brand damage |
| Employees | Job security, safe working conditions | Health & safety, green workplace |
| Customers | Value for money, quality | Eco‑friendly products, transparent sourcing |
| Suppliers | Long‑term contracts, timely payment | Sustainable sourcing requirements |
| Community & NGOs | Social welfare, environmental protection | Local pollution, resource use |
| Government | Tax revenue, employment | Compliance with environmental legislation |
- Growth vs. failure:
- Internal growth – new products, market penetration, increased capacity.
- External growth – mergers, acquisitions, franchising.
- Causes of failure – poor cash flow, weak market research, inadequate control, environmental non‑compliance.
Link to environmental response
Adopting green policies helps meet stakeholder expectations (especially customers, community and government), supports CSR objectives and can become a source of growth while reducing the risk of failure through legal compliance.
2. People in Business
2.1 Motivation
| Theory | Key idea | Application to environmental initiatives |
|---|
| Maslow’s hierarchy | Physiological → Self‑actualisation | Recognition programmes for “green champions” satisfy esteem and self‑actualisation needs. |
| Herzberg’s two‑factor | Hygiene factors vs. motivators | Safe, healthy (hygiene) work environment + meaningful sustainability projects (motivators). |
| Taylor’s scientific management | Standardise work, reward output | Set clear waste‑reduction targets and pay bonuses for meeting them. |
2.2 Organisation & Management
- Organisational structure: hierarchical, flat, matrix – a “green team” can sit across departments to coordinate sustainability.
- Functions of management (planning, organising, leading, controlling) – e.g., planning a carbon‑reduction strategy, organising training, leading with transformational style, controlling through environmental KPIs.
- Delegation & authority: clear responsibility for energy‑saving targets reduces bottlenecks.
- Leadership styles:
- Autocratic – may enforce strict compliance.
- Democratic/transformational – encourages employee ideas for green innovation.
- Laissez‑faire – rarely effective for environmental change.
- Trade unions: can negotiate greener workplace practices and health‑safety standards.
2.3 Recruitment, Training & Redundancy
- Recruitment & selection:
- Job analysis – include “environmental awareness” as a competency.
- Advertising – use green job boards.
- Short‑listing, interviewing, testing – situational questions on sustainability.
- Training methods:
- Induction – basic recycling and energy policies.
- On‑the‑job – practical waste‑segregation.
- Off‑the‑job – e‑learning modules on ISO 14001.
- Apprenticeships – focus on eco‑design in manufacturing.
- Redundancy vs. dismissal:
- Redundancy – genuine economic need (e.g., closing a high‑emission plant).
- Dismissal – breach of contract; must follow legal controls.
2.4 Legal controls & Communication
- Key legislation (UK examples, applicable worldwide):
- Health & Safety at Work Act – includes protection from hazardous substances.
- Equality Act – non‑discriminatory recruitment.
- Environmental Protection Act – waste disposal, emissions.
- Employment Rights Act – unfair dismissal, redundancy procedures.
- Communication methods:
- Internal – newsletters, intranet, green teams, suggestion schemes.
- External – CSR reports, social media, eco‑labels.
- Barriers – language, hierarchy, cultural attitudes – can be overcome with clear, inclusive messaging.
Why people matter for green action
Motivated, well‑trained staff are the engine behind waste‑reduction programmes, energy‑saving procedures and the development of sustainable products.
3. Marketing
3.1 Role of marketing
- Identify and create demand for products or services.
- Analyse market changes and consumer trends – including growing environmental awareness.
- Develop a competitive advantage through product differentiation (e.g., eco‑friendly attributes).
3.2 Market research
- Primary research: surveys, focus groups, interviews – ask about willingness to pay for green features.
- Secondary research: industry reports, government statistics – track eco‑market growth.
- Sampling techniques: random, stratified, cluster – ensure representation of eco‑conscious segments.
3.3 Marketing mix (4 Ps) and environmental application
| Product | Price | Place | Promotion |
|---|
| Eco‑design, biodegradable packaging, longer product life‑cycles. |
Premium for green attributes; discount for product return/re‑use. |
Local sourcing, low‑carbon logistics, online distribution to reduce travel. |
Green advertising, CSR reports, eco‑labels, sponsorship of environmental events. |
3.4 Market segmentation & positioning
- Segmentation variables: demographic (age, income), psychographic (environmentally‑concerned), geographic (urban areas with recycling facilities).
- Positioning statement example: “Our detergent delivers the same cleaning power as leading brands but is 100 % biodegradable and comes in a refill‑able bottle.”
3.5 Example
Company B conducted primary research that showed 40 % of its target market would pay up to 10 % more for a biodegradable shampoo. It launched the product, promoted it with a “Plastic‑Free” campaign, and recorded a 15 % increase in market share within one year.
4. Operations Management
4.1 Production methods & green adaptation
- Job production – custom, low volume; can use locally sourced, sustainable materials.
- Batch production – flexible; allows for batch‑wise recycling of scrap.
- Flow (mass) production – high volume; benefits from lean production and waste minimisation.
- Just‑in‑time (JIT) – reduces inventory, cuts waste and storage energy.
4.2 Quality & environmental standards
- ISO 9001 – quality management.
- ISO 14001 – environmental management; integrates pollution control, waste reduction and continual improvement.
- Six Sigma – reduces defects → less waste.
4.3 Location decisions
Factors considered (Cambridge list) and environmental implications:
| Factor | Typical business consideration | Environmental angle |
|---|
| Transport costs | Proximity to markets & suppliers | Shorter journeys → lower CO₂ emissions. |
| Labour availability | Skill level, wage rates | Training locals reduces commuting. |
| Utilities | Power, water, waste disposal | Access to renewable energy, water‑recycling facilities. |
| Environmental regulations | Local emission limits, waste laws | Choosing a site with supportive green incentives. |
4.4 Typical green operations
- Eco‑friendly packaging – recyclable or compostable.
- Waste‑reduction programmes – recycling, lean production, zero‑defect.
- Renewable energy – solar panels, wind turbines, biomass boilers.
- Design for durability, repairability and end‑of‑life disassembly.
- Green logistics – route optimisation, low‑emission fleets.
- Water‑saving technologies – rainwater harvesting, closed‑loop cooling.
4.5 Break‑even analysis & environmental investment
When a green project reduces variable costs (e.g., energy), the contribution margin rises, moving the break‑even point to a lower output level. This can be illustrated with a simple diagram showing the original and new break‑even points.
5. Financial Information & Decisions
5.1 Core financial statements
| Statement | Main components | Environmental relevance |
|---|
| Income statement | Revenue, cost of sales, gross profit, operating profit, net profit | Energy‑efficiency savings appear as lower operating costs → higher profit. |
| Balance sheet | Assets, liabilities, equity | Renewable‑energy equipment recorded as fixed assets; green loans appear as liabilities. |
| Cash‑flow forecast | Operating, investing, financing cash flows | Up‑front outflow for solar panels offset by long‑term inflows from reduced bills. |
5.2 Key ratios and what they reveal
| Ratio | Formula | Interpretation for green action |
|---|
| Gross profit margin | (Gross profit ÷ Revenue) × 100 | Improvement may signal cost savings from waste reduction. |
| Current ratio | Current assets ÷ Current liabilities | Shows short‑term liquidity; green projects should not jeopardise it. |
| Return on Capital Employed (ROCE) | Operating profit ÷ Capital employed | Higher ROCE after a profitable sustainability initiative. |
| Payback period | Initial investment ÷ Annual cash inflow | Used to assess green‑project viability (e.g., solar panels). |
5.3 Sources of finance for environmental projects
- Internal funds – retained earnings, sale of non‑core assets.
- Bank loans – often lower rates for projects with environmental benefits.
- Green bonds / ethical investment funds – raise capital specifically for sustainability.
- Government grants & subsidies – e.g., Renewable Heat Incentive, waste‑reduction schemes.
- Leasing – for equipment such as energy‑efficient machinery.
5.4 Example of a financial decision
Factory C plans to install a 250 kW solar array costing £120 000. The projected annual electricity saving is £30 000. Using a cash‑flow forecast, the payback period is 4 years, and the ROCE rises from 12 % to 15 % after the investment – a financially sound green decision.
6. External Influences – Environmental Issues
6.1 Why businesses respond to environmental issues
- Improved reputation – builds trust with customers, investors and the community.
- Increased sales – eco‑labelled or green‑focused products meet growing consumer demand.
- Cost savings – lower energy, water and waste‑disposal expenses.
- Legal compliance – avoids fines, shutdowns and negative publicity.
- Competitive advantage – differentiation in crowded markets.
- Access to finance – green loans, ethical investors and government incentives.
- Future‑proofing – prepares the business for stricter regulations and resource scarcity.
6.2 Types of external influence (Cambridge list) and environmental link
| Influence | Typical effect on business | Environmental response |
|---|
| Economic | Consumer spending, interest rates | Green products can command price premiums during economic upturns. |
| Social | Changing lifestyles, health awareness | Rise in demand for sustainable, low‑impact goods. |
| Technological | New production methods, digitalisation | Adoption of renewable energy tech, eco‑design software. |
| Legal / Regulatory | Environmental legislation, tax incentives | Compliance drives investment in emission‑control equipment. |
| Political | Government policy, trade agreements | Subsidies for carbon‑reduction projects encourage green investment. |
| Environmental | Climate change, resource depletion | Strategic shift to circular‑economy models. |
6.3 Common business responses to environmental issues
- Adopt eco‑friendly packaging (recyclable, biodegradable, reduced material).
- Implement waste‑reduction programmes (recycling, lean production, zero‑defect).
- Switch to renewable energy sources (solar panels, wind turbines, biomass).
- Design products for durability, repairability and end‑of‑life recycling.
- Launch green marketing campaigns and publish CSR/ sustainability reports.
- Engage suppliers in sustainable sourcing and conduct supply‑chain audits.
- Set measurable environmental targets (e.g., 20 % reduction in carbon emissions by 2028).
6.4 Benefits – summary table
| Reason for response | Business benefit | Real‑world example |
|---|
| Improved reputation | Greater customer trust and brand loyalty | Company A’s “Zero Plastic” pledge attracted extensive media praise and a 10 % rise in online followers. |
| Increased sales | Higher market share in eco‑conscious segments | Brand B’s biodegradable detergent achieved a 12 % sales increase within six months. |
| Cost savings | Reduced utility and waste‑disposal costs | Factory C’s energy‑efficiency upgrades cut electricity bills by 15 %. |
| Legal compliance | Avoidance of fines and operational disruption | Company D met new EU emission standards three years ahead of schedule. |
| Competitive advantage | Differentiation leading to new market opportunities | Start‑up E marketed its solar‑powered headphones as “green tech”, securing niche retailers. |
| Access to finance | Eligibility for green loans and ethical investment | Company F secured a 5 % green bond to fund a wind‑farm project. |
| Future‑proofing | Preparedness for stricter future regulations | Multinational G invested early in water‑recycling, avoiding later compliance costs. |
6.5 Suggested diagram for revision
Flowchart (to be drawn on a separate sheet):
Environmental Action → Improved Reputation → Increased Sales & Market Share → Higher Profitability → Re‑investment in Sustainable Practices → Further Environmental Action (feedback loop). Use arrows to show cause‑and‑effect and label each stage with a short AO‑type note (e.g., “AO2 – evaluate impact”).
Key points to remember for the exam
- Environmental responsibility is increasingly a strategic choice that can improve profit, not just a moral duty.
- Stakeholder expectations, legal pressures and market trends are the main drivers for green responses.
- Linking environmental actions to the six core syllabus areas (understanding activity, people, marketing, operations, finance, external influences) helps you answer AO1–AO4 questions effectively.
- Use real‑world examples to justify recommendations and to demonstrate evaluation (AO2–AO4).
- Remember the exam technique: define the concept, give a relevant example, analyse the impact, and evaluate the advantages and disadvantages.