Business ethics, social responsibility and sustainability
What the exam tests
You must distinguish legal, ethical and socially responsible behaviour, apply stakeholder reasoning, and evaluate sustainability claims rather than accepting them at face value.
Core rules
- Business ethics are moral principles guiding decisions beyond legal minimums. A code of ethics states expected conduct; whistleblowing reports wrongdoing, ideally through protected channels.
- CSR is the idea that firms have responsibilities to stakeholders beyond shareholders. The CSR pyramid orders responsibilities as economic, legal, ethical and philanthropic.
- Stakeholder theory says management should balance stakeholder interests; shareholder theory prioritises owner returns within the law.
- Sustainability rests on the triple bottom line: profit, people and planet. It includes resource efficiency, fair labour, community impact and long-term viability.
- Externalities such as pollution are costs imposed on others; regulation, taxes or voluntary action can internalise them.
- Greenwashing is misleading marketing that exaggerates environmental credentials.
Worked example
A factory discharges waste into a river. The discharge is within an old permit, but local residents report dead fish. Advise management. Reasoning: legality is not the same as ethics; the permit may be outdated. Stakeholders include residents, employees, customers, regulators and shareholders. A utilitarian calculation might favour production, but the harm to health and biodiversity creates long-term reputational and legal risk. Recommend immediate containment, transparent disclosure, independent testing, investment in treatment and consultation with the community. A CSR statement without operational change would be greenwashing. The decision should be justified on ethical, legal and long-term commercial grounds.
Traps that cost marks
- Saying an action is ethical because it is legal.
- Reducing CSR to charity donations; it also covers core operations and treatment of stakeholders.
- Treating sustainability as only environmental; social and economic dimensions matter.
- Accepting a “green” claim without evidence or certification.
- Ignoring that ethical decisions can raise short-term costs.