Sustainable Development and Entrepreneurship | ISC Class 11 Entrepreneurship Notes

This note covers the meaning and importance of sustainable development, the need for sustainability in business through energy efficiency, community development and de-carbonisation, and the concept of Corporate Social Responsibility (CSR) in brief.

What is meant by sustainable development?

Sustainable development is development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs.

This definition comes from Our Common Future (1987), the report of the World Commission on Environment and Development, known as the Brundtland Commission after its chair, Gro Harlem Brundtland.

Definition: Sustainable development. Development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs.

The report explained sustainable development as meeting the basic needs of all and extending to all the opportunity to satisfy their aspirations for a better life.

Meeting the needs of all requires redistributing resources and is, therefore, also a moral issue.

The idea rests on intergenerational equity: the present generation should hand over the planet in good order to the next generation, leaving behind a stock of quality-of-life assets no less than what it inherited.

According to Herman Daly, a leading environmental economist, achieving sustainable development requires: limiting the human population to a level within the carrying capacity of the environment; keeping technological progress input-efficient rather than input-consuming; extracting renewable resources at a rate that does not exceed their rate of regeneration; keeping the rate of depletion of non-renewable resources below the rate of creation of renewable substitutes; and correcting inefficiencies that arise from pollution.

Why is sustainable development important?

The environment performs four vital functions: it supplies resources (both renewable, such as trees and fish, and non-renewable, such as fossil fuels); it assimilates waste; it sustains life by providing genetic and biodiversity; and it provides aesthetic services such as scenery.

The environment can perform these functions without interruption only as long as the demand on them stays within its carrying capacity, meaning resource extraction does not exceed the rate of regeneration and waste generated stays within the absorptive capacity of the environment.

Rising population in developing countries and affluent consumption and production standards in the developed world have placed enormous stress on the environment, so that many resources have become extinct and waste generated is beyond the environment's absorptive capacity.

This is described as an environmental crisis: a reversal of the earlier supply-demand relationship, where demand for environmental resources and services now exceeds their limited supply.

In India, this deteriorating quality of the environment is a common sight around major industrial cities such as Kanpur, Jaipur, Delhi, Panipat and Kolkata, where emissions from industrial activity seriously affect the health of the people living nearby.

The Damodar Valley, one of India's most industrialised regions, illustrates the same pressure: pollutants discharged from the heavy industries located along the banks of the Damodar river have been converting the river into what is described as an ecological disaster.

Without a conscious shift to sustainable development, continued growth will deplete resources and degrade the environment at a pace that results in both environmental and economic crisis, which is why protecting the natural and built environment for future generations matters for business and for society.

What is sustainability in business?

Environment and economy are interdependent and need each other. Development that ignores its effect on the environment will eventually destroy the environment that sustains life.

Sustainability in business therefore means that an enterprise promotes development that is compatible with conservation of natural assets, preserving the regenerative capacity of the world's natural ecological system, and avoiding the imposition of added costs or risks on future generations.

This is not purely an act of charity. Business enterprises command huge financial, physical and human resources and have the know-how to tackle environmental problems with a preventive approach, by controlling pollutants at source rather than only after waste is created.

A modification in the process of production, redesign of equipment, or substituting poor-quality materials with better ones can greatly reduce or even eliminate pollution.

The need for sustainability in business can be seen through three linked goals that this unit focuses on: maximising energy efficiency, promoting community development, and de-carbonisation.

How can a business maximise energy efficiency?

India depends heavily on thermal and hydro power plants to meet its power needs, and both have adverse environmental effects: thermal plants emit large quantities of carbon dioxide (a greenhouse gas) and produce fly ash that, if not used properly, pollutes water bodies and land, while hydroelectric projects inundate forests and interfere with the natural flow of water in catchment areas and river basins.

Maximising energy efficiency means using non-conventional and cleaner sources of energy, and using energy more carefully, so that less waste and pollution is generated per unit of output.

1. Using non-conventional sources such as wind power and solar rays, which have been increasingly tapped in recent years.
2. Providing subsidised liquefied petroleum gas (LPG) in rural areas as a clean fuel that reduces household pollution and minimises energy wastage, in place of wood, dung cake or other biomass.
3. Setting up gobar gas plants through easy loans and subsidy, where cattle dung is fed into the plant to produce gas used as fuel, while the leftover slurry becomes organic fertiliser and a soil conditioner.
4. Switching public transport to Compressed Natural Gas (CNG), which in Delhi significantly lowered air pollution and has since been adopted in many other Indian cities.
5. Using photovoltaic cells to convert sunlight directly into electricity, a technology that is pollution-free and especially useful for remote areas where grid power is costly or unavailable.
6. Installing mini-hydel plants on perennial mountain streams to generate electricity for local use without large-scale transmission towers, cables or transmission loss.

India, together with France, launched the International Solar Alliance (ISA) in 2015, an international body working to increase power generation through solar energy.

How does community development link entrepreneurship to sustainability?

Community development is the part of a business's social responsibility that looks outward, beyond owners, employees and customers, to the wider community and government in which the enterprise operates.

An enterprise must respect the laws of the country, pay taxes regularly and honestly, behave as a good citizen, protect the natural environment, and avoid bad effluent, smoky chimneys, ugly buildings and dirty working conditions.

It must also develop a proper public image in society through continuous interaction with various groups of people.

This responsibility includes what is called discretionary responsibility: a purely voluntary obligation an enterprise assumes, such as providing charitable contributions to educational institutions or helping people affected by floods or earthquakes.

It is distinct from legal responsibility, which is met by mere compliance with the law, and from ethical responsibility, which covers behaviour expected by society but not codified in law, such as respecting the religious sentiments and dignity of people while advertising a product.

Social responsibility as a whole, including community development, involves an element of voluntary action by business people for the benefit of society, going beyond what the law requires.

What is de-carbonisation and why does business need it?

De-carbonisation refers to reducing the carbon dioxide and other greenhouse gas emissions generated by business activity, chiefly by moving away from fossil fuels such as coal and petroleum towards cleaner and renewable sources of energy.

Thermal power plants are a major source of carbon dioxide; wind power, solar photovoltaic cells and mini-hydel plants are, by contrast, largely free of this kind of pollution.

Global warming is a gradual increase in the average temperature of the earth's lower atmosphere caused mainly by man-made increases in carbon dioxide and other greenhouse gases through the burning of fossil fuels and deforestation.

Global surface temperature has risen by about 1.1°C since the late nineteenth century, and global sea level rose by about 20 cm between 1901 and 2018 (IPCC, 2021), with longer-term results including melting polar ice, coastal flooding, disruption of drinking water supplies dependent on snow melt, and more frequent tropical storms.

A UN Conference on Climate Change held in Kyoto, Japan, in 1997, led to an international agreement calling for reductions in greenhouse gas emissions by industrialised nations.

The UN has formulated 17 Sustainable Development Goals (SDGs) intended to be achieved by the year 2030, several of which concern energy, climate and sustainable consumption.

What is Corporate Social Responsibility (CSR)?

Definition: Corporate Social Responsibility. The responsibility of enterprises for their impacts on society, combining economic progress with social progress and environmental protection.

There is no single universally accepted definition of Corporate Social Responsibility, but each definition that exists underpins the impact that businesses have on society at large and the societal expectations of them.

The European Commission defines CSR as "the responsibility of enterprises for their impacts on society".

The World Business Council for Sustainable Development defines CSR as "the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, as well as, of the community and society at large".

Social responsibility of business more broadly refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objectives and values of society.

It is broader than legal responsibility: legal responsibility may be fulfilled by mere compliance with the law, whereas social responsibility is a firm's recognition of social obligations even where these are not covered by law, together with the obligations laid down by law.

Social responsibility can broadly be divided into four categories: economic responsibility (producing goods and services that society wants, at a profit), legal responsibility (operating within the laws of the land), ethical responsibility (behaviour expected by society but not codified in law), and discretionary responsibility (purely voluntary action such as charitable giving).

Going beyond the syllabus

These ideas extend the unit and are not needed for the questions on it.

How is CSR regulated in India?

In India, the concept of CSR is governed by Section 135 of the Companies Act, 2013, which was passed by both Houses of Parliament and received the assent of the President of India on 29 August 2013.

The CSR provisions within the Act apply to companies meeting any one of the three thresholds in the table above.

The new rules, applicable from the fiscal year 2014-15 onwards, also require companies to set up a CSR committee consisting of their board members, including at least one independent director.

The Act requires such companies to spend at least 2 per cent of their average net profit of the three immediately preceding financial years on CSR activities. The indicative activities that a company can undertake under CSR are specified under Schedule VII of the Act.

Only CSR activities undertaken in India are taken into consideration, and activities meant exclusively for employees and their families do not qualify under CSR.

What are the advantages of sustainability and CSR for a business?

A business that assumes social responsibility gains in several ways. It provides justification for existence and growth, since prosperity and growth of business is possible only through continuous service to society.

A firm and its image stand to gain maximum profits in the long run when its highest goal is service to society; as workers, consumers, shareholders and government officials come to feel that the enterprise serves their interests, its public image improves and cooperation with it increases.

Voluntarily assuming social responsibility also helps a firm avoid stricter government regulation, since businesses that act responsibly reduce the perceived need for new laws.

It helps maintain an orderly society, because people who feel they are not getting their due from business may otherwise resort to activities harmful to business itself.

Business has valuable financial and human resources, including managerial talent and capital, which it can use effectively to help solve social problems and even convert such problems into profitable opportunities.

A society with fewer problems also provides a better environment in which to do business, and since some social problems, such as environmental pollution and unsafe workplaces, have been created or perpetuated by business itself, there is a moral obligation to help resolve them rather than leaving this entirely to other agencies.

What are the limitations of CSR in practice?

Several arguments are raised against the assumption of social responsibility by business. It is argued that business exists only for profit maximisation, and that it best fulfils any social responsibility simply by maximising profits through greater efficiency and lower costs; any wider notion of social responsibility is seen as a distraction from this objective.

A second argument is that social responsibilities such as pollution control and environmental protection are costly and require large financial investment, and that businesses are likely to simply pass this burden on to consumers through higher prices rather than bearing it themselves, which is seen as unfair.

A third argument is that businessmen lack the social skills and training needed to solve social problems, which should instead be left to specialised agencies.

Finally, it is argued that the general public does not always welcome business involvement or interference in social programmes, so that a lack of broad public support and confidence can limit how successfully business can operate in this area.

What forces push business towards greater social responsibility?

Several forces have combined to make business a socio-economic activity rather than a purely profit-seeking one.

There is the threat of public regulation, since democratically elected governments act as welfare states and may step in to regulate enterprises that behave in a socially irresponsible manner.

There is the growing pressure of the labour movement, which has made business pay due regard to worker welfare instead of a simple "hire and fire" approach.

Rising consumer consciousness, helped by education and mass media, has replaced the old principle of caveat emptor (let the buyer beware) with the idea that the "customer is king".

Society has also developed new standards for business, under which economic activity is legitimate only if it also serves social needs, since it is society that permits business to exist and grow.

The spread of business education, with its content on social responsibility, has made consumers, investors, employees and owners more sensitive to social issues.

There is also a growing recognition that social interest and business interest are complementary rather than contradictory, and the rise of a professional managerial class, trained to balance multiple interest groups, has reinforced this shift away from an older, purely owner-manager attitude to business.

What is the difference between renewable and non-renewable resources?

Renewable resources, such as trees in forests or fish in the ocean, can be used without depleting the stock as long as extraction does not exceed regeneration; non-renewable resources, such as fossil fuels, get exhausted with extraction and use and cannot be replenished on a human timescale.

This distinction underlies why sustainable development asks for different rules for the two kinds of resource: renewable resources must be extracted at or below their rate of regeneration, while for non-renewable resources the rate of depletion should not exceed the rate at which renewable substitutes are created.

Glossary

• Sustainable development — development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs.
• Environment — the total planetary inheritance and totality of all resources, comprising biotic and abiotic elements.
• Carrying capacity — the load limit of the environment, beyond which demand on its functions exceeds what it can sustain.
• Absorptive capacity — the ability of the environment to absorb pollutants and waste without degradation.
• Renewable resources — resources that can be used without becoming exhausted, provided extraction does not exceed regeneration, such as trees and fish.
• Non-renewable resources — resources that get exhausted with extraction and use, such as fossil fuels.
• Energy efficiency — reducing waste and pollution per unit of energy used, including a shift to cleaner sources such as solar, wind and CNG.
• De-carbonisation — reducing carbon dioxide and other greenhouse gas emissions generated by business activity.
• Community development — a business's responsibility towards the wider community and government, including discretionary and ethical obligations beyond the law.
• Corporate Social Responsibility — the responsibility of enterprises for their impacts on society, combining economic progress with social and environmental concern.
• Discretionary responsibility — a purely voluntary obligation an enterprise assumes, such as charitable contributions or disaster relief.
• Ethical responsibility — behaviour expected by society but not codified in law, such as respecting customers' sentiments in advertising.
• Intergenerational equity — the principle that the present generation should leave the next generation a stock of quality-of-life assets no less than it inherited.

Common errors and misconceptions

• Misconception: Sustainable development only concerns the environment ministry, not business. Correct: Business enterprises command the financial, physical and human resources and the know-how needed to tackle environmental problems, so they are expected to take the lead in finding solutions.
• Misconception: CSR is the same as legal responsibility. Correct: Social responsibility is broader than legal responsibility; it includes obligations a firm recognises even though these are not covered by law, together with the obligations the law lays down.
• Misconception: Renewable resources can never be depleted. Correct: Renewable resources become exhausted too if extraction exceeds the rate of regeneration; they are not automatically limitless.
• Misconception: Decarbonisation means a business must stop using energy altogether. Correct: It means shifting towards cleaner and renewable energy sources and using energy more efficiently, not abandoning its use.
• Misconception: Community development is the same as charity. Correct: It includes legal obligations such as paying taxes honestly and protecting the environment, as well as voluntary discretionary action such as disaster relief.
• Misconception: Sustainability in business is only about protecting nature. Correct: It also covers community development and de-carbonisation, so it balances economic progress, social progress and environmental protection.
• Misconception: A business that is profitable is automatically socially responsible. Correct: An enterprise may be good in terms of economic performance but poor in social performance, such as supplying poor quality products at unreasonable prices.

Exam-style questions with model answers

Q1. State the meaning of sustainable development. [2 marks]

1. Sustainable development is development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs.
2. It rests on intergenerational equity, leaving the next generation a stock of quality-of-life assets no less than what the present generation inherited.

Q2. Define Corporate Social Responsibility. [2 marks]

1. CSR is the responsibility of enterprises for their impacts on society.
2. It is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, and of the community and society at large.

Q3. Explain any three reasons why sustainability is needed in business. [3 marks]

1. Environment and economy are interdependent, so development that ignores its effect on the environment destroys the environment that sustains life.
2. Business commands large financial, physical and human resources and the know-how to control pollutants at source through a preventive approach.
3. A modification in the process of production, redesign of equipment or better materials can greatly reduce or even eliminate pollution.

Q4. Distinguish between renewable and non-renewable resources, giving one example of each. [4 marks]

1. A renewable resource can be used without the resource becoming depleted or exhausted, as long as the rate of extraction does not exceed the rate of regeneration; a continuous supply remains available. Example: trees in forests, or fish in the ocean.
2. A non-renewable resource gets exhausted with extraction and use because it cannot be regenerated within a usable timescale. Example: fossil fuel.
3. Sustainable development therefore requires different rules for the two: renewable resources should be extracted on a sustainable basis matching regeneration, while for non-renewable resources the rate of depletion should not exceed the rate of creation of renewable substitutes.

Q5. Explain, with examples, three ways in which a business can maximise energy efficiency. [5 marks]

1. Using non-conventional sources such as wind power and solar rays instead of relying only on thermal and hydro power plants, which carry adverse environmental effects such as carbon dioxide emission and fly ash.
2. Switching public transport to Compressed Natural Gas (CNG), which significantly lowered air pollution in Delhi and has since spread to other Indian cities.
3. Using photovoltaic cells to convert sunlight directly into electricity, a pollution-free technology especially useful where grid power is costly or unavailable.
4. Providing subsidised LPG and gobar gas plants in rural areas as clean fuels in place of wood or dung cake, reducing household pollution and energy wastage while the leftover slurry from gobar gas serves as organic fertiliser.
5. Installing mini-hydel plants on mountain streams, which generate local electricity without large transmission towers, cables or transmission loss.

Q6. Explain how community development forms part of a business's responsibility towards society. [4 marks]

1. An enterprise must respect the laws of the country, pay taxes regularly and honestly, and behave as a good citizen according to accepted values of society.
2. It must protect the natural environment and avoid bad effluent, smoky chimneys, ugly buildings and dirty working conditions.
3. It must develop a proper public image through continuous interaction with various groups of people.
4. It may also assume discretionary responsibility, a purely voluntary obligation such as charitable contributions to educational institutions or help to people affected by floods or earthquakes.

Q7. Explain the meaning and importance of de-carbonisation for business. [5 marks]

1. De-carbonisation means reducing the carbon dioxide and other greenhouse gas emissions generated by business activity.
2. It is achieved chiefly by moving away from fossil fuels such as coal and petroleum towards cleaner and renewable sources of energy.
3. Thermal power plants are a major source of carbon dioxide, while wind power, solar photovoltaic cells and mini-hydel plants are largely free of this kind of pollution.
4. Global warming is a gradual rise in the average temperature of the earth's lower atmosphere caused mainly by man-made increases in carbon dioxide and other greenhouse gases through the burning of fossil fuels and deforestation.
5. Global surface temperature has risen by about 1.1°C since the late nineteenth century and sea level by about 20 cm since 1901, with longer-term results including melting polar ice, coastal flooding and more frequent tropical storms.

Q8. Evaluate the view that business should assume social responsibility. [6 marks]

1. In favour: it provides justification for the existence and growth of business, since prosperity depends on continuous service to society rather than profit alone.
2. In favour: it serves the long-term interest of the firm, because a business seen to serve society's interest gains in public image and cooperation from workers, consumers, shareholders and government officials.
3. In favour: business has valuable financial and human resources, including managerial talent and capital, which can be used to help solve social and environmental problems.
4. Against: business exists only for profit maximisation, and it best fulfils any social responsibility by maximising profits through greater efficiency and lower costs.
5. Against: social responsibilities such as pollution control are costly, and businesses may pass this burden on to consumers through higher prices, which is unfair.
6. Against: businessmen lack the social skills and training needed to solve social problems, and the public does not always welcome business involvement in social programmes, so such problems are better left to specialised agencies.

Key takeaways

• Sustainable development meets present needs without compromising the ability of future generations to meet their own needs.
• The environment supplies resources, assimilates waste, sustains life through biodiversity, and provides aesthetic services, but only within its carrying capacity.
• Renewable resources can be used indefinitely if extraction matches regeneration; non-renewable resources are exhausted by use.
• Energy efficiency in business involves shifting to non-conventional sources such as solar, wind, CNG, LPG and mini-hydel power.
• Community development covers an enterprise's discretionary and ethical responsibilities towards government, community and the environment, beyond legal compliance.
• De-carbonisation means reducing greenhouse gas emissions, chiefly by moving away from fossil fuel-based thermal power.
• CSR is the responsibility of enterprises for their impacts on society, and there is no single universally accepted definition of it.
• Social responsibility is broader than legal responsibility, since it includes voluntary obligations that the law does not lay down.
• Arguments for social responsibility include long-term firm interest and avoidance of regulation; arguments against include cost burden on consumers and lack of social skills in business.

Test yourself

What is the Brundtland Commission's definition of sustainable development?

Development that meets the need of the present generation without compromising the ability of the future generation to meet their own needs.

Give one example each of a renewable and a non-renewable resource.

Trees in forests (or fish in the ocean) are renewable; fossil fuel is non-renewable, as it gets exhausted with extraction and use.

Name two clean fuel initiatives used in India to improve energy efficiency.

Subsidised LPG and gobar gas plants in rural areas, and Compressed Natural Gas (CNG) for public transport in cities such as Delhi.

How does the European Commission define CSR?

The European Commission defines CSR as "the responsibility of enterprises for their impacts on society".

What does the World Business Council for Sustainable Development say about CSR?

It defines CSR as the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families, and of the community and society at large.

What is meant by de-carbonisation?

Reducing the carbon dioxide and other greenhouse gas emissions generated by business activity, chiefly by moving away from fossil fuels towards cleaner and renewable sources of energy.

Name one argument against business assuming social responsibility.

Businesses may simply pass the cost of social responsibilities, such as pollution control, on to consumers through higher prices rather than bearing it themselves.

What does discretionary responsibility mean?

A purely voluntary obligation an enterprise assumes, such as charitable contributions to educational institutions or helping people affected by floods or earthquakes.