Environmental Governance
Sustainability refers to the use of natural resources in a manner that is preservative. All companies in accordance with the King code have to operate in a manner that has a minimal negative impact and they are encouraged to always consider their long term impact on the economy, people and the planet. The ability to mitigate their negative impact on these three will determine how sustainable the entity runs. Maintanence of a certain standard. it is balancing competing needs for the same resource.
To understand this concept better we can evaluate the difference between weak and strong sustainability. Weak sustainability speaks to the belief that natural resources are perfectly substitutable whilst strong sustainability is rooted on the belief that natural resources are severely limited and so are any of the substitutes of these resources. Weak sustainability resolves to replace the use of all scarce resources for less scarce ones whilst strong sustainability resolves to limit the use of all resources.
Externalities refers to both the positive and negative impact that a company’s economic activities has on parties other than the business itself. A company is consistently measure their impact in order to assess how they can mitigate the negative externalities going forward. Negative externalities are costs and positive externalities are benifits that flow unto others who are not part of a particular. Costs can be related to individual, company, or society.
There are international treaties and conventions that have been implemented to minimise negative externalities such as the Kyoto protocol, the United Nation’s Sustainable Development Goals that range from overcoming world poverty to achieving gender equality and national laws such as the Companies Act 71 of 2008 and the National Environmental Management Acts.
The tragedy of the commons refers to when multiple users of a commonly used but scarce resource utilise the said resource in a manner that depletes the resource as a means to be the only user. This is usually in pursuit to make the most profit. The risk of this economic problem is mitigated through statute. Common resource that is not privately owned, thus common to anyone.
Resource depletion is evidence that a natural resource is being utilised at a rate that is faster than it can be replenished. It shows that companies that manufacture the said renewable or non-renewable resources are not implementing sustainable methods into their operations.
The depletion of resources is critical as ecological resources depend on each other. The depletion of one resource leads to the depletion of another vital resource leaving the earth with pollution, water shortages, extinction of species, soil erosion, loss of biodiversity. Typically when sustainability practices are not followed.
Businesses run out business as they cannot manufacture products for resources that no longer exist or are in shortage. People that work for these businesses would be unable to maintain their livelihoods either because they are the ones that have been left unemployed or because they no longer have access to food. The economy tumbles as shortages occur because businesses will no longer be able to meet consumer needs. As seen in the first fishing trip, when depletion occurs businesses cannot meet their desired outputs which means their land up running a loss. If this ends up occurring more regularly than they can manage, they are forced to stop operating completely.
- Sustainable yield is an initiative rooted on the principle that the impact of humans on the ecological system is overwhelming. It aims to put limits on the amounts of resources that society utilises. This can be achieved through regulations and industry codes that are revised regularly to mitigate the risk of depletions. Regulations and industry codes can definitely dictate the amount of resource whether by rand value or in units that a business manufacturing a certain renewable or non-renewable resource should utilise in a particular period. Policy makers would need to consistently be measuring the demand and supply of these vital resources to determine the limits. A voluntary industry code refers to a certain industry standard or code of conduct – recommended by members of an industry – which aims to uphold a certain way of doing business (can be broad). This is a signed-off code by members of industry, and can help with sustainable yield as it encourages companies to comply with the code of conduct, often to practice business operations in a socially sustainable way.
Anchor Management Limited is affiliated with the Marine Stewardship Council. This is an organisation that monitors and regulates the companies in the business of fish farming to ensure sustainable practice in the seafood industry. Anchor Management is committed to savouring the natural resources they utilise and protecting the seas to the best of their ability. There are many businesses who fish anchovy, many people in society relying on its supply and in an attempt to not contribute to the tragedy of commons, Anchor Management Limited proudly ensures its adherence with the practices and standards set out by the Marine Stewardship Council. . It puts us in a pool of companies who believe in the longevity of our marine resources, and that makes our company’s products more in valuable. Government regulations initially improved our revenue after the second fishing trip, but it goes to show that industry standards led to the most profitible outcome (after the third fishing trip).
The rules and regulations set by the Marine Stewardship Council could potentially ensure the long term sustainability and profitability of the company. For example not fishing on the coastal waters of Aquawaves where the anchovy breed to allow juvenile anchovy to mature and migrate to the deep waters. As seen from the figures below in both the First and Second Fishing Seasons when juvenile Anchovy were not left to mature, the business ran losses of R42 980,26 and R17 492,89 respectively. Whereas after committing to fish only mature Anchovy in the Third Fishing Season, Anchor Limited caught 2314 anchovy and made a profit of R12 971,14. This is a 11,62% increase from the previous season. All evidence indicates that commitment to the Marine Stewardship Council’s regulations has a positive impact on Anchor Management Limited’s operations in the long term. We urge our stakeholders to be patient in seeing the positive results being realised.
| First Fishing Season – No regulations | Second Fishing Season – Government Regulation | Third Fishing Season – Self-regulation | |
| Income | R 24 266,55 | R 5 400,91 | R 48 321,14 |
| Expenses | R 67 246,81 | R 22 893,80 | R 35 350,00 |
| Profit | R (42 980,26) | R (17 492,89) | R 12 971,14 |
| Total catch | 976 | 269 | 2314 |
Value Creation
Value is created by making use of the six main inputs of a business model (financial, manufactured, human, intellectual, social and relationships, and natural) to perform the business activities to the best of a company’s ability. This created the outputs, desired or undesired, in the form of products, services, waste or other by-products. Outcomes of business (externalities) are the indirect result (not outputs) of business activities that fall unto the wider society and not just the company. These outcomes can be positive or negative; that depends on the company. This outlines the value creation process (note: value can also be destroyed through this process).
The figures below represent the value creation process of Anchor management Ltd. during the first, second and third fishing season. These figures portray how value was created and destroyed during the respective fishing seasons
Value creation (Scenario 1)
In this scenario, the first fishing season, fishing resources were wasted as all the fishing companies over-caught anchovy. By the end of the season, anchovy resources were nearly depleted. A lot of wastage and pollution also took place in the water on the shores. Financial resources were wasted as revenue was very low. A large loss was made.
| INPUT BUSINESS | BUSINESS ACTIVITIES | OUTPUTS OF BUSINESS | OUTCOMES OF BUSINESS |
| Financial | Fishing of anchovy Trade of fishing ships | Products | Financial |
| Capital investment | Anchovy | Low revenue and loss Lower dividend pay-outs Lower incentive for capital investment by shareholders | |
| Manufactured | Services | Manufactured | |
| Fishing ships and equipment | Processing and packaging | Low productivity level of workers | |
| Human | Waste | Human | |
| Employees/skilled fisherman Sales and administrative staff | Polluted water Waste near communities Bi-catch | Employee dissatisfaction Tension between management | |
| Intellectual | Other by-products | Intellectual | |
| Business ethics Reputation and brand image Fishing permits Trademark and brand name | Damage to reputation Permits may be harder to come by | ||
| Social and relationship | Social and relationship | ||
| Wholesalers Government Peers in industry Local community | Customer dissatisfaction Shareholder dissatisfaction Local community not pleased | ||
| Natural | Natural | ||
| – | Decrease in anchovy levels in ocean |
Value creation process (Scenario 2)
Before the second fishing season, the government implemented regulations to control and monitor the amount of anchovy was caught per company. This resulted in much more sustainable fishing techniques. More revenue was made, but still not profit. Wastage and pollution was better managed and the community of Aquawaves and our shareholders were less dissatisfied than in scenario 1.
| INPUT BUSINESS | BUSINESS ACTIVITIES | OUTPUTS OF BUSINESS | OUTCOMES OF BUSINESS |
| Financial | Fishing of anchovy Trade of fishing ships | Products | Financial |
| Capital investment | Increase of anchovy output | More revenue Loss | |
| Manufactured | Services | Manufactured | |
| Fishing ships and equipment | Processing and packaging | Productivity and efficiency improved by workers | |
| Human | Waste | Human | |
| Employees/skilled fisherman Sales and administrative staff | Less polluted water Less waste near communities Minimal bi-catch | Employees more satisfied | |
| Intellectual | Other by-products | Intellectual | |
| Business ethics Reputation and brand image Fishing permits Trademark and brand name | Brand image and reputation improves | ||
| Social and relationships | Social and relationships | ||
| Wholesalers Government Peers in industry Local community | Customers are more pleased Community still unsatisfied Shareholder trust improves | ||
| Natural | Natural | ||
| Better preservation of anchovy |
Value creation (Scenario 3)
The main characteristic of the third fishing season was that a counsel of anchovy-industry companies were formed, of which Anchor management Ltd. is one of them. This counsel was, and is, aimed at preserving the anchovy and promoting sustainable fishing standards and methods for all. This led to profit being made on the catching and sales of anchovy, a healthy level of anchovy in the ocean was upheld, and the community nearby, shareholders and employees were happy. Overall, this counsel and industry standards caused a positive effect on Anchor’s reputation and caused a boost in the anchovy fishing industry.
| INPUT BUSINESS | BUSINESS ACTIVITIES | OUTPUTS OF BUSINESS | OUTCOMES OF BUSINESS |
| Financial | Fishing of anchovy Trade of fishing ships | Products | Financial |
| Capital investment | Increase in anchovy output | More sales and revenue Profit | |
| Manufactured | Services | Manufactured | |
| Fishing ships and equipment | Processing and packaging | High level of efficiency and productivity by workers | |
| Human | Waste | Human | |
| Employees/skilled fisherman Sales and administrative staff | Minimal polluted water Minimal waste near communities Minimal (almost no) bi-catch | Employees are satisfied | |
| Intellectual | Other by-products | Intellectual | |
| Business ethics Reputation and brand image Fishing permits Trademark and brand name | Better reputation and brand image | ||
| Social and relationships | Social and relationships | ||
| Wholesalers Government Peers in industry Local community | Satisfied community Customers are pleased Shareholders are pleased Good relationship with government Good relationship with industry peers | ||
| Natural | Natural | ||
| Sustainable levels of anchovy in the ocean |
