Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles Figure 24. Input/output framework for breweries .............................................................................63 Figure 25. Process flowchart of breweries .......................................................................................64 Figure 26. Figure 27. Figure 28. Product life cycle assessment.........................................................................................66 Relationship between cost category, cost center and cost carrier accounting .............................................................................................69 Environmental costs hidden in overhead accounts........................................................70 Figure 29. Environmental costs attributed to cost centers and products ........................................71 Figure 30. Process flow charts: opening of the black box ...............................................................72 Figure 31. Figure 32. Tracking and tracing of environmental related costs......................................................73 Example of correct and incorrect cost allocation............................................................74 Figure 33. Twofold allocation of environment related costs ............................................................76 Figure 34. Third allocation step.........................................................................................................78 Figure 35. The company - seen as a material flow system .............................................................80 Figure 36. Typical proportion of costs in the manufacturing industry..............................................81 Figure 37. The basic idea of flow cost accounting ...........................................................................83 Figure 38. The components of flow cost accounting........................................................................85 Figure 39. Flow cost matrix (simplified) ............................................................................................87 Figure 40. Environmental performance indicator system ................................................................93 Figure 41. Figure 42. Figure 43. Environmental performance indicator matrix..................................................................95 Share of environmental costs..........................................................................................99 Less tangible factors......................................................................................................105 Figure 44. Calculation sheet for environmental investments and projects ...................................108 -viii-
Environmental Management Accounting Procedures and Principles 1. FOREWORD The objective of this report is to defi ne pr inci ples and proc edur es for Env ir onmental Management Ac counti ng (EMA) wit h a focus on techniques for quanti fy i ng envi ronment al expendi t ur es or cos t s as a basi s for the dev el opment of nati onal EMA gui del ines and f ramewor ks . The int ended us er s of these EMA pr oc edures are nati onal gover nments inter es ted i n es tabli shi ng nat i onal EMA gui deli nes appr opri ate to their own count ri es’ cont ex t and organiz ati ons s eeki ng to inst al l EMA sy st ems f or bett er cont r ol li ng and benchmar ki ng purpos es. The limits of traditional financial and cost-accounting methods to reflect organizations’ efforts towards sustainability and to provide management with information needed to make sustainable business decisions have been broadly recognized. Information on environmental performance of organizations might be available to some extent, but, internal company decision-makers, as well as those in public authorities, are seldom able to link environmental information to economic variables and are crucially lacking environmental cost information. As a consequence, decision makers fail to recognize the economic value of natural resources as assets, and the business and financial value of good environmental performance. Beyond “good-will” initiatives, few market-based incentives exist to integrate environmental concerns in decision-making. Therefore, there is a need to upgrade the business decision-making process by including information on material flows and related costs to account for efforts towards sustainable development. Although differing definitions and applications exist, the general use of EMA information is for internal organizational calculations and decision-making. EMA procedures for internal decision-making include both: physical procedures for material and energy consumption, flows and final disposal, and monetarized procedures for costs, savings and revenues related to activities with a potential environmental impact. The procedures most useful for decisionmaking depend on the type of organization (e.g., manufacturing versus service sector) and the types of decisions to be made (e.g., purchasing decisions about raw materials, investment decisions for energy efficiency, altered product design). EMA data support environmental management systems and decision-making with regard to improvement targets and investment options. Linked financial and environmental performance indicators are important for controlling and benchmarking purposes. The material flow balance as well as the derived indicators are vital information for environmental reporting. Corporate rating agencies are interested to see combined monetary and physical approaches towards sustainability. The costs for industry of environmental protection, including pollution reduction, waste management, monitoring, regulatory reporting, legal fees and insurance, have increased rapidly in the past 20 years with increasingly stringent environmental regulations. Conventional management accounting systems attribute many of those environmental costs to general overhead accounts, with the consequence that product and production managers have no incentive to reduce environmental costs, and executives are often unaware of the extent of environmental costs. -1-
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