Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles Initial investment costs can comprise several items in addition to the purchased equipment. Depending on whether the equipment is classified as waste treatment or integrated technology, its initial costs or annual depreciation depending on the method used for investment appraisal will show up under section 1.1 or 2.3 of figure 42. Annual operating costs can relate to all the other cost categories of the environmental cost scheme. Therefore, annual assessment of total expenditure is vital as a starting point in environmental management accounting. It assures the complete picture, which later allows to consider only parts, related to specific cost centres or equipment. Measures for pollution prevention help to reduce disposal and emission treatment costs and to increase the efficient use of purchased materials. Often, when calculating investments, the reduced costs for materials and emission treatment are not completely calculated, which results in distorted investment decisions. Additionally, future liability costs and less tangible benefits should be estimated. Future liabi lit y costs: Two general forms of fut ur e liabil ity cost s can be di sti nguis hed: li abi li ty for per sonal injur y or proper ty damage (e. g., liabili ty st emming from a leaki ng landf il l) and penalti es and fines for vi ol ati on of envir onmental regulat ions. To the degree that a cl ean-up obli gat ion is legall y requir ed, a provis ion has to be made in the bal anc e sheet. But, as disc uss ed, ther e are sev ere li mi ts in tax and ac counti ng st andar ds for sett ing prov isi ons. Therefor e, when calc ulating fut ure r isk s and li abi li ties, an es timat e of avoided f ut ure li abili ty is al so requi red. The less tangible factors considered by the Tellus Institute are shown in figure 42. Savi ng pot entials: Les s tangible benef its fr om polluti on preventi on inves tment s, suc h as incr eas ed revenue fr om enhanced pr oduct qual ity , company or produc t image and reduced work er healt h maintenance costs or product iv ity , are certainly the most di ff icult to pr edi ct and quantif y. The following saving potentials should be considered: • Cost reduction for waste and emission treatment and disposal costs. This includes internal and external treatment, related equipment and operating materials, personnel handling waste, storage and landfill costs, fees for disposal, transport, insurance and liability, site and production permits, reports to authorities, etc. • Savings of insurance, liability and remediation costs. Reduced waste and emissions and new processes requiring less harmful operating materials are often also a good argument for reduced risks of damage, spills, land contamination, clean-up obligations or other possible remediation costs. • Maintenance: Labour and material for maintenance can also be effected by product design and cleaner technologies. • Savings in energy and water input: Generally, cleaner technologies not only require less material input but are also more energy and water efficient. -104-
Environmental Management Accounting Procedures and Principles • Savings in raw and auxiliary materials and packaging. Alternatives which reduce the amount of waste, in general also need less material input. • Savings because of better product quality. Alternative product design can improve the product quality and thereby reduce the costs of quality control, redoing work and production of scrap. • Earnings from new by-products. If waste is replaced by new, marketable by-products, the cost of new product design can be offset by those earnings. • Reduced risk of accidents and worker absenteeism by avoiding dangerous materials and processes which also results in increased employee motivation. • Improved relations with local authorities speed up the time required for production permits and other official procedures. • Future investment savings through anticipation of planned policy changes (i.e., stricter emission allowances, prohibited use of hazardous materials), thus preventing the requirement for short-term or end-of-pipe solutions. Productivity ♦ Product quality ♦ Production throughput ♦ Production flexibility ♦ Production reliability ♦ Worker absenteeism ♦ Worker morale Future Regulation ♦ Stricter enforcement of current regulations ♦ Modification of current regulations ♦ New regulations Potential Liability ♦ Business shutdown costs ♦ Non-compliance fines ♦ Site clean-up costs ♦ Legal costs ♦ Personal injury claims ♦ Property damage claims ♦ Natural resource damage claims Insurance ♦ Workers’ health insurance ♦ Workers’ compensation ♦ General property core fire insurance ♦ General liability/hazard ♦ Environmental liability ♦ Unemployment Company Image ♦ Access to customers and markets ♦ Access to financing ♦ Public relations Figure 43. Less tangible factors Sour ce: Tell us Ins ti tut e, Boston, Mas sachuset ts , 2000. Additionally to savings, other positive effects can arise from environmental management. These so-called soft factors, structured by stakeholder relations, can be: • Increased turnover, customer satisfaction, new markets, differentiation from competitors; -105-
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