Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles • Cost-reduction and environmental benefits as a result of improved material efficiency (i.e., reduced residual waste and reduced use of materials per product); • Incentives to develop new products, technologies and procedures based on the improved database for investment accounting; • Enhanced quality of the information system thanks to consistency testing and the floworiented data system; • Improvement of organizational structures and procedures as a result of company-wide uniform reference to the material flow system; • Interdepartmental, material-flow-related communication and coordination instead of insular fixation inside company divisions (departments, cost centres, etc.); • Increased motivation in staff and management regarding the comprehensive structuring of material flows; and • Focus on raising material productivity instead of reducing the workforce. The cost-cutting potentials revealed by flow cost accounting in the companies in these pilot projects, for material losses alone, represented between 1 and 5 per cent of total costs. Usually, in the first year after flow cost accounting is introduced, cost-cutting potentials of an average 1 to 2 per cent of total costs can be identified and realized. This represents profit increases of over 20 per cent. Flow cost accounting aims to identify and analyze the entire system of material flows as cost driver. Not only the material costs, but also the system costs are allocated to material flows. Flow cost accounting can thus be seen as an approach to total cost accounting. It shows the extent to which costs can be cut by a reduced or more efficient use of materials and energy. The increased transparency in terms of quantities, values and costs achieved with flow cost accounting has the effect of encouraging the following: • Development of products that require less materials; • Development of product packaging that requires less materials; and • Reduction of material losses (e.g., rejects, scrap, damaged products) and the resulting waste (i.e., solid waste, effluent, emissions). 7. APPLICATION EXAMPLE - ENVIRONMENTAL PERFORMANCE INDICATORS Environmental performance indicators condense extensive environmental data into critical information that allows monitoring, target setting, tracing performance improvements, benchmarking and reporting. Several publications and pilot projects highlight their relevance -88-
Environmental Management Accounting Procedures and Principles for supporting environmental management systems, improving material efficiency and flow management, detect cost saving potentials and quantify performance targets. Environmental performance indicators supply the environmental manager as well as top management with the required information from a great variety of environmental data. They enable decision makers to get a quick overall view of progress and of environmental protection problems still to be solved. On this basis, well-grounded targets for environmental performance improvement can be identified and quantified, which is necessary for controlling actual achievement. This link with traditional controlling systems allows monitoring of environmental risks and performance and detection of profitable improvement opportunities. The strength of environmental performance indicators (EPIs) is that they quantify developments in environmental protection and allow for benchmarking over time. With regular establishment and adjustment of objectives, environmental performance indicators assist in detecting in advance and in time negative trends in environmental control – serving as an early warning system. The comparison of environmental performance indicators within one company or externally with other companies or competitors, so-called benchmarking, offers the chance to detect weak points and identify potentials of improvement. 7.1. Definitions of ISO 14031 – standard on environmental performance evaluation Environmental performance indicators may be divided into three categories. Depending on whether they aim at assessing environmental aspects of company activities by input/output material flow balances, activities of environmental management or the condition of the environment outside the company, operational performance indicators, management performance indicators and environmental condition indicators are distinguished. This system is based on ISO TC 207 SC4 “Environmental Performance Evaluation” and the standard ISO 14031, which provides a helpful tool for setting up an indicator system. Environmental performance indicators, EPIs are defined as follows in ISO 14031: “OPI, Operational performance indicator, that provides information about the environmental performance of an organization’s operations.” Operational performance indicators are recommended for every company and form the basis of evaluation of environmental aspects. Examples are material, energy and water consumption, waste and emissions in total amounts and in relation to production volumes. OPIs are an important basis for internal and external communication of environmental data, e.g., in environmental statements in accordance with the EU EMAS Regulation or in publications to inform employees. “MPI, Management performance indicator, that provides information about the management’s efforts to influence an organization’s environmental performance.” Management performance indicators indirectly measure the environmental protection efforts taken by a company and the results achieved with regard to influencing its environmental -89-
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Environmental Management Accounting Procedures and Principles

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