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Adopting Environmental Management Accounting: EMA as a Value-adding Activity

1. Adopting Environmental Management Accounting: EMA as a Value-adding Activity

Environmental management accounting (EMA) can be defined as “the generation, analysis and use of financial and non-financial information in order to optimise corporate environmental and economic performance and to achieve sustainable business” (Bennett et al. 2002: 1). EMA thus both includes monetary and physical accounting which is internal to an organisation and also deals with the integration of ecological and monetary issues (Burritt et al. 2002), and as such is a management activity that is relevant for both private-sector and public-sector organisations.
Martin Bennett, Pall Rikhardsson, Stefan Schaltegger

Conceptual Developments and Tools of EMA


2. The Sustainability Balanced Scorecard as a Framework to Link Environmental Management Accounting with Strategic Management

As an information management approach, environmental management accounting (EMA) focuses mainly on operational issues such as environmental costs and revenues. Many environmental issues (such as, for example, whether to introduce green products, or when to change the production technology to a more eco-efficient process) can, however, be of far-reaching strategic importance for a company. An important question for the relevance of EMA is therefore how it can be linked with corporate environmental strategy.
The Balanced Scorecard has emerged and has been discussed as a modern approach to translate strategy into action and thus to link strategy with the operational level of management activities. This is why the development of a sustainability balanced scorecard is discussed here for profit-oriented companies. The proposed approach has been developed by the Centre for Sustainability Management, Lueneburg, Germany, in a two-year research program in co-operation with partners from the University of St. Gallen, Switzerland, and Insead, Fontainebleau, France, and the approach which is discussed has been tested in practice with six large German and Swiss companies (Schaltegger and Dyllick 2002).
After a brief discussion of the different possible forms of a Sustainability Balanced Scorecard, the paper takes a closer look at the process and steps of formulating a Sustainability Balanced Scorecard for a business unit. Before doing so, the Balanced Scorecard and its suitability for sustainability management will be outlined in brief.
Frank Figge, Tobias Hahn, Stefan Schaltegger, Marcus Wagner

3. Environmental Cost Accounting: Classifying and Comparing Selected Approaches

As a result of 25 years of research and development, a high number of approaches to environmental cost accounting is available. In order to identify those which are most suitable for company practice, it is necessary to identify types with similar concepts and purposes. In a German research project, the most suitable approaches for each type of environmental cost accounting could be identified.
Thomas Loew

4. The Professionalisation of Environmental and Social Reporting — What has it Achieved?

The recent development of environmental and social reporting has been dominated by what can be termed a ‘professional’ model, which has been greatly influenced by accountancy. The central features of this model have been the annual financial report and accounts as exemplar, voluntarism in whether and how to report by organisations, and trying to ensure information quality through third party auditing and verification. However, current debates indicate that this model has a number of weaknesses, and as a generalisation is not providing stakeholders with what they want. The paper suggests an alternative model, based on more carefully defined reporting of a smaller number of indicators, with a greater regulatory involvement in ensuring information quality and a greater emphasis on third party assessment of actual performance rather than internal processes.
Peter James

Policies and Initiatives for the Promotion of EMA


5. Austrian Pilot Projects on Environmental Management Accounting Following the UN DSD EMA Methodology

This article reports upon the environmental management accounting (EMA) methodology developed for the UN Division for Sustainable Development (UN DSD) and the resulting toolkit based on 12 case studies in Austria. An example is cited which shows the real cost distribution of SCA Laakirchen, a pulp and paper plant1.
Christine Jasch

6. Two Governmental Initiatives on Environmental Management Accounting and Corporate Practices in Japan

There are two main governmental initiatives on environmental accounting in Japan, which have been taken by the Ministry of the Environment (MOE) and the Ministry of Economy, Trade and Industry (METI). MOE published the environmental accounting guidelines in 2000 and since then has continued this initiative. METI launched a three-year research-based project on environmental management accounting in 1999, and this was completed in March 2002. This paper will examine the influence of these two governmental initiatives on Japanese corporate environmental accounting practices, with an analysis of environmental accounting disclosure and a questionnaire survey. The examination indicates that the MOE guidelines have had a very strong influence on Japanese companies which in turn shows that Japanese corporate environmental accounting is oriented to external reporting, since the MOE guidelines stress the external disclosure function of environmental accounting more strongly than the internal management function.
Katsuhiko Kokubu, Eriko Nashioka, Koichiro Saio, Shinichi Imai

7. The Danish Green Accounts: Experiences and Internal Effects

More than 1,000 Danish companies have published annual Green Accounts since this was made a mandatory requirement in 1995. The legislation regulating the Green Accounts was revised in 2001 and 2002, with new requirements being added and the procedures changed. Green Accounts are mandatory environmental reports which account for physical flows of pollutants and for resource efficiency through information about the use of raw materials and waste generation. The legislation is very flexible, in order to suit the differing communications needs of different companies.
The first objective of Green Accounts is to enhance the public’s access to information about the environmental performance of polluting companies in order to promote a democratic and progressive dialogue about environmental issues. Their second objective is to motivate reporting companies to examine their processes and products, and to improve their resource efficiency, as well as to motivate them to work systematically with the environment. As such, this objective can be linked to environmental management accounting.
Experience from the first two years shows that both economic end environmental benefits can be achieved through Green Accounts.
Charlotte Thy

8. Environmental Management Accounting, Eco-Efficiency Profiles, and Effluent Charges for Costa Rican Coffee Mills

The principal aim of this paper is to show how instruments for the environmental regulation of industrial water pollution can be made more effective and efficient by using an information-based instrument such as eco-efficiency profiles. The paper demonstrates how eco-efficiency profiles can be linked to environmental management accounting systems.
A sector-specific profile is created for coffee mills, and the paper goes on to argue that a compulsory eco-efficiency profile program, coupled with a pollution charge, might promote a better integration of environmental management at the level of the firm and improve environmental performance. It is shown that eco-efficiency profiles can be created even from the information which is presently available, generated by existing regulation.
Albert Schram

Developments in EMA Adoption in Practice


9. Environmental Management Accounting for Staff Appraisal: Evidence from Australia, Germany and Japan

Interest has emerged in the idea of promoting the development of environmental management accounting systems within organisations. Various environmental management accounting frameworks and tools for analysis have been proposed and some evidence has been gathered about current practice. This paper adds to the existing body of knowledge on the potential of environmental management accounting information to be used for individual performance appraisal. It examines the results of a survey of the styles of environmental information gathered and environmental management accounting practices of companies listed on stock exchanges in Australia, Germany and Japan. The focus of the survey is on an exploratory study of the comparative link between environmental management
Roger L. Burritt, Stefan Schaltegger, Katsuhiko Kokubu, Marcus Wagner

10. Environmental Performance Measurement Through Accounting Systems: A Survey of UK Practice

This paper describes an investigation of the integration of environmental performance measurement into core corporate management accounting and financial information systems. A postal questionnaire was sent (in 1999 with a follow up mailing in 2000) to Finance Directors of UK companies. A wide range of organisations, in terms of size and activity, was sought by surveying the Top 200 companies in the UK and the Top 500 companies in Scotland. A total of 165 replies was received. The results are presented in aggregate and some sections are analysed by company size and degree of “environmental sensitivity”. The questionnaire addressed, inter alia: the importance of environmental issues for the companies and whether they quantified environmental costs or benefits; whether environmental issues were considered in capital investment, and other purchasing (and marketing) decisions; practices in the allocation of environmental costs (according to a detailed list of possible categories), and estimates of their current and likely future significance. Broadly speaking the results show an association between the separate identification/quantification of environmental issues and the size and degree of environmental sensitivity of respondents’ firms. Open questions sought views on the above and, in particular, on whether respondents’ could suggest how management accounting systems might be altered in order to improve environmental performance measurement. This latter question elicited a “No” response from about 20% of respondents, “Don’t know” from about 30% and “Yes” from about 50%. Respondents with an accounting background were much more likely to answer “No” than
David Collison, Rick Clark, James Barbour, Andrew Buck, Rennie Fraser, Bob Lyon, Andrew Magowan, Alasdair Sloan

11. Cost Management in the Textile Chain: Reducing Environmental Impacts and Costs for Green Products

Greening products requires that their life cycle or supply chain be observed. Within environmental management accounting, the supply chain has been identified as an important factor to be analysed. This has led to the development of life cycle costing, which assesses costs along the total life cycle. However, this approach still neglects the importance of the individual actors along the life cycle or supply chain. Supply chain management integrates these individual actors, since it deals with the management of both materials and information flows as well as with relationships between companies. Cost management in the supply chain must build on these roots. Consequently, supply chain costing distinguishes three cost levels: direct, activity-based and transaction costs. The suitability of this approach is illustrated in two case studies which document business practices at Otto, a leading German mail order business, and Steilmann, a leading German- based European clothing producer.
Stefan Seuring

12. Institutional Changes and Environmental Management Accounting: Decentralisation and Liberalisation

This paper uses an institutional perspective to explore how EMA practices are being influenced by societal and institutional change. It focuses on two sectors in the process of decentralization and liberalization, namely, public water management and the energy sector. Shifts in the institutional and politico-economic context will be linked to the changes in their EMA systems. It is concluded that in both sectors a tension will remain between, on the one hand, the use of economic instruments and methods of evaluation as efficient tools for decision-making and, on the other, the fact that a ‘price’ is often insufficient as an indicator for rational, informed decision-making. Non-ambivalent qualitative and quantitative indicators will therefore remain necessary for the evaluation of alternatives and for environmental policy-making. It is observed that the processes of decentralisation and liberalization induced more variation in the demand for EMA information about specific types of environmental performance. Decentralisation and liberalisation bring many aspects of environmental performance into the realm of ‘customer or stakeholder relations and commercial strategy’ in EMA, as positive or negative ‘marketing assets’ to a firm or a product. The design of EMA systems and the choice of indicators will therefore closely reflect ‘what the market dictates’. Commercial strategies and the variation in the specific physical and societal context of a firm will lead to a much larger variety in the demand for EMA information and in processing approaches.
Jan Jaap Bouma, Aad Correljé

13. Introducing Environmental Management Accounting into Small and Medium-Sized Enterprises

The Industry Association of Brescia (AIB) has recently started a programme to promote environment management systems (EMSs) and safety management systems (SMSs) among its small and medium-sized (SME) member companies, with the aim of the continuous improvement of plant safety. The programme is based on the premise that plant safety is closely related to the quality of the organisation, to which the EMS and SMS can contribute.
To support this programme, a research campaign was launched to collect data and gain the experience necessary to overcome the present reluctance of almost all the SMEs for these systems. This four-year campaign involves sixty pilot companies of differing sizes, operating in different industrial fields and already having quality management systems (QMS) implemented and certified. In these pilot companies firstly an EMS and subsequently a SMS will be implemented.
Despite the very favourable conditions offered to the pilot companies and the high level of confidence between the association and its members, very few companies initially agreed to implement the proposed systems. However these difficulties were overcome and the campaign is now successfully in progress. The experts are now working ‘in the field’ in more than twenty pilot companies, which will have a certified EMS implemented by early 2002, and another forty are on the waiting list.
The analysis of operational costs played a viral role in gathering and convincing the pipilot companies, which were interested primarily in reducing operational costs as part of their production costs. A lot of attention was therefore devoted to this: starting from the QMS costs and following a particular approach, the companies have been assisted not only in implementing an EMA system, but also in improving their accounting systems generally.
These considerations, together with the work already performed in the campaign, will be addressed in the paper.
Aldo Pilisi, Alessia Venturelli

14. EMA in SMEs: Ten Italian Case Studies

The research project described in this paper is part of a programme conceived by the Industry Association of Brescia (AIB) to promote the diffusion of Environment and Safety Management Systems among its member companies. Initial difficulties regarding the implementation of environmental management accounting (EMA) systems in the pilot companies, concerns about operational costs, the need to adapt accounting systems, and some reluctance to collect data, were finally overcome by providing technical assistance and tools. Starting with the evaluation of quality management system (QMS) costs, specific schemes have been developed and provided to the companies, based primarily on evaluation methods for quality costs, but at the same time fully complying with EMA requirements. On this basis, collaboration with the companies started to be satisfactory and useful.
This paper presents these schemes together with the results of their application in ten small to medium-sized companies operating in different industrial sectors.
Alessia Venturelli, Aldo Pilisi

15. Green Success: Process-based Environmental Cost Accounting — Implementation in SME’s in Germany

This paper presents the initial results of a research project titled “Integration of Environmental Cost Accounting into Environmental Management Systems by SMEs”. The project was funded by the German Federal Foundation for the Environment, Osnabrück. Following an analysis of various different concepts of environmental cost accounting, a process of implementation is shown, based on two selected enterprises.
The environmental cost accounting system to be applied is sustainabilityoriented and process-based. The concept was developed for operational use in small and medium sized enterprises and represents a further development of existing flow cost accounting systems.
This document reports on the first half of the project, which will be completed in June 2003. For this reason, only the first modules of the actual project design can be presented together with examples of operational practice, and the remaining modules are therefore presented on a theoretical basis only.
Thomas Heupel, Natalie Wendisch

Effects of EMA


16. The Influence of ISO 14001 and EMAS Certification on Environmental and Economic Performance of Firms: An Empirical Analysis

This paper analyses the influence of environmental management system certification on environmental performance as measured by physical environmental performance indicators, and on economic performance based on a variety of firm-level financial indicators. For this purpose, data on environmental performance has been collected from corporate environmental reports and emissions inventories for a sample of companies in the paper and electricity generation industries in the Netherlands, Italy, Germany and the UK; and in parallel, financial information for the same set of firms has been extracted from financial databases in a comparable format. Based on this data set, the paper reports how EMAS verification and/or ISO 14001 certification interacts with the environmental and economic performance of firms. This includes an assessment of significant differences between firms in the paper and electricity sectors, as well as a more detailed analysis of the direct relationship between the environmental and economic performance of firms in the paper industry. The paper finds that three hypotheses formulated about the link between environmental management system certification and environmental and economic performance, as well as the relationship of the latter two, are rejected. Based on the data analysed, it therefore cannot be concluded that there is a statistically significant link between the certification of environmental management systems, environmental performance, economic performance, and their relationship.
Marcus Wagner

17. Economic Valuation of the Environment: an Institutional Perspective

Economic valuation of the environment internalises environmental effects in the marketplace through the calculation of quantitative, monetary values. It may be applied by different stakeholders, including companies, governmental and non-governmental organisations. It is however not uncommon to find that different valuation studies on the same subject, carried out by different stakeholders, generate divergent economic values. Since the decision-making contexts in which economic valuation studies may be applied often consist of numerous stakeholders, there is a danger that decisionmakers will become sceptical of such valuation studies if they reflect only the subjective interests of the stakeholder who carried out the study. To improve the practical applicability of economic valuation, therefore, efforts must be directed towards limiting these inconsistencies in economic valuation studies. Taking as a point of departure the argument that economic valuation is useful in certain decision-making contexts, the pursuit of improvements in economic valuation requires a focus on the process of economic valuation in addition to other current research efforts that focus on methodological issues of economic valuation. This paper will provide preliminary thoughts on the process of economic valuation from an institutional theory perspective. To complement the explanations of this perspective, the paper will focus on one particular stakeholder of the environment, namely the Dutch Ministry of Transport, Public Works and Water Management. Insights obtained from such a perspective may be used to seek solutions that pursue improvements in the economic valuation process.
Kirsten Schuijt


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