Sustainability is ensuring that economic activities and development meet the needs of the present without compromising the ability of future generations to meet their own needs.
For businesses, sustainability means that:
• The business inputs and outputs should have no irredeemable effects on the environment. It involves developing strategies so that the organization only uses resources (inputs) at a rate that allows them to be replenished, in order to ensure that they will continue to be available.
• Emissions of waste should be confined to levels that do not exceed the capacity of the environment to absorb them.
• It also involves recycling to reduce the impact of product manufacturing on natural resources.
Sustainability can be assessed by measures such as triple bottom line reporting, measuring financial, social and environmental performance.
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Showing posts with label Environmental Management Accounting (EMA). Show all posts
Showing posts with label Environmental Management Accounting (EMA). Show all posts
Friday, July 29, 2011
Friday, July 22, 2011
Stages in an Environmental Audit
Environmental auditing contains three stages.
1. The first stage is agreeing and establishing the metrics involved and deciding on what environmental measures will be included in the audit. This selection is important because it will determine what will be measured against, how costly the audit will be and how likely it is that the company will be criticised for ‘window dressing’ or ‘greenwashing’.
2. The second stage is measuring actual performance against the metrics set in the first stage. The means of measurement will usually depend upon the metric being measured. Whilst many items will be capable of numerical and/or financial measurement (such as energy consumption or waste production), others, such as public perception of employee environmental awareness, will be less so. Given the board’s stated aim of providing a robust audit and its need to demonstrate compliance, this stage is clearly of great importance.
3. The third stage is reporting the levels of compliance or variances. The issue here is how to report the information and how widely to distribute the report. The board’s stated aim is to provide as much information as possible ‘in the interests of transparency’. This would tend to signal the publication of a public document (rather than just a report for the board) although there will be issues on how to produce the report and at what level to structure it. The information demands of local communities and investors may well differ in their appetite for detail and the items being disclosed.
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1. The first stage is agreeing and establishing the metrics involved and deciding on what environmental measures will be included in the audit. This selection is important because it will determine what will be measured against, how costly the audit will be and how likely it is that the company will be criticised for ‘window dressing’ or ‘greenwashing’.
2. The second stage is measuring actual performance against the metrics set in the first stage. The means of measurement will usually depend upon the metric being measured. Whilst many items will be capable of numerical and/or financial measurement (such as energy consumption or waste production), others, such as public perception of employee environmental awareness, will be less so. Given the board’s stated aim of providing a robust audit and its need to demonstrate compliance, this stage is clearly of great importance.
3. The third stage is reporting the levels of compliance or variances. The issue here is how to report the information and how widely to distribute the report. The board’s stated aim is to provide as much information as possible ‘in the interests of transparency’. This would tend to signal the publication of a public document (rather than just a report for the board) although there will be issues on how to produce the report and at what level to structure it. The information demands of local communities and investors may well differ in their appetite for detail and the items being disclosed.
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Explain Environmental Footprint
The use of the term ‘footprint’ with regard to the environment is intended to convey a meaning similar to its use in everyday language. In the same way that humans and animals leave physical footprints that show where they have been, so organisations such as Chemco leave evidence of their operations in the environment. They operate at a net cost to the environment. The environmental footprint is an attempt to evaluate the size of Chemco’s impact on the environment in three respects.
Firstly, concerning the company’s resource consumption where resources are defined in terms of inputs such as energy, feedstock, water, land use, etc.
Second, concerning any harm to the environment brought about by pollution emissions. These include emissions of carbon and other chemicals, local emissions, spillages, etc. It is likely that as a chemical manufacturer, both of these impacts will be larger for Chemco than for some other types of business.
Thirdly, the environmental footprint includes a measurement of the resource consumption and pollution emissions in terms of harm to the environment in either qualitative, quantitative or replacement terms.
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Firstly, concerning the company’s resource consumption where resources are defined in terms of inputs such as energy, feedstock, water, land use, etc.
Second, concerning any harm to the environment brought about by pollution emissions. These include emissions of carbon and other chemicals, local emissions, spillages, etc. It is likely that as a chemical manufacturer, both of these impacts will be larger for Chemco than for some other types of business.
Thirdly, the environmental footprint includes a measurement of the resource consumption and pollution emissions in terms of harm to the environment in either qualitative, quantitative or replacement terms.
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Tuesday, July 5, 2011
Information required at board level and to be published, on environmental and social policies
Information required to be supplied at board level would depend on the cmpany’s ongoing attitude to environmental and social issues
Type A Company
Company that the view that environmental and social issues are of no concern
1. The company would therefore only be interested in ensuring that current legal requirements were met and that the cost of adverse publicity was avoided.
2. An individual should become responsible for monitoring social and environmental developments and advise the board if or when the company was required to take additional steps.
3. Disclosure would be kept to a minimum, and would concentrate on practices that were of benefit to the community at large, rather than those that may be of interest to competitors.
Type B Company
Company who are environmental and socially responsible as there is a substantial interest amongst consumers and investment fund managers
1. The company may report on environmental and social issues as part of its competitive strategy.
2. Information required would then increase significantly.
3. A study would need to be conducted into what was considered to be best practice.
4. This would identify the investment requirements of the ethical investment funds and the current thinking on environmental and social issues by the various pressure groups, such as Amnesty International and Greenpeace.
5. The company then establish a formal code of challenging targets (such as 95% of packaging used should be made of recycled materials) to be achieved on these environmental and social issues and report on how these targets were being met.
6. This report could be included as part of the normal reporting package.
7. Areas in which the company was particularly successful and which were not commercially damaging (such as a change in product design) could then be included in the Annual Report.
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Type A Company
Company that the view that environmental and social issues are of no concern
1. The company would therefore only be interested in ensuring that current legal requirements were met and that the cost of adverse publicity was avoided.
2. An individual should become responsible for monitoring social and environmental developments and advise the board if or when the company was required to take additional steps.
3. Disclosure would be kept to a minimum, and would concentrate on practices that were of benefit to the community at large, rather than those that may be of interest to competitors.
Type B Company
Company who are environmental and socially responsible as there is a substantial interest amongst consumers and investment fund managers
1. The company may report on environmental and social issues as part of its competitive strategy.
2. Information required would then increase significantly.
3. A study would need to be conducted into what was considered to be best practice.
4. This would identify the investment requirements of the ethical investment funds and the current thinking on environmental and social issues by the various pressure groups, such as Amnesty International and Greenpeace.
5. The company then establish a formal code of challenging targets (such as 95% of packaging used should be made of recycled materials) to be achieved on these environmental and social issues and report on how these targets were being met.
6. This report could be included as part of the normal reporting package.
7. Areas in which the company was particularly successful and which were not commercially damaging (such as a change in product design) could then be included in the Annual Report.
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Thursday, June 23, 2011
The Benefits that may accrue to the organizations which adopt Environmental Management Accounting
1. Environmental management accounting (EMA) involves the generation and analysis of bothfinancial and non-financial information in order to support internal environmental management processes.
2. It is complementary to the conventional management accounting approach, with the aim to develop appropriate mechanisms that assist the management of organisations in the identification and allocation of environmentally related costs.
Benefits
1. Organisations that alter their management accounting practices to incorporate environmental concerns will have greater awareness of the impact of environment-related activities on their profit and loss accounts and balance sheets. This is because conventional management accounting systems tend to attribute many environmental costs to general overhead accounts with the result that they are ‘hidden’ from management. It follows that organisations which adopt EMA are more likely to identify and take advantage of cost reduction and other improvement opportunities.
2. A concern with environmental costs will also reduce the chances of employing incorrect pricing of products and services and taking the wrong options in terms of mix and development decisions. This in turn may lead to enhanced customer value whilst reducing the risk profile attaching to investments and other decisions which have long term consequences.
3. Reputational risk will also be reduced as a consequence of adopting (EMA) since management will be seen to be acting in an environmentally responsible manner. Organisations can learn from the Shell Oil Company whose experience in the much publicised Brent Spar incident cost the firm millions in terms of lost revenues as a result of a consumer boycott.
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2. It is complementary to the conventional management accounting approach, with the aim to develop appropriate mechanisms that assist the management of organisations in the identification and allocation of environmentally related costs.
Benefits
1. Organisations that alter their management accounting practices to incorporate environmental concerns will have greater awareness of the impact of environment-related activities on their profit and loss accounts and balance sheets. This is because conventional management accounting systems tend to attribute many environmental costs to general overhead accounts with the result that they are ‘hidden’ from management. It follows that organisations which adopt EMA are more likely to identify and take advantage of cost reduction and other improvement opportunities.
2. A concern with environmental costs will also reduce the chances of employing incorrect pricing of products and services and taking the wrong options in terms of mix and development decisions. This in turn may lead to enhanced customer value whilst reducing the risk profile attaching to investments and other decisions which have long term consequences.
3. Reputational risk will also be reduced as a consequence of adopting (EMA) since management will be seen to be acting in an environmentally responsible manner. Organisations can learn from the Shell Oil Company whose experience in the much publicised Brent Spar incident cost the firm millions in terms of lost revenues as a result of a consumer boycott.
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Thursday, December 10, 2009
Six Ways to Achieve Business & Environmental Benefits
(a) Integrating the environment into capital expenditure decisions (by considering environmental opposition to projects which could affect cas flows, for example)
(b) Understanding and managing environmental costs. Environmental costs are often hidden in overheads and environmental and energy cost ate often not allocated to the relevant budgets.
(c) Introducing waste minimization schemes.
(d) Understanding and managing life cycle costs. For many products, the greatest environmental impact occurs upstream (such as mining raw materials) or downstream from production (such as energy to operate equipment). This has led to producers being made responsible for dealing with the disposal of products such as cars, and government and third party measures to influence raw material choices. Organizations therefore need to identify, control and make provision for environmental life cycle costs and work with suppliers and customers to identify environmental cost reduction opportunities.
(e) Measuring environmental performance. Business is under increasing pressure to measure all aspects of environmental performance, both for statutory disclosure reasons and due to demands for more environmental data from customers.
(f) Involving management accountants in a strategic approach to environmental-related management accounting and performance evaluation.
a. To analyse the short-, medium- and long-term impact of possible changes in the followings:
i. Government policies, such as on transport
ii. Legislation and regulations
iii. Supply conditions, such as fewer landfill sites
iv. Market conditions, such as changing customer views
v. Social attitudes, such as to factory farming
vi. Competitor strategies
b. to identify possible actions:
i. Designating an “environmental champion” within the strategic planning or accounting function to ensure that environmental considerations are fully considered.
ii. Assessing whether new data sources are needed to collect more and better data.
iii. Making comparisons between sites/offices to highlight poor performance and generate peer pressure for action.
iv. Developing checklists for internal auditors.
(source: BPP Learning Media)
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(b) Understanding and managing environmental costs. Environmental costs are often hidden in overheads and environmental and energy cost ate often not allocated to the relevant budgets.
(c) Introducing waste minimization schemes.
(d) Understanding and managing life cycle costs. For many products, the greatest environmental impact occurs upstream (such as mining raw materials) or downstream from production (such as energy to operate equipment). This has led to producers being made responsible for dealing with the disposal of products such as cars, and government and third party measures to influence raw material choices. Organizations therefore need to identify, control and make provision for environmental life cycle costs and work with suppliers and customers to identify environmental cost reduction opportunities.
(e) Measuring environmental performance. Business is under increasing pressure to measure all aspects of environmental performance, both for statutory disclosure reasons and due to demands for more environmental data from customers.
(f) Involving management accountants in a strategic approach to environmental-related management accounting and performance evaluation.
a. To analyse the short-, medium- and long-term impact of possible changes in the followings:
i. Government policies, such as on transport
ii. Legislation and regulations
iii. Supply conditions, such as fewer landfill sites
iv. Market conditions, such as changing customer views
v. Social attitudes, such as to factory farming
vi. Competitor strategies
b. to identify possible actions:
i. Designating an “environmental champion” within the strategic planning or accounting function to ensure that environmental considerations are fully considered.
ii. Assessing whether new data sources are needed to collect more and better data.
iii. Making comparisons between sites/offices to highlight poor performance and generate peer pressure for action.
iv. Developing checklists for internal auditors.
(source: BPP Learning Media)
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Wednesday, December 9, 2009
EMA - Impact on Company's Performance
Ways in which a company’s concern for the environment can impact on its performance:
(a) Short-term savings through waste minimization and energy efficiency schemes can be substantial.
(b) Companies with poor environmental performance may face increased cost of capital because investors and lenders demand a higher risk premium.
(c) There are a number of energy and environmental taxes, such as the UK’s landfill tax.
(d) Pressure group campaigns can cause damage to reputation and/or additional costs.
(e) Environmental legislation may cause the “sunsetting” of products and opportunities for “sunrise” replacement.
(f) The cost of processing input which becomes waste is equivalent to 5-10% of some organization’s revenue.
(g) The phasing out of CFCs has led to markets for alternative products.
(source: BPP Learning Media)
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(a) Short-term savings through waste minimization and energy efficiency schemes can be substantial.
(b) Companies with poor environmental performance may face increased cost of capital because investors and lenders demand a higher risk premium.
(c) There are a number of energy and environmental taxes, such as the UK’s landfill tax.
(d) Pressure group campaigns can cause damage to reputation and/or additional costs.
(e) Environmental legislation may cause the “sunsetting” of products and opportunities for “sunrise” replacement.
(f) The cost of processing input which becomes waste is equivalent to 5-10% of some organization’s revenue.
(g) The phasing out of CFCs has led to markets for alternative products.
(source: BPP Learning Media)
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Environmental Management Accounting (EMA)
EMA is the generation and analysis of both financial and non-financial information in order to support internal environmental management processes.
The main points made by Mr Shane Johnson in the January 2004 edition of Student Accounts are as follows:
(a) Major incidents like the Bhopal chemical leak and the Exxon Vaidez oil spill have significantly raised the profile of environmental issues over the last 20 years or so.
(b) Poor environmental behaviour can result in “fines, increased liability to environmental taxes, loss in value of land, destruction of brand values, loss of sales, consumer boycotts, inability to secure finance, loss of insurance cover, contingent liabilities, law suits and damage to corporate image”.
(c) Environmental issues need to be managed before they can be reported externally, and so changes are needed to management accounting systems.
(d) Management accounting techniques tend to underestimate the cost of poor environmental behaviour, underestimate the benefits of improvements and can distort and misrepresent environmental issues, leading managers to make decisions that are bad for business and bad for the environment.
(e) Most conventional accounting systems are unable to apportion environmental costs to products, processes and services and so they are simply classes as general overheads. Consequently, managers are unaware of these costs, have no information with which to manage them and have no incentive to reduce them. “Environmental management accounting (EMA)”, on the other hand, attempts to make all relevant, significant costs visible so that they can be considered when making business decisions.
(f) Management accounting techniques which are useful for the identification and management of environmental costs include:
(i) Input/output analysis (records material flows with the idea that what comes in must go out – or to be stored).
(ii) Flow cost accounting (aims to reduce the qualities of materials, which leads to increased ecological efficiency)
(iii) ABC (distinguishes between the environment-related and environment-driven costs)
(iv) Life cycle costing (used to advantage by Xerox Limited for its logistic chain)
(g) The major areas for the application of EMA are in the assessment of annual environmental costs/expenditures. Product pricing, budgeting, investment appraisal, calculating costs and savings of environmental projects, or setting quantified performance targets”
(h) Good environmental management can be seen as a key component of TQM (objectives such as zero waste).
(i) Although various classifications have been suggested, “the most significant problem of EMA lies in the absence of a clear definition of environmental costs. This means that organizations are not monitoring and controlling such costs”.
(source: BPP Learning Media)
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The main points made by Mr Shane Johnson in the January 2004 edition of Student Accounts are as follows:
(a) Major incidents like the Bhopal chemical leak and the Exxon Vaidez oil spill have significantly raised the profile of environmental issues over the last 20 years or so.
(b) Poor environmental behaviour can result in “fines, increased liability to environmental taxes, loss in value of land, destruction of brand values, loss of sales, consumer boycotts, inability to secure finance, loss of insurance cover, contingent liabilities, law suits and damage to corporate image”.
(c) Environmental issues need to be managed before they can be reported externally, and so changes are needed to management accounting systems.
(d) Management accounting techniques tend to underestimate the cost of poor environmental behaviour, underestimate the benefits of improvements and can distort and misrepresent environmental issues, leading managers to make decisions that are bad for business and bad for the environment.
(e) Most conventional accounting systems are unable to apportion environmental costs to products, processes and services and so they are simply classes as general overheads. Consequently, managers are unaware of these costs, have no information with which to manage them and have no incentive to reduce them. “Environmental management accounting (EMA)”, on the other hand, attempts to make all relevant, significant costs visible so that they can be considered when making business decisions.
(f) Management accounting techniques which are useful for the identification and management of environmental costs include:
(i) Input/output analysis (records material flows with the idea that what comes in must go out – or to be stored).
(ii) Flow cost accounting (aims to reduce the qualities of materials, which leads to increased ecological efficiency)
(iii) ABC (distinguishes between the environment-related and environment-driven costs)
(iv) Life cycle costing (used to advantage by Xerox Limited for its logistic chain)
(g) The major areas for the application of EMA are in the assessment of annual environmental costs/expenditures. Product pricing, budgeting, investment appraisal, calculating costs and savings of environmental projects, or setting quantified performance targets”
(h) Good environmental management can be seen as a key component of TQM (objectives such as zero waste).
(i) Although various classifications have been suggested, “the most significant problem of EMA lies in the absence of a clear definition of environmental costs. This means that organizations are not monitoring and controlling such costs”.
(source: BPP Learning Media)
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