Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Institute of Certified Management Accountants of Sri Lanka Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Acknowledgement The authors are thankful to the valuable comments received from Professor K B M Fonseka, Director, Postgraduate Institute of Management, Colombo, Sri Lanka. Disclaimer The opinions expressed in this book may not necessarily relect the views of the Institute of Certiied Management Accountants of Sri Lanka. The responsibility for all such opinions rest solely on the authors. Copyright A person or organization that acquires this product from the Institute of Certiied Management Accountants of Sri Lanka may reproduce and amend these documents for personal use or use within the business. Apart from such use, copyright is strictly reserved, and no part of this publication may be reproduced or copied in any form without the written permission of the Institute of Certiied Management Accountants of Sri Lanka. ISBN 978-955-0926-01-5 Cover and text design by Chamara Jayakody, 3rd Year, Department of Accounting, Faculty of Management Studies and Commerce, University of Sri Jayewardenepura, Nugegoda, Sri Lanka. Published 2014 Institute of Certiied Management Accountants of Sri Lanka 29 / 24, Visaka Road, Colombo 04, Sri Lanka. i Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises A D Nuwan Gunarathne Lecturer, Department of Accounting, University of Sri Jayewardenepura, Nugegoda, Sri Lanka. Ajanee B Ranasinghe Lecturer, Department of Accounting, University of Sri Jayewardenepura, Nugegoda, Sri Lanka. Assisted by Sanka Peiris Business Information Reporting Analyst, Standard Chartered Bank, Colombo, Sri Lanaka. ii President’s Message It gives me great pleasure in forwarding this message to “Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises” which is launched at the CMA National Management Accounting Conference, 2014 on the theme “Sri Lanka 2.0 and Beyond- Fast Tracking Economic Development - 2020”. This publication is another pioneering initiative of CMA to provide guidance for the Sri Lankan industry professionals to embrace sustainability in their core business operations. CMA is the only local professional management accounting institute that introduced sustainability management accounting into its syllabus which was launched in 2012. CMA has also been organizing many seminars and workshops on sustainability and sustainability (environmental) management accounting for the last few years. As the national professional management accounting body in Sri Lanka, CMA makes these eforts to fulill its endeavor to meet the growing demand for professional management accountants in both private and public sectors. Through initiatives of this nature, we expect to guide competent professionals in the ield of management accounting to contribute to move the national economy for better sustainable development. I specially would like to thank the authors of this book, Mr. A D Nuwan Gunarathne and Ms. Ajanee B Ranasignhe, lecturers of the Department of Accounting, University of Sri Jayewardenepura and their assistant author Mr. Sanka Peiris who is also a product of the same Department, on behalf of CMA for their volunteer efort. Prof. Lakshman R Watawala President- CMA Sri Lanka 18.06.2014 iii Preface Guidelines on EMA for organizations have been published by various national and international institutes around the world. Yet, in Sri Lanka, there has been little attempt at the national level to guide industries on adopting and sustaining environmental strategies and its supporting accounting tool, EMA. “Environmental Management Accounting (EMA) - Guidelines for Sri Lankan Enterprises” is a publication that aims at illing this long felt need for industries. It is apparent that management accounting can play a crucial role in driving organizations for better environmental performance, irrespective of the organizational function that utilizes it. The growing body of EMA practices which can support this is presented here with the primary aim of improving the level of awareness of Sri Lankan managers on how EMA could be adopted and made use of. It is expected that the improved understanding will be a catalyst in leading industries across diverse sectors for better adoption of EMA in Sri Lanka. This book on EMA Guidelines is launched at the CMA National Management Accounting Conference-2014, “Sri Lanka 2.0 & Beyond”, which is an ideal platform to deliberate future challenges in fast tracking economic development. It is expected that this book will be a guiding stepping stone for managers to explore an adventurous journey in EMA for a greener world in the pursuit of fast tracked economic development. A D Nuwan Gunarathne Ajanee B Ranasinghe Sanka Peiris 18.06.2014 iv About the authors A D Nuwan Gunarathne MBA, B.Sc., ACMA (SL), CGMA, ACMA (UK), ACIM, Dip in Mkt Nuwan Gunarathne after years of teaching, consulting, and research currently serves as a lecturer at the Department of Accounting, University of Sri Jayewardenepura, Sri Lanka. He has co-authored and authored many publications in diferent spheres of management and management accounting. He is currently engaged in research in environmental/sustainability management accounting. Nuwan has also presented papers in Finland, Australia, Sri Lanka and Indonesia. Ajanee B Ranasinghe B.Sc. Accounting (Special), CIMA a passed inalist Ajanee B Ranasinghe is a Lecturer at the Department of Accounting, University of Sri Jayewardenepura. Prior to lecturing, she served as a Financial Analyst in a renowned conglomerate and has gained extensive experience in the areas of equity and economic research, fund management, inancial analysis, and investment advisory. Ajanee emerged the highest scorer in her batch winning three gold medals at her degree programme. Sanka Peiris B.Sc. Accounting (Special), CIMA a passed inalist Sanka Peiris is a graduate of the Department of Accounting, University of Sri Jayewardenapura. Sanka currently serves as a Business Information Reporting Analyst at a foreign commercial bank. Previously he served as an Investment Analyst in a local investment bank and gained wide industry analysis experience in various sectors. Sanka is interested in academic research in the areas of Sustainability and Management Accounting. v Contents Chapter 1 Introduction Chapter 2 Environmental Management Accounting(EMA) Chapter 3 Environmental Cost Analysis Chapter 4 EMA Tools & Techniques Chapter 5 EMA Success Stories Chapter 6 Framework for the Adoption of EMA References 1 6 15 24 49 64 71 vi vii Chapter 1 Introduction Consider the following conversation between an author of this booklet and an accountant of a public listed company. Author: Do you have any environmental management programs in your organization? Accountant: Yes. We have some CSR projects. Author: Then, what sorts of projects do you have? Accountant: I’m not sure. I need to check from the CSR division. Author: What actions do you take to reduce your energy or water bill? Accountant: We take a lot of actions. Our chief engineer is the best person to answer that. This conversation is not atypical of the thinking of many accountants. Yet, it typiies few important things: ( Many organizations (or accountants) still think that environmental management programs are CSR projects ( These projects are mostly handled by the CSR, engineering or the sustainability division in an organization ( Managing energy, water or waste is the responsibility of the engineers or health and safety oicers However, the environment has become an important consideration for businesses as well as for the accountants now more than ever before in history. It is too important to let the engineers or health and safety oicers handle it by themselves. 1 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Demand for better environmental management There are various reasons that have propelled the importance of the environment for organizations or accountants. They include, but are not limited to; – – – – – – – – – Increasing costs (such as energy, water, materials) that erode the bottom line of organizations Natural disasters associated with global warming such as frequent loods, droughts and hurricanes Other natural disasters such as tsunamis Industrial disasters such as BP oil leak, Bhopal gas leak, Chernobyl disaster and many others Increasing media coverage and growth of social networking that difuse news fast Increasing environmental regulations and associated ines Customers who are conscious on environmental impacts of businesses Shareholders who prefer socially responsible investments Growth of environmental lobbying groups Owing to these reasons, business organizations have to be more prudent and seriously consider environmental impact of their activities. This has challenged the traditional ways in which businesses operated. Yet, if an organization can manage this environmental challenge efectively it will be a source for competitive advantage. Responses of the policy makers Having realized the importance of preserving the environment in economic development, many countries around the globe have created environmental agencies. Given below are few examples. h h h h 2 Environmental Protection Agency (EPA) in the USA European Environment Agency (EEA) in European Union State Environmental Protection Agency in China Central Environmental Authority (CEA) in Sri Lanka Chapter 1 Introduction In addition to these national environmental agencies, there are other global environmental institutions such as United Nations Environment Programme (UNEP). With these initiatives too, the environmental concerns have started to shape the agenda of business organizations around the globe. Emergence of EMA Encouraged and sometimes compelled by the aforementioned reasons organizations pursue various environmental management practices. These practices are aimed at; – – – – – Conserving energy, water and other resources Minimizing solid waste, air and other types of pollutions Maximizing waste management practices such as reducing, recycling and reusing Maximizing the use of environment-friendly materials Conserving biodiversity and supporting local livelihoods In order to support these actions, managers have sought the support of accounting. In this context, a body of practices referred to as Environmental Management Accounting (EMA) has emerged. Status quo of EMA Various researches conducted around the world have revealed that EMA is fast difusing, particularly in developed countries. Despite the growing importance of EMA globally, it is still limited in application in developing or emerging countries including Sri Lanka. There are various reasons for this low level of difusion of EMA in Sri Lanka and other developing countries (refer Chapter 2 for more details). Among them, the lack of managers’ awareness, especially among accountants is signiicant. 3 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises CMA leadership A long time ago, CMA envisioned the important role it has to play in shaping the sustainability (accounting) agenda in the local management accounting profession. It introduced sustainability management accounting into its syllabus which was launched in 2012, for the irst time in a curriculum of a local professional accounting body. It was under the Strategic Level course - Strategic Management Accounting (SMA). In SMA, CMA introduced a novel section on “accounting for sustainability” which includes the following areas; h h h h h h h h h h Sustainable business and triple bottom line movement EMA & social accounting (SA) Accounting for Ecological and Carbon Foot-Printing ISO 14000 and 26000 standards Global Reporting Initiative (GRI) AA1000 Stakeholder Engagement standard SA 8000 standard EMA (scope, techniques, applications, drivers and roadblocks) Sustainability Management Accounting Sustainability Balanced Scorecard (SBSC ) Moreover, from 2010 CMA has been organizing various seminars, workshops and conferences on sustainability management/accounting. These have been highly efective in creating awareness on sustainability among the local managers. This booklet “Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises” is another pioneering efort of CMA to lead the Sri Lankan industries into greater heights in sustainability management and accounting. 4 Chapter 1 Introduction Need for education reforms The role that can be played by institutions such as CMA, will not be suicient to drive the entire country into a sustainability agenda in its development pursuit. The education system of a country can play a vital role in reaching great heights in sustainability or environmental management. Thus, the professional and academic education system should arm future managers with a wider set of skills in the areas of environment, engineering, science and accounting. This requires a holistic and trans-disciplinary approach for sustainability education. It is necessary that accountants learn natural sciences and engineering while engineers are familiar with accounting and other social sciences. It should also be noted that education reforms alone will not be a panacea for all the environmental or sustainability issues we face today or in the future. But, it will be a catalyst in creating the much needed awareness in the minds of corporate decision makers and national policy makers. In this context, management accountants can play a crucial role in sustainability now and in the future. When performing their key functions, i.e. planning, decision making, leading, controlling and performance evaluation, management accountants can embrace (environmental) sustainability in pursuit of a greener planet and a fairer society. 5 Chapter 2 Environmental Management Accounting (EMA) Introduction EMA is an evolving discipline. It is therefore diicult to ind a universal boundary or deinition for EMA. However, there are deinitions that are widely used. Given below is one such deinition of EMA. EMA is The identiication, collection, analysis and use of physical information, on the use, lows and destinies of energy, water and materials (including wastes) and monetary information on environment-related costs, earnings and savings for internal decision making. UNDSD (2001), Burritt et al. (2002) From the above deinition it is clear that EMA provides information regarding − − − − − 6 Energy Water Materials Waste Other environmental related costs, savings and revenues Chapter 2 Environmental Management Accounting (EMA) Further the deinition indicates that EMA provides two types of information for internal decision making, i.e. h h Physical information Monetary information Accordingly, we can identify two types of EMA systems, physical EMA (PEMA) and monetary EMA (MEMA) as depicted below. EMA systems Physical EMA system Provides information on the company’s impact on the natural environment [expressed in physical units] Monetary EMA system Provides information on the impact of corporate activities on economic systems [expressed in monetary units] PEMA information entails consumption of resource and will be expressed in kilograms, liters, cubic meters, joules, etc. MEMA takes place when a inancial value is assigned to PEMA. MEMA can also arise without any relation to physical measures such as license fees and environmental ines. Just assume that you are going to buy a solar panel system for your organization as a part of using alternative sources of energy. Before you purchase the solar panel system, the inancial viability is usually assessed. It is a good example to understand how EMA takes place both in physical and monetary terms. Based on the capacity of the panel and various other factors you can calculate the electricity cost saved due to the installation of these solar panels. These electricity cost savings in units is the PEMA. When you want to identify the amount of money saved due to the panels you will value the units at the existing electricity tarif. The total cost savings you calculate can be identiied and it is the MEMA. 7 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Dimensions of EMA information EMA information provided by these two types of systems may encompass three dimensions: Time frame period being addressed by diferent EMA tools (past, current or future) Length of time frame duration of the period being addressed by EMA tools (short term vs. Long term) Routineness frequency of information gathering (ad hoc vs. routine) Based on these dimensions of EMA information, a comprehensive framework for EMA has been suggested as follows. 8 Chapter 2 Environmental Management Accounting (EMA) Comprehensive EMA framework Environmental management accounting (EMA) Monetary environmental management accounting Routinely generated information Long term focus Material and energy low accounting Environmental capital impact accounting Ad hoc information Environmental Environmentally cost induced capital accounting expenditure and revenues Short term focus Routinely generated information Future oriented Long term focus Ex post Environmental Ex post Life cycle assessment life cycle costing assessment inventories of relevant Post investment of short term Post physical environmental assessment environmental environmental costing impacts investment decisions appraisal Monetary environmental operational budgeting Monetary environmental capital budgeting Environmental long term inancial planning Physical Long term environmental physical budgeting environmental planning Relevant environmental costing Monetary environmental investment appraisal Environmental life cycle budgeting Relevant Physical environmental environmental impacts investment appraisal Life cycle analysis Ad hoc information Past oriented Short term focus Physical environmental management accounting Source: Burritt et al. (2002) 9 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises When you evaluate the inancial feasibility of the solar panel system you will calculate the payback period for the system. It is ad hoc future oriented long term MEMA information. After the installation, on a daily basis the kilowatts of electricity saved is calculated to identify the actual savings made from the panels. It is routine, past oriented physical information for short term decision making. Practical use of EMA As you can see from the above framework, EMA encompasses a wide array of accounting techniques used for internal decision making. Hence, it is not merely an environmental management tool among others, but a broad set of principles and approaches that provide information for the successful implementation of environmental strategies. It acts as an interface between inward focused management accounting and environmental management strategies. In essence, it is a support tool that facilitates environmental management strategies of an organization. Hence, it includes a wide array of accounting practices such as accounting for energy, Material Flow Cost Accounting, environmental capital budgeting, life cycle analysis, etc (refer Chapter 4 for more details). Day-by-day, new EMA practices are being introduced or existing practices are being adopted. 10 Chapter 2 Environmental Management Accounting (EMA) Beneits of EMA As managers and decision-makers, the irst question that comes to your mind would be ‘why should I adopt EMA?’ Following are some reasons: To realize/discover cost savings (at present and in future) To minimize waste To generate additional revenue To comply with regulator requirements To create a goodwill through improved environmental performance To price products accurately To generate a competitive advantage by being ‘Environmentally Friendly’ To have access to international markets easily in which environmental management standards are a prerequisite EMA will provide information to realize costs savings and minimize waste in numerous ways such as, h Housekeeping changes – e.g. continuous accounting on water will reveal leakages/spills which prompts managerial attention and actions h Redesign of processes/products – e.g. Suppose that accounting for waste reveals that bio waste (e.g. vegetable oil) is simply disposed in your organization. Probably you can redesign the boilers to use this oil as an alternative to externally purchased fuel. h Design of processes/products – e.g. when designing buildings to make maximum use of natural daylight and wind, EMA will provide necessary analysis to evaluate diferent options 11 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Additional revenues can be generated through: h Attracting green conscious customers to your business h Sale of waste/by-products – e.g. Some sludge of the sewerage treatment plant can be sold as fertilizer. h Transfer of pollution allowances (carbon credit) – Although “pollution allowances” are not available in Sri Lanka yet, this option is available internationally, and even Sri Lankan companies can participate. h Licensing of clean technologies – Companies can devise their own clean-technologies and have them patented. These can be later licensed to others to earn revenue. It is obvious that EMA adds inancial as well as non-inancial beneits. These beneits can vary depending on the organization, the industry, the country, legal frame work and many other aspects. Considering this wider range of beneits the International Federation of Accountants (IFAC) has developed three categories of beneits as follows. • Compliance Cost-eicient compliance with: – environmental regulation – self-imposed environmental policies Eco-eiceincy Simultaneous reduction of costs and environmental impacts: – eicient use of energy – eicient use of water – eicient use of materials Strategic Position Strategic value creation through EMA: – Embedding EMA information in the organization’s strategy (unique to each organization) Source: IFAC (2005) 12 Chapter 2 Environmental Management Accounting (EMA) Challenges posed by EMA A main reason why most managers shy away from implementing EMA practices is the unwillingness to meet the challenges in EMA adoption. As a result, many types of environment-related cost information are not found in the accounting records and investment decisions are often made on the basis of incomplete information. While the challenges of EMA adoption can be numerous and contextspeciic, some of the common ones are: Lack of proper understanding of EMA Poor communication between accounting and other divisions (these are the divisions that collect environmental information) Diiculties in uncovering environment-related costs “hidden” in overheads Diiculties in tracking materials use, low and cost information using existing systems Diiculties in accurately estimating environment-related costs and beneits These challenges can be overcome by h Creating awareness on the prospects and importance of EMA h Establishing proper communication throughout the organization, especially between accountants, engineers and production managers h Treating signiicant environmental costs such as energy, water, waste, etc separately h Establishing tracking mechanisms that capture environmental costs adequately 13 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Hence, by overcoming these challenges the managers will not only pave way for EMA, but also considerably improve the existing systems of a company and drive it towards greater proitability. The inal challenge, the diiculty in accurately estimating environmentalrelated costs is an inherent limitation of EMA. However, as done for most other inancial estimations, a combination of educated assumptions, foresight and justiiable forecasts can be used to arrive at a reliable estimate. The importance lies more on giving attention to environmental costs and being consistent and sensible in your approach than seeking for absolutely accurate estimates. 14 Chapter Environmental Cost Analysis 3 Introduction “Cost analysis” is central to management accounting and so is it to EMA. Environmental cost analysis lays the foundation for the application of EMA techniques. However, understanding what constitutes environmental costs can be confusing as it can vary from one entity to another depending on how an entity intends to use the information and the scale and scope in which it is used. The ultimate goal of environmental cost analysis is not to develop a universal cost classiication criterion, but to ensure suicient attention paid to all signiicant environmental costs. Frameworks for environmental cost analysis Due to the ambiguous nature of environmental costs, certain institutes have proposed models that support entities to understand their environmental costs by analysing them. This book will focus on two environmental cost analysis frameworks: h Framework of the Environmental Protection Agency (EPA) h Framework of the International Federation of Accountants (IFAC) 15 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises 1. Framework by the Environmental Protection Agency (EPA) Largely adopted by many, the EPA framework for analyzing environmental costs, initially categorizes costs into two: h Usual or direct costs, which receive management attention when making decisions h Other costs that may be obscured from the management eye Since there is no ambiguity about costs that are already taken into account by decision makers the following, the framework by EPA concentrates on analyzing the second category i.e. the costs that are obscured from management attention. Environmental cost classiication by the EPA Potentially hidden costs Upfront Regulatory Conventional costs Voluntary (Beyond compliance) Back-end Contingent costs Image and relationship costs Source: EPA (1995) According to this framework, environmental costs are categorized into three: h Potentially hidden costs h Contingent costs h Image and relationship costs 16 Chapter 3 Environmental Cost Analysis Potentially hidden costs Potentially hidden costs Costs that are hidden from management attention due to being classiied as overheads/R&D or simply overlooked There are several types of potentially hidden costs: h Upfront h Operational h Back-end h Conventional Cost type Upfront Description Incurred prior to operation of a process Operational Incurred while operating a process: can be mandatory or voluntary Back-end Incurred after the operation of a process Incurred while operating a process Conventional* Examples Site preparation, design of eco-friendly products, costs of obtaining permits Mandatory: Environmental taxes/ fees, mandatory pollution control and waste management, record keeping and reporting Voluntary: Recycling, training employees on ecofriendly measures, funds to protect natural systems Decommissioning, disposing inventory, post-closure care Material costs, labour costs, utility costs * Although conventional costs usually draw management attention in decision making, even they may be sometimes overlooked in decision making situations. Hence it is given inside a dotted line in the above environmental cost classiication igure of the EPA. 17 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises These costs can be simply understood by relating to the process’ life-cycle as given below. Manufacturing phase Post-manufacturing phase Pre-manufacturing phase Environmental costs over product/process life-cycle Operational costs Upfront costs Back-end costs Contingent costs Contingent costs Costs that are uncertain, and may or may not incur depending on one or more future events Few examples for these costs are costs to comply with possible legal requirements in the future, costs of possible penalties and remediation measures and possible legal expenses. Since recognizing such costs requires futuristic view on environmental considerations, managers may easily overlook them in the decision making process. 18 Chapter 3 Environmental Cost Analysis Image and relationship costs Image and relationship costs Costs that result in mostly intangible outcomes such as good corporate image, strong relationships with business partners and good public perception Examples for image and relationship costs are costs for community building activities and applying for award programs. Since the outcomes are intangible, the underlying costs are often overlooked by managers. Let’s take a mining company as an example. Under costs that can be potentially hidden, costs of obtaining licenses and planning for energyeicient mining equipments are upfront costs; periodic environmental taxes are regulatory costs; landscaping costs, if any, would be voluntary costs; and costs of restoring the land after the mining is complete are backend costs. Contingent costs of the operation could include compliance with stringent mining regulations in the future and possible legal and compensation costs for pollution-related complaints by inhabitants of the area. Image and relationship costs may include community service activities and public relations carried out. Issues in recording environmental costs There are two practical issues when trying to record environmental costs in an organization as depicted below. Issues in recording environmental costs Scope issue Environmental costs Scale issue 19 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises The irst issue in recording environmental costs is the scale issue which is the level at which the environmental costs are applied/recognized in an organization. It can be applied to a, – – – – – – Process System Product Facility Region Group The second issue is the scope issue which is the number of cost categories included in the analysis and considered for decision making. As per the EPA, conventional costs are the easiest to measure and consider in decision making. However, measurement diiculties and ambiguities gradually increase for hidden costs, followed by contingent costs and image/relationship costs in that order. An organization can enter environmental cost analysis at an easy level, and gradually move onto much diicult areas depending on its capabilities. Ultimately it can even include the much broader and far vague concept of societal costs (i.e. environmental externalities) into the decision making process. 2. Classiication by the International Federation of Accountants (IFAC) The IFAC has attempted to develop an overview of environmental cost classiication by indicating bases for cost categorizations. Accordingly, most environmental cost analysis models, including the EPA framework discussed above, fall into one of the bases given below. 20 Chapter 3 Environmental Cost Analysis Environmental cost categorization bases by the IFAC Type of environmental activity Traditional accounting Cost categorization bases e.g. visible vs hidden e.g. proactive vs reactive measures Data visibility in accounting e.g. material costs vs labor costs Environmental domain e.g. land, water or air The IFAC also provides its own classiication of environmental costs by intigrating some of the above bases. It focucess on the balancing inputs and outputs of a process to ultimately identify six environmental cost catagories as shown in the following diagrams. Balancing inputs and outputs of a process (Mass balance) Inputs Outputs Materials XX Finished goods XX Merchandise XX By-products XX Energy XX Product output XX Water XX Total inputs XX Waste XX Process Emissions XX Non-product output XX 21 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Environmental cost categories by the IFAC Materials costs of product outputs Materials costs of non-product outputs Less tangible costs Environmental costs Waste and emission control costs Research and development costs Prevention and other environmental management costs ( Materials costs of product outputs – Purchase costs of materials that are converted to inished goods, by-products and packaging ( Materials costs of non-product outputs – Purchase and processing costs of materials, including energy and water, that become waste and emissions ( Waste and emission control costs – Costs for controlling, handling, treating and disposing waste and emissions and costs for remedies and compensations for damages ( Prevention and other environmental management costs – Costs for preventing environmental damages such as planning, training, reporting systems and cleaner production methods ( Research and development costs – R&D related to environmental issues and improvement ( Less tangible costs – Image and relationship related costs, contingent costs and externalities It is obvious that the signiicance of this classiication is that waste and emissions and preventive and creative actions are separately highlighted, attracting special management attention to each component. 22 Chapter 3 Environmental Cost Analysis Practical use of environmental cost analysis When looking at the variety of models for environmental cost analysis, particularly the two discussed above, one might wonder which one is the most appropriate. The truth is, there is no such superior model. The management of an organization can decide what to use after considering factors such as the nature of the business, the nature of decisions made, the availability of information etc. In fact, the same organization may sometimes prefer to use diferent models for diferent situations. In addition, as mentioned previously, the management can decide the scale and scope in which environmental cost analysis is done. A common issue that may arise when applying a model in practice is the ambiguity in classiications. Most environment related costs are complex, and it’s natural to feel doubtful as to whether they are actually ‘environmental’. Health and safety costs and risk management costs are some examples. These costs are considered “gray zone costs” and are quite normal to EMA. Gray zone costs Costs that are not completely or clearly “environmental” but may be viewed to have an environmental orientation in part There’s no need to be disheartened by them. Managers can make a decision to classify such costs as environmental or not by agreement, until such time it becomes clear what it actually is. This management decision may be, – – a case-by-case analysis a uniform method (such as “all costs that are above 50% environmental related will be classiied as environmental costs”) The decision depends on the management’s intended use of the costs. Ultimately what matters is whether all signiicant environmental costs are brought to management attention, and not whether they are appropriately classiied. 23 Chapter 4 EMA Tools and Techniques There are various EMA tools and techniques which are developing dayby-day. Some of them are extensions to or adaptations of conventional management accounting tools and techniques while others are newly developed. In terms of sophistication, these tools and techniques range from simple to advanced. In this chapter, we, however, present few of them which are more practically applicable for Sri Lankan industries. These are; h h h h h h 24 Energy and water accounting Material Flow Cost Accounting (MFCA) Capital budgeting Life-cycle costing Activity Based Costing (ABC) Sustainable Balanced Scorecard (SBSC) Chapter 4 EMA Tools and Techniques 1. Energy and water accounting Energy is a signiicant component of costs for most organizations, but the attention it receives from the management may not be as signiicant. The same applies for water. However, keeping close track of energy and water, both in physical as well as monetary terms, can create value to an organization. It will also be an initial step towards adopting more complex EMA tools and techniques. Energy and water accounting Speciic measures for identifying, quantifying, valuing, recording and communicating the usage of energy and water within an organization How to account for energy and water There is no uniform method to account for energy and water. The motive is to identify, record and communicate the information in such a way that it is well considered in the decision-making process. Following are some suggestions: ( Insert separate meters for energy and water for each signiicant process/product/service. ( Develop procedures for regular data collection, measurements and valuation. e.g. usage of furnace oil by the boiler per day and the resultant cost per day ( Create separate accounts for diferent sources of energy in the accounting information system (designate unique codes for each fuel type in the chart of accounts if possible) ( Input invoices on energy and water separate from aggregated overhead and other costs ( Develop reporting practices on energy and water, inclusive of trend analysis, variances and benchmarking 25 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Beneits in accounting for energy and water “What gets measured gets managed” Peter Drucker The simple act of monitoring/measuring water and energy consumption in your organization on a routine basis, will help you make connections you never did before. Knowledge and information is a pre-requisite to controlling and improving anything, and so it is for the usage of energy and water. Energy and water accounting supports to: ( Identify processes with high usage and/or wastage in order to minimize if possible ( Identify instances of abnormal usage and identify reasons and/or apply remedies ( Identify the key drivers behind energy and water usage ( Decide on strategies to improve energy eiciency and minimize water usage ( Achieve employee discipline by serving as a control mechanism ( Provide inputs for the adoption of complex EMA tools and techniques Some simple energy and water saving ideas: ¾ Carry out an energy or water audit* to identify consumption patterns and potential for savings ¾ Use energy-eicient lighting ¾ Insulate walls/roofs/boilers ¾ Do routine checks for leakages in pipes/lines carrying water/energy ¾ Train staf on energy and water saving practices such as switchingof lights/air conditioners/computers and closing taps when not in use ¾ Appoint responsible persons for energy and water saving in each division/area ¾ Keep a suggestion box to gather employee ideas about new energy and water saving methods ¾ Devise a program to get the involvement of your suppliers, customers and other stakeholders in saving energy/water, whenever possible *An energy/water audit is an exercise of monitoring the current energy/water consumption pattern of an organization over a period of 2 – 3 weeks and analyzing the patterns. 26 Chapter 4 EMA Tools and Techniques 2. Material Flow Cost Accounting (MFCA) ISO 14051: Material Flow Cost Accounting (MFCA) was released in September 2011. MFCA approach has been developed mainly in Germany and Japan over the years and is now applied around the world fuelled by the release of the new ISO standard. MFCA is A tool for quantifying the lows and stocks of materials in processes or production lines in both physical and monetary units Kokubu & Kitada (2012), Strobel & Redmann (2002) MFCA is an essential instrument of the new management approach referred to as the Flow Management. In low management, enterprise is understood as a system of material lows. Diferent forms of materials enter this system (even energy is considered as materials as it is often in a material form, for example coal, oil or gas). The system then generates desirable output and undesirable residues. These undesirable residues are undesirable from both environmental and economic view points. MFCA quantiies material lows and stocks in a process or processes in terms of both physical and monetary units. As MFCA methodology is based on the principle of material balance (mass balance), it is implied the amount of input materials could be consistent with the sum of desirable and undesirable output. In other words it is based on the principle that “what comes in must go out - or be stored”. The following igure illustrates this argument. 27 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Materials balance in an organization Raw & auxiliary materials Packaging materials Air emissions Merchandise Operating materials Products, By-products Water Waste water Solid waste, hazardous waste Source: IFAC (2005) In MFCA approach, the non product output is referred to as negative output also. This mass balance can be presented in the following table. Mass balance in a typical organization Materials inputs Raw and auxiliary materials Packaging materials Merchandise Operating materials* Water Energy Product outputs Products (including packaging) By-products (including packaging) Non-product outputs (waste and emissions) Solid waste Hazardous waste Waste water Air emissions Source: IFAC (2005) Materials that do not become part of products, e.g. cleaning solvents and chemical catalysts, are referred to as operating materials. * 28 Chapter 4 EMA Tools and Techniques Steps of MFCA The general procedure of MFCA comprises three steps: Step 1 Creation of low model Step 2 Physical quantiication of lows Step 3 Monetary quantiication of lows Creation of low model As the irst step of MFCA a low model is created. A low model displays the sequence of production with the corresponding material lows and loss lows of the system under consideration. This low model clariies where and how much material loss is generated. Physical quantiication of lows Once the low model is created, the next step is to determine the physical units on a quantitative basis. In this stage, waste (material loss) is recognised as negative product as explained previously. Monetary quantiication of lows Based on the physical quantiication of lows, the next step is to cost the material lows. The costs of a particular process are allocated to the output material lows of this process. In order to calculate the variable costs, cost drivers are speciied using an Activity Based Costing approach. 29 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Application of MFCA Let’s look at the following example to understand the costing principles underlying MFCA. A company manufactures a inal product (X) by using one type of raw materials (A) in its process 1. The following details are relevant for the process 1 for the month of June. – Material inputs - 200 kg – Estimated (normal) Waste – 10% of input materials The actual costs incurred for the month of June: – Material cost - Rs. 30,000 – Processing cost (labour and overheads) Rs. 24,000 Cost of product X and waste in conventional (process) costing In traditional (process) costing an expected diference between input and output, is sometimes permissible and is deemed as “an inevitable loss” or “normal loss”. Even if waste is visible, the cost of that waste is usually ignored in conventional (process) costing. This amount is automatically included in the cost of output (inished products). In such a system the cost per unit is calculated as follows: Cost per unit = Total cost / expected output Where expected output is the diference between input and expected loss. Cost per unit of X = (30,000+24,000)/ 200-10% (200) = Rs. 300 per kg Accordingly, the cost of output The cost of the waste 30 = 300*180 = Rs. 54,000 = Rs. 0 Chapter 4 EMA Tools and Techniques Cost of product X and waste in MFCA However, in MFCA, waste is considered to be another product (negative product). It is allocated costs in the same way as good output. Cost per unit = Total cost / total output Where total output is the sum of the good output and negative output (waste). Cost per unit of X = (30,000+24,000)/ (180+20) = Rs. 270 per kg Accordingly, the cost of output The cost of the waste = 270*180 = Rs. 48,600 = 270*20 = Rs. 5,400 From the above illustration it is clear that in traditional (process) costing, the cost of the good output is overstated. This is because the cost of the waste is absorbed by the good output. Consequently, the waste is not given any cost and it is not highlighted for the attention of the management. However in MFCA the cost of the waste is immediately brought to the attention of the management for the requisite actions. 31 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Beneits of MFCA The beneits of MFCA can be evident from economic and environmental perspectives as shown below. MFCA Beneits Economic beneits Environmental beneits Decisions can be made to reduce the Reduces the consumption of materials material consumption and improve the and energy and the waste lows going eiciency of the production process. out of an organization Illustration of a practical application A company that manufactures activated carbon using coconut shells has three processes, viz., pre-activation, activation and post-activation as depicted in the next page. In the pre-activation process, the dried and cleaned coconut shells are irst crushed into smaller pieces. The product output, i.e., crushed coconut shells, go to the next process while the non-product output, i.e. water, undersized coconut shells and heat, go out of the systems. Then in the next process, activation process, the carbon is activated in a kiln at a very high level of temperature. The activated carbon (product output) goes to the next process while moisture and heat (non-product outputs) go out of the system. In the post-activation process, carbon is processed for diferent kinds of uses by adding energy and chemicals. For example, if a customer requires Granular Activated Carbon (GAC), it has to be processed to a sand-like product with grains bigger than Powdered Activated Carbon (PAC). If a customer requests impregnated carbon, elements such as silver and iodine will have to be added. As non-product outputs, undersized activated carbon and used chemicals go out of the system. The mass balance can be applied for diferent processes involved (pre-activation, activation and post-activation) and for diferent items used (coconut shells, energy, chemicals). For example, it has been identiied that only one third of coconut shells that enter the system is derived as inished product while the rest goes out of the system as non-product outputs. 32 Chapter 4 EMA Tools and Techniques Mass balance for carbon activation process Cleaned and dried coconut shells Energy Moisture/ Undersized coconut shells/ Heat/Tar Preactivation Moisture/ Heat Activation Energy Undersized activated carbon/ Used chemicals Postactivation Finished Energy + Chemicals product 33 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises 3. Capital budgeting Capital budgeting, which includes the process of planning and making decisions on a irm’s future capital investments, is a familiar process for most organizations. Traditional capital budgeting techniques typically compare the inancial costs of an investment against the inancial beneits. Following are some common examples of capital budgeting techniques: h h h h Net Present Value (NPV) Payback period/ Discounted payback period Internal Rate of Return (IRR)/ Modiied IRR (MIRR) Proitability Index (PI) However, most managers fail to account for environmental considerations when calculating costs and beneits as input for these techniques. Environmental capital budgeting The process of capital budgeting in which, potentially hidden, contingent and image-related costs and beneits are considered. Steps of environmental capital budgeting To incorporate environmental costs and beneits, the following steps can be followed: Step 1 Identifying the environmental impacts of the investment Step 2 Physical quantiication of the impacts Step 3 Monetary quantiication of the impacts Step 4 34 Incorporating monetary quantiications to the usual calculations under capital budgeting Chapter 4 EMA Tools and Techniques Step 1 Identifying the environmental impacts of the investment (both positive and negative) Since many environmental costs and beneits accrue in the long-term, it is advisable to select a considerably long time-horizon to identify most of the environmental costs and beneits of the projects. If organizations already have established environmental information systems or procedures (E.g. accounting for energy, water, waste, etc), the identiication of potential costs and beneits would require less efort. Some simple energy and water saving ideas: ¾ High material yield ¾ Low energy use ¾ Low waste to be treated/managed ¾ Lower cleaning costs ¾ Savings on potential penalty costs ¾ Savings on potential environmental damage restoration ¾ Savings from sale of scrap/waste/by products ¾ Contribution to company/brand image Steps 2&3 Physical and monetary quantiication of the impacts While physical and monetary quantiication is easily applicable for many environmental costs and beneits (e.g. Value of energy saved, cost of restoring damaged sites), it may be diicult for some others (e.g. Improvements to the image). This diiculty in quantifying is explained in detail in Chapter 3. For capital budgeting purposes, the costs and beneits that are diicult to quantify can be qualitatively analyzed and reported. 35 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Step 4 Incorporating monetary quantiications to the usual calculations under capital budgeting When selecting capital budgeting techniques, it is desirable to use techniques that consider time-value-of-money, (such as NPV or IRR) because of the longer time periods involved. The quantiied environmental costs and beneits should be incorporated into the normal incremental cash lows of the project. The resultant igures/ratios can then be interpreted and reported to the management along with an analysis on non-quantiiable items. Beneits of capital budgeting with an environmental orientation The beneits of environmental capital budgeting can be evident from economic and environmental perspectives. Environmental capital budgeting 36 Financing beneits Decision beneits Operational beneits Faster, easier approvals of capital investment plans due to increased trust by fund providers, regulators and host communities More informed decision making (i.e. full costs and beneits considered) compared to traditional capital budgeting Management attention given to potential operational cost savings and revenues from environmental initiatives in longterm plans Chapter 4 EMA Tools and Techniques 4. Life-cycle costing Life-cycle costing is a costing technique used in the design phase of a product/process to identify the cost over its entire lifetime. Hence, in life-cycle costing up-front, operational and back-end costs will be considered. This includes capital costs, installation costs, operating costs, maintenance costs, and disposal costs discounted over the lifetime of a product/process. Mere life-cycle costing will not by itself lead to improved environmental performance. For that, an environmental focus is required. The same process can be used for identifying environmental costs attached to a product/process. Environmental life-cycle costing A systematic process for evaluating the life-cycle costs of a cost object (product, product line, process, system, or facility) by identifying environmental consequences and assigning measures of monetary value to those consequences Incorporation of environmental costs/beneits in life-cycle costing can be done in two ways: Environmental life-cycle costing Considering environmental costs/ beneits as part of the total lifecycle costs Considering environmental costs/ beneits over the life-cycle in isolation Considering environmental costs/ beneits over the life-cycle in isolation Incremental value creation/ destruction 37 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Steps of environmental life-cycle costing Environmental life-cycle costing is conducted in three main stages as shown in the following diagram. This can be considered as a repetitive cycle as well. Step 1 Life-cycle inventory (data collection) Step 3 Step 2 Improvement analysis (company response) Impact assessment (environmental evaluation) Step 1 Life-cycle inventory In this stage, the product/process is reviewed to identify and describe resources, emissions, discharges and disposals throughout its life. The life of the product will typically include raw material acquisition, manufacturing, distribution, use/reuse/maintenance and disposal/waste management. The concept of mass balance can be used to identify the inputs and outputs. Step 2 Impact assessment Once the data is collected, the environmental impacts can be assessed. For this, a matrix with quantitative values or qualitative descriptions can be used. Below is an example of such a matrix: 38 Chapter 4 EMA Tools and Techniques Environmental imapact matrix Disposal Utilization Distribution (including packaging) Production Product life-cycle Pre production Environmental ields Waste relevance Soil pollution and degradation Water contamination Air contamination Noise Consumption of energy Consumption of natural resources Efects on echo systems Source: Gray et al. (1993) When conducting this assessment, you will notice that the life cycles of other products may also be linked to your product. For example, in printing a book, the ink is a material which has its own life-cycle and in the ink’s life-cycle, certain dyes and chemicals will be raw material which will have their own life-cycles as well. Hence, you will have to decide the boundaries based on materiality and signiicance before conducting the impact analysis. 39 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises In addition, the environmental impacts can be deined at diferent scopes such as private costs and societal costs (refer Chapter 3 for details). You will have to decide the scope you want to apply based on feasibility and relevance. Step 3 Improvement analysis Life-cycle cost assessment can then be used to evaluate options for reducing total life-cycle costs and optimizing the use of resources. Some examples for possible improvements are: h h h h h h Reducing raw material usage Increasing energy eiciency Reducing emissions and waste Less packaging Recycling and waste management options Cleaner production technologies Beneits of environmental life-cycle costing Beneits of life-cycle costing would be of two folds: Environmental life-cycle costing beneits Planning beneits By considering the environmental costs and beneits over the complete life-cycle, potential improvements can be identiied and implemented in the product/process design stage itself 40 Funding beneits Approvals of capital investment plans will be faster and easier due to increased trust by fund providers, regulators and host communities Chapter 4 EMA Tools and Techniques 5. Activity Based Costing (ABC) Traditionally, assignment of overhead costs to diferent objects (such as products and processes) of a company was conducted based on a uniform overhead allocation rate system which is known as traditional absorption costing. Overtime, with the changes of business environment, absorption costing was considered too arbitrary, and received much criticism. In this regard, Activity Based Costing (ABC) has emerged as a better mechanism to relate overhead costs to cost objects based on a clear cause-efect relationship. This is achieved by pooling costs into diferent activities and allocating them according to the use of those activities by diferent cost objects. However, environmental costs have continued to remain or hidden in a general overhead cost pool in most instances without being allocated based on a cause-efect relationship. If the environmental cost component is signiicant, this may lead to improper cost allocation where one product may bear costs greater than warranted, while another less than its actual contribution. The ultimate result of this misallocation would be: – – Poor product pricing, which can afect turnover and proitability Poor cost information, which can lead to inaccurate decision making If environmental costs are pulled out of overhead and allocated only to product/products that trigger these costs using appropriate cost drivers, these issues would be minimized. 41 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Steps of ABC The process of ABC can be conducted in ive steps: Identify cost objects/products Identify signiicant activities the objects pass through Identify total resources/expenses incurred Pool total expenses to identiied activities using identiied resource drivers Allocate activity costs to cost objects using identiied activity drivers Application of ABC for environmental costs The allocation of environmental costs using ABC principles can be demonstrated through a simple example. Let us assume that an entity engaged in manufacturing garment products produces two types of garments. Garment A: No dye inish required Garment B: Color-dyeing required The entity has the following costs under its general overhead pool: Building rent Head-oice administration Audit fees Disposal of chemicals 42 Chapter 4 EMA Tools and Techniques Under traditional overhead costing, all these costs would be pooled together and allocated to Garments A and B as follows: Building rent H/O admin. Chemical disposal Audit fees Overhead Direct labor & material for Garment A Garment A Garment B Direct labor & material for Garment B However, if the chemical waste is created only from the color dyeing process, the chemical disposal cost would arise only for activities relating to Garment B. Hence this improper cost allocation has overestimated the cost of Garment A and underestimated the cost of Garment B. Using ABC, the environmental costs can be segregated and applied to the relevant cost category as follows: Building rent H/O admin. Cutting Direct labor & material for Garment A Stitching Garment A Chemical disposal Audit fees Garment B Dyeing Direct labor & material for Garment B It is clear that by using ABC, the cost allocation becomes more relevant and accurate. 43 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Beneits of ABC for environmental costs The issues with traditional costing highlighted previously can be overcome by applying ABC to the costing of products. ABC beneits 44 Pricing beneits Operational beneits Since only relevant costs are considered in costing products, the pricing will be more realistic Since environmental costs are highlighted, managers will be motivated to ind creative alternatives that lower environmental costs and enhance proitability Chapter 4 EMA Tools and Techniques 6. Sustainability Balanced Scorecard The Balanced Score Card (BSC) provides a lexible approach to address many of the sustainability issues of an organization. As per the original work of Kaplan and Norton (1992), BSC encompasses four perspectives, namely, inancial, customer, internal business and learning and growth. It is argued that these four perspectives should only act as a template which facilitates necessary adjustments. Taking this view, BSC has been suggested as an efective tool to incorporate economic, social and environmental dimensions which led to the development of Sustainability BSC (SBSC). Sustainability Balanced Scorecard ¾ integrates the three pillars of sustainability into the mainstream strategic management process ¾ makes possible to take into account non-monetary strategic success factors that signiicantly impact the economic success of a business ¾ improves social and environmental accountability by explicitly including performance metrics How to prepare a SBSC? There are three ways to integrate environmental (and social aspects) into a conventional BSC to make it a SBSC. Integration of environmental (and social) aspects to the existing four standard perspectives. ii. Addition of a ifth perspective to consider environmental (and social) aspects. iii. Formulation of a speciic environmental (and/or social) scorecard. i. 45 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises i) Integration of environmental (and social) aspects to the existing four standard perspectives Under this approach it is necessary to integrate environmental and social aspects to the four perspectives through respective strategic themes, namely economic, environmental and social. The following diagram demonstrates this integration. Integrated environmental (and social) aspects to the existing BSC Financial perspective Customer/ stakeholder perspective Internal business processes perspective Learning & growth perspective Economic Social Strategic themes (Triple bottom line) 46 Environmental Chapter 4 EMA Tools and Techniques ii) Addition of a ith perspective to the existing four standard perspectives Under this approach, a ifth perspective, called non-market perspective is added to the existing BSC to integrate environmental and social aspects as shown below. Fifth dimension to the existing BSC Non-market (environmental and social) perspective Financial perspective Customer/ stakeholder perspective Strategy Internal business perspective Learning and growth perspective Note: The non-market perspective does not incorporate all sustainability oriented objectives and indicators of the business, but only non-market issues that cannot be covered in the conventional perspectives. 47 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises iii) Formulation of a speciic environmental (and/or social) scorecard Under the third approach, an environmental (and/or social) scorecard can be developed separately. However, it should be noted that the new environmental (or social) scorecard cannot be developed in parallel to the conventional scorecard. Hence, it should be an extension to the two approaches discussed previously and not an independent alternative for integration. Conclusion The chapter described few, yet, important EMA techniques and tools. If an organization is already using some of them you can modify those to incorporate environmental considerations. If not, you can gradually start adopting them. As the information provided by these tools and techniques are used for internal reporting you can be explorative or even adventurous in your approach. With your own leanings and insights and with the developments in the ield, you can perhaps develop your management accounting information system over time. What is essential is the irst step in your long journey of EMA. 48 Chapter 5 EMA Success Stories The purpose of this chapter is to demonstrate how some organizations in Sri Lanka adopt and successfully sustain various environmental management practices while supporting EMA. Cleaning up the unwanted costs: Successful waste management by a hotel The Case Hotel (referred to as the Hotel in Negombo) belongs to a prestigious hospitality group in Sri Lanka and is considered one of the pioneers of sustainable tourism in the country. The group commenced operations 40 years back in Negombo, an area known to be a key tourist hot spot in Sri Lanka. The hotel was awarded the 5-star certiicate in 2012. Environmental practices The Hotel in Negombo employs a “Naturalist” who is responsible for the areas of waste and water management. The hotel follows the waste management hierarchy (i.e. waste reduction, waste re-use, waste recycle and waste disposal) in managing its waste. 49 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises “Water management initiatives focus on both engineering and behavioral aspects” As the most desirable form of waste management, waste reduction, is an important practice that allows hoteliers to avoid waste at source. In managing the supply chain the hotel gives priority for the suppliers who follow sustainable practices, especially suppliers who avoid secondary covers and excess packaging of the goods. In addition, the hotel displays notices at receiving bay notifying a strict principle on usage of polythene when supplying raw materials. To support this, the staf has been given plastic crates to bring vegetables and other supplies from the market. The hotel reduces the use of plastic bottles (non-degradable material) with the installation of the bottle puriication and reilling plant. Moreover, the hotel uses wooden display boards, wooden cocktail stirs in order to avoid plastic straws as much as possible. As a green building practice, environmental friendly, easily degradable clay tiles have also been used instead of ceramic tiles after considering life cycle efects of the usage. Waste reduction is witnessed in managing water as well. These water reduction practices can be identiied as engineering and behavioral practices. The engineering practices represent the technical aspects used for reduction of water consumption and include the use of lowlush ittings, dual lush in cisterns, low lush shower heads, faucet aerators and dip rinsing technique for cleaning dishes. Behavioral practices represent the actions aimed at changing the behavior of employees and guests and include awareness and training programs. In changing the employee behavior, the hotel conducts programs that are aimed at highlighting the importance of sustainable use of water by educating them of the basics of eicient water use, water puriication, costs of water service and importance of water conservation. The water savings from various initiatives are rewarded back to staf welfare fund. In an attempt to get the support of the guests for water conservation, the hotel exhibits displays and quotes in diferent places such as tissue paper dispensers, bathrooms and rooms. The behavioral changes have contributed signiicantly towards water savings without any signiicant investment. Moreover, the hotel uses a Green Directory2 as a powerful 2 50 A book that contains various environmental information of the hotel Chapter 5 EMA Success Stories tool that conveys the sustainable practices of the hotel to guests to receive acceptance. Waste re-use is also an integral policy in waste management of the hotel. Hence, as the irst step for efective waste re-use, the hotel categorizes the waste. The hotel generates diferent types of waste, namely, solid waste, wet waste, hazardous waste and liquid and oil waste. Considering the above material types, solid waste is further categorized and separately collected as glass, metal, paper and plastic in a small store room, named “Resource Center”. 50% of the wet waste is reused by a local piggery farmer for which, the hotel does not have any disposal cost. Oil waste is reused by selling to small vendors who manufacture detergent- powder-related products. Other solid waste such as metal and wood has been used to create ornaments and decorations for the hotel. The hotel has established two Sewerage Treatment Plants based on Aerobic and Anaerobic methods. The recycled water from the plants is re-used for gardening. In addition, the hotel has installed rain collectors in each building that is re-used for hotel’s pond as a means of rain water harvesting. Waste recycling is an option for waste which is not re-usable. The hotel has set-up a compost producing machine, which recycles 50% of the wet waste. The compost generated by this machine is used for the hotel’s organic and general gardening. Moreover, the compost is being distributed among schools and other charities as a CSR project. The hotel chooses to dispose waste only if there is no other way to reuse or recycle. Hazardous and toxic substances are properly disposed taking health and environmental aspects into consideration. The housekeeping department of the hotel has to obtain the MSDS certiicate (Material Data Safety Sheet) for chemical waste disposal. Waste water is disposed only if it is hazardous and cannot be used after any treatment. The disposal of hazardous toxic waste water is carried out through the municipal council. 51 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Supportive accounting practices “Engineering division plays a major role in the EMA system with the help of the Naturalist” In order to support these practices the hotel has a sound EMA system in place. The EMA system of the hotel collects and measures water and waste data (both monetary and physical) and calculates integrated performance measures for reporting. The physical information includes carbon foot print, water units for each of the department, number of waste bins issued for piggery farmers, number of wet waste bins issued for compost machines, kilograms of e-waste, kilograms of waste paper, kilograms of glass waste, etc. The monetary information includes the income from waste sold, monthly water bill, chemicals and operating costs of composting machine and sewerage treatment plants. Some of the integrated measures include monthly water consumption per occupied room, monthly water consumption per guest, percentage of waste recycled and percentage of annual linen discarded. Engineering division plays a major role in the EMA system with the help of the Naturalist. In addition, the Naturalist is responsible for waste related data. Environment related projects such as compost machine and solar panel systems that involve considerable capital expenditure are evaluated based on pay-back period. The engineering team is predominantly involved in identifying costs and incomes of new projects due to technical sophistication. However, the accountant takes part in attributing inancial values together with the engineer. The hotel conducts three main sustainability meetings. These meetings are daily morning meetings, monthly green directory meetings and engineers’ meetings. These meetings provide and shape the reporting frequency and the structure of environmental information. 52 Chapter 5 EMA Success Stories he way forward Voluntary certiications such as ISO14001 and establishments of posts such as Naturalist/Environmentalist airm the holistic implementation of waste management in the hotel. However, these practices face many challenges. Main sources of solid waste and waste water are attributable to guests and employees. In this situation convincing the guests is challenging where some guests do not respond to the concept of sustainability. Although employees are aware of the practices, they tend to neglect under less supervision. However, with the continuous commitment of top level management and the support of internal and external stakeholders, the hotel in Negombo is showcasing its passion for environmental conservation. 53 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Information is the key: Environmental management triggered through information low in a printing company This printing company was founded in 1979, as a company engaged in adding value to tea products by shipping tea in a pre-packaged form. Later, the company diversiied into printing areas such as cartons and labels, tea bags, tags, prepaid phone cards and other digital media services. Currently the printing company serves customers in all ive continents. Few of its major customers are MAS Holdings, Tesco, McDonald’s and Marks and Spencer. Environmental practices “he company believes that the work force is the key to waste management” 54 Environmental management is at the forefront of the company and is relected in its top down management approach, performance evaluation system, comprehensive information system, continuous awareness programs, and involvement of green teams. The company follows a top down approach to implement sustainability practices in the organization. The sustainability committee, with representatives from each section of the company and headed by the managing director, is involved in improving the sustainability performance. Further, they ensure that ‘continuous monitoring and evaluation’ is part of their sustainability targets. Another strategy followed by the company to sustain environmental management practices is to link its performance evaluation system to production waste. e.g. the engineering team has to make sure that the machine break down is below 2% of its running hours. Chapter 5 EMA Success Stories The sophisticated information system of the company also plays a key role in sustaining these practices. Following are some examples to this end: – – – The ERP system of the company is the main information system that assists the waste management initiative. It automatically calculates the waste percentages to each order and this percentage will be used as a key performance indicator for the production section of the company. During the year 2013, the company has implemented a paperless ordering system, in which purchase orders are generated automatically and emailed to suppliers. This paperless ordering system has saved a signiicant amount of paper usage at the oice premises. The company monitors the usage of water by auditing all the processes that use water. Separate meter readings are done for water. Following the company’s belief that the work force is the key to waste management, it ensures that they posses required skills andknowledge to perform activities. Environmental Audits are performed to keep employees vigilant. The incentive policies are managed so that the employees will be awarded on the basis of their environmental performance. Moreover, employees are nurtured to be environmentally friendly leaders. Another major trigger point of the company is the forming of a “Green Team” which is responsible for operating ISO 14001 requirements, generating new innovative ideas to manage waste and discussing the progress of environment related activities. The team meets periodically to discuss the upcoming issues in terms of environmental impact. An incentive scheme is in place to recognize new ideas; in 2012, a group of employees were awarded for the idea of a new heating system. “Information needed for valuing waste is generated through the ERP system ” 55 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Supportive accounting practices As explained earlier, the company pays signiicant attention to cost saving by focusing on adopting a comprehensive waste management system through reducing, reusing and recycling of waste. The company’s information systems keep records of various types of waste materials which are generated within the company. These waste streams are separately measured with the help of an EMA system. Further, the company clearly identiies diferent types of waste streams generated and there is a well-deined management process in place for these wastes. Some waste types are: paper and cardboards (4% sold for reuse, 96% recycled), polythene, plastic, used ofset plates and scrap iron (recycled), shredded boards and contaminated cotton waste (discarded), paper cores, golf foil and waste oil (sold for reuse), iron barrels, tins, used blankets, wooden pallets, hardboard, scrap machine plastic pallets (sold for reuse). The company also keeps record of the costs incurred for waste management activities, further demonstrating the use of monetary EMA information. For instance, it has incurred a total of Rs.2,262,060 for protecting the environment in the inancial year 2013 out of which Rs.1,521,089 was for upgrading the new treatment plant. The company’s accounting for waste thus relects monetary and physical EMA systems as accounts are kept in both inancial and physical terms. In addition, the company’s ERP system calculates the average waste expected based on historical trends. Extra material is decided based onnthis average waste rate. Thereafter, it is the duty of the factory manager to ensure that this waste is not exceeded. If the order was performed below waste levels for ive consecutive instances, then the average waste rate is reduced with an aim of reducing more waste. All these waste management initiatives are enabled by the company’s EMA practices that include accounting for material, energy, water, oil, waste etc. The Sustainability Report published by the company is a reporting mechanism that takes into account environmental, social and economic impacts of the company. 56 Chapter 5 EMA Success Stories he way forward The printing company has successfully incorporated Environmental Management through mechanisms such as ISO14001 and Green Teams. Top management involvement and the sustainability embedded strategies are signals of continuing success. Implementation of an ERP system and automated data related to waste has assisted physical and monetary accounting of environmental activities. The EMA system not only provides physical and monitory information, but also links rewards to performance and supports environmental reporting. Nevertheless, better cost classiication, consideration of a wide array of investment appraisal techniques for Environment capital decisions and sophisticated cost accounting tools such as ABC and carbon footprint accounting could further enhance the EMA system. Spotlessly proitable: Cleaner Production(CP) approach to environmental management by a news paper printer The News Paper Company, which was established in 1979, currently publishes six news papers, ive weekly papers and ive magazines claiming over 70% of the market share. The factory is one of the two factories available for the country’s market leader in news papers. The factory under discussion accounts for 80% of the News Paper Company’s demand and is located in a residential area. Apart from several news paper industry awards, company has secured National Cleaner Production Award in many occasions including numerous other productivity and waste management awards continuously. Environmental practices and related accounting practices The factory practices Environmental Management through a Cleaner Production approach. The main elements in this regard are 3R concept, 5S concept, Kaizen, Quality Circles and Root Cause analysis. A major focus has been given to waste reduction strategies and most of them are triggered by employees under Quality Circles. Quality Circles are equipped with well trained personnel, and include brainstorming sessions, awareness programs and intensive training. As a result of these 57 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises “Sub metering system for water provides information for input-output balance” strategies, the factory has reduced the waste rate to 3% while the industry average is at 4.5-5%. Physical accounting comes into play when measuring and keeping records of resource usage and waste. Monetary accounting is also considered an integral part as a means of attributing value to waste, a base concept in CP. All initiatives are hence evaluated based on the inancial savings they derive. In 2012, the factory has saved Rs.38.5 mn and 76.2% of that amount is directly attributable to CP eforts. Few of the initiatives and strategies implemented under the Cleaner Production concept are discussed henceforth. – The company focused on the largest component of waste, the “newsprint” which is the main raw material in the production process. Through Quality Circles, they established a target to reduce the Newsprint waste by 10%. Accordingly, through the brainstorm activity various suggestions were proposed and ultimately implemented, namely notifying the factory staf to be mindful when handling the material in the process and displaying notices, reducing the amount of operator faults in machine handling, providing training to the factory staf to improve their skills and capabilities and so on. Ultimately the factory was able to achieve a saving with regard to material news print reel butts amounting to Rs.6,578,628. – Company experienced savings from “Computer to Plate dimension” by requesting customized CTP of 720 x 576mm from suppliers instead of the standard CTP which comes in the size of 750 x 576mm. This has reduced the CTP material consumption by 11% in 2012. – Another successful efort was to introduce a CTP baking machine that makes a CTP cable of printing 300,000-500,000 news paper copies after baking compared to 100,000-125,000 copies from a non-baked CTP. This efort resulted in a 29% saving in material cost of CTP. – Moreover, after some studies, the company reduced the diameter of the reel butt to 130mm from the global standard of 140mm. This resulted in saving in white paper whereas under the previous condition, 30 to 35 copies of good news papers are lost from each paper reel. In addition, company has replaced the ink spray guns with ink injectors which have reduced the ink waste as well as damage to nearby machines. 58 Chapter 5 EMA Success Stories – Further, the management of the Printing Plant has instructed the operators to remove the damage paper from the paper reel manually without using the damage removal machine and limit it to a maximum of one or two rounds from one reel. Management conducted training programs to introduce minor strategies to improve the efectiveness and eiciency, such as training fork lift drivers to eliminate the damages caused to the paper reel when unloading from the container and reilling the container with newspapers. Competitions are organized between two shifts of the staf to encourage continuous improvement in eicient material usage. These strategies too, resulted in a signiicant quantity of material savings with less technical and inancial investments. In the area of water management, company aims to reduce the water consumption from national water supply by fulilling 43% of the requirement using tube well. Sub meter system has been ixed to accurately measure the water usage of each activity which in turn could be used to balance the water input and output and identify any deviation. In addition, the printing plant established a water treatment plant to purify the contaminated water of the printing process. With this plant, the company was able to purify 120 cubic meters of water, which is valued at Rs.88,800 in 2012. This water is reused in gardens, washing and cleaning activities. Other initiatives aimed at water management are water control system for urinals (1,616 cubic meters of water saved valued at Rs.121, 217 in 2012), collecting air condition condensing water for gardening and washing vehicles (265 cubic meters of waste water per year), replacing ball valve showers with conceal valve showers in rest rooms (127 cubic meters of water saved valued at Rs.9,112 in 2012), “Buildings are designed to maximize natural ventilation and lighting” As a reduction strategy in the area of energy, a large amount of electricity is being saved as it uses natural lights during day time. Moreover, the printing facility also uses natural ventilation within the premises. 59 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises he way forward Whilst the company has secured tangible improvements in the area of Environment management through CP approach and being accredited as a ISO14001 company, going forward, it could focus on energy management through ISO50001 standard. Moreover, carbon foot print could also be measured and the company can incorporate carbon foot print related targets as well. hey’re cool, they’re hot, and they’re economical: Successful energy management by a hotel The green hotel presented here is a spa resort of distinctive elegance, designed by a renowned architect in the west coast of the country. The hotel envisioned a greener future and sustainable tourism, long time back. Being a preferred tourist destination for most of the nature lovers who visit Sri Lanka, the hotel has earned a prestigious name for its best environmental management practices. Environmental practices Environmental practices adopted by the hotel could be mainly looked at from diferent aspects such as ventilation and air conditioning operations, lighting, catering and use of alternative energy sources. Ventilation and air conditioning is important to the hotel as 53% of the hotel’s electricity bill is accounted by air conditioning. Hence numerous strategies aimed at reducing the electricity consumption have been implemented by the hotel. Conventional air conditioning process has been replaced with a “Chilled Water System” that drastically reduces the electricity usage albeit the comparatively high initial capital. Moreover, “Intelligent Thermostats” have been connected to every room’s motion sensor which detects the room occupancy and activates an “occupied temperature” or an “unoccupied temperature”. The occupied temperature would be activated with the sense of occupancy i.e. the temperature preferred by the guest. When the room is unoccupied, the 60 Chapter 5 EMA Success Stories unoccupied temperature would be activated which the suitable humidity and air quality set by the property management. Though the resulting reduction in energy consumption using such a system is not immediate, it is signiicant. Wooden blinds in guest rooms also aims at preserving the cool atmosphere in the room which would lessen the need for high air-conditioning. The rooms are designed to allow maximum natural ventilation as much as possible to further lessen the need of high airconditioning. Guests are being educated through the Green Directory to keep the windows and external doors closed as much as possible when air-conditioning is on. Environmental Management initiatives for lighting are also inevitably important since customer comfort, satisfaction and health and safety of stakeholders need to be preserved while achieving eiciencies. 90% of standard light bulbs have been replaced with LEDs, which use up to 80% less energy and provides approximately 50,000 hours of use. Occupancy sensors installed in every room, gymnasium, storerooms, oices, washrooms, corridors and service areas ensure lights only operate when there is occupancy. A ‘Switch of’ policy on lighting is promoted, so that only lighting that is being used, is left on. For this, the hotel raises staf awareness by placing stickers above light switches and posters in staf areas. Lights in unoccupied areas are switched of, without compromising health and safety implications particularly in corridors and stairwells. As part of the policy, light switches have been labeled in a color code system and a card-key system which guides the user to select only those lights required and the time frame which they should be switched on. “Energy data are collected daily and compiled monthly for each activity and department” Catering is also carefully undertaken to maximize energy eiciency. A meter system has been ixed in the freezer doors, which captures and records the number of times and the duration of the freezers opened and closed. To minimize the number of times the freezer door is opened, the hotel has formed a freezer door opening schedule and had reduced the 61 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises wastage of electricity. Extensive staf training is carried out for kitchen staf in order to raise awareness on eicient energy consumption for kitchen appliances that consume signiicant amount of electricity. Some examples for energy-eicient handling include equipment labeling with minimum warm up times, usage of correctly sized equipment and switch of unnecessary kitchen equipment and lights etc. In addition to the above mentioned aspects, the hotel uses alternative energy sources such as solar power, wind power and bio-gas. The hotel is equipped with 36 solar panels which generate approximately 20kw per day. The power generated by the solar panels is used for guest room lighting and boiling water, and nearly 15,000 liters of water is boiled per day in this way. The hotel’s solar power generation is measured on a daily basis and is continuously monitored by the Chief Engineer. During 2011, the hotel initiated electricity generation through two wind power turbines and generated electricity that was suicient to fulill the lighting requirement of the garden. However, due to maintenance issues, the wind turbines were removed in 2012. The hotel commenced a Sewerage Treatment Plant (STP) in 1996 which was improved subsequently by the addition of a bio-gas production unit. Currently the cookery functions in the staf canteen are entirely powered by the biogas produced in the STP. Supportive accounting practices The engineering and maintenance department of the hotel is responsible for planning, implementing, controlling and reporting energy conservation and green practices. Hence, despite the presence of an accounting department, the engineering and maintenance department headed by the Chief Engineer takes initiative in the reporting aspect of energy and green practices due to technical expertise required. Physical accounting data being maintained include: energy consumption both daily and monthly for each activity and department; and meter readings relevant to energy sources such as electricity from the main grid, solar power, wind power, bio-gas and L.P gas. 62 Chapter 5 EMA Success Stories The results and variances of the data collected are discussed and analyzed during the engineering meetings. Subsequent to discussion on the energy consumption rates, the total amount of carbon emission is calculated and ultimately the total carbon footprint is calculated based on activities. In addition, the engineering team does the appraisal relevant to new energyrelated capital investments considering costs and potential beneits in terms of energy savings. Due to the practical diiculties, the involvement of the accounting department for the accounting aspect of energy practices is comparatively limited. However, the cost incurred for energy conservation projects are recorded by the accounting department and it is the responsibility of the engineering and maintenance department to ensure the efectiveness of the projects. he way forward The Hotel’s strategies to manage energy over time, have beneitted it in inancial terms, reputation as well as carbon foot print reduction. However, these initiatives are within the control of the engineering team; the record keeping, accounting, reporting and decision making in this area depend on engineers rather than accountants due to technical component involved. Going forward further improvements could be achieved through encouraging voluntary guest involvement since rooms account for major part of the total area of hotels and resultantly energy consumption. Then guests can be given full control over indoor thermostat settings, individual air conditioning units as well as operable windows and doors. The inance team’s involvement in EMA and the improvement of the EMA system is also of paramount importance. 63 Chapter 6 Framework for the Adoption of EMA This chapter focuses on presenting a generic framework for the systematic adoption of EMA. As you can probably imagine, the EMA system in an organization depends on many factors. These factors are broadly divided into; h External factors h Internal factors Factors afecting the EMA system – – – – External factors Intensity of regulations Geographical environmental conditions Inluence of stakeholders Availability of infrastructure facilities – – – – – – 64 Internal factors Nature of product/service and operations Organizational structure History and ownership Availability of resources Support/commitment of the top management Access to technology Chapter 6 Framework for the Adoption of EMA Current status of EMA Many researches around the world, including Sri Lanka, have revealed that the existing EMA practices have not been systematically and comprehensively implemented internally. Thus, these practices are largely fragmented. In most cases, these EMA practices have been developed from time to time as a response to the aforementioned internal and external factors. Therefore organizations do not usually reap the full potential of EMA. EMA development stages An organization can’t simply accomplish systematical adoption of EMA practices at once. Like many other management initiatives, the EMA system has to be developed over time with continuous commitment of the organization. When an organization starts adopting EMA, they will usually pass through three phases of development. These phases are h Compliance h Realization h Integration Development stages of EMA Stage 3 Stage 2 - Integration Realization Stage 1 Compliance 65 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Compliance stage Organizations in “Compliance” stage will develop environmental management practices as a passive response to both external and internal pressures. In other words, adoption of EMA is triggered by internal or external factors. Characteristics of organizations in compliance stage – – – Paying attention to few items that are critical for the business (e.g. waste, energy, water, etc) Obtaining the support of few key stakeholders (such as employees or suppliers) in order to adopt these practices Adopting a few less sophisticated EMA practices (e.g. accounting for waste or energy accounting). These EMA practices mainly focus on PEMA. In order to steer the organization towards the next stages of development an organization should; – – – – 66 Have the support and commitment of the top management Develop an environmental policy Prepare an operational plan to achieve the goals set in the environmental policy Establish an environmental management system to provide the necessary information for the operational plan Chapter 6 Framework for the Adoption of EMA Realization stage If the aforementioned initiatives are properly taken, with the help of its EMA system, an organization will soon realize the cost saving potential of the environmental practices adopted. This is where an organization moves into the next stage of development, i.e. Realization stage. Characteristics of organizations in realization stage – – – – – Gradually expanding its focus to other aspects contained in the environmental policy Developing/designing products or processes taking environmental impacts into account Attempting to obtain the support of other stakeholders such as customers, distributors Developing more EMA practices to provide information necessary for enhanced coverage of environmental aspects Experimenting the adoption of sophisticated and advanced EMA practices If these attempts are successful and expected beneits are derived, organizations will move to the next level, i.e. Integration stage. Hence, it is evident that this stage is a transition stage until an organization reaches the third stage. 67 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Integration stage The third stage of development, integration stage, is the most desirable stage of EMA. During this stage, organizations derive the full beneits of their environmental management programs. In this stage, environment is a factor that is considered in the daily decision making process of the organization at all hierarchical levels and across the value chain. Characteristics of organizations in integration stage – – – – – 68 Paying attention to all the items contained in the environmental policy (comprehensive coverage rather than just a few selected items) Having well developed EMA practices to support these practices (more MEMA systems) Obtaining the support of all stakeholders across the value chain Marketing green products or services Reporting its environmental performance to (internal and external) stakeholders Chapter 6 Framework for the Adoption of EMA Framework for the adoption of EMA The following framework summarizes the key features of the EMA development stages. Framework for the adoption of EMA Integration Advanced Exhaustive Comprehensive Realization Expanding Improving Encompassing Compliance MEMA Basic Limited Few Stakeholder involvement Coverage of environmental aspects EMA tools PEMA Vision According to the framework, it is the vision that lays the foundation and drives the environmental strategies of an organization. The arrow indicating the integration stage suggests that there’s potential for further development. Hence, the integration stage is not a desired end status, rather a desirable status in the current context. However, when the external and internal environment factors change, these practices will have to be adjusted to withstand such challenges on an ongoing basis. The framework highlights how the key features - EMA tools, involvement of stakeholders and coverage of environmental aspects - should evolve/ develop when an organization gradually progresses. It further highlights the focus of an EMA system in terms of PEMA and MEMA in each stage. 69 Environmental Management Accounting (EMA) Guidelines for Sri Lankan Enterprises Beneits of the framework The beneits of the framework include, but not limited to; – – – It helps you map where you currently stand in terms of the development stages of EMA. [However, it should also be noted that your organization may display some characteristics in diferent stages. Hence, what is important is not a perfect mapping of your current status but identiication of lagging areas for future improvement.] It directs you on what your future focus should be in the key dimensions of EMA. It guides you to develop an integrated sustainable environmental management program when the internal and external factors change. Conclusion The EMA adoption framework presented here is generic. Hence, it can be applied to any organization irrespective of the size, ownership or industry sector. In order to apply the framework, it is important that you get acquainted with EMA, environmental cost analysis and EMA tools and techniques which were described in the previous chapters. The EMA success stories presented in Chapter 5 demonstrate the application of certain features of this EMA framework in diferent business sectors and for diferent environmental aspects. On the whole, we hope that the ideas contained in this book will be a stepping stone for Sri Lanakan business enterprises to derive full potential of EMA in their contribution towards fast tracking economic development. 70 References – – – – – – – Burritt, R., Hahn, T. and Schaltegger, S. (2002), Towards a comprehensive framework for environmental management accounting: links between business actors and environmental management accounting tools. Australian Accounting Review, Vol. 12 No. 2, pp. 39–50. EPA (Environmental Protection Agency). 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(2001), Environmental Management Accounting Procedures and Principles, UNDSD, New York. 71