Environmental aspects in company management
Lilia
Dvořáková 1, Tereza Fidlerová 2, Marcela
Srchová 3
1 ZČU in Pilsen, Faculty of Mechanical Engineering, Department of Industrial
Engineering and Management, Univerzitní 8,
396 14 Pilsen
ldvorako@kpv.zcu.cz
2 ZČU in Pilsen, Faculty of Mechanical Engineering, Department of Industrial
Engineering and Management, Univerzitní
8, 396 14 Pilsen
fidlerot@kpv.zcu.cz
3 ZČU in Pilsen, Faculty of Mechanical Engineering, Department of Industrial
Engineering and Management, Univerzitní
8, 396 14 Pilsen
srchova@kpv.zcu.cz
Annotation: Environmental policy is a
declaration by a company concerning its principles and
intentions that refer to the environment. It constitutes a framework for
company activities and environmental objectives and setting responsibilities.
A company is a part of its surroundings, which
means each company has a social and environmental responsibility for its
surroundings. Economic, environmental
and social aspects are thus interconnected.
Companies do not only produce economic values,
but through their production and consumption they contribute substantially to
environmental pollution and damage. States, society and even companies
themselves are awaking to the fact that a lot of minerals and raw materials are
unrenewable or almost unrenewable, that the damages to the environment are hard
to repair or even irreparable. In the last twenty years the trends of
environmental approaches have grown in industrial production. Many companies
implement
an environmental management system as a part of their management. Constitution
of
an environmental policy can become the first step in creation and
implementation of their own environmental management
system (
Key words: environment, environmental
management accounting, environmental costs, environmental management system.
1
Environmental management
What does
Environmental management constitutes a
systematic approach to the protection of the environment covering all aspects
of business. Through environmental management
a company incorporates environmental care into its business strategy and every
day running. Environmental management is an integral part of the whole company
management system. An implemented environmental management system contributes
to durable economic growth and company prosperity and at the same time reduces
the negative impact of its activities, products and services on the environment.
This socially responsible strategy arises from the sustainable development
principle that ensures current needs without preventing the next generation
from meeting their needs.
Benefits of environmental management system
·
gain
certificate ISO 14 000 or registration in EMAS program,
·
avoidance
of fines avoidance for infringement of
environmental regulations,
·
implemented
·
reduction
in operating costs, consumption of energy, material and other resources,
·
decrease
of environmental incident risk that the
company is responsible for,
·
improvement
of business credibility for investors, banking institutions or insurance
companies,
·
companies
with implemented
·
enlargement
of opportunities in the export area (especially EU) and in acquiring government
contracts and business supports,
·
consolidation
of public relations,
·
establishing
better organization (especially in operation, documentation, organization
structure and environmental responsibility),
·
establish
compliance with legal requirements,
·
improvement of public relations and relations to public
service.
At present there are two standard methods
available for environmental management system implementation:
·
Technical
standard ISO 14 000,
·
Regulation
(EC) No 761/2001 of the European Parliament and of the Council of
These methods of implementation
Comparison of ISO
14 000 and EMAS
|
-------------- |
ISO
14001 |
EMAS |
|
Force |
worldwide |
EU
members |
|
Acceptance |
all kinds
of companies (e.g. industry, services, public service) |
all
organizations that have impact on the environment |
|
Implementation |
economically
separate parts of a company or a company as a whole |
in the
whole company area |
|
Introductory
environmental review |
not
requested but recommended |
compulsory |
|
Public
documents |
only
environmental policy |
environmental
policy and the declaration about the state of the environment |
|
Environmental
declaration |
none |
is
requested |
|
End of
the process |
certification |
verification
of declaration about the state of the environment |
|
End of
the process ensured by |
auditor
of a certification company |
accredited
environmental verifier |
|
Frequency
of audit |
not provided |
every
three years or less |
|
Logo
usage |
none (except
the certification authority logo after an agreement) |
usage of
EMAS logo |
|
Registration |
in terms
of issued certifications by particular certification organizations |
corresponding
subjects of particular member states |
Tab 1 Comparison of ISO
14 000 and EMAS
2
Economic objectives versus environmental objectives
A lot of companies are aware of the battle
between economic and environmental objectives. Fulfilling environmental
objectives is very often connected with economic loss, with increasing costs
and spending the finances. However, economic and environmental objectives do
not need to contradict each other. Fulfilling one group of objectives can even
positively influence the fulfillment of the other group of objectives. The
following diagram represents this relation.
Fig 1 Relation between environmental and economic
objectives
There is a question to be answered: What is the
benefit of implementing
an environmental management system for a company? Is the environmental approach
worth it?
If a company reduces the consumption of raw
material by cutting down the waste, it is convenient for the company that saves
a lot of finance on the one side and the lower raw material consumption is a benefit
for the environment on the other side. The environmental attitude of a company
is connected with nonfinancial benefits as well. Such
benefits include enhancement of the company image for customers and the society
and improving business credibility for investors, banking institutions or
insurance companies. Environmental attitude relates to company culture and
business ethics which play an important role when seeking business partners,
granting subsidies and government contracts.
Porter hypothesis deals with the relation between
the economic performance and preservation of the environment. The preservation
of the environment has always been considered as a brake on economic
development. However according to this hypothesis a good set regulation of a
market by public institutions can stimulate innovations that will subsequently
enhance the company or sector´s competitive
strength. Innovation concerning energy or material efficiency will benefit the
environment and will have a positive impact on economic performance and competitive
advantages for companies.
No empirical evidence has so far proved or refuted
this hypothesis. In fact the hypothesis was verified in some economic sectors and
by reducing some environmental impacts of human activities. However the
hypothesis was not confirmed in other cases.
It is up to a company to create its own
environmental policy. A company should search for ways that lead to economic
development with a minimum impact on the environment. “5R” is one possible
approach to this. It includes the following actions:
1. Rethink – think again about the
current processes in a company.
2. Reduce – reduce the consumption of material,
raw material and waste produced.
3. Reuse – if it is possible, use
material, raw material and sources again; if it is acceptable, repair the machines and the equipment.
4. Replace – replace all items that are
uneconomical or that produce waste needlessly.
5. Recycle – recycle the waste.
So it is necessary to consider how
to reduce the negative impact on the environment through reusing the material
and resources, replacing items with more effective ones and recycling. The “5R”
approach can be illustrated with the following diagram.
Fig 2 5R Approach
3
Environmental management accounting (EMA)
The total costs can be reduced by regulation of
environmental company costs. In order to regulate the environmental costs it is
necessary to identify those costs. Environmental management accounting is an
instrument for such identification.
Environmental management accounting (EMA in the
following) is an integral part
of company management. Among the main tasks of EMA are
identification, data collecting, carrying out estimations, analyses and
reports, forwarding:
·
information
about material and energy flows,
·
information
about environmental costs,
·
other information expressed in values that are the starting
point for decision making in
a company.
Within EMA not only financial flows but physical
and energy flows are observed. EMA consists of two subsystems:
1. Monetary EMA – MEMA
2. Physical EMA – PEMA
Within EMA the information from both subsystems
are interconnected and the value aspect
of material and energy flows is expressed. The information that is monitored
relates not only to a company as a whole, it can even relate to particular
business processes, sections and plants. Among the aims of EMA are:
·
enhancing
efficiency of material and energy utilization,
·
mitigation
of environmental impact of company activities, products and services,
·
mitigation
of environmental risks,
·
trading income improvement.
However, there is no unified definition and
classification of environmental costs. There are
a lot of definitions of environmental cost. It can be said that the
environmental costs are expenses and spending on actions and activities that
prevent pollution and spending for reduction, elimination and clearing up
contamination.
Various authors have different opinions about the
concept of environmental costs. Some
of them deem it necessary that the benefit of environmental activities is the
original intention, for other authors the resulting effect is important, not
the original intention. It is more like
a philosophical question for it is difficult to say what the initial motive for
an activity was. The environmental benefit and result of a decision is
important for the environment, even if this benefit was not the initial
intention and motive for the given decision.
The following text arises from the definition of
the environmental costs according to Expert working Group on “Improving the
role of Government in the Promotion of Environmental Managerial Accounting”.
Environmental costs are divided into the following four groups:
1. Waste and Emission treatment,
2. Prevention and environmental
management,
3. Material Purchase Value of
non-product output,
4. Processing Costs of non-product
output.
These costs are provided for assignment to the
following classes:
·
Protection
of ambient air and climate,
·
Wastewater
management,
·
Waste
management,
·
Protection
of soil and groundwater,
·
Noise
and vibration abatement,
·
Protection
of biodiversity and landscape,
·
Protection
against radiation,
·
research
and development,
·
Other
environmental protection activities.
It is also important to monitor the environmental
revenues that include subsidies, awards and other earnings like income from the
sale of waste. On the basis of the information gained the environmental cost
scheme is compiled. The identification of all costs connected with the
environment is a very important instrument for reducing environmental costs and
then total company costs. However the environmental costs are hidden in the
overhead costs in many companies and are disregarded by management.
Environmental costs and revenues should be
assessed by two groups of experts in the company:
·
the “accounting” group – their tasks are
ascertaining purchase and production volumes (input/output), expenditure and
revenues, cost centre assessments, purchasing costs, internal prices,
calculation and charge rates.
·
the
“technology” group – their tasks are material, water and energy balances,
disposal and emission volumes and costs, process description and technical
equipment for emission treatment and cleaner technologies, estimates of related
work hours and operating materials as well as the distribution of total costs
to the different environmental media (classes).
A “Polluter Pays” Principle (PPP) when
considering environmental costs regulation is valid. The task is to investigate
where and why the waste arises and how its origin can be prevented.
A company has two ways of preventing pollution:
1. better housekeeping assisted by
environmental management systems,
2. changes in product design through
utilization of other materials or changes in production processes.
In connection with the prevention strategy the
cleaner production (CP) or cleaner technology is mentioned. Processes, products
and services are monitored in order to enhance their effectiveness and reduce
the risks for humans and the environment.
Thanks to this approach environmental costs are
significantly reduced and the concept
of “double utility” (environmental and financial) is filled. In many companies
the expensive “end-of-pipe” technologies still prevail. These technologies do
not solve the problem at the source but they only adjust the emissions and
transfer the waste into another part of the environment.
Some of the most obvious “end-of-pipe”
technologies are, for example, refuse compactors,
collection containers and vehicles, waste heat recovery systems, air pollution
filters, noise abatement investments and sewage treatment plants.
Companies should pay attention to the waste. For
EMA purposes waste includes solid waste, waste water and air emissions. That
means waste is a non-product. Waste is a material that was bought and paid for and
that did not become a part of a product intended for a market. Waste is
therefore an indicator of production inefficiency. Companies should eliminate
waste that is very expensive, in their own interest. Companies have to pay
three times for non-product output:
1.
at
purchase,
2.
during
production,
3.
at disposal.
In order to reckon the non-product costs it is
necessary to compile a material and energy flow balance. The principle of the
balance is obvious: the quantity of
material and energy that goes into the process must come out of the process
again or be a part of the inventories. The flow balance features material and
energy input as well as the final number of products, waste, waste water and
air emissions. Inputs and outputs are measured in physical units (kg, t,
GJ/period). By means of the balance it is possible to enhance the utilization
of material and energy flows from both an economic and environmental point of
view.
4
Company environmental costs and externalities
A company produces not only “company
environmental costs”, it also produces other costs called externalities.
Externality is a cost that is caused by company activities and that has an impact
on individuals, society and the environment outside the company.
Company is not usually responsible for the externality, it does not have to pay
for it, does not face the consequences.
Company environmental costs that relate to
company activities are usually strictly monitored and a company is responsible
for these costs. Company environmental costs include for example consumed material
or consumed labour. These costs influence the trading income
of a company.
Externalities (negative externality in this
case) represent costs that relate to the impact
of company activities, products and services on the environment and society. A
company is not usually interested in externalities because it is not
responsible for them.
The most obvious examples of externalities
include:
·
ensuing
impact of emissions,
·
damaged
rivers due to draining oil and waste products,
·
damaged
ecosystem due to storage of waste,
·
damage to human health caused by releasing harmful
emissions into the air.
EMA focuses primarily on the costs a company is
responsible for and that are a part
of a company account system. The following picture illustrates this.
Fig
3 Company environmental costs and
externalities
EMA monitors and evaluates value information
from financial and management accounting (in monetary units) and the data
concerning material and energy flows, and it interconnects the gained
information in order to enhance the efficiency of material and energy usage,
mitigate the impact of the company activities, products and services on the
environment, eliminate the environmental risks and improve the trading income
of a company.
Considering the reality that the externalities
are not internalized by any regulations they are not usually involved in the
decision-making processes in the company. It is up to the government to
integrate externalities into company costs through environmental taxes and
prescribed emission limits.
5
Conclusion
Nowadays more and more emphasis is being put on
the environmental responsibility of a company. More and more finance must be
expended in order to protect and eliminate environmental pollution.
Environmental costs create a substantial part of a company´s
total costs, and management should therefore make an effort to regulate
them effectively in order to reduce the total costs. In many companies the
environmental costs are included in the overhead costs and are disregarded and
neglected by management. However in order to regulate the environmental costs
it is necessary to identify them first and collect the data with an appropriate
information system. The data can be consequently compiled and evaluated. On the
basis of the analysis
of environmental costs and revenues, convenient steps may be taken to enhance
company profitability and reduce the total costs. Downsizing environmental
costs is a necessary prerequisite for the protection of the environment and
ensuring sustainable development
on one side and for enhancing company performance on the other side.
References
[1]
[2]
Hájek,
M. Environmentální manažerské
účetnictví jako nástroj ochrany životního
prostředí.
http://www.env.cz/www/zamest.nsf/0/
aa3c3e93c5741897c1256d60003dd31d?OpenDocument
2003.
[3]
http://www.env.cz/www/zamest.nsf/defc72941c223d62c12564b30064fdcc/
a0f76376b58e1af1c1256d60003d56aa?OpenDocument.
Contact: ZČU
in Pilsen, Faculty of Mechanical Engineering,
Department of Industrial Engineering and Management
Univerzitní
8, 396 14 Pilsen
2. Ing. Tereza Fidlerová, PhD student
Contakt: ZČU
in Pilsen, Faculty of Mechanical Engineering,
Department of Industrial Engineering and Management
Univerzitní
8, 396 14 Pilsen
3. Ing. Marcela Srchová,
PhD student
Contakt: ZČU
in Pilsen, Faculty of Mechanical Engineering,
Department of Industrial Engineering and Management
Univerzitní
8, 396 14 Pilsen