Positive Examples of Green Accounting Practices

David M. Boje
October 23, 1999
Green Accounting SITES

WTO - World Trade Organization. We live in a time when regulationg the global ecology and economy is quite controversial. Companies are attempting positive Green Accounting, but there are many views. Consider the current WTO controversey, then look at what firms are trying to do to TURN GREEN.

My point: It is this public pressure by Eco Watchers, media, eco-conscious investors and regulators such as EPA that is leading major corporations to adopt Green Accounting Practices in order to make more socially acceptable corporate decisions:
There is a growing list of firms that are implementing positive Green Accounting Practices.  See for example GETTING STARTED WITH GREEN ACCOUNTING PRACTICES
 Getting started means retraining functionalist accounting to move beyond defending against environmental regulation, fines, and public protest --- and moving toward green accounting practices. There is advice on how to proceed: A Key issue is allocating costs from gross aggregated accounts and tracing and tracking them where a picture of the green aspects of the business can be registered and understood by decision makers.  The assumption is that functionalist accounting keeps managers in the dark about the long term consequences of their decisions, which leads to more major problems.

Steps in Environmental Cost Allocation sound pretty easy:
1. Teams to decide scale and scope
2. Identify and track green costs
3. Quantify green costs
4. Allocate environmental costs to responsible process, product, system, or facility
5. Implement

The problem is to find companies that have taken to step to integrate cost - disaggregation into their regular accounting procedures.

II. Examples

A. Case Example: Phillips

Targets for manufacturing improvements (press here).

Phillips Releases its First Environmental Report (press here). D. Case Example: JOHNSON & JOHNSON(press here) for J&J Environmental Page

A  cross-functional team of more than 100 worldwide site managers developed our Pollution Prevention Goals over a two-year period, leading to approval and endorsement by our  Board of Directors in 1993. These goals are based on identifying all sources of waste within every plant, developing a five-year capital appreciation plan  for waste reduction activities, estimating waste reduction savings,  benchmarking best-in-class practices among Johnson & Johnson companies and other corporations, and formulating measurable goals.

1. Benchmark Goals. Goals were established by benchmarking with leading companies that have made environmental responsibility a key strategic issue. Goals are reappraised annually, and are revised or amended as appropriate to ensure our continuing movement toward sustainability.

Figure 1 — Worldwide Pollution Prevention Goals, 1995 Status
  Original Goals  Overall 
Reduction by 1995*
Toxic Chemical 
90% reduction 1987-1995 91% U.S. reduction 
69% worldwide reduction (including U.S.) 
Hazardous Waste 10% reduction 
25% reduction
50% reduction 
48% reduction
Packaging 10% reduction 
11.7% reduction
Energy 10% reduction 
14.1% reduction

*All Pollution Prevention Goals, except Energy, are indexed to net trade sales.

J&J’s goal was reduce toxic chemical releases (TCR) by 90% from 1987 to 1995. They exceeded this goal in the United States, with a 91% reduction in TCR, and expect to achieve our worldwide objective in 1996

The 33/50 Program. In 1991, Johnson & Johnson agreed to participate in the U.S. EPA voluntary program regarding certain chemicals of unique concern to the environment. The "33/50 Chemical Release Reduction Program" sought to reduce emissions of 17 toxic chemicals widely used in industry from 1988 levels, by 33% in 1992 and by 50% by 1995. We met the 1995 goal by 1992 (three years early); by year-end 1995, we reported an 84% reduction in these chemical releases (Figure 3).



III. Example of EA in Electrostatic Plating Process

Calculating Value of Process Solutions and Lost Process Solution

Full EA Costing of Rejects

IV. Why EA Fails?

Plating materials Varies on type of plating Product level when high volume material or expensive (e.g. precious metals)

Only assignable and accurate where volumes or material costs require it
Data gathering, management and analysis limits further ECA
Great care is advised in the decision whether or not to allocate plating materials as part of ECA.

Significant because of relationship to both environmental management costs and quality
General overhead, even in high cost situations
Theoretically possible but with limited accuracy because of valves in use (+ 20%)
Concurrent investments needed in monitoring and control equipment; more pressing issue is selling managers that this is worth doing
Solvents/ Other Cleaners
Alternative cleaners increasingly significant because of higher cost and treatment challenges

Almost always in general overhead

Possible to further allocate but plagued by general inability to say with confidence how much cleaner and solvent use would decrease

Must cross-link to quality and production management data and operating procedures to determine potential improvement numbers
Wastewater Treatment
Very significant

Sometimes general overhead, sometimes allocated to department by volume and/or incidence

Possible, with some effort, to calculate a "$ /gal treated" value; caution exercised given elusive nature of "incremental" savings in treatment; best examined when eliminating a need entirely

Value generation complicated by not knowing • what is really in waste water • when • how much it varies

Typically overhead, in an established facility management line but may be charged back to departments

High and straightforward on a unit volume basis. High accuracy excluding labor

Examination of percent regulated waste materials adds information value

V. Applying Environmental Accounting to Capital Budgeting

When environmental costs of "clean technology" are EXCLUDED from investment decision alternatives, managers get a FALSE picture of cost savings and potential revenues of pollution prevention and control. Green Capital Budgeting includes the green costs and green revenues from planned capital investments.

Integrating Green Accounting into Capital Budgeting

Information about past expenditures on corporate image also may be helpful in estimating future benefits (e.g., potential savings or reductions in those outlays resulting from the investment) for companies that want to go beyond the qualitative consideration of these benefits.

Potential Less Tangible Benefits of Pollution Prevention Investments (Source: EPA 742-R-95-001, June 1995).

Green Process/Product Design
Green design involves balancing cost, performance, cultural, legal, and environmental criteria. Life Cycle Design puts green cost/revenue information into management decision at an early stage. Alternative product/process designs can be compared to make better capital budget decisions. Models can be developed to estimate impact of R&D for green processes/products. Such a model needs to include traditional with hidden, and contingent costs of pollution. A life cycle model identifies cost reductions due to long term opportunities. It also identifies long term risks of processes that are environmentally destructive.