Positive Examples of Green Accounting Practices

David M. Boje
October 23, 1999

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.

The World Trade Organization (WTO) (press here) according to Seattle. WTO is a Threat to the Environment and is being closely monitored by environmental groups (press here). See also, Trade Watch (press here). - Every environmental and public health measure challenged at the WTO has been found to violate the WTO agreements and not to satisfy the terms of the exceptions:
"A WTO dispute panel found regulations governing compliance with the U.S. Clean Air Act's reformulated gasoline requirements to be in violation of the WTO Agreements. After an appellate panel upheld this ruling, the Environmental Protection Agency changed its  regulations to allow Venezuelan gasoline with higher concentrations of certain pollutants into the United States."
 

`Chaos at WTO talks reflects public mistrust' -  WASHINGTON (Reuters)`The WTO's meteoric rise from obscurity to villainy is partly its own fault,'' the newspaper said in an editorial. ``It operates largely behind closed doors in rooms filled largely with corporate executives, trade bureaucrats and politicians. No wonder the  Geneva-based organization is perceived in the United States and elsewhere as an agent of big business.'' Source Envirolink, December 2, 1999.

Links suggested onn Critical Theory Listserve.
ISEC (press here). Seattle 99 (press here).  Info Shop (press here).  Henwood (press here)  Seattle WTO (press here).
Seattle WTO another (press here).

Institute of Development Studies 10 part WTO Briefings (press here).

Trade and Investment background briefings to the World Trade Organisation (WTO) negotiations at the Seattle Conference of world trade ministers, have been produced by the Institute of Development Studies, University ofSussex/
ZNet's Global/WTO Watch -- Direct from the scene reports and analysis--plus
contextual reports and in depth materials from Z Magazine's writers and
beyond--and you can post your own reports, as well (press here)

The Seattle Indy News Center -- on the ground, on the scene, with audio (press here).

Democracy Now -- Amy Goodman reports with noted guests on the scene on
events in Seattle and their meaning (press here).

World Trade Watch Radio -- Live reports from Seattle with Julie Light and
Norman Solomon and their guests (press here).

Global Exchange's Democratize the Global Economy -- Analysis and context (press here).

Corporate Watch's WTO Coverage -- Analysis of corporations and their role in
society focused on the WTO (press here). Also you can send a free fax opposing the current WTO negotiations by going to the corporate watch site (press here).

Food First -- Food politics in general and regarding the WTO (press here).

The Preamble Center: A research project into the U.S. economy...with special
coverage of the WTO (press here).

The Sierra Club suggests several ways that an individual can take actions in response to the WTO. Check out (press here).

Points of View on WTO
Many models help us understand the historical context and dynamics which brought us to WTO-Seattle in 1999. In many, if not all  cases, the clarity offered by these models is enhanced by one's own training, biases , etc. So, with that in mind, those offered by Polanyi in the opening chapters of The Great Transformation provide that extraordinary clarity of vision for me (press here).  His portrait of the movement to market society, the inevitable consequences---economic, social and environmental disclocations --- of such a transformation, and the role of the State in developing and protecting  markets, and in buffering society from those necessarily associate dislocations, seem written specifically to help us understand the current global transformation." suggested by Bob Hogner.
 

• The GreenBiz Businsess Journal listing of such companies with links to their web sites and environmetnal practices (press here).
• Searching for the Profit in Pollution Prevention: Case Studies in the Corporate Evaluation of Environmental Investment Opportunities The concept of pollution prevention, or "P2," is emblematic of a new, proactive environmental mindset that promises more "sustainable" industrial management.
• The Case Data Base (press here) Abstract. Clicks for PDF download
• Article - The Pollution Prevention Puzzle: Which Policies Will Unlock the Profits? by James Boyd, Spring 1998 (Issue 131) (press here) PDF download.
• Eco-Efficiency Case Study Collection (press here).

Environmental Defense Fund - See for example - (press here) November 2, 1999  "Not Pulp Fiction: US Companies Find Cleaner Paper Practices Make Business Sense" Examples include: Bank of America Corporation,  Ben & Jerry's Homemade, Inc., McDonald's Corporation, Time Inc., United Parcel Service.
• Full Report on the 5 companies (press here) -"Leading By Example: How Businesses Are Expanding the Market for Environmentally Preferable Paper" - A report by The Alliance for Environmental Innovation A Project of the Environmental Defense Fund and The Pew Charitable Trusts.  The report shows that major firms respond to public pressure - e.g. McDonald's
• In the late 1980s, McDonald's faced rising public concern and direct pressure from environmental advocacy and community groups about  the amount of packaging and waste from its restaurants. In response, McDonald's embarked on two initiatives that allowed the company to  respond to its customers' changing interests, while differentiating itself  from its competitors.
• Environmental Defense Fund - List of Main Reports (press here). Following is a list of report categories with two examples given more detail.  Report abstracts are on line, with full report attainable by on line ordering..

                         Biotechnology (press here) -
The world's eight largest pesticide companies--Bayer, Ciba-Geigy, ICI, RhonePoulenc, Dow/Elanco, Monsanto, Hoechst, and Dupont--all--have initiated herbicide-tolerant plant research.
                         Economic Incentives
                         Ecosystem Restoration
                         Endangered Species
                         Energy
                         Environmental Toxins (press here) -
e.g. Ranking Refineries What Do We Know About Oil Refinery Pollution From Right-to-Know Data? This is a study of 166 refinereries in 34 states - "there is a greater than ten-fold difference among states in pollution created per barrel refined. The states with the poorest performance are, in  order, West Virginia, Kansas, Texas, and Mississippi. At the other end of the range, New Jersey (with its more extensive right-to-know reporting requirements) ranks among the best states in performance."
                         Global Atmosphere
                         International Programs
                         Multi-Program Publications
                         Oceans
                         Recycling
                         Transportation
                         Waste Reduction
                         Wildlife
• Eco Links on the Web (press here). This section is designed for professionals in industry and the environmental services business who need to solve specific physical environmental problems.
• ECO - Conferences
  • 7th annual Eco-Management and Auditing Conference which this year is being held at Nijmegen School of Management, the Netherlands on 21-22 June. --- See ERP Environment website ( www.erpenvironment.org ) for full details of the conference programme.

• 1. Set Up Cross Functional Teams for Scope/Scale. To implement green accounting assembles the right experts, such as engineers, chemists, biologists, financial staff, purchasing personnel, managers, and accountants. These teams can identify the scope and scale of the accounting system.
• 2. Identify and Track Green Costs. Separate Environmental Costs from Current Accounting Cost Categories. Green costs may be hidden in overhead accounts. Green costs can be allocated to the process, product, supply, system, or facility responsible. The axiom "one cannot manage what one cannot see" pertains here.
• 3. Quantify Green Costs.
• 4. Allocate Green Costs to Responsible Process, Product, System or Facility.
• 5. Implement. First, handle green costs outside the current accounting system. Second, implement green costs directly into the cost accounting system.

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).

• 35% waste reduction in 2002 (year ofreference 1994)
• 25% water reduction in 2002 (year of reference 1994)
• Reduction in emissions to air and water (year of reference 1994)
• Restricted substances (category I): 98%
• Hazardous substances (category II): 50%
• Environmentally relevant substances(category III) 20%
• 25% energy efficiency improvement in 2000 (year of reference 1994)
• ISO 14001 certification on all manufacturing sites in 2000

Phillips have moved to make enviornmental costing a part of their overall coporate strategy. It is what we refer to as a Flagship Implementation: e.g.
• We are very glad to report you on our performance both on the EcoVision product-related targets and  on the EcoVision manufacturing-related targets on a worldwide scale.
• These results can be reported because of our computer-based worldwide EcoVision monitoring  system that recently has been set up to obtain information on the Philips’ environmental progress.
• The results for 1998 show that 47 Philips products have been selected as Green Flagships, 32 of which have actually been launched as such in the market.
• In addition each line of business has defined a substantial percentage of its product portfolio that has to be EcoDesigned next year.

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  Releases	90% reduction 1987-1995	91% U.S. reduction  69% worldwide reduction (including U.S.)
Hazardous Waste	10% reduction  1991-2000	25% reduction
Non-Hazardous  Waste	50% reduction  1991-2000	48% reduction
Packaging	10% reduction  1992-1997	11.7% reduction
Energy	10% reduction  1991-1996	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).
 
 

EXHIBIT 1

III. Example of EA in Electrostatic Plating Process
 

Calculating Value of Process Solutions and Lost Process Solution

• Step 1 -- Determine total annual cost of material inputs
• Step 2 -- Determine list of material inputs that individually are responsible for at least 5% of the total material input costs
• Step 3 -- Determine value of individual process solutions on annual basis and in cost per liter of solution. Start with electroplating solutions, then do acids and cleaners. Occasional use solutions (strippers; chromates; other special-use surface treatments) are optional at this time -- focus on "big tickets" first)
• --Step 3a Determine "formula" for each process solution --List of constituents --Concentration of each constituent
• --Step 3b Determine cost of each constituent
• --Step 3c Calculate value of solution
• Step 4 -- Rank process solutions by cost
• Step 5 -- Choose top-ranked electroplating process solution. Determine total metal purchased for that solution as kg/year. Assure that all sources are accounted for. For example, nickel metal in an electroplating process solution is derived from, at a minimum: • solid nickel anodes • nickel sulfate solution and may have other sources.
• Step 6 -- Determine total metal plated from that solution as kg/year. This is done by determining total square decimeters of product processed through the solution, and multiplying by the average thickness of the plated coating. Convert to kg using weight to thickness tables.
• Step 7 -- Subtract total in Step 6 from total in Step 5. Difference is metal lost to dragout, although recognize that incorrect data can skew the analysis
• Step 8 -- Repeat Steps 5-7 as necessary until 80% of costs due to purchase of electroplating process materials has been analyzed

Full EA Costing of Rejects

• Step 1 -- Determine list of most common reject situations
• Step 2 -- Describe actions taken to correct rejects, starting with most common cause or problem • Inspect • Sort and re-plate only bad parts • Strip and re-plate all parts • Purchase new parts and plate
• Step 3 -- Determine cost of each action
• • Cost to detect rejects (inspection; return from customer) • Cost to correct reject (purchase new parts; strip and re-plate parts; spot re-plating • Cost of lost production time (rejected parts took the place of parts that could have been sold to generate income) • Cost of treatment and disposal of materials associated with corrective action • Overhead costs associated with corrective action
• Step 4 -- Repeat Steps 1-3 until 80% of reject volume has been analyzed

IV. Why EA Fails?

EXHIBIT : EA IN METAL FINISHING (Selected Examples)
SIGNIFICANCE ALLOCATION PRACTICE  ASSIGNABILTY  AND
ACCURACY DATA GATHERING AND MANAGEMENT ISSUES
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.

Water
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

Handling / Disposal
Varies, depending on nature and size of facility

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

1. Inventory and quantify environmental costs/revenues (begin with easiest to measure and work up to more difficult ones, such as image costs/revenues).
2. Allocate and project environmental costs and benefits to the product, process, system or facility responsible.
3. Use appropriate financial indicators
4. Set reasonable Life Cycle horizon to capture Green benefits

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).

• Increased sales due to enhanced company or product image
• Better borrowing access and terms
• Equity more attractive to investors
• Health and safety cost savings
• Increased productivity and morale of employees, greater retention, reduced recruiting costs
• Faster, easier approvals of facility expansion plans or changes due to increased trust from host communities and regulators
• Enhanced image with stakeholders such as customers, employees, suppliers, lenders, stockholders, insurers, and host communities
• Improved relationships with regulators It may be easier to include environmental costs in capital budgeting, if existing processes, systems, and products are already being assigned environmental costs in cost accounting systems.

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.

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