Positive Examples of Green Accounting Practices

David M. Boje
October 23, 1999
Green
Accounting SITES
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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.
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
- 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.
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:
- 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.
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).
- 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 Releases its First Environmental
Report (press
here).
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.
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
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&Js 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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