Technology: Report of the Expert Working Group Meeting on Improving Governments' Role in Promoting Environmental Management Accounting
Bonn, Germany, 1-3 November 2000

REPORT OF THE MEETING

CONCLUSIONS AND FOLLOW UP

PROCEEDINGS OF THE MEETING / PROGRAMME PRESENTATIONS

COLOMBIA

GERMANY

JAPAN

PHILIPPINES

IsO 14000 STANDARDS

FEDERATION OF EUROPEAN ACCOUNTANTS

EXERCISE ON EMA PRINCIPLES:  "WHAT ARE ENVIRONMENTAL COSTS"

review OF THE DRAFT REPORTS

• report 1:  ENVIRONMENTAL MANAGEMENT ACCOUNTING METRICS:  PROCEDURES AND PRINCIPLES

• REPORT 2:  LINKS BETWEEN EMA AND OTHER MANAGEMENT AND ACCOUNTING SYSTEMS

• REPORT 3:  POLICY PATHWAYS FOR PROMOTING EMA

LIST OF PARTICIPANTS

Report of the meeting

The third meeting of the Expert Working Group on “Improving Government’s Role in Promoting Environmental Management Accounting” was organized by the United Nations Division for Sustainable Development, Department of Economic and Social Affairs, and hosted by the German Federal Ministry for Education and Research and the Federal Ministry for the Environment, Nature Conservation and Nuclear Safety. Participants are listed in Annex 1.

Background

Pressures and incentives for the adoption of cleaner production or pollution prevention processes by business have emerged from both inside and outside enterprises.  Internally, the adoption of cleaner technologies may be driven by efforts to avoid the costs of waste management, to bypass the uncertainty of changing regulations, and to position the firm as a "green" enterprise in the local, national, or global marketplace. Externally, corporate environmental performance is increasingly scrutinized by investors, financial analysts, regulatory bodies, host communities, and the public at large.

To satisfy external pressures, enterprises are reviewing and modifying reporting processes in order to measure and report progress in addressing societal environmental and social concerns.  To aid in the development of external reporting or financial accounting tools addressing environmental issues, many business, environmental, government and accounting organizations worldwide have launched initiatives to promote aspects of or frameworks for corporate environmental reporting.

To address internal management concerns, companies also need to review management information systems and decision making processes and to develop managerial accounting tools.  Managerial accounting is a broad term covering the process of identification, measurement, accumulation, analysis, interpretation, presentation and communication of financial information for use by management for planning, evaluation, and control within an organization, and to assure accountability for use of resources.  In this context, environmental management accounting (EMA) serves as a tool for recognizing and understanding the full spectrum of environmental costs of current production systems and alternative approaches and the economic benefits of pollution prevention or cleaner production processes, and to integrate information on these costs and benefits into day-to-day business decisions.

Though managerial accounting systems are traditionally viewed as matters internal to a firm, the potential social benefits resulting from widespread use of environmental management tools justifies active governmental involvement in promoting such systems.  Government policies can play an important role in encouraging and motivating businesses to adopt environmental management accounting systems to ensure that all material and production costs, with specific identification of environmental costs, become fully inventoried, properly allocated, and clearly articulated.  The purpose of the Expert Working Group on Environmental Management Accounting is to examine how governments can effectively encourage industry to develop and use environmental management accounting systems.

The participants in the Expert Working Group meetings are from national environment agencies and ministries, international organizations, industry, accounting firms, academia, and United Nations agencies, as well as from the United Nations Division for Sustainable Development (UN-DSD). To date the group includes participants from government agencies in Argentina, Australia, Austria, Brazil, Canada, China, Colombia, Czech Republic, Denmark, Egypt, Finland, Germany, Hungary, India, Italy, Japan, Mexico, Nepal, Netherlands, Norway, Philippines, Poland, Portugal, Slovak Republic, Sweden, United Kingdom, United States of America and Zimbabwe.

The first meeting of the Expert Working Group was held in Washington DC in August 1999, hosted by the United States Environmental Protection Agency. This meeting reviewed government activities for the promotion of EMA as well as EMA concepts and the barriers to and goals of government action in this area. Agreement was reached on the objectives of the group and a future work plan. A publication reporting on the results of this meeting is available at the Division for Sustainable Development website at http://www.un.org/esa/sustdev/estema1.htm

The second meeting of the Expert Working Group was held in Vienna, Austria, 15-16 May 2000. At this meeting, the group reviewed existing programmes for the promotion of EMA from new members of the group as well as progress made by members since the meeting in Washington. Additionally, the group agreed on the outlines for three reports to be produced for the group on the priority issues identified in the first meeting.

The reports are:

1:     EMA metrics, guidelines and principles

2:     Links between EMA and other management and accounting systems

3:     Policy options for the promotion of EMA

The fourth meeting of the Expert Working Group will be held in Tokyo, 5-7 June 2001. The fifth meeting of the Expert Working Group is scheduled for January 2002 in the United Kingdom.

Objectives

At the third meeting, the Expert Working Group reviewed activities reported by new members of the group as well as updates on activities of existing members. The group also discussed the possibility of linking the work of the group to both accounting and management standard-setting organizations. The group participated in an exercise on EMA using a fictitious company in order to clarify concepts and gain a clearer understanding of the types of costs considered in EMA. 

The major activity of the group at its third meeting was reviewing the draft reports prepared as agreed at the second meeting. The draft reports had been circulated to participants prior to the meeting. 

The group also agreed on a series of activities and areas of work to be pursued and reported on at the fourth meeting in Tokyo, 5-7 June 2001. The fifth meeting of the group was planned for the United Kingdom in early 2002. 

Conclusions and follow up

The reports

The Expert Working Group reviewed in detail the draft reports and recommendations for modifications were made. The authors revised the reports following the meeting and presented the revised texts to the Division for Sustainable Development. the revised reports were then sent to the group for final comments. These final reports will be published by the United Nations and made available to the Commission on Sustainable Development and the international community.

The group decided that the reports would be published in two volumes. Volume one will include the report on EMA principles and procedures. The second volume will contain the report on policy options and the report on links between EMA and other management and information systems.

The group also decided to publish a “quick and dirty” guide to EMA to be drafted by the Division for Sustainable Development using the executive summaries of the three reports.

Future work

The Expert Working Group decided to establish several working teams to explore the potential of the group’s work to influence other international activities related to EMA.

Working teams were established for:

§         An international EMA website

§         Linkages to ISO 1400l standards

§         Linkages to Agenda 21

§         Linkages to other international organizations

§         Linkages to accountancy organizations

The group also decided to explore the possibility of commissioning a number of sector-specific case studies:

§         A case study of a pulp and paper company was proposed by Environment Canada with support of the Danish EPA. This case study is now under development

§         EMA guidelines and principles for small and medium-sized enterprises (SMEs). This report was proposed by the participant from the Slovak Government

§         Links between EMA and Quality Management Systems, proposed by the USEPA and the participant from the Government of Hungary

The group also agreed to pursue the possibility of organizing an International EMA Conference for Industry. This conference would consist of a series of training modules geared to corporate managers and accountants. The participants from Siemens, the German EPA and the Government of Egypt volunteered to look into this possibility.

The group also decided that whenever possible the future meetings of the group would be hosted back to back to a  one-day symposium on EMA for local industry. The meeting in Tokyo will be the first to include such a symposium.

The group discussed future work and priorities for the way forward. The results of these discussions are reported above. 

The group agreed that the next meeting would be planned for Tokyo in June 2001, and that the fifth meeting would be planned for the UK in January 2002. 

The group also supported the inclusion of EMA in the documentation to be presented to the ninth session of the Commission on Sustainable Development under the theme “Information for Decision Making”. 

Mr. Chipman and Mr. Grablowitz then closed the meeting and thanked the participants, and especially the authors of the draft reports for their excellent work in the preparation of these documents and their presentations during the meeting. 

PROCEEDINGS OF THE MEETING / PROGRAMME PRESENTATIONS

Opening

Mr.  Hansvolker Ziegler opened the meeting on behalf of the German Federal Ministry of Education and Research and welcomed everyone to the meeting.

Mr. Peter Frans also welcomed the participants to the meeting and expressed the great interest of the German Federal Ministry of Environment, Nature Conservation and Nuclear Safety in EMA.

Mr. Ralph Chipman welcomed the participants on behalf of the United Nations and reviewed the conclusions of past meetings of the group as well as the agenda and goals for this meeting.

COLOMBIA

Mr. Sergio Salas of the Colombian Environment Ministry reported on a recent project in Colombia in which an analysis similar to EMA was used to appraise investments in waste management for public hospitals in order for the government to set fee levels that the government would pay to incinerators.

This exercise was undertaken in order to develop policies to promote private investment in incineration services, which are non-existent in Colombia, and to create a new regulated market for incineration of waste from public hospitals. The exercise compared the costs of incineration vs. the costs of landfill disposal.

The group noted that some of the relevant accounting items in EMA were not used in this analysis and offered suggestions to Mr. Salas on how to improve the procedures.

GERMANY

Mr. Alex Grablowitz of the Federal Ministry of Education and Research introduced the different activities under development in Germany. He also introduced the next two speakers.

Mr. Ralph Thurm of Siemens informed the group of the newly revised VDI 3800 Guidelines of the German Association of Engineers. He noted that in general statistics have appeared to show a decline in environmental investments by companies in Germany, but this is due to the fact that environmental investments were considered to include only end-of-pipe investments, and the majority of investments today are oriented towards pollution prevention. The VDI 3800 Guidelines are intended to assist companies in integrating environmental protection measures into EC statistics formats (EC 58/97, which refers to enterprise statistics).

The VDI Guidelines apply to investment costs, including production, product and other voluntary costs. The guidelines do not include the cost of externalities or investments in research and development. Other measures included are the cost of environmental management systems (EMS), remediation, communication, sponsoring and emissions trading. The group noted that the VDI Guidelines do not include calculations of the raw material value of waste.

Mr. Karl Schoer of the German Federal Statistics Office presented a review of the German government’s efforts to improve national environmental accounting efforts by using the United Nations System of National Accounts (SNA) and the System for Integrated Environmental and Economic Accounting (SEEA).

JAPAN

Mr. Shinichi Goto of the Japanese Ministry of Environment presented an update on the implementation of Japan’s national EMA guidelines. The national EMA guidelines are a voluntary set of procedures and accounts intended for use by Japan’s industries. Mr. Goto described the new software developed to support this highly successful programme.

PHILIPPINES

Ms. Maria Fatima Reyes is Chair of the Environmental Accounting Committee of the Philippine Institute of Certified Public Accountants (PICPA), which has 100,000 members and began work on environmental accounting issues in 1995. Among the PICPA programmes is a series of training courses that PICPA has developed in cooperation with the USEPA’s PRIME Project. These courses include a two hour course on “Introduction to Environmental Accounting” and a 2 day course on “Environmental Cost Assessment: profiting from cleaner production”.

ISO 14000 standards

Mr. Kim Christiansen of Sophus Berendsen (Denmark) is a representative of Denmark to ISO Technical Committee 207. Mr. Christiansen updated the group on recent developments in the ISO 14000 Environmental Management Standards and  provided his views on the applicability of EMA in EMS. EMA could be also be useful in alleviating concerns over the credibility of ISO 14000 certifications by providing accounting tools to assess impacts as described in the standards.

Mr. Christiansen also informed the group that a new discussion item and working group might be formed within TC 207 to address issues of communication. This discussion item is being sponsored by the delegations of Sweden and the United States to TC 207.

The group felt that this new discussion item and working group might present a very good opportunity to bring EMA concepts and principles into the ISO 14000 discussions.

Federation of European Accountants (FEE)

Mr. Johan Piet, chairman of the Environmental Working Party of FEE, described the work that the FEE has been doing on corporate environmental accounting issues since 1993. The FEE has published several discussion papers which can be accessed at http://www.johanpiet.com. The FEE will continue to work in this area as well as on “non-financial accounting” which includes social and environmental externalities.

A proposal was made by Mr. Piet and agreed to by the group to link the FEE site to the Division for Sustainable Development site with information on  the group’s work on EMA. The Expert Working Group’s reports will be made available to the members of the FEE through its website.

Exercise on EMA principles:  “What are environmental costs”

Ms. Reyes, supported by Ms. Deborah Savage of the Tellus Institute, directed an exercise on identifying environmental costs with the participation of the members of the Group. This exercise helped to establish a common basis of understanding of environmental costs.

The exercise used data from a real company case in the Philippines under a fictitious name.  The company in the case study produces aluminum foil pouches for fruit drinks. A sample of the product as well as a diagram of the production and waste management processes was shown to the participants. The participants were asked to identify potential environmental costs as well as measures by which the company could reduce these costs.

REVIEW OF THE DRAFT REPORTS

Report 1: Environmental Management Accounting Metrics: Procedures and Principles

This draft report was prepared by Ms. Christine Jasch and sponsored by the Austrian Ministry of Transport, Innovation and Technology. The draft report explains  the concept of EMA and its application using standard corporate cost accounting procedures. It also addresses improved inventory accounting procedures. 

Following a presentation by Ms. Jasch, the group conducted a detailed review of each section of the draft report. The review included discussion of terminology and language in order to clarify the complex technical concepts contained in the draft report. 

The group agreed to use the term “financial environmental management accounting (FEMA) rather than “monetary environmental management accounting (MEMA) in order to avoid confusion with terms related to financial accounting for external reporting. 

The group suggested that more emphasis should be given to environmental benefits resulting from use of EMA and not just the financial benefits, which are addressed extensively in the draft. 

Other concepts discussed were the difference between environmental costs and environment-related costs as well as the difference between EMA as proposed in this report and conventional environmental cost accounting. These comments were used in revising the draft report for publication. 

Report 2: Links between EMA and other Management and Accounting Systems

This draft report was prepared by Mr. Stephan Schaltegger, Mr. Tobias Hahn and Mr. Roger Burritt. The draft report was funded by the German Federal Ministry of Education and Research and Environment Australia. The report is to provide a general analytical approach for use by governments in developing policies to promote the use of EMA in industry. It explores the links between EMA and other systems and actors concerned with accounting information and the potential for using those links to promote EMA. It also provides an analysis tool to help in determining actors and systems which are particularly critical to the promotion of EMA and where government efforts might be most effective. 

The group suggested that the report should emphasize that the detailed analysis and conclusions in the report should be used as an example to be adapted by users to their particular situation, rather than as producing universally applicable conclusions. Analysis of effective links for promoting EMA should therefore be country specific, taking into account the different actors and their relationships. This analytical process may also be useful in developing self-assessment exercises for policy managers. 

The group proposed to test this analytical tool in some of the countries represented in the group. This proposal should be evaluated in the next meeting.  

The changes recommended by the group were used in revising the report for publication. 

Report 3:  Policy Pathways for Promoting EMA

This draft report was prepared by Ms. Deborah E. Savage and Mr. Paul Lingun of the Tellus Institute, Boston,  and  Mr. Johann Lomsek of the Joanneum Research Institute, Vienna. It was funded by The Austrian Ministry of Transport, Innovation, and Technology, the Joanneum Research Institute of Sustainable Techniques and Systems (JOINTS) and Environment Canada. 

This report includes case studies of policies which are currently in use by governments to promote EMA. The case studies refer to policies which expressly aim to promote EMA or EMA-like systems and not policies which may have an indirect effect on the use of EMA by industry. 

The group noted that most of the examples are policies implemented by national governments. This may have been due to the sources available to the authors. In almost all cases, the government agencies used outside consultants and five cases involved partnerships with accounting organizations. Most policies in these cases are intended to promote use of EMA in the manufacturing sector. Most programmes address both costs and material flows, but focus on costs. Over half of the cases reported promote EMA through external reporting requirements.  Most of the programmes are voluntary in nature or are intended to provide information on EMA. There are no cases involving economic incentives or regulatory relief to promote the use of EMA. 

The group highlighted the need to develop performance evaluation criteria for policy tools. The group decided to address this issue at its next meeting. Some of the criteria could be derived from report 2. 

After the discussion of the draft reports, the group discussed an “ideal” EMA policy design process, including the following elements: 

1)      Identify the audience, links and goals;

2)      Identify partners, and develop and select tools;

3)      Plan, implement, assess and institutionalize processes.