Expanding environmental management accounting

Int. J. Business Information Systems, Vol. 16, No. 2, 2014 doi:10.1504/IJBIS.2014.062834

Expanding environmental management accounting: an experimental construct to integrate material wastes and emission flows Somnath Debnath Department of Management, Birla Institute of Technology, Mesra, Ranchi – 835215, India E-mail: [email protected] Abstract: Within environmental management accounting (EMA) methodologies, material flow cost accounting (MFCA) has been successful in changing traditional attitudes of corporate organisations towards material wastes from production activities and supporting management with information to improve resource utilisations and material yields. However, EMA has not been able to expand itself beyond material wastes and cover greenhouse gas (GHG) emissions. On the contrary, GHG accounting has institutionalised itself as an independent framework to capture and report greenhouse gases from organisational activities and help firms manage its GHG related risks. The author proposes an experimental construct to integrate these two frameworks, based on their complementarity and commonality of organisational processes, and validates the construct with the help of a case example. The author believes that the proposed unification would help EMA to cover major environmental risks of businesses within single framework, help management with better information flow, and support environmentally-conscious decision-making. Keywords: environmental management accounting; EMA; green management accounting; material flow cost accounting; MFCA; GHG accounting. Reference to this paper should be made as follows: Debnath, S. (2014) ‘Expanding environmental management accounting: an experimental construct to integrate material wastes and emission flows’, Int. J. Business Information Systems, Vol. 16, No. 2, pp.119–133. Biographical notes: Somnath Debnath received his BSc with Honours in Physics from the Calcutta University, India and MBA from the Walden University, USA. He is a Certified Management Accountant (CMA) and associate member of the Institute of Cost Accountants of India. Currently, he is pursuing his PhD in the field of Management from the Birla Institute of Technology, Ranchi, India. His research interests include management accounting, green accounting, and decision sciences. He has extensive service and consulting experience in the fields of cost management, process automations, and ERP implementations. This paper is a revised and expanded version of a paper entitled ‘Expanding environmental management accounting: an experimental construct to integrate material wastes and emission flows’ presented at 1st International Conference on Best Practices in Supply Chain Management (BPSCM – 2012) in Bhubneswar, India, 22–23 November 2012.

Copyright © 2014 Inderscience Enterprises Ltd.

119

120

1

S. Debnath

Introduction

It has been nearly two decades since accounting practices were criticised by scholars for limiting itself within the economic arena of businesses and ignoring negative aspects generated from the unchallenged use of natural resources. Within the boundary of sustainability, accounting functions of organisations restricted itself to the economic realm and remained at a distance from the social and environmental responsibilities of firms (Gray and Babbington, 2001; Schaltegger, 1997). Environmental management accounting (EMA) is a conscious effort and the collective wisdom of scholars, researchers, academicians, and practitioners, which improvised conventional management accounting with environmental thinking. EMA has been defined as a set of methods, tools, and practices that can be employed by organisations to develop physical and financial flows of materials, water, energies, and resources, and help management with environmentally sensitive decision making (IFAC, 2005). Environmentally conscious accounting methods aim to satisfy internal stakeholders of firms – management and decision makers – with information on environmental impacts of business decisions and external stakeholders with environmentally responsible corporate reporting (Kolk, 2008; Chen and Roberts, 2010; Nikolaou and Evangelinos, 2012). Even though financial or economic priorities are mandatory parameters for businesses to satisfy, firms also lacked systemic understanding and interpretations of their actions on the environmental and social realms. Changing philosophies of business supported the use of innovative tools and techniques that resulted in considerable progress and helped management bring environmental considerations within the boundaries of corporate decision-making (Atkinson, 2008; Birkin et al., 2009). Though, these efforts are yet to capture the social realm to the fullest extent (Owen, 2008), considerable progress has been made in the direction of environmental embeddedness. Along with the growth of EMA methodologies, a number of other frameworks also came into existence – each one focused on a specific aspect of business-environment exchange. These included, but not limited to, different frameworks like, greenhouse gas (GHG) accounting (WRI and WBCSD, 2004), eco-efficiency measurements (WBCSD, 2000), triple bottom line (TBL) – G3 reporting (GRI, 2006), UN Compact, and so on. Considerable academic interests and corporate experiments have led to the expansion of these frameworks but without any convergence of the frameworks and taxonomies within the common boundary of environmental accounting. This has resulted in institutionalisation of multiple frameworks (Greenham, 2010), not to mention plurality of languages and associated rules (Papaspyropoulos et al., 2012). Still, it seems plausible that overlap of interests across different frameworks may lead to the integration of some of these within the common construct and improve the flow of information within organisational boundaries. This paper is an exploration in this direction and proposes integration of GHG accounting within EMA framework to generate integrated construct of waste and emission flows, by leveraging the material flow cost accounting (MFCA). To achieve this objective the rest of the paper has been arranged in the following manner: Next section covers the review of literature followed by the formulation of the construct in Section 3. Section 4 explores the validity of the construct with insights from real-life case example and discusses the result from the experiment. The final section summarises the findings and paves the way for future research.

Expanding environmental management accounting

2

121

Literature review

2.1 EMA and its methodologies USEPA (1995) was the first agency to promulgate the environmental cost accounting (ECA) and generate environmentally sensitive cost information. This was followed by waste accounting methodology, developed under the aegis of UNDSD (2001). The waste accounting methodology was the first accounting inspired methodology that used environmental cost drivers to identify and classify environmentally sensitive accounting data from the accounting ledgers. The method was simple to implement and successfully piloted around the world. The waste accounting method generated post-operative statement(s) that reflected environmentally sensitive incomes and expenditures of a firm. However, such restatements remained within the traditional boundary of financial accounting and did not incorporate environmental contingencies (Jasch, 2003, 2006). Other than that, the EMA techniques integrated environmental perspective in other decision making activities (Nikolaou, 2007; Schaltegger et al., 2012). During the same time, MFCA was developed by Institute fuer Management (IMU und Umwelt, Germany) and is based on process costing. While process costing allocates cost of all the ingredients to the finished product and follows the economic principle to transfer costs between by-products, joint, or co-products, MFCA differs on apportionment of costs on the basis of output quantities (including wastes), thereby treating wastes similar to that of joint products (in quantitative terms). This results in waste to be comprised of material and resource value, turned away from value chain. Following the principle of mass-balance, MFCA was able to bring an alternative interpretation of waste by associating economic importance to it (Onishi et al., 2009). Experiments conducted with MFCA within Japanese industries, reported improved yields and process efficiencies that resulted in reduced level of wastes (Nakajima, 2011). This helped EMA to grow as a management technique to analyse the internal processes of the organisation and reduce environmental impacts by improving material yields and resource efficiencies (Nakajima, 2009). However, MFCA did not alter the cost structure or incorporate costs that are contingent to and outside of the boundaries of the firm. In that sense, the transactional boundary of MFCA remained firm within the economic realm of businesses. Life cycle costing (LCC) is another methodology that has been improvised by researchers in last two decades. Though life cycle methodologies are not new and have been in practice for a while, it remained confined within the (mostly) construction industry, due to the involvement of substantial public funds and longer life of assets (Korpi and Ala-Risku, 2008). LCC studies the feasibility of projects by including the end-of-life expenditures of the project. The end-of-life costs may include demolition costs, site restoration, pollution, taxes that may get levied in future, and other uncertainties. While it can be argued that this is not a traditional cost accounting methodology, but more of a decision making approach (Steen, 2005), it brought environmental considerations within future costs and life-cycle thinking within decision making (Geissdoerfer et al., 2009) that broadened the notion of transactional ownership within accounting boundaries. Other than these methodologies, scholars devised other accounting and non-accounting-based methods that were experimented and tested throughout the last decade (Gray and Laughlin, 2012). However, it is difficult to find widespread diffusion of

122

S. Debnath

methods other than the ones already covered (Debnath et al., 2012). Most of the other methods are still in incubation and may need further support to evolve, e.g., use of ABC methodology (Tsai et al., 2010), environmentally sustainable accounting statements (ESAS) framework (Ismail et al., 2012), or other statistical methods. As a result, EMA offers a fertile ground for experimentation towards its methodological improvements and help organisations see adverse impacts of their decisions.

2.2 MFCA and Japanese experience Within EMA, MFCA ranks closest to the existing set of cost accounting tools. This method was popularised in Japan by the combined efforts of the Ministry of Economy, Trade and Industry (METI) and the Ministry of Environment (MOE) (Kitada et al., 2009). MFCA uses the principle of mass-balance and derives process waste by computing the difference between equivalent weights of output and input materials within a given process. The waste thus arrived at, gets converted into monetary value on the same principle as that of the final product and generates stage-wise physical quantities of waste and ‘waste value stream’. Value of the waste is derived as the sum of all direct and indirect costs (including overheads or system costs) discarded from production stream within the permissible boundary of materials ownership and costs (IFAC, 2005). MFCA modified the traditional outlook of waste by valuing it at par with the finished products and apportioning all costs that are traditionally borne by the finished products (Kokubu and Nashioka, 2005). Kokubu and Nakajima (2004) experimented with MFCA implementation by using case study method and provided in-depth analysis of EMA in Tanabe Seiyaku Co. The study traced material flow quantities at operational levels and wastes were recorded as negative products. The organisation used MFCA as an extension of existing SAP R/3 ERP system and the cost data were simulated to generate quantified waste value from different processes. Nakajima (2009) revisited the case studies on MFCA experiments that were carried out in four of the major Japanese organisations as pilot studies by METI in the previous decade and offered insights to use this cost accounting tool to help management with environmental cause. Explaining the details of MFCA through these cases, the paper revealed the improvements in resource productivity and material yields, and attributed the success of this tool to the visibility of losses within the material chain and its valuation of wastes, not available in the traditional cost accounting methods. Kitada et al. (2009) reviewed previous case studies of MFCA implementations in large Japanese organisations and contrasted the case findings from implementation of MFCA in Japanese SMEs. Similar to other studies, authors felt that this method helped in uncovering those aspects of wastes that were ignored earlier. In the case study of Nihon Denki Kagaku Co. Ltd., the company identified the process deficiencies and improvised the processes to generate lower waste and better quality levels. This study verified that SMEs are characterised by relatively weak negotiating position and fewer management resources, which can become constraints for successful implementations. Still, effective MFCA can help SMEs to improve resource productivities in shorter time frame. Kokubu and Kitada (2010) reasoned that since MFCA helps management to look at operations in a way that is different than the traditional costing approach, management may need to adopt non-traditional thinking to gain its full advantage. Based on the adoption of MFCA in three organisations and the concepts from responsibility accounting, the authors


123

illustrated different approaches within MFCA, which may present conflicting situations to the decision makers, if environmental decisions are weighed against the economic benefits. These case studies from Japan supported the ability of MFCA to improve organisational understanding of EMA and the role of environmental accounting practices in organisational decision-making. These studies also examined the practical utility and operational aspects of MFCA implementation (mostly) within the manufacturing industry. ISO (2010) released MFCA as draft standard – ISO 14051 – and introduced Quality Center (QC) as a unit of production, service, or warehouse, within which material flows can be studied. The new ISO standard can be considered a step closer to connect sustainability with quality and manufacturing functions (ibid). However, MFCA is not designed to include waste outside of the mass-balance, which supported EMA from not embracing emissions within its framework (Nakajima, 2011).

2.3 GHG Accounting GHG accounting is the process of inventorising the greenhouses gases, arising out of organisational activities and applies to six anthropogenic gases, covered in the Kyoto protocol. The accounting of GHG is based on the ownership of inventories that cannot be shared between different organisations. GHG accounting in the corporate world has been standardised with the voluntary efforts of WRI and WBCSD (2004), which produced multiple reporting standards to calculate and report GHG within organisational boundaries (GRI, 2006). The TBL reporting of GRI also advises reporting entities to follow GHG accounting standard for emission reporting in G3 format (ibid). GHG accounting follows the process of identifying the types of emissions (scope) associated with the organisational activities and classifies it accordingly. Scope 1 emission is associated with direct production of energy and/or electricity, owned and operated within the organisational boundary. Scope 2 emission is attributable to the consumption of electricity, sourced from external producers/distributors. Scope 3 emission is classified as all other emissions that do not fall in above two categories but associated to organisational activities. Scope 3 emissions can be generated due to purchase of materials, business travel, transportation of goods and services, customer services, and so on (WRI and WBCSD, 2004). In life cycle terminology, the GHG accounting covers anthropogenic emissions resulting within gate-to-gate cycle of business activities. GHG reporting standard on product life cycle is based on corresponding ISO standard – ISO 14064 (WRI and WBCSD, 2011), and is outside the scope of this discussion. The GHG standard for corporate reporting (WRI and WBCSD, 2004) serves as the basis for business organisations to create GHG inventory database and use it to monitor and lower baseline emission standards. This would also be useful particularly for organisations in countries, where emission norms are getting stringent and carbon permits are required to carry out business activities (Bebbington and Larrinaga-González, 2008). In a carbon constrained world, monitoring GHG inventory build and identifying hot-spots can always help businesses to manage its risk better and respond appropriately. The current futures of GHG/ton at the first experimental trading session of carbon commodity exchange in Europe (ETS) have indicated its wider ramifications in future for industries (Schultz and Williamson, 2005).

124

S. Debnath

In the review of literature on GHG, though limited, I could find articles that focused on suitable methods to allocate and reduce emission norms in maritime and tourism industries (Dwyer et al., 2010; Eide et al., 2011), different methods to measure corporate carbon footprint (Pandey et al., 2011; Randers, 2012), ramifications of Kyoto protocol and its impacts on Annex-1 countries for tradable carbon units, feasibility of carbon leakage due to clean development mechanism (CDM) and joint implementation (JI) projects (Gupta et al., 2008; Rosendahl and Strand, 2011), environmental accounting system (EMS) and its possible contribution towards GHG reduction (Galbreath, 2011; Hoyte and Johnson, 2006), and so on. However, few articles covered GHG from corporate accounting and decision-making perspectives. The lack of studies to cover accounting and control of GHG reduces the scope of discussion on its assimilation within the overall umbrella of EMA. Though, studies indicated a number of calculators available to calculate carbon footprint of businesses, but these efforts are limited to isolated quantifications of carbon prints. The author would like to argue that GHG inventory build-up and sequestration are direct results of organisational activities and it would be beneficial for organisations to consider emissions as integral part of environmental decision-making framework, instead of resorting to parallel and/or ad-hoc mechanisms. One of the ways to achieve this could the use of existing methodologies of EMA to capture and account for the GHGs, arising due to organisational activities. The experimental construct proposed in this paper is an effort in this direction.

3

Experimental construct to integrate GHG with EMA

MFCA is the technique, used in this paper to integrate EMA with GHG accounting. As explained earlier, MFCA is a close variant of process costing, wherein waste is calculated as the difference between input and output quantities by following the principle of mass-balance. Waste thus arrived at, is converted into equivalent monetary terms by apportioning the costs of raw material (RM) along with conversion and system costs (IFAC, 2005; MOE Japan, 2005). However, due to the involvement of mass-balance, MFCA cannot be used beyond manufacturing organisations or processes that are not based on fixed formula of mass conversion (e.g., services, maintenance, etc.) and would let the GHGs go unnoticed. One of the ways to improve the visibility of emissions is to use the MFCA to calculate and inventorize the GHGs, created or sequestered through organisational processes. The complementary strength of both these methods show promise beyond isolated waste stream mapping. The author would like to argue that without such integration, firms would have to implement separate systems to capture material wastes and emissions. An independent GHG accounting system may compute GHG at gross levels and this would need suitable drive to further allocate these to individual processes, very similar to the allocation process of overheads. This may lead to incorrect emission profiling of processes. Instead, a better way would be to create GHG metrics based on its causal linkage with the underlying processes. A properly linked GHG inventory creation process would help the organisations to define the hot spots better and improve accuracy of emission profiles. Besides, it would improve the inherent value content of the EMA toolkit. The integration of both the methods is based on the causal link of individual business processes and serves as the common foundation for both the frameworks.


125

Formulation: If a and b are the input materials participating in the process giving finished goods (FG) as c and d, and ε is the resulting difference in mass-balance, then, as per MFCA, waste created in process X is: (ε ) = (a + b) − (c − d )

(1)

Accordingly, the waste stream would be valued (per MFCA) as:

ε (in $) = ε (Q) *[(a(Q) *$a + b(Q) *$b + CC ] / [a (Q) + b(Q)]

(2)

where (Q)

equivalent physical quantities

$

rates per physical unit

and, CC (conversion costs) =

∑ RQ *$ i

i

(3)

where RQi = quantity of ith resource. The uniqueness of MFCA is not in the summation but to follow the iterative process to scale up the costs through every process and load the value on the outputs, proportionately. On the other hand, as per GHG accounting, GHG produced during process X would be: GHG ( in tCO 2 e ) = GHG(a + b) + GHG (CC)

(4)

Further, GHG (CC) = GHG (Energy) + GHG (Other resources)

(5)

It is visible that both the frameworks depend on the materials and energy used in the conversion processes. Accordingly, these two lines of analyses can be integrated by leveraging the commonality of processes. The proposed unification can be formulated through following steps: Step 1

Consider a manufacturing process comprised of multiple stages of conversion, sequenced as 1, 2, 3, ………, n. MFCA would generate data on fuel consumption at every stage of the conversion and associated costs. Using standard calorific value of the fuel (E1, E2, E3, …, En), the equivalent energy content (EFa, EFb, …, EFx, etc.) consumed during every step can be calculated.

Step 2

The total emissions for the period would be the sum total of respective emission quantities (G1, G2, G3, …, Gn) calculated based on emission factors (EF) corresponding to the individual fuel types. If Gtotal represents total emission for the cumulative energy consumption during period ‘t’, it can be calculated as:

Gtotal =

∑∑ E

nf

* EF f KKKKKKK during time period ‘t’

where Enf

equivalent energy input summed over ‘n’ processes for fuel type ‘f’

(6)

126

S. Debnath EFf

emission factor for specific GHG corresponding to fuel type ‘f’.

To account for sources and sinks of GHG emissions, the equivalent energy value can be added or reduced depending on the direction of use. The modified expression can be represented as: Gtotal =

∑∑ S

f

* EF f * EF f KKKKKKK during time period ‘t’

(7)

where Sf = source or sink (represented as +1 or –1 or vice-versa). Depending on the creation or sequestration in a process, the emission quantities can be recorded as positive (debits) or negatives (credits) to the emission (GHG) stock account. This process covers scopes 1 and 2 emission. Step 3

To build scope 3 emissions as part of this construct, GHG profile associated with support activities are to be created. The scope 3 emissions can be loaded to the production activities based on direct calculation of GHG, required to bring the materials to present state or, allocate otherwise.

Since MFCA has already been used to capture the waste stream by using mass balance, integration of GHG construct would help to cover another dimension of environmental aspects in equivalent physical quantities. Needless to mention, in this experimental construct, MFCA plays the important role of providing the basis of causal linkages to individual processes within the value chain functions and associate GHG inventories to its sources.

4

An example – to validate the experimental construct

To validate the construct, a real-life case study is being discussed here. This case study was conducted by the author in one of the fruit processing units (FPP, hereafter) of Mother Dairy Pvt. Ltd., India, to study the feasibility of implementing MFCA in Indian environment. The case study has been leveraged to experiment with the proposed construct in this paper. FPP is an ISO 9001:2004 and HACCP (hazard analysis and critical control points) certified production unit and specialises in manufacturing of pulps and concentrates of tropical fruits, e.g., mango, guava, banana, papaya, pomegranate, etc. The pulps and concentrates are natural extracts of these fruits, hermitically packed and sealed in aseptic bags of standard pack sizes of 1 kg (in sample bags), 20 kg (in corrugated boxes), and 200 to 250 kg (in steel drums). The products are of standard specifications and sold in the domestic and international markets. The operational layout (Figure 1) shows that the RMs (fruits) move through the process stages of procurement (P1), ripening (P2), processing (P3), and warehousing (P4). The finished products (fruit pulps and concentrates) are transported (P5) to local and international manufacturers of different types of food products, e.g., fruit drinks, ice creams, concentrated flavours, etc. Table 1 shows process-wise break-up of material flow output quantities in physical and financial terms (per MFCA). The physical quantities are in metric tons (MT) and the financial figures are in Indian Rupees (INR). Financials figures in the study are based on market estimates as the organisation was keen on sharing costing data.

Expanding environmental management accounting Figure 1

Table 1

Schematics of FPP operations with materials, energy, waste, and GHG flows (see online version for colours)

Operational input-output data using MFCA construct (in physical and financial terms) Material inputs (A)

Processes

Qty (MT)

P1

5,000

85,436

P2

4,548

85,436

Value (INR)

Conversion

Waste1

Material outputs (B)

Costs (INR)

Qty (MT)

-

Value (INR)

Qty (MT) (A)–(B)

Value (INR)

4,458

85,436

452

0

469,475

4,172

554,911

376

53,592

887

1,385,834

P3

4,172

554,911

4,637,270

3,285

5,192,181

P4

3,285

5,192,181

14,552,550

3,285

19,744,731

5,000

85,436

19,659,295

3,285

19,744,731

Total

127

1,715

7,591,353

1

Notes: Material input is output from previous process, net of wastes. Waste valuation is as per MFCA. Waste from P1 is estimated and on suppliers’ a/c, so not valued.

Table 2 shows the generation of the GHG profile based on the consumption of energy and transportation of materials. The transportation of RM and FG is converted into product travel (t-km), before applying conversion norms to derive GHG flow. GHG flow is measured in equivalent tons of CO2 (tCO2e). The GHG profile in Table 2 is based on EF selected for conversion process as per UNFCCC Project Reference # 1497 (Fresenius Kabi India Private Limited, 2009). EF of electricity is as per Central Electricity Authority (2011) and transport load (by road) as per emission norms of Indian road transport for Truck and Lorries [heavy duty diesel engine with capacity > 3.5 ton/gross vehicle weight (GVW)] (Ramachandra and Shwetmala, 2009) for aggregate 186,000 km (461 consignments of raw fruits) inward and 1,920 km (96 consignments of local dispatch with assumed average distance of 20 km)

128

S. Debnath

outward product travel. The next exercise is to show the limitations of traditional GHG framework that works at aggregate levels of resource consumption. GHG profiling of organisation processes (using proposed framework)

Processes

Table 2

P1

Raw materials transport (scope 3)

Conversion (scope 2)

(t-km) (tCO2e)

(tCO2e)

Energy consumed (scopes 1 and 2) (kWh)

(tCO2e)

Finished goods transport (scope 3) (t-km)

(tCO2e)

22,190 11,703

(tCO2e) 11,703

P2 P3

80,562

P4

93,895

92,017

92,017

561,541

550,311

630,873

268,907

263,529

263,529

P5 Total 22,190 11,703 Table 3

Emission profile

80,562

924,343

905,857

96,000

50,630

50,630

96,000

50,630

1,048,752

Step-down allocation of aggregate GHG (in tCO2e) on FPP processes (in absence of GHG profile)

Particulars1

Total

P1

P2

P3

P4

P5

-

-

-

-

Total unallocated emission

1,048,752

-

Step 1 allocation using energy consumption (924,343 kWh)

(986,419)

-

Step 2 allocation using transported quantities (9,800 MT)

(62,333)

Allocated emission Actual emission Under/(over) allocation (actual – allocated)

1,048,752 -

31,802

100,201

-

599,252

-

286,966

-

-

30,531

31.802

100,201

599,252

286,966

30,531

11,703

92,017

630,873

263,529

50,630

(20,099)

(8,184)

31,621

(23,437)

20,099

Note: 1All figures for emissions are in tCO2e, unless otherwise specified.

In the absence of the GHG profile of individual processes, organisations may choose to allocate overall GHG quantities on to the individual processes by using suitable allocation driver. Assuming annual GHG load of 1,048 MTCO2e (due to energy and total product travel only) at FPP, Table 3 uses suitable process driver to perform step-down allocation of emissions over the processes. The first level allocation is performed based on the electricity consumption and second one is based on application of transportation tonnage (product travel) on residual (unallocated) amount. Finally, GHG allocated to the processes from the exercise is compared with real GHG profile derived from the application of extended EMA framework (from Table 2).


129

4.1 Results and discussion The result in Table 1 is derived based on MFCA, where the value of waste is derived by apportioning the costs based on the physical output quantities. It show that 5,000 MT of raw fruit generated 3,285 MT of FG and 1,715 MT of waste (34% yield) with accumulated waste value of INR 7.6 million (38.4% waste value chain). The exercise has used suitable financial proxies where the value of the ingredients involved in the recipe was not available. The data from Table 1 provide inputs to create GHG profile of processes (Table 2). For the purpose of this analysis, the GHG profile is limited to: a

energy consumption of selected processes (scopes 1 and 2)

b

transportation of RMs and FG (scope 3).

Triangulation of data from both the tables reflects the generation of 1,049 MTCO2e of GHG to procure, process, and dispatch 5,000 MT of raw fruits. The production efficiency shows that processing of 4,548 MT of raw fruits generated major portion of the GHG (≈ 95%), 217 tCO2e per MT of raw fruit. On the other hand, inward and outward transportation generated GHG load of 13 tCO2e per MT of materials transported. In this exercise, only local dispatch (of 20 km radius) of FG by road has been considered. GHG generated due to export sale through international shipping has not been considered. Table 3 indicates allocation of GHG to the processes by using suitable process drivers created absolute deviation of 52 MTCO2e. In conventional GHG accounting, the overall exposure is derived at aggregate level that might not follow process orientation. Even if it follows, there are no efforts to tie back emissions to process flow. This would require redistribution of emissions on individual processes. In this illustration, the allocation process has used energy consumption and transport load to distribute the cumulative GHG quantities on to the processes. The results show generation of GHG profile (using traditional allocation method) that is different from the actual emission profile of the process (reflected in over- or under-allocation). Inaccurate emission loading may introduce significant bias in corporate decision-making. The study is limited in its approach to consider few of the GHG sources to validate the proposed construct. The frugality in approach while considered to be a limitation of the article was confined to derive the implications of instituting parallel controlling approaches within wastes and emissions. Also, use of single case study is limited to experiment with the construct and demonstrate its feasibility within organisational boundary. More of such studies within organisations would help to broaden its applicability. Organisations would do well to initiate studies on integrated outflow of environmental aspects. Future streams of research may also focus to use this construct as part of information backbone of firms and support for decision-making activities.

5

Conclusions

This research paper experimented with two pro-environmental frameworks by using causal linkage of organisational activities and proposed integrated construct of material wastes with GHG flows. The GHG contribution by various processes within a manufacturing site can be accounted as part of its emission flow, generated due to the organisational activities and involves production and/or consumption of energy. This

130

S. Debnath

would result in directly capturing emissions within scopes 1 and 2. The integrated framework also covered environmental aspects from other support activities, which cannot always be linked to the production activities directly and form part of scope 3 emissions. Using transportation as source and using resource-based accounting the construct loaded scope 3 emissions on manufacturing operations and develop integrated emission profiles of processes. Without an integrated framework, firms would carry the inherent risk of maintaining multiple systems and use allocation process to distribute GHGs across organisational processes. However, such allocations may lead to incorrect GHG profiling. In comparison, the integrated framework shows that the flow cost accounting can be leveraged to derive GHG accounting and support organisations with improved information on waste generation, resource and energy consumption, and emission profiling. The strength of the concept lies in the verifiability and traceability of wastes and emissions that saves its causal linkages with respective sources. As a result, the combined framework works better than the individual ones. The future scope of research may involve testing the framework within organisations and assimilate contextual issues within the construct. This will help the framework to acquire contextual diversity and get acclimatised as industrial applications. Though, the integrated framework is able to handle physical and financial data as part of its computational capability, it fails to generate temporal account of performance, unless the derived results are captured as part of an accounting framework. Without such integration, it will remain as a computational mechanism that can be used for operational reporting. The author hopes that its support can be leveraged to develop SEA framework and institutionalise extended liabilities of firms. Future areas of research can also study the integration of the proposed framework within the overall information network of an organisation and its support to environmental management system (EMS). The author hopes that the proposed framework would broaden the coverage of EMA and support improved flow of information to help management with environmental sensitive decision-making – the fundamental reasons for the existence of EMA.

Acknowledgements The author acknowledges the support of Mr. S.K. Pande, Factory in-charge of Mother Dairy Fruit and Vegetable Project Pvt. Ltd., Mumbai, for his support to the study. The author would also like to thank anonymous reviewers of IJBIS for their comments and suggestions, which improved the overall quality of the manuscript.

References Atkinson, G. (2008) ‘Sustainability, the capital approach and the built environment’, Building Research & Information, Vol. 36, No. 3, pp.241–247. Bebbington, J. and Larrinaga-González, C. (2008) ‘Carbon trading: accounting and reporting issues’, European Accounting Review, Vol. 17, No. 4, pp.697–717. Birkin, F., Polesie, T. and Lewis, L. (2009) ‘A new business model for sustainable development: an exploratory study using the theory of constraints in Nordic organizations’, Business Strategy and the Environment, Vol. 18, No. 5, pp.277–290.


131

Central Electricity Authority (2011) CO2 Baseline Database for the Indian Power Sector: User Guide (Ver 6.0) [online] http://www.cea.nic.in/reports/planning/cdm_co2/user_guide_ver6.pdf (accessed 15 May 2012). Chen, J.C. and Roberts, R.W. (2010) ‘Toward a more coherent understanding of the organization-society relationship: a theoretical consideration for social and environmental accounting research’, Journal of Business Ethics, Vol. 97, No. 4, pp.651–666. Debnath, S., Bose, S.K. and Dhalla, R.S. (2012) ‘Environmental management accounting: an overview of its methodological development’, International Journal of Business Insights and Transformation, Vol. 5, No. 1, pp.44–57. Dwyer, L., Forsyth, P., Spurr, R. and Hoque, S. (2010) ‘Estimating the carbon footprint of Australian tourism’, Journal of Sustainable Tourism, Vol. 18, No. 3, pp.355–376. Eide, M.S., Longva, T., Hoffmann, P., Endresen, Ø. and Dalsørenz, S.B. (2011) ‘Future cost scenarios for reduction of ship CO2 emissions’, Journal of Maritime Policy Management, Vol. 38, No. 1, pp.11–37. Fresenius Kabi India Private Limited (2009) Boiler Fuel Conversion from RFO to Biomass Based Briquettes at Fresenius Kabi India Private Limited, UNFCCC Reference Number – 1497, Ranjangaon (M.S.), India [online] http://cdm.unfccc.int/Projects/DB/ DNV-CUK1199787528.27/view (accessed 8 May 2012). Galbreath, J. (2011) ‘To what extent is business responding to climate change? Evidence from a global wine producer’, Journal of Business Ethics, Vol. 104, No. 3, pp.421–432. Geissdoerfer, K., Gleich, R., Wald, A. and Motwani, J. (2009) ‘State and development of life-cycle cost analysis models in strategic cost management’, Production and Inventory Management Journal, Vol. 45, No. 1, pp.66–79. Gray, R. and Babbington, J. (2001) Accounting for the Environment, 2nd ed., Sage Publications, UK. Gray, R. and Laughlin, R. (2012) ‘It was 20 years ago today – Sgt Pepper, Accounting, Auditing & Accountability Journal, green accounting and the Blue Meanies’, Accounting, Auditing & Accountability Journal, Vol. 25, No. 2, pp.228–255. Greenham, T. (2010) ‘Green accounting: a conceptual framework’, International Journal of Green Economics, Vol. 4, No. 4, pp.333–345. GRI (2006) Indicator Protocols Set – Environment, Global Reporting Initiative, Amesterdam, The Netherlands [online] http://www.globalreporting.org/ (accessed 18 December 2011). Gupta, J., van Beukering, P., van Asselt, H., Brander, L., Hess, S. and van Der Leeuw, K. (2008) ‘Flexibility mechanisms and sustainable development: lessons from five AIJ projects’, Climate Policy, Vol. 8, No. 3, pp.261–276. Hoyte, P.A. and Johnson, J.D. (2006) ‘Integrated Emissions Data Management Framework™ for government and corporate greenhouse gas data management, modeling and reporting’, US EPA 15th Annual International Emissions Inventory Conference, New Orleans. IFAC (2005) International Guidance Document – Environmental Management Accounting, International Federation of Accountants, New York, USA. Ismail, R., Forgie, V. and Khalid, K. (2012) ‘Bridging the environmental gap between the accounting and economic disciplines’, American Journal of Finance and Accounting, Vol. 2, No. 4, pp.297–310. ISO (2010) Environmental Management – Material Flow Cost Accounting – General Framework – Draft International Standard ISO/DIS 14051, International Organization for Standardization, International Organization for Standardization, Geneva. Jasch, C. (2003) ‘The use of environmental management accounting (EMA) for identifying environmental costs’, Journal of Cleaner Production, Vol. 11, No. 6, pp.667–676. Jasch, C. (2006) ‘Environmental management accounting (EMA) as the next step in the evolution of management accounting’, Journal of Cleaner Production, Vol. 14, No. 14, pp.1190–1193.

132

S. Debnath

Kitada, H., Okada, H. and Kokubu, K. (2009) ‘Material flow cost accounting at Japanese medium size company’, 8th Australasian Conference on Social and Environment Accounting Research, CSEAR 2009, Christchurch, New Zealand. Kokubu, K. and Kitada, H. (2010) ‘Conflicts and solutions between material flow cost accounting and conventional management thinking’, 6th Asia-Pacific Interdisciplinary Perspectives on Accounting Research (APIRA), University of Sydney, Sydney [online] http://apira2010.econ.usyd.edu.au/conference_proceedings/. Kokubu, K. and Nakajima, M. (2004) ‘Material flow cost accounting in Japan: a new trend of environmental management accounting practices’, Fourth Asia Pacific Interdisciplinary Research in Accounting Conference, Singapore, July, pp.1–16. Kokubu, K. and Nashioka, E. (2005) ‘Environmental management accounting practices in Japan’, in Rikhardsson, P.M., Bennett, M., Bouma, J.J. and Schaltegger, S. (Eds.): Implementing Environmental Management Accounting, pp.321–342, Springer, Dordrecht, The Netherlands. Kolk, A. (2008) ‘Sustainability, accountability and corporate governance: exploring multinationals’ reporting practices’, Business Strategy and the Environment, Vol. 18, No. 1, pp.1–15. Korpi, E. and Ala-Risku, T. (2008) ‘Life cycle costing: a review of published case studies’, Managerial Auditing Journal, Vol. 23, No. 3, pp.240–261. MOE Japan (2005) Environmental Accounting Guidelines, Ministry of the Environment, Japan. Nakajima, M. (2009) ‘Evolution of material flow cost accounting (MFCA): characteristics on development of MFCA companies and significance and relevance of MFCA’, Kansai University Review of Business and Commerce, Vol. 11, pp.27–46. Nakajima, M. (2011) ‘Environmental management accounting for cleaner production: systematization of material flow cost accounting (MFCA) into corporate management system’, Kansai University Review of Business and Commerce, Vol. 13, pp.17–39. Nikolaou, I. (2007) ‘Environmental accounting as a tool of qualitative improvement of banks’ services: the case of Greece’, International Journal of Financial Services Management, Vol. 2, Nos. 1/2, pp.133–143. Nikolaou, I. and Evangelinos, K. (2012) ‘Financial and non-financial environmental information: significant factors for corporate environmental performance measuring’, International Journal of Managerial and Financial Accounting, Vol. 4, No. 1, pp.61–77. Onishi, Y., Kokubu, K. and Nakajima, M. (2009) ‘Introducing material flow cost accounting into a pharmaceutical company: an analysis of environmental management accounting practice in Japan’, in Schaltegger, S., Bennett, M., Burritt, R.L. and Jasch, C. (Eds): Environmental Management Accounting for Cleaner Production, Eco-Efficiency in Industry and Science, pp.395–409, Springer, New York, USA. Owen, D. (2008) ‘Chronicles of wasted time?: A personal reflection on the current state of, and future prospects for, social and environmental accounting research’, Accounting, Auditing & Accountability Journal, Vol. 21, No. 2, pp.240–267. Pandey, D., Agrawal, M. and Pandey, J.S. (2011) ‘Carbon footprint: current methods of estimation’, Environment Monitoring and Assessment, Vol. 1, No. 4, pp.135–160. Papaspyropoulos, K.G. et al. (2012) ‘Challenges in implementing environmental management accounting tools: the case of a nonprofit forestry organization’, Journal of Cleaner Production, Vols. 29–30, pp.132–143. Ramachandra, T.V. and Shwetmala (2009) ‘Emissions from India’s transport sector: statewise synthesis’, Atmospheric Environment, Vol. 43, No. 34, pp.5510–5517. Randers, J. (2012) ‘Greenhouse gas emissions per unit of value added (‘GEVA’) – a corporate guide to voluntary climate action’, Energy Policy, Vol. 48, pp.46–55. Rosendahl, K.E. and Strand, J. (2011) ‘Carbon leakage from the clean development mechanism’, The Energy Journal, Vol. 32, No. 4, pp.27–50. Schaltegger, S. (1997) ‘Information costs, quality of information and stakeholder involvement – the necessity of international standards of ecological accounting’, Eco-Management and Audit, Vol. 4, No. 3, pp.87–97.


133

Schaltegger, S., Viere, T. and Zvezdov, D. (2012) ‘Paying attention to environmental pay-offs: the case of an Indonesian textile manufacturer’, International Journal of Global Environmental Issues, Vol. 12, No. 1, pp.56–75. Schultz, K. and Williamson, P. (2005) ‘Gaining competitive advantage in a carbon constrained world: strategies for European business’, European Management Journal, Vol. 23, No. 4, pp.383–391. Steen, B. (2005) ‘Environmental costs and benefits in life cycle costing’, Management of Environmental Quality, Vol. 16, No. 2, pp.107–118. Tsai, W-H., Lin, T.W. and Chou, W-C. (2010) ‘Integrating activity-based costing and environmental cost accounting systems: a case study’, International Journal of Business and Systems Research, Vol. 4, No. 2, pp.186–208. UNDSD (2001) Environmental Management Accounting Procedures and Principles, United Nations, New York. USEPA (1995) An Introduction to Environmental Accounting as a Business Tool: Key Concepts and Terms, USEPA, Washington, DC, USA. WBCSD (2000) Eco-Efficiency – Creating More Value with Less Impact, WBCSD, Geneva, Switzerland. WRI and WBCSD (2004) The Greenhouse Gas Ppotocol – A Corporate Accounting and Reporting Standard, WBCSD, Geneva, Switzerland and WRI, Washington, DC, USA. WRI and WBCSD (2011) GHG Protocol – Product Life Cycle Accounting and Reporting Standard [online] http://www.ghgprotocol.org (accessed 14 July 2012).