working paper no. 2014/39 environmental management accounting
TRANSCRIPT
Working Paper No. 2014/39
Environmental management accounting and environmental management in manufacturing industries in Uganda Ruth Namakonzi¹ and Eno Inanga²
27 October 2014
© The authors, 2014
¹ P.O. Box 5048, Kampala, Uganda. E-mail: [email protected] ² Corresponding author. Maastricht School of Management, Endepolsdomein 150, 6229 EP Maastricht. Postbus 1209, 6201 BE Maastricht The Netherlands. E-mail: [email protected]
The Maastricht School of Management is a leading provider of management
education with worldwide presence. Our mission is to enhance the management
capacity of professionals and organizations in and for emerging economies and
developing countries with the objective to substantially contribute to the
development of these societies.
www.msm.nl
The views expressed in this publication are those of the author(s). Publication does not imply
endorsement by the School or its sponsors, of any of the views expressed.
1
ENVIRONMENTAL MANAGEMENT ACCOUNTING AND ENVIRONMENTAL
MANAGEMENT IN MANUFACTURING INDUSTRIES IN UGANDA
BY
Ruth Namakonzi
P.O Box 5048, Kampala
UGANDA
e-mail; [email protected]
And
ENO L. INANGA*
Maastricht School of Management
Endepolsdomein 150, 6229 EP Maastricht
Post Bus 1203, 6201 BE Maastricht
THE NETHERLANDS
E-mail: [email protected]
* Corresponding author
ABSTRACT
Given the importance of the environment and the attention environmental issues are
currently receiving from public and private organisations, it has become crucial for
companies, especially in manufacturing industries, to consider the impact of their
activities on the environment. This is because the large amount of material, energy and
water consumed by these industries constitute a major source of carbon dioxide, waste
and effluents emissions. The aim of this study is to find out what actions, if any,
manufacturing industries in Uganda are taking to enhance effective environmental
management, the extent to which environmental management accounting (EMA) is
applied, as well as costs and challenges that these industries face in the process of
implementing EMA to achieve effective environmental management.Some of the study
findings reveal that manufacturing companies in Uganda are, indeed, taking
environmental issues seriously. Some companies are adopting internally developed
environmental policies, setting environmental goals and objectives. Some
manufacturing firms have encountered challenges in achieving set environment
management goals. The greatest of these challenges arer difficulties in defining,
separating, identifying, classifying, measuring and controlling environmental protection
costs. Others include inaccessibility to environmental management technologies,
limitknowledge and training, endemic corruption and inadequate legislation. The study
ends with recommendations and suggests areas for further research.
Keywords: Environmental Management Accounting (EMA); Environmental
management; Environmental costs and manufacturing industries.
Biographical Notes;
Ruth Namakonzi is currently upgrading her Internal Audit skills in International Criminal
Court in The Hague, The Netherlands. Prior to this, she was a Tax Auditor in Uganda
Revenue Authority in Uganda. She is also currently finalizing her ACCA studies. She
also studied in Maastricht School of Management (MsM) in The Netherlands
specializing in Accounting and Finance and holds the MBA degree of that institution.
Before her studies in MsM, she also studied for the Bachelor of Commerce degree in
Accounting in Makerere University in Uganda.
Eno L. Inanga is Emeritus Professor and former Head of Accounting and Finance in
Maastricht School of Management, The Netherlands. Before then, he was Dean of the
faculty of the Social Sciences, and later Head of the Department of Economics at the
University of Ibadan in Nigeria. He studied Accountancy at the University of Nigeria as a
Federal Government Scholar and Accounting and Finance at The London School of
Economics and Political Science in the University of London, as a Commonwealth
Scholar. He is an Academic Fellow of the Association of International Accountants in
the United Kingdom.
7
Section 1: INTRODUCTION
1.1 Issues
Environmental issues have become a global concern in the rent decades. Most of the
environmental issues and challenges are related to continuous consumption of
materials, energy and water by companies, resulting in depletion of these resources. In
addition uncontrolled emission of toxic gases, waste and effluents in the water and air
by the companies also has adverse effects on the environment. Climate change, global
warming, ozone depletion and nitrifications, are some of the well-known consequences
of these negative impacts of activities of manufacturing industries on the environment.
Environmental impacts by corporations are now attracting serious concern from the
public, governments, businesses, media and other stakeholders. This concern became
more alarming when such incidents as the Bhopal chemical leak of 1984, the Exxon
Valdez oil spill of 1989, began to attract public attention. Need for changes in
environmental legislation and standards began to gain more prominence in public
debates. Many environmental pressure groups gradually emerged calling for a more
healthy environment. Examples of such pressure groups incclude Green Peace, Friends
of the earth who have advocated for change in how organisations manage their
business activities. Many International organisations like United National Division for
Sustainable Development (UNDSD), United Nation Environment Programme (UNEP),
United Nations Development Programme (UNDP) and Organisation for Economic Co-
operation and Development (OECD) are among International Organisations currently
advocating for better and healthier environmental management by promoting more
research and initiatives.
Recognising the need for change in how they do their business, management of
organisations are now voluntarily accepting to address the impact of their organisations’
activities on the environment. Kevin Clarke and Sharron O’Neill, (2006; 115) stated that
‘The concept of sustainable development has become central to the way environmental
issues are examined by both business and governments. Organisations are now
considering sustainability and environmental management issues to the extent of
including them in the objectives and goals of the organisations due to economic and
non-economic incentives. Some organisations are now adopting Environmental
Management Systems (EMS), while the number of those having International Standards
Organisation (ISO) certification is increasing worldwide. Most of these certificates have
been issued to companies in developed countries and Asia. Developing countries like
Uganda have few ISO 14001 or 9001 certifications. For instance, a survey conducted in
December, 2008 revealed that out of the world wide 982,832 ISO 9001 certifications;
Uganda had 44, compared to Kenya which had 257 and Tanzania which had only 12.
The same survey also revealed that out of the 188,815 ISO 14001 certifications,
Uganda had only 6, compared to Kenya which had 28 and Tanzania had only
3.(Za.dqs-ul.com visited on 24/06/2011).
1.2 Benefits
Some organisations, especially manufacturing industries, are now using Environmental
Management Accounting (EMA) to promote environmental management and are
reaping the benefits from its use. Decision makers need to understand the monetary
and physical value of resources like raw materials, water and energy and the value of
waste generated and disposed, the cost of environmental protection like pollution
reduction and waste management which can be promoted through EMA. Studies of
EMA a recent management accounting tool of EMS have attracted vast attention in the
recent years. This is because EMA promotes identification, assessment and allocation
of Environmental costs in industries which costs have increased in the recent years.
Identifying such costs promotes better decision making and better utilisation of
resources. In addition, it gives an incentive to management to save on environmental
protection costs such as pollution reduction, fines, waste management, legal fees,
monitoring, insurance, and regulatory reporting and consequently improve the
environment.
A recent study by Wei Qian, Roger Burritt and Gary Monroe, (2011) recognised the
need for more studies in the area of EMA as expressed by many other authors. This
study is intended to discover what manufacturing industries in Uganda are doing to
promote effective environmental management and the extent to which EMA is applied in
the industries. The motivation for the choice of industry stems from the fact that
manufacturing industries consume great amount of resources and are a major source of
waste, pollution and other toxic emission which are harmful to the environment. Wendy,
Chapple, Richard Harris and Catherine. J. Morrison Paul, (2006) stated that the largest
proportion of waste disposed in landfills stems from manufacturing, Fitzpartrick, Doreen
D, (1995) adds that of the total material used, only 80-85 percent is used in production
and the rest is waste or pollution. As a major consumer of resources and a major source
of waste and pollution, manufacturing industries have a major role to play in
environmental management and sustainability.
1.3. Problem Statement
K. Clarke et al, (2006:115) stated that the ‘Increasing public awareness of
environmental impact of organisations and the need for sustainable development has
changed the environmental performance expectations of influential stakeholder groups
within society’ Environmental cost and performance information is now increasingly
being demanded from companies and accountants in particular. On the other hand,
businesses are finding difficulties in providing this information because of difficulties
related to identification, classification, measuring, allocating, controlling and in
managing environmental related issues. Deegan and Gordon 1996 cited in
Watchaneeporn Setthasakko (2010:316) also support this view and stated that ‘the
amount of environmental information reported by companies remains limited and differs
widely in terms of quality’
Conventional management accounting systems can neither fully provide this information
nor can they properly deal with the environmental costs. They allocate these costs to
overheads thereby making them hidden from management and executives.
Consequently, wrong decisions are made due to failure in knowing the extent of these
costs which are increasing due to changes in legislation and other factors. This would
have a significant impact of the performance of the company as stated that ‘Failure to
rely on appropriate accounting information may contribute to ineffective resource
management and a gradual decline in organization performance’ Tuan Zainun Tuan Mat
Malcom Smith and Hadrian Djajadikera, (2010:54). ‘Failing to reform management
accounting practices to incorporate environmental concerns, makes organizations
unaware of the impact on profit and loss accounts and the balance sheet impact of
environment-related activities’ Shane Johnson, (2004) If organizations fail to incorporate
the environmental concerns, they may miss out identifying better opportunities for cost
reduction and for improvement. They may also employ wrong decisions like product
pricing mix decision. ‘This leads to a failure to enhance customer value, while increasing
the risk profile of investments and other decisions with long-term consequences. If
management accounting as a discipline is to contribute to improving the environmental
performance of organizations, then it has to change’ Shane Johnson, (2004:2).
1.4 Responses
This calls for accountants to adopt and understand better environment management
and accounting systems that can aid in identification, classification, allocation and
control of environmental costs for better decision making and better environmental
management among other benefits. Roger Adams, (2002) affirms that much of the
interest surrounding environmental issues has been directed at external reporting and
financial accounting and less in EMA which is intended for internal decision making.
EMA provided both monetary and physical information which can also be a basis and
useful for external reporting. Many researchers including Bouma and Van der Veen,
(2002), Burritt, (2004) cited in Qian et al, (2011) called for more research in
environmental management accounting because accounting researchers have given
little attention to EMA. But awareness of environmental issues is increasing which
makes EMA a necessary tool for running business.
‘Globalization has changed external environmental factors in developing countries,
which in turn affect the internal operations of organization as well as their management
accounting practices’ T. Zainun et al, (2101:54). Many EMA studies that have been
written have focused on developed countries and other Asian countries. Few papers
have been written on Africa and no study was done on Uganda particularly Uganda’s
industries. Besides having limited research, limited training causes accountants to have
limited knowledge in this area.Uganda being a developing country is still facing
challenges in developing better environmental management systems due to
inaccessibility to environmental technologies, limited enforcement of environmental
standards and laws, corruption, limited training, limited funds. Michael G.Faure,
(1995:5) states that the population in most of the developing countries have less value
to environmental protection. This attitude is however changing as per the, National
Environment Management Authority (NEMA) report (2008:1) ‘ the overall picture from
the report is that following considerable effort at integrated assessment and reporting on
the environment, many Ugandans increasingly understand the link between the
environment and human well-being.’
The report also points out that Uganda is highly vulnerable to variability in climate
because the economy heavily relies on climate dependent resources. ‘This vulnerability
to climate change is likely to increase because of rampart poverty, weak institutional
capacity, lack of skills on climate change adaptability, inadequate skills and equipment
for disaster management, limited financial resources and an economy which depends
entirely on exploitation of its natural resources. NEMA, (2008;2) The recent budget
speech, stated that one of the reason for the rising food prices is poor rainfall and
drought which have affected food production and supply in the country hence the
increasing the prices. Besides climate changes, other problems like land degradation,
depletion of natural resources, waste, poor soils, water and air pollution are on the
increase. Industries particularly manufacturing industries have a big role to play in
conserving the environment by employing better Environmental management systems
like EMA to promote effective environmental management and benefit the company as
well. This leaves a lot to be desired in the aspect of environment management and call
for serious change in the way organisations like the manufacturing industries in Uganda
and the world in general do their business since their products and activities could have
a serious impact on the environment and the economy.
1.5 Objective of Study
Environmental management accounting (EMA) and Environmental Financial Accounting
(EFA) are the two categories of Environmental accounting. EFA focuses on external
reporting while EMA is concerned with internal reporting aspect of environmental
management. Whereas many papers have been written on Environmental accounting,
most of them have focused on external reporting and few on EMA. This implies that
more research is still needed in EMA. Feldman. S. J. P.A. Soyka and P. Ameer, (1997)
found a ‘positive correlation between the level of Environmental management and
decreases in environmental emissions’ implying that EMA promotes better environment
management in addition to many other benefits. Aldonio Ferreira, C. Moulang and B.
Handro, (2010) found out that there is a relationship between the share price of the
organisation and the social and environmental activities as indicated by many other
authors.
Negative environmental impacts related to waste generation and disposal, pollutions
and emissions etc, could damage the reputation of the company and cause a loss in its
value. For-insistence in 1990, Shell SPDC- Nigeria struggled with a dropping
environmental performance, coupled with poor environmental track record and
controversial record. Local management got concerned and set environmental targets
and policies that successfully changed that bad reputation. Jacob Hottentot, (EMAN
Abstracts-2006)
The aim of this study is to find out what the manufacturing industries in Uganda are
doing to enhance effective environmental management. The extent to which they are
implementing EMA and the challenges these industries face in implementing it to
achieve effective environmental management. The study explores the benefits, costs
and challenges from the use of EMA, and the roles of management accountants with
regard to environment management. Furthermore, recommendations are drawn
regarding EMA use in Uganda and how the companies and government of Uganda can
achieve effective environment management. Findings from this research are expected
to provide useful information for companies, the public, accountants and government
regulators to guide them in providing policies that improve on accountability and
efficiency in environmental management.
The study uses convenient sampling, qualitative methods to collect both primary and
secondary data. Using existing theories and framework it explains EMA and
environmental management issues. Primary data are collected by questionnaires
guided by the ISO 14001 Hand Book (version 2.02, 1998) and other literature.
Secondary data are obtained from published reports, articles and websites among
others.
1.6 Structure of the paper
The rest of this paper is structured in 5 sections; Section 2; highlights previous studies
and relevant literature on the topic in order to specify the contribution that this study
intends to make by identifying and closing the knowledge gap.Section 3 briefly
discusses the structure of the Uganda’s economy to understand the nature of the
economic amd regulatory environment in which manufacturing industry and firms
operate. Section 4 focuses on research methodology and design, discusses how data
was collected as well as related problems.Section 5 analyses data and repots findings
Section 6 concludes the study, makes recommendations and suggests areas for further
research.
Section2. LITERATURE REVIEW
2.1 Overview
This Section reviews the relevant literature on EMA and environmental management. It
provides an overview of EMA and Environmental Management; critics of the
conventional management accounting systems, Environmental costs, the role, benefits
and challenges of implementing EMA and the role of Management Accountants in
environmental management.
Environmental management can be defined as the planning, implementation and control
of strategic, tactical and operational measures for prevention, reduction and elimination
of damage caused to the environment and the use of market advantages gained from it.
Tatjana Tambovceva, (2010). The general concept of environmental accounting may be
classlfied into three accounting systems as shown in Figure 2.1. EMA is part of
management accounting which is concerned with physical and monetary measures of
environmentally driven aspects intended for internal decision making. Stefan
Schaltegger, Tobias Hahn and Roger Burritt, (2000).
Insert figure 2.1 here
Environmental Financial Accounting is concerned with physical and monetary aspects
of the environmental impact for external reporting purposes. Other environmental
accounting is concerned with physical and monetary aspects of specific accounting
systems like the tax accounting systems, and other regulatory accounting systems.
Schaltegger et al, (2000) From the literature, there are many definitions of EMA. It is
also stated that EMA has no single universally accepted definition but guidance on the
information considered under EMA is offered by UNDSD and EMA experts that suggest
including both the physical and monetary information that is considered under EMA.
Ferreira et al, (2010:922) defined EMA as a “Technique that generates, analyses, and
uses both financial and non financial information, to improve the environmental and
economic performance of a company and contributes towards a sustainable business.
In another study, Christine Jasch, Daniel Ayres and Ludovic Bernaudat, (2010:96)
simply defined EMA as “management accounting(MA) with a focus on physical
information on the flow of energy, water, products and materials as well as monetary
information on environmental costs, earnings and savings from projects related to
environmental protection”. The above definition also brings out the fact that that EMA
incorporates both physical and monetary items. This is in agreement with Matteo
Bartolomeo, Martin Bennet, Jan Jaap Bouma, Peter Heykamp, Peter James and Teun
Wolters, (2000:35) who urged that ‘if management accounting is to take environment
seriously, the tracking and analysis of this non-financial information should become as
important as the tracking of financial information’
K. Clark et al, (2006) advises Management Accountants to make environmental
performance visible in organizations by incorporating both financial and non-financial
information as key performance indicators into the traditional control systems. With the
evolution of environmental management in business, there is a growing interest to
develop a better understanding of environmental-related financial costs and benefits
because of increasing evidence that shows that environmental factors affect profitability
and financial position of a business (M. Bartolomeo et al, 2000).
2.2 Limitations of Conventional Accounting Practices
Concerns on environmental issues along with their related revenues, costs and benefit
are increasing world-wide.. However, many authors have criticized conventional
management accounting practices in many respects. The general criticism has been
that these traditional practices do not provide adequate information needed for decision
making in environmental management related issues. Christine Jasch (2006). UNDSD
(2001) and Christine Jasch, (2003) also argue that conventional management
accounting systems are ill-equipped to deal adequately with environmental costs. These
systems attribute environmental costs to general overheads which makes it impossible
for managers to trace. According to. Dits et al (1995); Hansenand Mowan, (2005) and
Burrit et al, (2002) cited in A. Ferreira et al(2010), hiding environmental costs from
managers makes it difficult for managers to observe the actual environmental costs
related to activities, yet there is evidence that these costs can be 20% or more of the
total operating costs.
UNDSD,(2001:1) explains that “costs of industrial protection including pollution
reduction, waste management, monitoring, regulatory reporting, legal fees and
insurance have increased rapidly in recent years due stringent environmental
regulations however, conventional management accounting attribute these costs to
overheads and management and executives are unaware of the extent of these costs”
If mangers have no concrete and complete information regarding these costs, they will
not have the incentives and motivation to reduce them. Alternatively, if wrong
information is provided, then management will make wrong decisions regarding;
product, process, investment appraisal and pricing decisions among others. Stefan
Schltegger, Tobias Hahn and Roger Burrit, (2000) criticize conventional corporate
accounting for not giving explicit, separate recognition to company related
environmental impacts. From UNDSD, (2001) in the production process with the
traditional cost accounting systems, as inputs like water energy and materials are
processed. The end result is a product output and non-product output like waste or
waste water. The non-product material flow is however not quantified and monetized
separately within the traditional systems. Yet these material flows are considered as
money flows. Therefore, wasted labour costs, material costs and capital must be added.
Material and money flow can be illustrated in figure 2.2
Insert figure 2.2 below
UNDSD, (2001) emphasizes the limitations of conventional accounting approaches
which cannot provide sufficient cost data onmaterials. The incomplete data creates
inconsistencies andmakes it difficult for the company to track the point of internal
material consumption and identify exact flows and trace the cost materials in each
material flow. Linking the physical and monetary material flow data, flow cost accounting
eliminates the information gap.
2.3 Definition, Identification and Controlling of Environmental costs
The definition of these costs also depends on the intended use of the cost information
by the organizations. The United States Environmental Protection Agency (USEPA), in
1998, was able to make a distinction between four types of costs to include; potentially
hidden costs, contingent costs, relationship costs and lastly the conventional costs.
Potentially hidden costs are those costs that are captured by the accounting systems
but their identity is lost in overheads. Conventional costs are such costs of raw material
and energy which have relevance to the environment, contingent costs on the other
hand are costs to be incurred in future and lastly the image and relationship costs may
include such costs incurred in preparing environmental reports. These are intangible in
nature. Ann Irons, (2010)
According to Christine Jasch, (2003:669) and UNDSD (2001:11) “Environmental costs
comprise both internal and external costs and relate to all costs incurred in relation to
environmental damage and protection costs” and costs of inefficiencies in the
production process that may include wasted labour, wasted material and wasted capital.
UNDSD (2003) and UNDSD, (2001) also explains that protection costs include costs
incurred for prevention, planning, disposal, control and damage repairs like emission
treatment and pollution prevention etc. that can occur at the companies and can affect
government and the people.
UNDSD (2001) and C.Jasch (2003) argue that the guidance document on the definition
of environmental protection costs and other terms of pollution protection only deals with
corporate environmental costs and the external costs that arise from internal activities
but are not internalized via regulations and prices are not considered. “It is the role of
governments to apply political instruments such as eco-taxes and emission control
regulations in order to enforce the “polluter-pays” principle and thus to integrate external
costs into corporate calculations’ UNDSD, (2001: 11)
Many studies carried out in Germany and Australia show that of the total environmental
costs, costs of waste disposal are only between 1% and 10% while the purchase cost of
wasted materials represented 40% to 90%. However, this is dependent on the type of
the business (UNDSD 2001). As noted, most of the environment costs are hidden in
general overheads, which makes identification of such costs by management very
difficult. For organizations to be able to make well informed decisions, the costs should
be allocated to products, activities and processed that give rise to these costs. This can
be guided by such tools like Activity Based Costing that can help in allocation these
costs.
Lastly controlling environmental costs can only be effective if these costs have been
well defined, identified and allocated. For example costs associated to waste like the
fines for pollution, taxes for landfills and costs of unused materials and disposal. For
instance the wasted material can be determined by making a comparison between the
weight of the material bought and the product yield. With this information, the
organization is able to know how to save on such costs. Another example could be
reduction on water consumption that would reduce water bills and make a cost saving
for the organization. This can only be achieved if the organization is able to measure its
water consumption and know where the water is consumed (Ann Irons 2010). Several
accounting techniques explained below are useful in identification and allocation of
environmental costs:
2.4 Accounting Techniques for Environmental Costing
a. The Input/output Analysis;
This is basically applied on the flow of materials. It works on the idea that the input must
equal the output i.e. what comes in the production process must go out or must be
stored. It tries to balance the flow of materials and trace the differences.
For instance if 200 kilograms of materials have been bought and only 150kg of
materials have been produced, the difference of 50kg must be accounted for in physical
and monetary terms part of it may be waste and another part could be scrap This kind
of accountability forces businesses to focus on the environmental costs”. Ann Irons
(2010) and Shane Johnson (2004)
UNDSD (2001) goes further to state that the firsts step in setting up the material input-
output statement at a corporate level is to collect quantitative data from the stock-
keeping and accounting systems. The systems provide physical and monetary data on
material input and out-put into the company implying that all materials purchased during
the year must either leave the company as a product, or waste or emission or stored on
site.
b. Flow Cost Accounting
Ann Irons (2010) and (UNDSD 2001) asserts that flow cost accounting technique aims
at reducing the quantity of the material which would have a positive effect on the
environment and in the long run should have a positive effect on a business. The
technique uses material flow and the organization structure and can only be performed
with an appropriate computer support. It looks at the physical quantities, costs and
value of material flows thereby promoting material flow transparency. “This
transparency can contribute to clarifying the complex relationships of effects operating
within the material flow system and thus create a comprehensive database for
evaluating measures for improvement and realizing saving potentials” UNDSD (2001).
This is because it promotes efficiency in production and lowers material handling and
waste disposal costs.
With this technique, the material flows are divided into three categories which include;
the material, system and delivery/disposal whose values and costs are then calculated.
This approach is supported by technical process flow charts. UNDSD (2001) argues
that whereas this method “results in better calculation of production costs, it avoids the
need to separate the environment- related share and to obtain a complete list of other
environmental costs” Figure 2.3: below shows a diagrammatical presentation of flow
cost accounting.
Insert figure 2.3 here
(i) Material values and costs
UNDSD (2001)The material value and costs can be calculated if the physical quantities
of materials involved in various flows and inventories are known and this usually
possible by the existing material management systems and production planning
systems provide comprehensive database.“Based on the flow quantities and
inventories, one can proceed to make valuations in terms of prices and thus obtain the
material values of these flows and inventories. Material costs can then be determined
by defining which material flows is cost relevant” UNDSD (2001:83). Material value
orientation which involves the possibility of reporting the material purchase values and
costs at later stages for material flow and material inventories is the core of flow cost
accounting.
(ii) System Values And Costs
System costs are those costs that are incurred in the process of in-house handling of
material flows such as the personnel costs or depreciation. Material movements have to
be treated as cost drivers for the purposes of assigning the system values and costs.
The system costs that are assigned to material flows are known as system values and
the system cost are allocated to the outgoing product flows and these are then passed
on as system values to the subsequent flow and inventories. (UNDSD (2001)
(iii) Delivery or Disposal
Delivery or disposal costs are assigned and allocated for those flows that are leaving
the company. These are not part of the system and they may include payments to
external third parties and all costs incurred in ensuring that the materials leave the
company like transport, costs of disposing waste among others. UNDSD (2001)
c. Environmental Activity-Based Costing.
Ann Irons (2010) in the environmental accounting context this technique shows the
distinction between environmental related costs that are attributed to cost canters and
environmental-driven costs that normally tend to be hidden is overheads and these
should have adequate allocation keys to obtain correct information.
The four main allocation keys include: volume of emissions or waste, toxicity of
emission and waste treated, environmental impact added (volume x input per unit of
volume) volume of the emissions treated and the relative costs of treating different kinds
of emissions” Shane Johnson (2004) UNDSD 2001 explains that this approach is
focused to deal with allocating costs to products in a correct way, by minimizing the
costs hidden in overhead costs categories.
UNDSD (2001) states that this approach is advantageous because it improves
economic performance and consequently improves environment performance and
eliminated distortions in the product pricing, and investment decisions. Distinction
should be made between overheads costs and joint environmental costs as illustrated in
the figure 2.4 below.
Insert Figure 2.4 here
In the above diagram a difference is made between environmental costs such as the
waste water treatment plant, incinerators etc. From the production process in the
manufacturing plant above, all the three production steps produce waste, this waste is
treated in an incinerator at a cost of $900 and the remaining general overhead costs is
at $9000.
d. Life Cycle Costing
This incorporates the related cost caused over the life of a product and it requires the
full environmental consequences. Ann Irons (2010).This method has however not
received much attention UNDSD (2001).
2.4 EMA Roles, Benefits and Challenges
Several studies, including Ferreira et al(2010), have shown that EMA use has several
potential benefits which range from cost reduction, attraction of better human resources,
better stakeholder relationships, improvement of company reputation, improved
corporate image, and improvement of product pricing, among others as will be
explained later. They also found a relationship between share price and social and
environmental activities.EMA is applicable in product pricing, budgeting, investment
appraisal, assessment of environmental costs/design and implementation of
Environmental Management Systems (EMS). Other applications include environmental
performance evaluation, calculating costs and savings of environmental projects,
benchmarking, cleaner production and eco-design projects, external disclosure of
environmental expenditure, external environmental and sustainability reporting and
other reporting of environmental data to statistical agencies and local authorities etc
UNDSD (2001) and C. Jasch (2003)
EMA which uses such standard accounting techniques as Activity Based Costing to
identify, analyse, manage and reduce environmental costs mutually benefit both the
company and the environment.“By identifying, assessing and allocating environmental
costs, EMA allows management to identify opportunities for cost savings” UNDSD
(2001) Shane Johnson 2004. Ann Irons (2010) and Ferreira et al, (2010) “Rachel
Jackson, ACCA's head of social and environmental issues, says that making
environmental improvements makes business sense. It makes sense to save money on
resources, save on bills and save the environment” Richard Willsher (2004). “Some
companies are able to implement sophisticated environmental cost systems which can
report on savings and benefits.”Roger Adams (2002). This is in agreement with Porter
and Van der Linde (1995) and Reinhardt (1999) cited in Ferreira et al (2010) who found
that ‘pollution reduction is likely to produce future cost savings and eliminate future
environmental liabilities’
Most of the authors point on the importance of EMA in providing information for decision
making. C.Jasch (2003:670) states that ‘the most important goal of using EMA is to
make sure that all relevant, significant cots are considered when making business
decisions.’ ‘EMA is closely related to process costing as well as to environmental
performance and Management systems. Well designed and implemented EMA helps to
ensure better internal management and decision –making for investment appraisal,
cleaner production, improving eco-efficiency and calculating savings with in
organisations. Ferreira et al (2010:923) adds that “economic benefits are likely to flow
from better-informed decision making” Ferreira et al (2010) found out that among the 15
benefits surveyed, the highest benefit experienced by organisation from use of EMA
was that of identifying new opportunities, followed by improvement in reputation and the
decision making. The author stated that this was consistent with other authors like
Adam, 2002; Anand, 2002; Bernhut, 2002). In addition, other benefits like process
innovation, reduction in operating cost and product innovation and little reduction in
organisation’s perceived risk were also higher than the remaining benefits. However,
cost of capital and insurance costs were the lowest level of 17 benefits that were
surveyed.
Adam (2002) cited in Ferreira et al(2010) also found out that ‘organisations which
produce social and environmental reports, are able to develop better internal control
systems and lead to better decision making and cost savings are likely to occur as a
result of continuous improvement. Therefore this confirms that EMA serves as a basis
for external reporting and life cycle assessment of products as reported by C. Jasch et
al (2010) K.Clarke et al (2006:118), C. Jasch et al (2010:96) say that focused on the
provision of organization-specific performance information for internal decisions-making,
management accounting systems are essentially unregulated and individually tailored to
meet the needs of an organization.
EMA emphasizes costs related to the use of energy, water and material and on the
generation of waste and emissions which are related to the organizations impacts on
the environment. It also considers the material costs and losses of material in waste and
emission which have now become some of the prominent cost drivers in most
organizations. In countries with low enforcement of legal compliance and relatively low
labor costs, material and energy use and related losses are a significant cost driver.
That is why EMA places particular emphasis on material and related costs. Christine
Jasch et al (2010:97). Cleaner production which ensures minimal environmental costs
with minimum environmental impact can be attained through EMA and this enables
firms to produce environmentally friendly products in a more efficient and profitable way.
Environment-friendly products are now highly demanded and can gain competitive
edge. Ferreira et al (2010) states that good citizenship behavior and offering
environmentally friendly products lead to improvement in the organizational reputation.
In addition, Adams,(2002) cited in Ferreira et al (2010) adds that ‘organizations may
also reduce the risk of consumer boycott by providing information on social and
environmental issues’ which enables stakeholders to understand the way the
organization conducts its activities and to assess the environmental performance of the
organization. Given that few organizations provide this information, those that provide it,
tend to experience improved reputation and are likely to gain competitive advantage.
Many authors explain that the main challenges of environmental management
accounting are related to defining, separating, identifying and allocating and controlling
of environmental costs. Another challenge is related to international standards in
management accounting which make environmental issue a challenge to management
accountants.
The main problem with environmental management accounting is that we lack a
standard of environmental costs (UNDSD 2001). This is also in agreement with ACCA &
UNEP (2002:34) they stated that there are no international standards dealing with
management accounting and thus there is no consistence guidance for companies on
how to deal with the various issues. “A recent development of EMA is to also include
social aspects to enlarge the focus from environment to sustainability” C. Jasch (2006)
Watchaneeporn Setthasako (2010; 321) findings identified three root causes of barriers
to the development of EMA to include lack of building organizational learning due to
limited environmental training and team working. Secondly, a narrow focus of economic
performance where companies focus on a short term than long term perspective and
reject projects like EMA that bring loss today even though they will generate profit in the
future. They also do not look beyond the factory wall to see the negative impact of their
actions in communities. The third cause is absence of guidance on environmental
management accounting where they stated the lack of a uniform framework.
2.6 Role of Management Accountants and EMA
W. Setthasako, (2010;321) found that in Thailand, ‘even though there is a moderate
level of organizational response to environmental improvement, there is a low level of
involvement by accountants in environmental management practices. The findings also
indicate that accountants are conservative and unable to adjust to new challenges; they
are not proactive towards environmental agenda and also perceive their role as simply
number crunchers and book keepers’. Accountants need to understand the
identification, measurement, allocation of environmental costs so that they find means
of controlling them so as to achieve the intended benefits since it is proved by most
organizations that having concern for the environment saves money in terms of cost
saving. Richard Willsher (2004)
If accountants portray poor environmental behaviors, this may have adverse impact on
the organization and its finances. As a consequence of these poor behaviors, the
company may face punishment like loss of sales, fines, loss of insurance cover,
contingent liabilities increased liability to environmental taxes, loss in value of land,
destruction of brand values, consumer boycotts, inability to secure finance, law suits,
and damage to corporate image” Shane Johnson (2004). ‘While every accountant will
be involved in environmental accounting, management accountants (in particular) will
play a key role in assessing environmental costs, liabilities and risks, and in developing
the information infrastructure to support an effective EMS’ ACCA-UNEP (2002:34)
2.7 The EMA Framework
. Schaltegger et al (2000) proposed framework for the application of EMA in Table 2.1
below that will be used. This model and why it was chosen will be discussed in details in
section four.
Insert Table2.1 here
2.8 Knowledge Gap in the Reviewed Literature and conclusion.
The literature reviewed focused more on application of EMA in industrialized developed
countries and in most parts of Asia. Few studies have been conducted in Africa and
Uganda in particular. This study aims to fill that gap by exploring what manufacturing
industries are doing to promote effective environment management and the extent to
which they are applying EMA in their accounting systems.The major challenges and
costs that they face regarding environmental management and EMA applicability are
also identified.
The above discussion clearly shows the importance of differentiating environmental
costs from the general overheads. Manufacturing industries consume large amount of
resources including water, energy, materials, implying that they are prone to generate
large amount of environmental costs. Definition, identification measurement and
allocation of these costs is very crucial but it is the most difficult and challenging aspect
of environmental costs. EMA with the aid of other techniques like ABC can ease this
process. It is important for management to have correct information regarding these
costs in order to make better decisions which could benefit the company and also save
the environment at the same time. The next section discusses briefly the structure of the
Ugandan economy, standards and regulations to enable us to understand the nature of
the economic environment in which manufacturing firms operate.
Section 3: Ugandan Economy, Standards And Regulations
3.1 Introduction
This section discusses briefly the structure of the Uganda’s economy, standards and
regulations to enable us to understand the nature of the economic environment in which
manufacturing firms operate and the role of government and industry in environmental
management. Uganda’s economy is comprised of different sectors leading by service
that contributed to 52% of GDP, followed by industry that contributed to 25%, agriculture
forestry and fishing around 15%. Figure 3.1 below summarizes this structure.
Insert figure 3.1 here
In Figure 3.1, whereas service and industry sectors are the major contributor to the
country’s GDP, in terms of employment, agriculture sector employs above 70% of the
total population www.ubos.org visited (10th July, 2011). Environmental management is
very crucial in the economy of Uganda since it will have an impact on the performance
of those sectors especially the agriculture sector which is declining because it depends
on climate factors like rainfall and other environmental factors like the soil quality.
Constance L. Neely (2010:24) also states that ‘Climate change is impacting and will
continue to dramatically impact agriculture and productivity. On a regional basis climate
change may lead to increased unpredictability, not necessarily global warming. The
effect of increased unpredictability can be as damaging to yields and as significant for
producers’ behavior as warming. Food production and Climate change manifests as
climate variability, greater incidence and intensity of floods, droughts, and other extreme
events; climate change will dramatically shift crop production patterns and yields’
Agriculture plays a very important role in Uganda’s economy not only by providing
employment but also boosting the agro-based manufacturing industries like the food
processing industries. In addition industry sector is also supported by resources like
water availability, fish, and agricultural supplies which are all climate dependant.From
PWC Uganda website visited on 17/07/2011, it’s indicated that Uganda’s industrial
manufacturing sector is relatively small and the sector is currently facing some
challenges like intermittent power supply and increased cost of electricity for production
that have hampered its growth.
3.2 Overview of the Manufacturing Industry in Uganda
The manufacturing industry comprises of formal manufacturing, informal manufacturing,
and construction among others as shown by figure 3.2 below.
Insert figure 3.2 here
According to MOFPED (2011), the above figures were computed using GDP numbers
for each year in constant 2002 prices. The formal manufacturing is the second largest in
the industry sector. From the recent budget speech, it was stated that this sector is
growing since it was projected to have grown at 7.2% in 2010/2011 compared to
2009/2010 at 6.1%. It was indicated that this growth is from industries in tobacco and
drink processing, paper and printing, chemicals, paint and soap, metal product, brick
and cement. The informal manufacturing sector was also seen to have grown by 4.3%
in 2010/2011 which was below the 8.3% of 2009/2010 due to poor performance of the
grain production. However, long rain seasons in 2011 that favored crop production
boosted the food processing industries. MOFPED (Budget 2011)
3.3 Standards and Regulations on Environmental Management and EMA
The drive towards environmental management has resulted in an increase in the
implementation of environmental Management systems in order for the organisations to
improve their environmental performance, reputation and image. Whereas some
companies enact voluntary measures, most of them are guided by standards and
regulations.
OECD (2001:13) identified five factors driving environmental initiatives to include:
‘government policies and regulations, commercial and economic considerations,
corporate image, codes of conduct, and growing pressures from the
financial/investment community. Deriving the full benefits from these drivers depends in
large measure on the knowledge and effectiveness of stakeholders (i.e. the general
public, public authorities, the financial/investment communities, NGOs, and other
interested parties). The more that these stakeholders know about environmental issues,
the better able they will be to advocate and pursue more forward-looking strategies’
Environmental standards and regulations play a big role in limiting environmental
damage. However, standards setting process should take into consideration the costs
and benefits analysis. For instance ‘A new, more expensive, technology should be
incorporated into a legal standard only if its marginal costs are lower or equal to the
marginal benefits of the additional reduction in environmental damage’ Michael G.
Faure (2002:4). OECD (2001:24) states that ‘industry interest in the ISO standard has
been rising, for a number of reasons. Customers, for example, are demanding more
often that companies and their suppliers be part of a total “supply chain” which is
environmentally sound. In addition, certification can improve the public image of
companies, leading to market advantages. In fact, many firms are using certification as
part of a proactive environmental communications strategy that showcases
environmental commitment. On the cost side, conforming to ISO 14001 is requiring
firms to view their operations in a more comprehensive fashion. In some cases, this has
resulted in the development of more cost-effective procedures and approaches’
The standards aim at achieving improved environmental performance by organisations
and they address environmental aspects by considering what an organisation does to
minimise its harmful environmental effects of its activities, products and processes.
Firms are being pressured to adhere to these international standards because of
globalisation and more awareness of environmental related issues. Besides the
customers are increasing their interest and demand for environmentally friendly
products and investor interest is also shifting to companies with cleaner production
processes. Adoption of the standard in developing countries has been slow as
compared to that in industrialized and developed countries. Globally as of 2006, there
are only 129199 ISO 14001 certifications and registrations” May A. Massoud, Rabih
Fayad, Rabih Kamleh, Mutasem El-Fadel (2010:1885) The information found on the
website http://www.ecology.or.jp/isoworld/english/analy14k.htm (17.07.2011) indicates
only 129,031 certification as of Jan 2007. Of this, Uganda had only 4 certifications by
then. As of December 2008, these increased to 188,815 of which Uganda had only 6
ISO 14001 certifications.
Corbett and Kirsch,(2000) cited in OECD(2001) states that ‘the ISO standard appears to
be a promising one that can help support a more spontaneous, holistic response by
companies to environmental issues by changing the way they think about, and react to,
challenges in the field of environment. It is not; however, a means through which
environmental performance will necessarily be raised. The standard does not, for
example, attest to the environmental attributes of a product, nor does it certify
compliance with any national or international regulation, nor does it mean that facilities
have been inspected to determine their “environmental” performance. As Jacob
Hottentot (EMAN Graz 2006) clearly put it that ‘getting ISO 14001 certified is one thing,
but keeping it is another thing’
Regarding Total Quality Management (TQM), Shane Johnson 2004 urges that
environmental management and TQM are interlinked because good environmental
management is becoming an essential component of TQM since both focus on
continuous improvement and a pursuit for excellence. Therefore organisations should
aim at achieving an integrated environmental strategy with the same culture that is
required for successful TQM operations by pursuing objectives aimed at zero
complaints, zero waste, zero spills, zero accidents and zero pollution. Shane Johnson
(2004)
In Uganda National Bureau of Standards (UNBS) a member of ISO is mandated to
issue ISO certifications.UNBS adopted the ISO 9000 Quality Management and Quality
Assurance series of International Standards. UNBS established a method of
assessment and certification of Quality Management Systems in the manufacturing and
service industries as an essential mechanism to ‘build quality at every stage and assure
the production of goods and services of consistent quality’. www.unbs.org 17/07/2011
Uganda has been a member of World Trade Organization (WTO) since 1995 and
because of globalization; it faces a competitive international market with a lot of
challenges including those related to the environment. The Government of Uganda is
doing its best to keep pace with the global trend of Environmental protection.
Strengthening the legal framework for promoting environmental management in Uganda
began in 1995 with the revision of the constitution under article 245 (a) (b) (c) to provide
measures intended to protect and preserve the environment, manage the environment
for sustainable development and promote environmental awareness. In addition
National Environmental Management Authority (NEMA) was established in 1995 with
the responsibility for coordinating, monitoring, regulating and supervising of
environmental management in the country. Through NEMA the state has issued a set of
environmental laws and regulations among them are the following;
(i) The national environment (audit) regulations 2009 deals with;
environmental audit reports, environmental management systems,
enforcement environmental audits and voluntary environmental audits.
(ii) The national environment (minimum standards for management of soil
quality) regulations.
(iii) The national environment (minimum standards for discharge of effluents
into water or land) regulations.
(iv) The national environment (access to genetic resources and benefit
sharing regulations 2005.
(v) The national environment (wetlands, riverbanks and lakeshores
management) regulations.
(vi) The national environment impact assessment regulations, 1998.
(vii) The national environment waste management regulation,
1998.www.nema.org
In addition, multilateral agreements like the Stockholm convention on persistent organic
pollutants (POPs) a global treaty entered into force in 2004 requires parties to take
measures to reduce the release of POP into the environment so as to protect human
health and the environment from chemicals that remain in the environment for long
periods. www.nema.org.Penalties imposed under the court jurisdiction for environmental
degradation in Uganda include such penalties like for polluting the environment which
include imprisonment for three to thirty six months or a fine between 300,000 to
3,000,000 UGX respectively. Michael G. Faure (1995:11) explains that ‘the problem with
fines, however, is that the probability of detection is often low and the amount of harm
done so high that the fine would far exceed the total wealth of the individual offender. In
that case, judgment proof problems could arise and the potential fine would not provide
the desired deterrence’. Besides, imprisonment and fines, non-monetary sanctions that
could force the offender to remove the environmental harm caused are suggested to be
more effective in improving the quality of the environment than fines and imprisonment.
Gabor Harangzo, Sandor Kerekes and Agnes Zsoka (2010) suggest otherwise. Their
findings show that the requirement for regulatory compliance was strongly detected as a
motivation behind EMS implementation. Public authorities were considered to exert the
highest pressure on companies to take environmental measures, throughout the whole
international sample. This implies that the strongest incentive is legitimacy and
compliance even in the cases of companies that enact voluntary measures.
On the other hand, Allen Blackman (2008:19) adds that ‘voluntary regulation is unlikely
to be successful in situations where both the regulatory and non regulatory pressures
for improved environmental performance are lacking because polluters avoid the costs
and benefits for compliance. Therefore compliance will be low when the costs and
rewards are low’ From the financial perspective, ‘Financial regulators such as the
Securities Exchange Commission (SEC) and the accountancy profession have been
concerned to ensure that current financial reporting standards are adequate to capture
the full scale of potential environmental liabilities, however, it was argued that ‘the
current standards themselves are adequate provided that they are properly followed
and enforced’ M. Bartolomeo et al (2000:35)
In another study, it was indicated that “unlike management accounting information,
external financial reporting is highly regulated and profession’s conceptual framework
provides particular challenges to accountants seeking to account for the performance,
or impact, of an organization holistically. K. Clarke et al (2006:119). The International
Federation of Accountants (IFAC) supported by the Division for Sustainable
Development of the United Nations Department of Economic and Social Affairs
(DSD/UNDESA), has issued new guidance on environmental management accounting.
Christine Jasch- (EMAN Abstracts Graz, Australia 2006:4).
It is recognized that the accounting professional has made positive contribution in this
aspect like developing the conceptual underpinnings for environmental management
and sustainability, encouraging environmental reporting and expanding the boundaries
of accounting to include Environmental Financial Accounting which is concerned with
external reporting and Environmental Management Accounting concerned with internal
reporting purposes for internal decision making. However, other issues that still require
a positive thought include, ‘limited international financial reporting and auditing
standards dealing explicitly with social environmental and sustainability reporting,
accountants fail to join up with other groups such as environmental economics to
develop appropriate costing techniques and lack of a close relationship between
accounting function and environmental function.’ (ACCA & UNEP 2002:11) This is true
because most organizations have accounting and environmental departments which
work independently and have different objectives.
3.4 The Role of Government and Industry.
The rising concerns over environmental challenges have also made the role of
government and industry very important in this regard. Government and industry have
major roles to play in promoting effective environmental management. The role of
government is a vital one but at the same time, the role of industry should not be
downsizes.
3.4.1 Role of Government
Government’s major roles are related to setting laws, regulations, standards and
policies that can enhance sustainable development. Unlike developing countries, the
power of government in developed countries forces company strategies to change from
economic- driven strategies to those that are driven by society and the environment.
There by giving corporations a more active role in developing EMA via publications or
Green Accounting Act. Watchaneeporn Setthasakko (2010). UNEP (2000) Advises
government authorities to carry out ‘effective deployment of detection equipment,
intensive public awareness campaigns, tightening controls within borders and across
borders, and heavy penalties including jail sentences are some of the measures that
countries intend to take to prevent environmental crime. Watchaneeporn Setthasakko
(2010:325)Thai case suggests that government agencies should play a crucial role in
successful implementation of Environmental management accounting through issuing
accounting guidelines’ and cited that this view also consistent with that of Monetiro and
Guzman(2010)
3.4.2 Role of Industry
Besides the role of government, due to the declining natural capital and increasing level
of pollution and waste in most cities, industry as a major consumer resources and a
major source of pollutants is also a major player in this regard. ‘Aligning business
strategy with environmental performance and social responsibility has become crucial
and ‘The positive role that industry can play in meeting environmental and interrelated
social and economic challenges has been recognised for some time. OECD, (2001: 9)
For insistence companies can promote environmental protection can be attained, by
using more preventive strategies, cleaner production technologies and procedures,
efficient production processes, throughout the product life cycle. OECD,(2001) In
addition, compliance to the set laws, regulations and standards by industry is another
way through which they can promote environmental protection. Industry is moving from
an ‘end-of-pipe’ reaction strategy that focuses on capturing and disposing of pollutants
generated during manufacturing, to a more holistic approach that integrates
environmental considerations more effectively over a broader range of firm functions-
including product design and procurement practices and production processes. OECD
(2001)
3.5 Challenges and Solutions for Developing Countries.
One important step in achieving environmental management is by complying with all the
legislations on environmental protection. Although the Ugandan government has set
environmental legislations, it is still very hard for individual businesses to meet the
requirements. As stated that ‘Most businesses would not increase environmental
expenditure unless there is a strong legal requirement’ Li Xiaomei (2004:53).
Enforcement of environmental laws is still weak in most countries due to limited financial
and human resources. On the other hand, ‘Non- compliance with environmental
legislation is not always deliberate. But there is still a tendency in society to consider
this kind of violation less serious than the violation of other laws” Christopher Scarff
(UNEP 2002:17)
In addition, the adoption of international standards like ISO 14001 in developing
countries is still slow due to factors like lack of appropriate infrastructure, regulations,
financial and human resources and lack appropriate policies. Implementation and
enforcement is still a challenge and most of these countries lack the skills and
technology, in addition to having high corruption levels. Christopher scarff (UNEP; 2002)
Uganda being a developing country is still facing challenges in developing better
environmental management systems due to inaccessibility to environmental
technologies, limited enforcement of environmental standards and laws, corruption,
limited training, limited funds. Michael G.Faure (1995:5) adds that the population in
most of the developing countries have less value to environmental protection.
However, “Since most developing countries are still in an early stage in the introduction
and enforcement of environmental legislation, systems and standards, it is believed that
they might benefit from the knowledge of previous mistakes that have been made
elsewhere especially in developed countries and successfully introduce and enforce
environmental legislation. Michael G. Faure (1995). Christopher Scarff (2002) also adds
that ‘legislative and enforcement measures must be developed at the same time as
facilities and support services are established’ Allen Blackman (2008:20) suggests that
disseminating information about pollution and abatement options to participating firms
and the public at large can boost the effectiveness of voluntary initiatives. The challenge
in developing countries is that collecting reliable plant-level environmental performance
information is costly.” May A. Massoud, et al (2010:1886) concluded that improved
environmental performance is linked to national regulatory requirements. Clearly
implementing ISO in a country that lacks sufficient infrastructure and has a weak
institutional capacity and poor enforcement of laws will not guarantee environmental
improvement. Some of the suggested solutions to the above challenges by most
authors in implementation of ISO 14001 EMS in developing countries like Uganda
include. Government promoting the use of imported pollution control equipment through
reduction and exemptions from tariffs review and update the outdated environmental
regulations, training, technical assistance and public awareness among others.
NEMA report (2008) also identified policy options for action for environmental
management in Uganda. Among the many options identifies include; The need for the
Government of Uganda to pursue aggressive public awareness and environmental
education programs and that government needs to analyze and recognize the role of
the environment and natural resources sector to economic growth and wealth creation.
Government was also advised ‘to put in place incentives for job creation and
employment in other sectors of the economy to reduce pressure on the environment’
NEMA report (2008; 5)
3.6 Conclusion
The role of government in formulating appropriate environmental legislation is very
important in order to attain improved environmental management. However,
implementation and enforcing these laws is still a big problem is developing countries
that are still in early stages of instituting such regulations. On the other hand,
developing countries are at an advantage because they could learn from the mistakes
that were made in developed countries and formulate better regulations and
standard.Section 4 will discuss the EMA framework, research design, population and
sample, data collection procedures primary data, secondary data assumptions,
problems encountered during the research collection and a conclusion.
Section 4: Conceptual Framework And Research Methodology.
4.1 The EMA Framework
This section gives an insight of the methodological framework introduced in section two,
its relevance, discuss how data was collected. It will also explain the research design,
methodology, problems with data collection, target population, sample size, technique
and descriptive methods applied to obtain more information on the research topic.
The EMA framework in figure 2.5 was proposed by Stefan Schaltegger, Tobias Hahn
and Roger Burritt (2000:14). This frame work focuses on ensuring that all environmental
information is captured by the systems. The EMA framework in SECTION two
considers a distinction between the following five dimensions; internal versus external,
physical versus monetary classifications, past and future time frames , short and long
terms and ad hoc versus routine information gathering which will be discussed in
details.
(i).Physical vs Monetary:
The frame work integrates the two perspectives i.e. internal monetary and physical
aspects of defining EMA which are; the Monetary Environmental Management
Accounting (MEMA) and Physical Environmental Management Accounting (PEMA).
PEMA tools/ accounting systems are used to collect information on the company’s
impact on the environment expressed in physical units such as quantities like kilograms,
joules which can be used for internal decisions by management. PEMA serves as an
analytical tool that can detect ecological strength and weaknesses, direct or indirect
control of environmental consequences, decision support, measurement tool, and
accountability tool. MEMA tools on the other hand collect information on the company’s
impact on the environment expressed in monetary terms for management internal
decision making. Schaltegger, Hahn and Burritt, (2000:15) state that MEMA “is the
central, pervasive tool providing, as it does, the basis for most internal management
decisions as well as addressing how to track, trace, and treat environmentally driven
costs.
Monetary information could for example include information such as cost incurred on
cleaner production or cost of fines and the value of environmental assets. Physical
information could for example include kilograms of materials and joules of energy
consumed per product or customer. The physical and monetary information
requirements by stakeholders will depend on what their interest. Some may be more
interested in physical information while others may be interested in monetary
information. For instance, share holders may be concerned with material effect on
value. On the other hand environmental protection authorities may be interested
physical units of waste. Both PEMA and MEMA information is for internal use in the
organisation. Other systems like the External monetary environmental accounting and
the external physical environmental accounting are responsible for proving external
information. The focus of this study is on MEMA and PEMA.
(ii). Short and long term perspective
This is a distinction related to the time frame. Whereas management is usually criticized
for adopting short term perspectives, ecological issues are generally considered as long
term. Another distinction can be made in relation to past or future orientations for those
tools/systems that focus on the past and those that look into the future respectively.
Putting into considering the need for internal decision by management, future and past
approaches are divided further into routinely generated information and ad hoc
information for systems that provide routine information to management and those that
produce information on a needs basis for making specific decisions respectively.
Schaltegger, Hahn and Burritt, (2000). The framework also supports the use of different
accounting systems or techniques like ABC, life cycle costing. This can help meet
different environmental information need for management internal decision making.
Businesses are facing increasing pressure from stakeholders to provide environmental
reports. EMA tools can be applied to provide the information needed for external
environmental reporting and internal decision making. This model was used as a guide
in formulating the questionnaire for data collection.
The propositions below were identified from the above framework as main forces that
hinder effective application environmental management accounting in manufacturing
industries in Uganda.
Some of the industries have not yet reached significant level of efficiency in EMA
applicability due to limited resources, lack of technology and limited legislation
compliance, enforcement and implementation.
Limited sensitization of the public on environmental issues due to lack of training
and awareness of the environmental related issues by the public.
4.2 Research Design
Research design was defined in Boris Blumberg, Donald R. Cooper and Pamela S.
Schindler (2008:218) book as ‘The strategy for the study and the plan by which the
strategy is to be carried out. It specifies the methods and procedures for collection,
measurement and analysis of data’. It deals with the structure of the research, allocation
of the scarce resources like time and guides in the use of tools like observations,
experiments, interviews; it’s also concerned with the sample size and whether the
analysis should be qualitative or quantitative. There are different classifications of
research design approaches and these include; exploratory study, cross sectional and
longitudinal studies, case, descriptive, archival sources, laboratory research, causal,
actual routine, modified routine and formal study Blumberg et al (2008)
This research was a descriptive case study because it estimated the proportion of the
population that have a certain characteristics and it was also structured with
investigative questions. This design helpful in obtaining first hand information from
respondents that enabled the formulation of simple and direct conclusion and
recommendations. In addition, the researcher will use qualitative approach.
4.3 Sample Selection
The population to the study includes the manufacturing firms in Uganda. There are few
manufacturing companies listed on the Uganda Securities exchange. The researcher
used the Uganda Revenue Authority database to identify the manufacturing firms in the
large tax payers’ category and some few from the medium taxpayers’ category.
Convenient sampling was used to select companies that were easily reached and had
their accountants or management accountants available and willing to respond to the
questionnaires. Blumberg et al (2008; 232) explain that ‘the ultimate test of a sample
design is how well it represents the characteristics of the population it purports to
represent. In measurement terms, the sample must be valid. Representation of a
sample depends on accuracy and precision’
In total 60 questionnaires were distributed to 60 companies. The researcher managed
to get only 30 responses from 30 companies out of the 60 questionnaires distributed.
This is an indication that the response rate was low. The questionnaire targeted the
accounts department of each organisation. In each company, a questionnaire was
issued to the accountant or management accountant or the financial controller. They
filled this questionnaire in depth by providing the relevant company information on
applicability of EMA and environment management of their organisation.
4.4 Data Collection Procedures
The companies were in different locations and had different policies regarding providing
company information for research. Whereas the researcher had email addresses of the
companies, the personal emails of the accountants were more important. Contacting
these companies for the contact emails of their accountants was not fruitful and this
necessitated the researcher to go these companies and physically deliver the
questionnaires to the accountants. Given that most accounts offices were busy
preparing final reports due by 30th June the same period the researcher visited the
companies. Most of them just picked the questionnaires and promised to fill at a later
date after reducing their work load and then sent the questionnaires by email. Constant
reminders were also made by email or phone call to ensure that the questionnaires
were filled in time.
(i).Primary Data
Primary data is data that is received first hand. This was got by administering
questionnaires physically to the accountants. Questionnaires have an advantage
because they do not involve any verbal aspect that may influence the respondent.
Questionnaire may be filled at a later date especially if the respondent is busy.
However, the challenge with them is the responses are not guaranteed and the
researcher cannot get instant feedback.
(ii). Secondary Data
Secondary data is second hand data already published to be used my many other
interested users. The researcher accessed this kind of data websites, research papers,
text books, magazines and journals, newspapers, among others. Secondary data is
advantageous because it has data that could not be researchable through primary
source, it is cheap and easy to obtain.
The research is based on two assumptions. One assumption is that the respondents
wholly understood the questions posed in the questionnaire and were unbiased in the
answers they provided. The second assumption is that the questionnaires were filled by
accountants with knowledge of environmental management accounting and how it
operates.
4.5 Problems Encountered During the Research Collection
The researcher had limited time to move to all the companies and at the same time,
most accounts departments were busy preparing year end accounts reports and could
not give much attention.
Whereas the researcher tried to move to these companies, it was a challenge to access
the accounts departments. First in some companies the gate keepers stated that their
policy doesn’t allow researchers, in others the procedure for getting a questionnaire
filled was too long and in others the gate keepers /receptionist were a problem and
seemed like they needed monetary benefits to access the respective offices.
Some of the respondents completely refused to fill the questionnaire even after
constant telephone reminders. They did not state the reasons but I attribute it to
the culture since most of them would promise to fill but they didn’t keep their
promise.
Some of the big companies were located far from the capital city and it was
impossible to reach them physically. Whereas the researcher tried calling to ask
for email addresses to send questionnaires, none of them were actually filled.
Most of company websites have limited information due to the fact that they are
not listed on the Uganda Securities Exchange. They are not propelled to have
their websites with all the necessary information.
4.6 Conclusion
The methodology explained EMA framework, the data collection methods and the
sources. Primary and secondary sources were necessary in collecting data and
convenient sampling was used due to time constraints. Problems in data collection were
also identified and listed. The next section deals with data presentation, analysis and
findings.
Section 5: Data Analysis And Findings
5.1 Introduction
The section focuses on presentation of detailed analysis, summary of findings and
provides a clear presentation of the information in graphs, charts and tables.
Industry classification of each firm was identified as represented below. The others
category which had 13 firms out of the 30 companies includes those firms that indicated
manufacturing, those that indicated construction, plastics, packaging and clay roofing
products. This gives a wider coverage to give a better analysis.
Insert figure 5.1 here
Concerning ISO 9000/14000 certification, the information gathered from the firms show
that 21 firms are ISO certified. However, this certification is for both ISO 9000 and
14000 for quality management system and environment management systems
respectively. The majority of firms in Uganda have only ISO 9000 certification compared
to ISO 14000. On a good note, 10% of the companies stated that plans are in place to
acquire ISO 14000 Certification. Figure 5.2 below shows the responses as regard the
certifications.
Insert figure 5.2 here
In addition to the above international certification, most of the companies stated that
they had acquired national certifications from Uganda National Bureau of standards
(UNBS) and National Environmental Management Authority (NEMA) concerned with
quality standards and environmental management respectively.
Application of management accounting techniques was important to know to what
extent the companies are applying these tools because some of them facilitate the use
of EMA. The results in the figure 5.3 below show the extent to which such tools are
applied. Budgetary control, Total quality management and Activity based costing are
such tools that were always applied by most firms. Target costing, standard costing and
marginal costing were never used by majority of the organizations and a fair number of
companies indicated that they sometimes use EMA and no company applies it.
Insert figure 5.3 here
5.2 Environmental Management Accounting and Environmental Management
5.2.1 Uses of EMA
The biggest number of respondents agreed about the uses of EMA in the following
order. Identification of Environment-related costs, estimation of environment –related
contingent liabilities (fines), product improvement analysis, allocation of environment-
related costs to products, product inventory analyses classification of environment-
related costs, product impact analyses and introduction or improvement of environment-
related cost management. Few respondents agreed on the use of EMA for creation and
use of environment-related cost accounts and product life cycle cost assessments. The
responses are summarized in the figure 5.4 below.
Insert figure 5.4 here
5.2.2 Benefits from Use of EMA
Benefits from use of EMA ranked highest in the following; better waste management,
improvement in reputation and corporate image, improvement in decision making
customer satisfaction and product costing improvement Benefits like cost of capital
reduction and identification of new opportunities were ranked last. This is in agreement
to some of the results of Ferreira et al (2010)
Insert figure 5.5 here
5.2.3 Costs Incurred in Environmental Management
The respondents incur most frequently costs on pollution reduction, followed by waste
management and monitoring. Most organizations stated that they sometimes incur costs
in fines and almost all the companies have not paid any environmental taxes and very
few have incurred costs in regulatory reporting. This is because the environmental tax is
not yet introduced in Uganda. The environmental tax in Uganda is only applicable to
purchase of very old used cars which is not applicable for most manufacturing firms.
Since few companies are listed on the Uganda securities exchange mostly banks and
some few international and local companies, the ones not listed are not mandated to
make environment reports the reason why regulatory reporting costs are incurred by
few firms. Figure 5.6 shows the costs.
Insert figure 5.6 here
5.2.4 Challenges in Implementing EMA.
The companies find difficulties in defining, separating, identifying, classifying, measuring
and controlling for environmental protection costs as the greatest challenge followed by
other challenges like; Inaccessibility to environmental management technologies, limited
knowledge and training and corruption. The least challenges are limited legislation and
challenges in availing environmental management information. Other challenges lie in
between as displayed by figure 5.7 below.
Insert figure 5.7 here
5.3 Disclosure Items by Companies
Disclosure Items on Environmental Management by Companies helps to know if the
issues of environmental management are being considered. Whereas the greatest
number of companies’ mission or vision statement do not say anything on environment
management, over 25 of the companies adopt internally developed environmental policy
and the number of companies with environmental goals and objectives is more than
those without.
Insert figure 5.8 here
5.3.1 Goals and Objectives
This was intended to know if the respective companies have goals and objectives that
could facilitate environmental management and sustainability. Most of the companies
have goals and objectives that state at a minimum commitment to Continuous process
improvement and monitoring, Waste emissions and discharge management, Material,
water, and energy conservation, compliance with environmental laws and regulations.
Few companies have goals and objectives for Environmental performance reporting and
quite a number of respondents stated that it is not applicable. However the increasing
demand of environmental reports by stakeholders will in future increase the number of
companies that produce them because stakeholders are increasingly concerned with
how the companies impact on the environment. Also companies will be forced to
voluntarily produce these reports to enhance their reputation.
Insert figure 5.9 here.
In terms of targets and achievements, the results show that most companies have
environmental targets and objectives and in some organizations these targets cover
major environmental issues however, in others it was indicated not applicable especially
in covering major environmental issues as illustrated in figure 5.10 below.
Insert figure 5.10 here
5.3.2 Environmental Management Systems
This was to show if the companies have an environmental management system and if
the system is at least certified by any of the governing bodies like NEMA, UNBS or
International certifications like ISO.
On a good note, most companies have EMS but certification as indicated above is by
NEMA, UNBS or ISO 9000.Above 50% have members on the board and divisions or
departments responsible for environmental management. Regarding training, the
training programs are being carried out by few organizations as indicated in figure 5.11
below.
Insert figure 5.11 here
The researcher also wanted to find out what companies are doing about their impact on
the environment.
More than half of the responses show that to some extent, companies recognize the
environmental impacts of the organization’s activities, products and services and some
of them have hired environmental specialists or external auditors to facilitate the
identification of environmental impact. However those that don’t do so are also quite
many which are almost over 30%.
Insert figure 5.12 here
5.3.3 Resources Measurements
Over 70% of companies always and often measure the quantity of resources like water,
energy and material used by the organizations. However, few companies do this for
emission, effluents and waste.
Measurement of resources, waste and effluents is important so that physical value can
be attached to facilitate monetary measurement. With this companies can find means of
controlling them to reduce on their impact on the environment. The resources
measurement is shown by figure 5.13 which illustrates how often companies measure
the quantity of energy, water, materials and emissions in their production process.
Insert figure 5.13 here
5.3.4 Research and Development
Research and development initiatives in environmental improvement are not always or
often undertaken by most organizations. Around 20% of the companies do this more
often, and around 30% sometimes do it, but over 50% of the companies have
environmental goals clearly set out and 30% rarely do it while another small number
have never undertaken any research nor do they have objectives for environmental
improvement.
Insert figure 5.14 here
5.3.5 Compliance to Environmental laws
Almost same number of companies stated that always, often or sometimes there is a
statement that indicates that the company complies with environmental regulations.
50% stated that rarely there are sites or departments that have been prosecuted and
have rarely environmental incidents occurring in the past years. The majority of
companies also indicated that always or often there are procedures that have been put
in place to prevent such incidents or non compliance from occurring. Concerning fines,
some companies sometimes pay fines while others rarely do so. Figure 5.15 illustrates.
Insert figure 5.15 here
5.3.6 Financial Data
Responses indicate that very few companies always or often produce environmental
financial statement and practice environmental full cost accounting. 20% of the
companies sometimes do so as seen in figure 5.16 below.
Insert figure 5.16 here
Stakeholder engagements; this was to show if the companies have made any
engagement and initiatives regarding environmental management. Responses indicate
that slightly over 50% of the companies have sometimes made charitable contributions
/partnership with environmental organisations and have supported environmental
campaigns/initiatives by other parties. The other few companies often or always do the
above as illustrated in figure 5.17 below.
Insert figure 5.17 here
5.4 Awards and Comments by Respondents.
Respondents were asked to state if the companies have had any environmental related
award. The following were listed by a few companies.
Regionalia and NEMA
Best in sustainable development in SABMiller-Africa for 3 years in a row.
International Trade Company of the year 2006.
NEMA WARD 2009
Plaque Award (In recognition of the exemplary contribution to environment
management
The respondents were also given a chance to make comments on the questionnaire
and below are the comments received which clearly show how seriously companies are
taking issue relating to environmental management.
(i).Environmental management Accounting is playing a vital role in the organization. It
depends upon the nature of the company whether it affects directly or indirectly to the
company. There are many cases which affect the company badly for its pricing decision,
innovation of a new product, product competition and financial growth of the
organization. Moreover, now it has been a legal compliance and has to follow the rules
and regulation of the environmental body. There are certain criteria which organization
has to meet to operate the business in Uganda.
(i).Thank you very much for giving me a chance to fill the form. The Environmental
Management Accounting plays a vital role in the modern manufacturing organization.
We need to know the environmental cost before doing anything. It can be harmful for
the company without knowing these costs and lead to bankrupt. I hope i am able to
answer your all questions best of my knowledge and experience.
- Good questions
- Supporting laws should be enforced by the environmental managing bodies for
proper conservation of wild life.
- The questionnaire is well designed. I wish you the best.
- We spend a lot of money on environment management programmes but the
questionnaire is silent on how much organisations spend in relation to Total costs
- The questionnaire is very clear and good as it captures all the information
regarding environmental management Accounting. Its good as it helps to access
how organizations manage environmental costs which arise as a result of their
activities.
- Any corporation without a clear environmental preservation policy must never
be allowed to operate. The profit principle alone cannot ensure the future of
industry, for this relies heavily on whether the local and global climate shall be in
adequate position to sustain mankind and our actions on the land 10, 50, 100
years from now.
5.5 Conclusion
The responses clearly show the extent to which manufacturing companies are using
management accounting techniques in their organisations. As indicated, EMA use in
these firms is still minimal but most of the companies are taking environmental issues
seriously by adopting environmental policies, setting objectives and goals related to
effective environmental management. Whereas most of the organisations measure the
amount of energy, water and materials, most of them are not measuring the value of
emissions, waste and effluent. Lack of information regarding such would result is wrong
decision making; low incentives to reduce them and this may have an adverse effect on
the environment. The next Section draws the final conclusions on the research,
recommendations and points out areas for further research.
Section 6: Conclusions, Recommendations And Future Research
6.1 Overview
The study was intended to examine what the manufacturing industries in Uganda are
doing to enhance effective environmental management since environmental concerns
have become a global issue. The study mainly focused on Environmental management
accounting, it’s use in the manufacturing firms in Uganda and the challenges companies
in developing countries like Uganda face in implementing EMA to achieve effective
environmental management.
Uganda’s economy depends mostly on exploitation of natural resources which are also
climate dependent resources. Manufacturing industries consume a lot of these
resources and on the other have high emission rate for gases and waste. Their actions
could have an impact on the environment in terms climate change, depletion and
degradation of natural resources, increased waste, pollution etc hence negatively
impacting on the economy. Objectives and research questions were based on the
above. The researcher adopted a multiple case study to answer the questions and used
qualitative form of analysis
6.2 Conclusions
Whereas most of the manufacturing firms in Uganda indicated that they have adopted
the use of management techniques like ABC, Budgetary control and TQM, the study
revealed that the use of EMA in these firms is still minimal. However, on a good note,
this study discovered that most of the manufacturing firms are taking environmental
issues seriously by adopting internally developed environmental policies, they have sets
of Environmental goals and objectives and environmental management systems
certified by NEMA and UBOS. Whereas some have ISO 9000 certification, Uganda as a
whole still has among the lowest numbers of ISO 14000 certifications for environmental
management systems worldwide. Most of the firms also indicated that they have
divisions and members on the board responsible for environmental management with
an aim of achieving effective environmental management.
Most of the respondents indicated that they understand the roles of EMA and its
benefits. They indicated that EMA is majorly used in identification and allocation of
environmental related costs. They highest benefits attached to EMA were those related
to better waste management, reputation, image, decision making and customer
satisfaction. Regarding environmental costs, most firms incur costs on pollution
reduction, waste management and monitoring and they don’t pay environmental taxes
since it’s not applicable as indicated in the findings
Even though most firms indicated that they are able to measure the physical and
monetary values of water, material and energy, knowing this information may provide
incentives for cost saving. However, not many firms are in position measure the quantity
of emissions and waste. This may cause difficulties in knowing the costs and allocation
of these costs to activities and products hence reducing the opportunity to reduce on
such costs. This however is a result of some of the challenges that firms face. The study
revealed that the greatest challenge was defining, separating, identifying and measuring
environmental protection costs. Other challenges identified were; inaccessibility to
environmental management technology, limited knowledge and training, and corruption.
among others.Some of these factors, which are common in most developing countries,
could hinder the achievement of effective environmental management goals.
6.3 Recommendations
Our study has led to the following recommendations in order to address the above
challenges faced by companies in implementing EMA to achieve effective
environmental management and benefit both the manufacturing industry and society as
a whole:.
(i). Government should encourage and facilitate more research in the field of EMA. The
government is fully aware that the economy of Uganda is entirely dependent on natural
resources like water, minerals which act as raw materials used in production by
manufacturing firms. Research will stimulate awareness in firms and the public. They
will understand the benefits of providing both physical and monetary values of
resources and why saving and proper utilisation of resources is crucial. Other natural
resources like cash crops, fish depend on climate variability and water quality
respectively. Uncontrolled emissions by manufacturing industries may affect the climate;
also disposal of waste into the water bodies has already reduced on the fish species
due to high level of water pollution.
(ii).T he challenge of inaccessibility to environmental management technologies can be
overcome by Government providing subsidies on importation such equipments at
reduced or exemption from taxes. Importation of such technologies would encourage
the use of EMA in the manufacturing industries hence benefiting both the companies
and the environment.
(iii). Constant training and awareness in EMA and environmental management through
environmental education programs and courses. For instance, Professional courses like
ACCA have fully incorporated EMA in syllabus. Accountants are advised to take up
such courses so that they equip themselves with the current developments in EMA.
(III). Government should provide infrastructure, financial and human resources, update
and enforce laws, regulations and policies to match the current international standards
so that adoption of international standard is made easier. Enforcement of laws and
anticorruption measures can also help to reduce on the level of corruption.
(iv). ‘Accountants and environmental experts should pool their skills to form a
multifaceted team to address environmental issues of significance to the organisation
and recommend appropriate remedial action’ W. Setthasakko, (2010; 322).
(v). Government could investigate on the applicability of environmental taxes by
assessing if it can encourage firms to find better means of production that may not harm
the environment.
6.4 Suggestions for Future Research
Further study is needed by taking a larger sample and also considering small
manufacturing firms in the study. Also including other stakeholders like the government
officials in the National Environment Management Authority is important to know their
views on the status of the environment and the challenges involved because this would
give more evidence in the area. It would also be more interesting if the researcher uses
methods like observation and personal interview to properly analyse the systems and
policies in these firms regarding EMA and environmental management.
REFERENCES And BIBLIOGRAPHY
ACCA-UNEP. (2002). Industry as a partner for sustainable development UNEP-
Accounting ACCA. London: UNEP-Accounting ACCA.
Adams, R. (2002, April o4). Management accounting and the environment-
Sustainability and ACCA qualification. ACCA technical Article – ACCA student
Accountant .
Aldonio Ferreira, C. M. (2010). Environmental management accounting and innovation;
an exploratory analysis. . Auditing and Accountability Journal , 920-948.
Blackman, A. (2008). Can voluntary environmental regulation work in Developing
countries? Lessons from case studies. . The Policy Studies Journal Vol 36 No.1 , 119-
141.
Boris Blumberg, D. R. (2008). Business research Methods Second European edition.
UK: McGraw-Hill Higher education.
Christine Jasch, D. A. (2010). Environmental Management Accounting(EMA) Case
studies in Honduras- an Integrated UNIDO Project. Social and Environmental
Accounting , 89-103.
EMAN-ABSTRACTS. (2006). Environmental Management accounting network-9th
Annual Conference- EMA and cleaner production Abstracts. Austria: Graz Univerity
Austria 2006.
Faure, M. G. (1995). Enforcement issues for environmental legislation in Developing
countries. United Nations University / Institute for New Technologies. Working paper
number 19 , 1-26.
Feldman. S.J.P.A. Soyka, a. P. (1997). Does improving a firm's environmental
management system and environmental performance result in a higher stock price? .
Journal of Investing.
Fitzpatrick, D. D. (1995). It may not be easy being green, but `green accounting' may
help to keep it profitable. . Westchester County Business Journal Vol. 34 Issue 44 .
Gabor Harangzo, S. K. (2010). Environmental management practices in manufacturing
sector- Hungarian features in international comparison. JEEMS , 312-347.
Hottentot, I. J. (2006). (EMAN Graz 2006) Successful implementation of an
environmental management system based on ISO 14001 at major Oil Company in
Nigeria. . Graz- Austria: Ing. Jacob Hottentot (EMAN Graz 2006) Successful
implementation of an environmental managementEnvironmental management
Accounting and cleaner production -Abstracts.
Irons, A. (2010, December). Environment management accounting. ACCA technical
article paper F5 , pp. 1-6.
Jasch, C. (2006). Environmental management accounting as the next step in the
evolution of management accounting. Journal of cleaner production .Vol 14 , 1190-
1193.
Jasch, C. (2003). The use of environmental management accounting for identifying
environmental costs. Journal of cleaner production , 667-676.
Johnson, S. (2004, Jan 13). Environmental management accounting. ACCA technical
article , pp. 1-9.
Kevin Clarke, S. O. (2006). Is the environmental Professional an Accountant? Green
leaf publishing , 111-124.
Matteo Bartolomeo, M. B. (2000). Environmental management accounting in Europe. .
The European accounting review , 31-52.
May A. Massoud, R. F.-F. (2010). Environmental management system (ISO 14001)
certification in developing countries: Challenges and implementation strategies.
Environmental science and technology , 1884-1887.
MOFPED. (2011). Uganda National Budget 2011/2012. Kampala: Ministry of Finance
Planning and Economic development.
Neely, C. L. (2010). Capacity Development for Environmental Management in the
Agricultural Sector in Developing Countries. OECD Environment working paper No.26 ,
1-73.
NEMA. (2008). State of environment report for Uganda . Kampala: NEMA and UNDP.
OECD. (2001). Science Technlogy and Industry Encouraging environmental
management in industry. Paris: OECD Publications.
Scarff, C. (2002). Industry as a partner for sustainable development; Waste
management. UK: International solid waste association-United Nations Environmental
Program.
Setthasakko, W. (2010). Barriers to the development of Environmental management
accounting-An explorative study of pulp and paper companies in Thailand . EuroMed
Journal of Business , 315-331.
Stefan Schaltergger, T. H. (2000). Environmental Management Accounting- Overview
and main approaches. Centre for sustainability management , 1-19.
Sturm, A. (1998). ISO 14001-Implementing an Environmental management system (ISO
Handbook). Switzerland: ELLIPSON.
Tambovcev, T. (2010). Assessment model of environmental Management: A case study
of construction enterprises in Latvia. Issn. Economics and management , 1822-6515.
Tuan Zainun, T. M. (2010). Management Accounting and organisational change: An
exploratory study in Malaysian manufacturing firms. JAMAR , 51-80.
Uganda Bureau of standards. (2011, July 10). Retrieved July 10, 2011, from
www.ubos.org:
http://www.ubos.org/onlinefiles/uploads/ubos/pdf%20documents/TLAB32010.pdf.
UNDSD. (2001). Environmental management accounting procedure and principles
‘improving the role of government in the promotion of EMA’ . New york: United Nations -
Economic and social affairs.
UNEP. (2000). Evolving Role of government authorities to prevent environmental crime.
UNEP Press release.
Wei Qian, R. B. (2011). Environmental management accounting in local government (A
Case Of Waste Management) . Accounting, Auditing And Accountability Journal Vol.24
No.1 , 93-128.
Wendy Chapple, C. J. (2005). Manufacturing and corporate environmental
responsibility-cost implications of voluntary waste minimization. Structural change and
economic dynamics , 347-373.
Wendy Chapple, R. H. (2006). The cost implications of waste reduction: factor demand,
competitiveness and policy implications. J Prod Anal (2006) , 245-258.
Willsher, R. (2004). Can environmental improvements save money? ACCA technical
article.
Xiaomei, L. (2004). Theory and practice of environmental management accounting;
Experirnce of implementation in China. International Journal of technology management
and Sustainable development , 47-57.
Websites
http://www.ecology.or.jp/isoworld/english/analy14k.htm (17/07/2011)
https://za.dqs-ul.com/fileadmin/files/za/Documents/Content/survey_2008.pdf
(24/07/2011).
www.nema.ug
www.unep.org
www.accaglobal.com
www.oecd.org
www.accaglobal.com
www.unbs.ug
www.ubos.ug
Appendix 1 Appendix of figures
Figure 2.1 Categories of Environmental Accounting
Source: Stefan Schaltegger, Tobias Hahn and Roger Burritt (2000:12)
Figure 2.2: Material and Money Flow
Emission 29kg/$180
Material purchase process Product 12kg/$390
100kgs/$1000
Waste 43kgs/$410
Waste water 16kg/$20 Source UNDSD (2001: 42)
Waste
Product
Em
issio
n
Wa
ter
Management Accounting Financial Accounting Other Accounting
Systems
Convention
al
Manageme
nt
Accounting
Environm-
mental
Managem
ent
Accountin
g
Conventiona
l Financial
Accounting
Other
Conventio
nal
Accounting
Systems
Environm
e-tal
Financial
Accountin
g
Other
Environme
ntal
Accounting
Systems
Figure 2.3: The Basic Idea of Flow Cost Accounting.
Source: UNDSD (2001:83)
Supplier 6.Outgoing goods store
Raw materials store 7. Waste disposal system
Production 8. Customer
Intermediate product store 9. Disposal
Quality control
1
8
9
3
2
4
5
7
6
Material
System
Delivery
Figure 2.4; Environmental Activity Based Costing
Production steps
Cost object A
Cost object B
Incinerator
‘Environmental cost centre’
Environmental-driven costs
Waste treatment
Costs, disposal fees etc
$900
Other overhead costs
Administration,
Salaries of top mg’t
$9,000
Source UNDSD (2001:73)
Cost
centre 1
Cost
centre 2
Cost
centre
3
Differentiation
Table 2.1 EMA Framework
ENVIRONMENTAL MANAGEMENT ACCOUNTING
Monetary Environmental Mg’t
Accounting
Physical Environmental Mg’t
Accounting
Short term focus Long term
focus
Short term Focus Long term
focus
P
A
S
T
Routinely
generated
information
Environmental
cost accounting
(e.g. Variable
costing,
absorption
costing and ABC)
Environmentall
y induced
capital
expenditure
and revenue.
Material & energy
flow accounting
(Short term
impacts on
environmental-
product, site,
divisional and
company level).
Environmental
(or natural)
capital impact
accounting.
Ad hoc
information
Ex post
assessment of
related
environmental
costing decisions.
-Environmental
life cycle (and
target) costing.
-Post
investment
assessment of
individual
projects
Ex post
assessment of
short term
environmental
impact (e.g. of a
site or product.)
Life cycle
inventories post
investment
assessment of
physical
environment
investment
appraisal
F
U
T
U
R
E
Routinely
generated
information
-Monetary
environmental
Operational
budgeting(flows)
-Monetary
Environmental
capital budgeting
Environmental
long term
financial
planning
Physical
environmental
budgeting (flows
and stocks) e.g.
material and
energy flow ABB.
Long term
physical
environmental
planning
(stocks)
Ad hoc
Information
Relevant
environmental
costing e.g.
special orders,
product mix and
capacity
constraints
-Monetary
environmental
project
investment
appraisal
-Environmental
cycle
budgeting and
target pricing
Relevant
Environmental
impact (e.g. given
short run
constraints on
activities.
Life cycle
analysis of
specific project.
Source Stefan Schaltegger, Tobias Hahn and Roger Burritt (2000:14)
Figure 3.1; Structure of Uganda’s Economy
Source; National Budget 2011/2012 (June 2011)
Figure 3.2; Manufacturing Sector in Uganda
14,700%
25,000%
51,600%
8,700%
,000%
10,000%
20,000%
30,000%
40,000%
50,000%
60,000%
Agriculture, Forestry and
Fishing
Industry Service Adjustments
2009/2010
2010/2011
Source, MOFPED –Uganda Budget 2011/2012
Figure 5.1 Industry Classifications of Firms
Source: Researcher’s data base
Figure 5.2; ISO 9000 and 14000 Certification
Construction; 59%
Mining and quarrying; 1,500%
Formal Manufacturing
; 20,600%
Informal manufacturing
; 6,800%
Electricity supply; 4,400%
Water supply ; 7,000%
Breweries; 2; 7% Soft drinks; 3; 10%
Food processing; 3; 10%
Textile and apparel; 2; 7%
wood based; 0; 0%
Life science/Medical;
1; 3%
Rubber products; 2; 7% Machinery and
equipment; 1; 3% Tobacco ; 1; 3%
Agro- processing; 2; 7%
Other; 13; 43%
Source: Researcher’s data base
Figure 5.3 Management Accounting Techniques
Source: Researcher’s data base
Key;
BC-Budgetary control, AC- Full/Absorption costing,
CVP-Cost-Volume-Price, MC-Marginal costing,
SC-Standard Costing, TQM-Total Quality Management,
TC-Target Costing, ABC- Activity Based Costing,
VCM-Value chain management EMA-Environmental Management
Accounting
Figure 5.4 EMA uses.
Yes 21
70%
No 6
20%
Plans are in place
3 10%
0
5
10
15
20
BC AC CVP MC SC TQM TC ABC VCM EMA
Not applicable
Never
Sometimes
Often
Always
Source: Researcher’s data base
Key to the figure above;
Identification of Environment-related costs, h-Product life cycle cost
assessments
Estimation of environment –related contingent liabilities(fines), i- Product
inventory analyses
Classification of environment-related costs, j- Product impact
analyses
Allocation of environment-related costs to products, k- product
improvement analysis
Introduction or improvement of environment-related cost management,
Creation and use of environment-related cost accounts,
Development and use of environment-related Key Performance Indicators.
Figure 5.5 EMA benefits
Source: Researcher’s data base
Key;
0
5
10
15
20
25
a b c d e f g h i j k
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
0
5
10
15
20
a b c e f g h i j k l m n o p d
Strongly disagree
Disagree
Neutral
Agree
Strongly agree
increased demand in green products, i- Better waste management
increase in customer satisfaction, j- attraction of better quality staff
Better stakeholder relationship, k- Improvement in product
pricing
increase in customer satisfaction, l-Improvement in
reputation
cost of capital reduction, m-Improvement in corporate
image
Cost saving opportunities, n- Improvement in decision
making
identification of new opportunities, o- Product costing
improvement
Generation of product innovation, p- product process
improvement.
Figure 5.6; Environmental Costs incurred by the Companies.
Source: Researcher’s data base
Figure 5.7: Challenges in implementing EMA
0
5
10
15
20
25
Not applicable
Never
Sometimes
Often
Always
Source: Researcher’s data base
Key;
Difficulties in defining, separating, identifying, classifying, measuring and
controlling for environmental protection costs
Challenges in availing environmental management information
Inaccessibility to environmental management technologies
Limited legislation
Limited enforcement of environmental standards and laws
Limited knowledge and training g-Limited fund h-
Corruption
Figure 5.8 Disclosure Items
Source: Researcher’s data base
Key;
0
2
4
6
8
10
12
14
16
18
a b c d e f g h
Never
Rarely
Sometimes
Often
Always
0
5
10
15
20
25
30
TRUE FALSE Not applicable
a
b
c
a-The mission or vision statement of the organization mentions anything on
environmental management, b-The company adopts internally developed environmental
policy
c- There is a set of environmental goals and objectives.
Figure 5.9 Goals and Objectives.
Source: Researcher’s data base
Key; a- Material, water, and energy conservation, d- Compliance with
environmental laws
b- Waste emissions and discharge management , e- stakeholder relation
management
c- Continuous process improvement and monitoring, f- Environmental performance
reporting
Figure 5.10 Targets and achievements.
Source: Researcher’s data base
Key;
0
5
10
15
20
25
30
35
a b c d e f
TRUE
FALSE
NOT APPLICABLE
0
5
10
15
20
TRUE FALSE Not applicable
a
b
There are specific environmental targets to be achieved
The targets have covered major environmental issues.
Figure 5.11; EMS
Source: Researcher’s data base
Key
The organization has an environmental management system.
There are members on the board, responsible for environmental management
There is a division or department responsible for Environmental Management
The environmental management system is externally certified.
There are training program and related educational activities for staff and other
related parties .e.g. suppliers contractors on Environmental management.
0
5
10
15
20
25
a b c d e
TRUE
FALSE
Not applicable
Figure 5.12; Impact on the Environment
Source: Researcher’s data base
Key;
Identification of the significant environmental impacts of the organization’s
activities, products and services
The hiring of environmental specialists or external auditors to facilitate the
identification of environmental impact.
Figure 5.13 Resources Measurement.
Source: Researcher’s data base
Key;
Energy usage- Absolute (Joules) available; normalized, trends over time and
comparative data within sector
Material usage- Absolute (tones, volume or kilograms) available; normalized,
trends over time and comparative data within sector
0
5
10
15
20
TRUE FALSE Not applicable
a
b
0
5
10
15
20
25
Not applicable
Never Sometimes Often Always
a
b
c
d
Water consumption -Absolute (litres, or cubic meters); normalized, trends over
time and comparative
Emission, effluents and waste- absolute (tones or kilograms); normalized; trends
overtime; comparative data within sector.
Figure 5.14; Research and development
Source: Researcher’s data base
Key;
There are research and development initiatives undertaken in Environmental
improvement
Environmental objectives for improvement are clearly set out.
Figure 5.15; Compliance to Environmental laws
Source: Researcher’s data base
Key;
Is there any statement to indicate that the organization is in compliance with
environmental laws and regulations?
0
5
10
15
20
Never Rarely Sometimes Often Always
a
b
0
2
4
6
8
10
12
14
16
Never Rarely Sometimes Often Always
a
b
c
d
e
Are there sites or departments that have received complaints or have been
prosecuted?
Has the company paid any fines/ taxes in relation Environmental impacts?
Has the company had any environmental accidents occurring in the past years?
Are there procedures that have been put in place to prevent such incidents/non-
compliance to occur?
Figure 5.16; Financial Data
Source: Researcher’s data base
Key;
There is an environmental financial statement
The environmental information is integrated within the conventional financial
statement
The company practices environmental full cost accounting.
0
2
4
6
8
10
12
14
Never Rarely Sometimes Often Always
a
b
c
Figure 5.17; Stakeholder Engagements
Source: Researcher’s data base
Key
The company has supported any environmental campaigns/initiatives by other
parties
The company has made charitable contributions /partnership with environmental
organisations.
0
5
10
15
20
Never Rarely Sometimes Often Always
a
b