The Types And Intensities Of Environmental Pressures Accounting Essay


In the early of 1990s, environmental accounting has been rapidly introduced and used as an effective tool for environmental management. Leading global companies, especially in Europe, North America and Japan, have applied environmental accounting in order to enhance their eco-efficiency and resources productivity. Recently, the increase external pressure from internal and external stakeholders such as employees, financial institutions, socially responsible investors, government, and local communities have made companies take interest in environmental accounting.

The types and intensities of environmental pressures can vary widely from country to country and among different business sectors. However, that it is forcing many organizations to look for new, creative and cost-efficient ways to manage and minimize environmental impacts. The concept of "pressures on the environment" is taken from the Driving force-Pressure-State-Impact-Response model (DPSIR):

Driving Forces

Basic sectorial trends, e.g. in energy generation, transport, industry, agricultue, tourism


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Observable changes of the environment,

e.g. rising global temperatures


Effects of a changed environment, e.g. decrease in agricultural production, hurricanes, floods


Response of society to solve the problem,

e.g. research on solar energy, energy taxes


Human activities directly affecting the environment. e.g. carbone dioxide or methane emissions

DPSIR model has been adopted as the most appropriate way to structure environmental information by most Member States of the

European Union and by international organizations dealing with environmental information

Within the DPSIR model, Eurostat focuses on Response, Driving forces and Pressure. Indicators of State and Impact are the domain of the European Environment Agency (EEA). In reality, borderlines are less clearly defined and follow practical considerations, and the EEA has provided many of the data for the current publication.

Thus Eurostat was charged with the development of a consistent and comprehensive system of environmental pressure indicators, to show the important trends for ten policy fields: Air Pollution, Climate Change, Loss of Biodiversity, Marine Environment & Coastal Zones, Ozone Layer Depletion, Resource Depletion, Dispersion of Toxic Substances, Urban Environmental Problems, Waste, Water Pollution & Water Resources.

Some examples of environmental pressure relevant at the international level include:

Supply chain pressures, such as large companies requiring their suppliers to comply with the Environmental Management System (EMS) standard of the International Standardization Organization; For instance, Nokia developed a comprehensive set of global Nokia Supplier Requirements2 (NSR) which stated the expectation from its suppliers. (Nokia,nd)

Disclosure pressures from various stakeholders for companies to publicly report their environmental performance in annual financial accounts and reports or in voluntary corporate environmental performance reports, for example, via the guidelines of the Global Reporting Initiative; In 2005, Toyota makes a strong public commitment to evaluating their environmental impact and has a comprehensive environmental management system, however, the document that guides this system was not made publicly available, so it was not possible to identify whether it met any good practice principles. Stakeholders were not satisfied for the non-disclosure and require Toyota to do so. (2006 Global Accountability )

financing pressures via the worldwide growth of socially responsible investment (SRI) funds, investment rating systems such as the Dow Jones Sustainability Index and investment policy disclosure requirements;

regulatory control pressures, for example, the RoHS Directive, a European Union (EU) regulation that restricts the use of certain hazardous substances in electrical and electronic equipment sold in the EU;


2. Nokia Supplier Requirements: That includes specified environmental and social requirements. These requirements are based on international standards ISO 14001, SA 8000, OHSAS18001, PCMM and ILO, and UN conventions.

environmental tax pressures, for example, various government-imposed environmentrelated taxes such as carbon taxes, energy use taxes, landfill fees and other emissions fees;

cap and trade pressures, such as the emissions cap and trading aspects of the Kyoto Protocol.

Environment-related costs3 are increasing in many countries in response to growing pressures of various kinds. Organizations have developed strategic4 to improved and achieve environmental friendly, thus most of the organizations have recognized the improvement in environmental performance and rewards are grant. Moreover, companies realized that enhancing the use of resources brings not only environmental improvements, but also potentially significant monetary savings as the costs of materials purchase and waste treatment decrease accordingly.

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For an organization to effectively manage the environmental pressures, costs and benefits mentioned above, it needs various types of expertise, including environmental, technical, accounting and finance, marketing and public relations, and general management. Accountants have a special role to play because of their access to an organization's monetary information, their ability to improve or verify the quality of such information and their skills in using that information to help make sound business decisions in areas such as investment appraisal, budgeting and strategic planning.


3. Environment-related costs : For example, in countries with strong environmental regulatory regimes, new regulations have led to the internalization of a wide variety of additional environment-related costs. Organizations have seen costs of environmental compliance rise, including costs for required pollution and control equipment, pollution monitoring and emission fees and regulatory paperwork and reporting. Pollution clean-up regulations have resulted in increasing liability costs for site remediation and liability-related insurance costs. Pressure from stakeholders, such as local communities, environmental activist groups and business partners (customers, investors and finance providers), has also added to environment-related costs, as organizations need to initiate voluntary programs to respond to the interests of these groups.

4. Strategic that implement such as, design environmentally sensitive products and services to satisfy increasingly "green" business and consumer markets, the ability to respond more quickly and cost-effectively to an ever-changing environmental regulatory framework, and better relationships with key stakeholders such as finance providers and local communities.

In this situation, companies should implement environmental accounting. Environmental accounting can be classified broadly into external environmental accounting, in which information is disclosed outside of a company, and internal environmental accounting, which contributes to business management within a company. In recent years, internal environmental accounting has also come to be referred to as Environmental Management Accounting (EMA).

Environmental impact on Management Accounting Control System(MACS)

Corporate environmental outcomes should be part of the characteristic management accounting undertaken by a firm, the environmental aims and corporate aims are able to be integrated via the market mechanism as firms recognize the strategic competitive advantage and improved bottom line outcomes available from better management accounting for the environment. Furthermore, corporate strategic aims and objectives should result in the internalization of environmental costs such that improved environmental outcomes and market economy outcomes are complementary.

It is necessary to recognize environmental costs in to the management accounting; this is due to pollution equals inefficiency, not only in terms of the resources wasted (e.g. scrapped product, energy emissions) but also in terms of the non-value-added activities necessary to dispose of such waste and discharges (Porter and van der Linde, 1995). The focus in Environmental Management Accounting (EMA) is on simply extending the application of management accounting and its broad range of tools and techniques to recognize and encourage the more effective use of the organization's resources to minimize the environmental impacts borne by the firm. In doing so, EMA delivers improved environmental outcomes indirectly by demonstrating that improved business outcomes are possible when firms better account for the environment in their decision making.

2.1 Environmental Cost Matrix--Nitto Denko Corporation

There is one type of environmental management accounting that is called Environmental Cost Matrix which Nitto Denko Corporation has implemented. Nitto Denko is a Japanese industrial products manufacturing company which is shifting its environment management from end-of-pipe measures to up-stream measures. In line with the environmental policy, in each year since fiscal year 2000 it has developed an environmental budget whose characteristics are as follows (Nitto Denko Corporation 2003):

An environmental budget is complied by each division and by the company Group in order to identify individual environmental themes and responsibilities.

In addition to the 'environmental conservation costs' that are indicated in Ministry of the Environment (MoE) guidelines, the purchasing and processing costs of materials that do not become products (industrial waste), and the purchasing cost of energy, solvents and water consumed in in-house manufacturing, are also defined and recognized as 'environmental impact costs'.

By effectively sharing the 'environmental conservation costs', reducing the 'environmental impact costs' produces good environmental performance. The goal is to reduce total costs by improving the productivity with which natural resources are used.

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Since Nitto Denko has already introduced the Prevention-Appraisal-Failure (PAF) classification, which can measure and analyze quality costs, as a support tool for quality improvement, it seemed that the company has the background to apply Green Budget Matrix Model (GBMM). That is for a company such as Nitto Denko which pursues the reduction of its industrial wastes, quality cost management and environmental cost management have similar characteristics that 'aim at maximum output with minimum input, in other words, cope with both environment and economy'.

For example, the environmental aspect "industrial waste reduction activities" could be connected with the quality aspect 'failure products eradication activities'. Hence, details of environmental costs that were accrued in line with materials flows have, to some extent, common characteristics with items of appraisal costs and internal failure costs. The Environmental Cost Matrix could therefore help managers who plan to fuse environmental costs and quality costs in the future.

2.2 Materials Flow Cost Accounting (MFCA) ---- Canon

Besides that, Canon, one of the world leaders in manufacturing of cameras, has also introduced materials flow cost accounting (MFCA) into its operations, under an MFCA initiative sponsored by the Japan Ministry of Economy, Trade and Industry (METI). In contrast to MFCA in Germany, which focuses on facility-wide Enterprise Resource Planning (ERP) systems, the Japanese version of MFCA typically focuses on a single product or production process, thus allowing a detailed analysis of process improvements and other issues.

Canon implemented MFCA for one production line for one type of camera lens at its main plant for lens production at first. Although the targeted production process had been regarded as producing almost no visible waste prior to MFCA, the MFCA analysis triggered great reductions in both environmental impact and costs by re-classifying glass waste as a materials loss.

Based on the MFCA analysis, Canon introduced a new, thinner glass material in collaboration with its glass manufacturing supplier, thus solve the glass waste had been regarded as an inevitable result of production that could not be prevented previously. After this initial success, Canon is now expanding its MFCA efforts throughout the company.

2.3 Environmental Management Accounting (EMA) --- Kesko Food Ltd.

Kesko Food Ltd. is a pioneer in environmental management issues in the trading sector, in Finland and beyond. It was found to be the only case company which really has invested in Environmental Management Accounting (EMA) in the Finnish Environmental Management Accounting between 1996 and 2005.

Essential for Kesko Food's success in EMA has been the management support and the large number of resources allocated to its EMA activities. Consequently, Kesko Food became a top-class company in environmental responsibility and also in marketing this image. The environmental objectives and plans of the corporation have been transparently reported to its stakeholders, and so any retreat from the planned actions has been made difficult or at least embarrassing. Kesko Food has also been anticipating the future needs of EMA, as well as benchmarking suitable guidelines and experiences of other organisations.

Currently the whole Kesko Group is striving to combine value-chain thinking into its corporate responsibility management. Even though the company has already been awarded for its environmental responsibility it is continuously investing more resources in environmental management and EMA.

2.4 Procter & Gamble Corporation (P&G)

On the other hand, Procter & Gamble Corporation (P&G) is the largest US manufacturer of household products focusing on five main categories: Laundry and cleaning, paper goods, beauty care, food and beverages, and health care. P&G owns more than 250 brands such as Pampers, Lenor, Vicks ant etc.

Strong brands and innovative research are key success factors in the household products industry. Therefore, companies have to address important issues such as product components, health aspects of the products, animal testing and appropriate use and disposal of products. External stakeholders such as consumer also expect companies to improve their communication of product characteristics through transparent labeling. Moreover, legislation increasingly requires companies to use environmentally friendly, where appropriate renewable and biodegradable, substances and materials and reduce product packaging. Production based on genetic engineering methods is likely to be subject to consumer scrutiny.

Moreover, P&G is committed to continually improve the environmental quality of its products. The corporate Environmental Science Department focuses on the evaluation of the environmental safety of consumer products, taking into account their entire life cycle. To complement this commitment, consumers and other relevant stakeholders are provided with relevant information about the environmental quality of the company's products. This is part of P&G's stakeholder management process aiming at ensuring effective customer focus and reducing the exposure of its brands to public scrutiny.

The environmental issue in P&G is committed to continually improve the environmental quality of its products. I suggest P&G implement the EMA in their internal process. As, P&G is the company that will comply with the commitment in long run, with an EMA, the goal of EMA is to reduce total costs by improving the productivity with which natural resources are used, it can help P&G to reduce the waste in the production line, and it helps to produces good environmental performance. With an EMA, P&G would be able to include the environmental cost, thus it provide the manager better and accurate information for making decision.


In conclusion, there are some advantages for implementing the EMA in organization have mentioned above.

However, several leading global companies have focused exclusively on the external reporting aspect of environmental accounting and have calculated only the environmental costs of conforming to the MoE guidelines, and do not consider any future action plan and budget concerning their environmental management in the next fiscal year.

Although environmental accounting intends to show the results of the company's environmental management system (EMS), an EMS cannot be expected to be successful without having an action-plan which provides a map for driving activities and a budget which guarantees to put the plan into effect. The lack of these budgets is evidence that the EMS of Japanese companies do not work well. In some research, it shown that Green-Budget Matrix Model (GBMM) was found to be most useful instrument for supporting managers in this context.

GBMM is a tool designed to help managers identify the soft of activities that drive excellent environmental performance through the effective allocation of economic resources. It also provides useful information for analyzing the status quo, foreseeing the future of the EMS, and promoting a mutual shared recognition between members of the organization of their mission through the matrix preparation process.

GBMM can also contribute to other objectives. Budgeting is mainly a short-term future-orientated activity whereas environmental planning requires more long-term orientated decisions. By applying GBMM to capital budgeting, it can be used as a strong support tool for decision-making for long-term environmental capital investment. In fact, Toyo Seikan has adopted the matrix and uses it for capital budgeting.

GBMM has also driving force towards the Sustainability Balanced Scorecard (SBSC). The identification of business relevance of different environmental issues is a core goal of the SBSC. GBMM evaluate the relevance on its own logic, and helps to identify the initiatives or actions for realizing the goals, especially in the case of integration with capital budgeting.

Nokia Supplier Requirements

Useful sources

2006 Global Accountability

Sustainability accounting and reporting

By Stefan Schaltegger, Martin Bennett, Roger Burritt

published by Springer

Netherlands, 2006







Graz, Austria, 2006

Success factors in design and implementation of EMA

- Kesko Food Ltd. case study

Anna Kumpulainen and Tuula Pohjola

Helsinki University of Technology, Department of Industrial Engineering and Management,

Environmental and Quality Management Unit, P.O.Box 5500, 02015 TKK, Finland