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Performance Measurement, Cost Accounting and Financial Analysis for
Sustainable Business
Text copyright 2002, Hamner and Associates LLC /
www.cleanerproduction.com
How does an organization know if it is improving its environmental performance?
This requires the development and use of performance indicators. These are based on data
that is developed through good accounting practices and measurements of key factors.
Environmental Management Accounting (EMA) is the foundation for
sustainable business, Cleaner
Production and Pollution Prevention. It provides the data that managers need to identify
CP opportunities. Often, an EMA analysis or project by itself is enough to get an
organization moving towards CP.
EMA is also known as Total Cost Accounting or Full Cost Accounting. It is an
expansion of good management accounting practices, using a bigger inventory of costs and
careful identification of hidden costs. EMA is based on the principles of Activity-Based
Costing, in which processes and activities are studied to identify their full costs so
alternatives can be considered.
When EMA provides the right data then a financial analysis of alternatives can
be considered. When doing a financial analysis for a CP improvement it is necessary to
compare the baseline situation - what are the costs and profitability of the current
process or equipment - to the alternative. The key to CP financial analysis is the use of
longer time horizons, a lower discount rate to reflect the reduction in risk that CP
provides, and including all the relevant costs, not just the obvious ones.
Without question, the best website for EMA is the Environmental Management
Accounting Website at http://www.emawebsite.org.
It includes a database of almost 200 publications, many available for download, links to
other EMA resources, and information about EMA activities and practicioners around the
world.
This reference collection has three sections. The documents on Performance
Measurement provide a framework for measurement and reporting of performance. The
Environmental Accounting section includes introductory reports, complete manuals for EMA
implementation, software for financial analysis of CP investments, and training materials
on EMA. Finally there is a section on shareholder value and on government promotion of
environmental accounting. The publications are presented in a recommended order for
review, beginning with overviews of approaches and general frameworks.
Performance Measurement
- Measuring Environmental Performance: A Primer and Survey of Metrics In
Use
Global Environmental Management Initiative. 1998. 69 pages.
This report describes different types of metrics used to account for environmental
performance. It shows the important difference between leading and lagging indicators. It
includes case studies and examples from leading companies.
- Continuity, Credibility and Comparability: Key challenges for corporate
environmental performance measurement and communication.
European Environment Agency. 1998. 85 pages.
This important report discusses the relationships between environmental management
tools based on accounting: Environmental / Full Cost, Environmental Performance,
Environmental Reporting, and Ranking Corporate Environmental Performance. It provides the
framework for the use of environmental accounting data, which is to provide indicators of
performance that can be used for management and also can be used by investors.
- Measuring Eco-efficiency: A Guide to Reporting Company Performance
World Business Council for Sustainable Development. 2000. 39 pages.
This report sets out a framework which can be used by any business to measure
progress toward economic and environmental sustainability. The framework defines the
generally applicable indicators and provides guidelines for companies to select their own
business specific indicators. It also offers guidance on implementation and communication.
- Sustainability Reporting Guidelines on Economic, Environmental, and
Social Performance
Global Reporting Initiative. 2002. 104 pages.
These guidelines are for making public reports on sustainability performance. The
report includes background to this global effort to develop guidelines, discussion of
indicators, and recommendations for making a public report.
- Environmental Shareholder Value
University of Basel. 1998. 39 pages.
Describes how environmental management can increase shareholder value as described
on the balance sheet of the company. Important for understanding how environmental
accounting is relevant to financial reporting.
Environmental Accounting
- An Introduction to Environmental Accounting As A Business Management
Tool: Key Concepts And Terms
US Environmental Protection Agency. 1995. 26 pages.
Good introduction to the concepts and terminology of Environmental Management
Accounting.
- Guide to Corporate Environmental Cost Management.
Federal Environment Ministry. 2003. 47 pages.
Great design and focus on material flows make this a stand-out practical
guide.
- International Guidelines on Environmental Management
Accounting.
International Federation of Accountants. 2005. 66 pages.
Intended to be a guidance document providing a general framework and set of
definitions for EMA that is fairly comprehensive and as consistent as
possible with other existing, widely used environmental accounting
frameworks.
- Snapshots of Environmental Cost Accounting
US Environmental Protection Agency. 1998. 115 pages.
This report demonstrates the financial results of actual environmental accounting
applications. It highlights 39 cases of companies using various forms of environmental
accounting (EA) and offers a more detailed review (snapshot) of all of these cases. The
snapshots represent applications of EA in small, medium, and large businesses in a variety
of industries, and in a range of business decisions.
- Environmental Management Accounting Procedures and Principles
United Nations Division for Sustainable Development. 2001. 153 pages.
An important primary reference, developed by an international working group.
Extensive technical details and procedures. Rather strong focus on compliance costs but
still useful internationally.
- Environmental Cost Analysis Methodology
US Department of Defense. 1999. 87 pages.
Includes discussion of process mapping for cost identification, cost measurement,
financial analysis and qualitative issues.
- Total Cost Assessment Methodology
American Institute of Chemical Engineers. 2000. 194 pages.
Comprehensive guide to cost analysis for waste minimization with focus on chemical
industries.
- Improving Your Competitive Position: Strategic and Financial Assessment
of Pollution Prevention Investments
The Northeast Waste Management Officials' Association. 1998. 85 pages.
Excellent training manual with a good case study.
- Improving Governments' Role In the Promotion of Environmental Managerial
Accounting
United Nations Division for Sustainable Development. 2000. 91 pages.
Important publication reviewing the issues surrounding the promotion of EA,
including how it differs from other types of accounting, how to involve stakeholders, and
options for government policy and promotion. Capital Investment Analysis
- Spreadsheet Tools for Tracking Electricity, Water, Gas, and Waste
Business and Industry Association of New Hampshire
Collection of worksheets and a Microsoft Excel spreadsheet for calculating usage of
various resources.
- Total Cost Assessment Software
Texas Natural Resources Commission. 1998.
This software program enables comparison of the financial aspects of alternative
investments for pollution prevention. It allows entry of cost data for alternative
processes, including capital investment and operating costs, and calculates financial
indicators. Very useful for first-level analysis of capital investments.
- P2Finance
Tellus Institute. 1995.
Spreadsheet program for total cost assessment and financial analysis of capital
investments. Allows input of investment and operating costs using an expanded cost
inventory for a baseline case and two alternatives. Calculates cash flows, taxes, and
profitability indicators. Very useful for all equipment and process investment projects.
Includes manual and two case studies using the spreadsheet.
- Energy & Environment Financial Analysis and Cost Evaluation System
Tellus Institute. 1997.
Computer program and manual for financial evaluation of energy, environment and
cleaner production project investments. Allows input of investment and operating costs
using an expanded cost inventory for a baseline case and two alternatives. Calculates cash
flows, taxes, and profitability indicators. Very useful for all equipment and process
investment projects. If you decide to use this program, please register your
interest with the Tellus Institute.
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