Environmental management and the finance professional

With the rising global temperature already negatively affecting life on earth, the spotlight is on organisations to do their part in tacking the causes.

Organisations are increasingly looking at their business practices; their operations, products and services. Not only do they receive numerous calls for change from organisations such as Friends of the Earth, Greenpeace, or groups of 'eco-warriors', but from the United Nations, CARICOM, the European Union, to name a few. Recognition that our current way of life poses a threat to us and our planet, and this has led to global agreements on action to prevent future environmental damage. Such agreements include the Montreal Protocol, the Rio Declaration, and the Kyoto Protocol.

Environmental risks cannot be ignored, they are now as much a part of running a successful business as product design, marketing, and sound financial management. Poor environmental behaviour will have an impact on the business and its finances. Punishment includes fines, increased liability to environmental taxes, loss in value of land, destruction of brand values, loss of sales, consumer boycotts, an inability to secure finance, loss of insurance cover, contingent liabilities, law suits, and damage to corporate image.

Accounting is affected by environmental pressures on the business. Initially, there are pressures felt in external reporting, but environmental issues cannot be dealt with solely through this disclosure. Environmental issues need to be managed before they can be reported on, and this requires changes to management accounting systems.

Many businesses overestimate the cost and underestimate the benefits of improving environmental practices. Management accounting techniques can distort and misrepresent environmental issues, leading to managers making decisions that are bad for businesses and bad for the environment.

This leads to a failure to enhance customer value, while increasing the risk profile of investments and other decisions with long-term consequences.

For management accounting to contribute to improving the environmental performance of organisations, then it has to change. Environmental Management Accounting (EMA) is an attempt to integrate best management accounting thinking and practice with best environmental management thinking and practice.

Businesses in the Caribbean have had to adjust to government polices to address environmental concerns. In a bid to continue to position itself as one of the world’s most green-focused countries, Guyana banned the importation and use of Styrofoam earlier this year. Styrofoam waste makes up about 2-5 per cent of the waste stream in Guyana, primarily used in the food service industry.

Guyana’s Department of Natural Resources and the Environment has already begun implementing serious measures to address waste management and promote biodegradable materials.

Most recently, cosmetics giants have been in the spotlight as governments in the US and UK move towards banning the use of microbeads in their products. Microbeads are tiny pieces of plastic that have been used to remove dry cells from the surface of skin. However studies have found that they are tiny enough to pass through water filtration plants and therefore end up in lakes and rivers. This contributes to the growing amount of plastic waste in the ocean that is entering the food chain and harming fish and other marine life.

With mounting criticism of their uses in their products, many brands have begun phasing out their use in response despite an official ban not being in place (yet). L’Oreal has said it will be looking for natural alternatives (for example mineral particles, fruit seeds) that can provide the same effectiveness and safety as before which of course will impact on their product innovations.

The pursuit of environmental quality management via the development of an Environmental Management System (EMS) can only be achieved if 'environmental audit' is a concomitant feature of such a system. In this respect the organisation becomes self-regulating and the undertaking of environmental audits on a regular basis provides the platform for organisations to adopt a self-critical and analytical posture as part of their routine organisational management processes. Organisations should be striving to achieve an integrated environmental strategy underpinned by the same type of culture that is required for the successful operation of a programme of total quality management (TQM).

EMS and TQM share the focus upon 'continuous improvement' and the pursuit of excellence. Such organisations pursue objectives that may include zero complaints, zero spills, zero pollution, zero waste and zero accidents. Information systems need to be able to support such environmental objectives via the provision of feedback - on the success or otherwise - of the organisational efforts in achieving such objectives. This approach to environmental quality management requires the development of environmental performance measures and indicators that will enable a comprehensive review of environmental performance to be undertaken. Many - if not all - total quality management accounting techniques can be modified and effectively adopted to help manage environmental issues.

Lesley John is the ACCA Marketing and Media Relations Manager.