Green Management Accounting System. Improving Eco-Efficiency of Firms

Doctoral Thesis / Dissertation, 2014

212 Pages

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A Thesis



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I take this opportunity to sincerely thank my supervisors Prof S K Bose and Dr R S Dhalla, for their guidance and continued supp

ort throughout the duration of the project, and extend my horizon beyond what I could believe in. Their patience and availability throughout the project was instrumental in turning it into a successful project. I would also like to thank the members of the doctoral committee, faculty members and staff of BIT, who encouraged and supported me in every step of the process. I am indebted to the staff and management of the two organisations for their contributions to the case studies, which is one of the highlights of the project. I also acknowledge the support of my employer Oracle®, for allowing me to undertake this journey and access project data to complete third and final case study.

I am ever indebted to Prof R P Mohanty – Vice Chancellor of Sikhsha ‘O Anusandhan (SOA) University, Odhisa – whose unparalleled knowledge and humility shaped the thoughts and dreams of many of us, and thankfully acknowledge the faculties and staff of Institute of Technology and Management, Navi Mumbai, for the support we had during coursework, and offer best wishes to fellow scholars and pray for their success. I take this opportunity to recognise the contributions of reviewers and editors of different journals in shaping my thoughts and improvising the arguments that are part of this thesis.

This journey would have never taken place without the dreams of my late parents and grandparents – whose teachings are the foundations of my very existence. Their efforts to see me improve as a human being contributed to my learning and supported me every step in the path of self-discovery. I would like to thank my wife Jyoti and son Alok, for their whole-hearted support, encouragements, and sacrifices throughout this long process. Lastly, I would like to acknowledge the contributions of my friends and all others whose direct and indirect support culminated into a memorable PhD journey!

Somnath Debnath

4 August, 2014.


Rapid rate of technological developments in the last century has increased our dependency on natural resources and propelled economic growth. Industrial production of goods and services has acquired the shape of a machine, relentlessly using natural resources to produce products and services to meet the needs and demands of human societies. Waste and externalities generated in this process remain largely ignored. The cradle-to-grave cycle of products and resources has been an integral part of how human society has been defining the purpose of nature and its resources – for human existence. The industrial organisations, duly supported by market mechanisms, have played the formidable role in establishing the use of economic viewpoint to measure cost and benefits to negotiate benefits of better today by discounting the costs of tomorrow. The anthropocentric views have been the central theme in ignoring larger perils of economic cycle, forcing sustainability to be the central theme of contemporary debate. Anthropocentric views, lack of respect for ecological balances, and unsustainable business practices are emerging as the core issues of this century.

So far as accounting sciences are concerned, it offers pragmatic solution to understand, interpret, and translate business activities in economic terms. As the norms of accounting interpretations are based on the monetary and contractual evaluation of business transactions, environmental impacts due to waste and emission fail to find any place; however it is equally true that a universally acceptable framework that can systemically evaluate environmental impacts of business actions is still awaited. Moreover, accounting is yet to develop a language that could be used by businesses to understand externalities. Although management accounting and its capabilities support internal and external information needs of organisations, it would also need to improve its decision-making capabilities to be a key differentiator in helping businesses ingrain sustainability as part of its existence. This would need simultaneous improvements in the accounting methods and techniques that could generate information and support environmentally responsible behaviour of firms, playing a significant role in satisfying the decision-making and reporting needs of organisations in long run.

Recognising the gap that exists within management (managerial) accounting in supporting the environmental sustainability of firms in general and lack of green methodologies in particular, this research is an effort to explore contemporary developments in the field of green cost and management accounting, and develop a framework that could help firms in capturing environmental implications of business activities. These improvements are expected to improve scientific understanding of the issues, help firms appreciate the uncertainties associated with the environmental aspects and impacts, and ensue engaged level of discussions between the organisations and society. Using the tradition of field investigation, the project has conducted three case studies in different firms and experimented with green methodologies to contrast and contribute to the knowledge base. These case studies have been instrumental in exploring the shortcomings of the prevailing green methodologies and the need of a new accounting framework that could handle these complexities and account for the environmental aspects.

The originality of this research rests in proposing the dimensionality of accounting as a fundamental concept which segregates the accounting interpretations of business activities based on the stakeholders’ needs. The findings from the case studies could explain that instead of modifying the existing accounting frameworks to accommodate information needs on environmental sustainability, the stakeholders’ need to understand environmental implications of business activities could be better served through an independent accounting construct. Accordingly, corporate environmental accounting (accounting of firm-environment exchange) could be developed into an accounting framework that would capture environmental implications of business activities and retain transactional linkages with the business activities. The construct would be able to improve the information content on aspects and enhance the support to managerial decision-making processes.

The proposed accounting framework is expected to provide an alternate solution to the shortage of systemic information about the environmental aspects of business activities without getting biased about the methods and techniques that are used in quantifying and evaluating the aspects, and support accountability of businesses towards the externalities that they produce. By experimenting with the data collected from case studies, the proposed accounting framework could verify information on aspects and test its traceability to the source transaction(s). To test the generalisability of the framework beyond proximate research, the third case study focused exclusively on validating the framework in an unrelated environment. In addition, the costing methodologies are explored to develop generalised models that could evaluate externalities in terms of its social and environmental costs. In this process, it could be established that the human understanding of externalities is bounded within the cognitive limits.

Based on the findings of the research, some managerial implications are explored as part of extensions that could examine the extensibility of the proposed framework to support improved information and reporting needs of the businesses. These extensions include unified framework to handle material waste and emissions, integrated waste management framework to establish waste management as part of the strategic initiative of business, support carbon accounting and handle obligations towards emission levels. The last extension opens the discussion on industry level progress by using eco-intensity change index at meso-level (industrial sector) that could use accumulated data from the firms to explore sectoral performance of a region by comparing environmental indicators to the economic ones. The proposed framework was found to support these extensions with flow of data and generating information on the aspects and connect to these extensions. The thesis concludes with offering insights on other areas that could be further evolved, as part of future research.

Keywords: environmental management accounting, externalities, cost and management accounting, solid waste management, case study, pragmatism, full cost accounting, environmental performance indicators, accounting dimensions, environmental aspects, eco-efficiency.

Table of Contents



List of Figures

List of Tables


Chapter 1. Introduction
1.1 Context and rationale for the study
1.2 Setting, nature and method of the research project
1.3 Structure of the thesis

Section One – Literature Review
Chapter 2. Externalities and Contemporary Accounting Practices
2.1 Introduction
2.2 Environmental aspects of organisational activities
2.3 Ownership of wastes and tragedy of commons
2.4 Sustainable development and our common future
2.5 Role of corporate accounting in book-keeping of externalities
2.6 Environmental considerations – missing element of conventional cost and management accounting
2.7 Conclusions
Chapter 3. Contemporary Developments in Green Accounting
3.1 Introduction
3.2 Environmental (green) accounting – theory in the making
3.3 Social and environmental accounting (SEA)
3.4 Environmental accounting – disclosure based practices
3.5 Environmental management accounting (EMA)
3.6 Contextual relevance of environmental accounting
3.7 Conclusions
Chapter 4. Methodological Developments in Environmental Management Accounting
4.1 Introduction
4.2 UNDSD waste accounting methodology
4.3 Material flow cost analysis (MFCA)
4.4 Life cycle costing (LCC)
4.5 Full cost accounting (FCA)
4.6 Environmental performance indicators (EPIs)
4.7 Contextual relevance of environmental accounting
4.8 Conclusions
Chapter 5. Advances in Other Corporate Environmental Frameworks
5.1 Introduction
5.2 Emissions & carbon accounting
5.3 Sustainability reporting and Global Reporting Initiative (GRI)
5.4 Contextual findings in the advancements of sustainability accounting and reporting
5.5 Conclusions

Section Two – Conceptual Framework and Research Methodology
Chapter 6. Research Framework
6.1 Introduction
6.2 Conceptual framework
6.3 Research rationale, aims and objectives
6.4 Research paradigm
6.5 Conclusions
Chapter 7. Research Methodology
7.1 Introduction
7.2 Research design
7.3 Case study research method
7.4 Prior case studies in environmental accounting – few examples
7.5 Case selection and phases of the case study
7.6 Research method and data sources
7.7 Conclusions

Section Three – Research Findings and Discussions
Chapter 8. Application and Relevance of EMA methodologies
8.1 Introduction
8.2 Case study I
8.3 Case study II
8.4 Cross-case analysis – learning synthesised from the case studies
8.5 Conclusions
Chapter 9. Corporate Environmental Accounting – An Independent Dimension of Accounting
9.1 Introduction
9.2 Dimensional view of corporate accounting process
9.3 Process flow of CEA
9.4 Systemic integration of CEA within corporate accounting framework
9.5 Valuation of externalities using different costing models
9.6 Testing CEA framework by using data from the case studies
9.7 Case Study III - To validate CEA in an independent environment
9.8 CEA framework – integration of social externalities
9.9 The generalised construct of CEA and sustainability
9.10 Conclusions
Chapter 10. Corporate Environmental Accounting Framework – Some Managerial Implications
10.1 Introduction
10.2 Extension 1 – Integrated waste and emission flow
10.3 Extension 2 – Integrated waste management framework
10.4 Extension 3 – Carbon accounting using CEA
10.5 Extension 4 – Environmental performance index at industry sector level
10.6 Conclusions
Chapter 11. Conclusions
11.1 Overview of the study
11.2 Corporate environmental accounting – costing of externalities and accounting of aspects
11.3 Significance of the study, limitations and future research directions


List of Figures

Figure 4.1 MFCA example with material flow values (UNDSD, 2001)

Figure 6.1 Green costs and its impacts on decision-making/value creation

Figure 7.1 Research process

Figure 8.1 Operational layout of CU1.

Figure 8.2 Operational layout of CU

Figure 9.1 Accounting implications of same transaction in parallel accounting worlds

Figure 9.2 Environmental accounting framework.

Figure 9.3 Flow of aspects and impact tree

Figure 9.4 Layered nature of environmental impacts and costs

Figure 10.1 Integrated waste management system

List of Tables

Table 2.1 Costing methods based on the type of industry

Table 4.1 Some examples of environmental performance indicators.

Table 5.1 Absolute number of companies participated in GRI reporting

Table 6.1 Basic belief system of alternative inquiry paradigms.

Table 8.1 Summarised flow of costs on account of waste in CU1 (2011)

Table 8.2 EMA computations for CU1 during2011

Table 8.3 EMA computations for CU2 hotels during 2012-13.

Table 9.1 Comparative accounting viewpoints of some sample transactions

Table 9.2 Comparative positioning of CEA..

Table 9.3 Transactional interrelationship within accounting dimensions

Table 9.4 Select environmental aspects of CU1

Table 9.5a Solid Waste (Externality) T-Account

Table 9.5b Product B – Total Environmental Aspects T-Account

Table 9.6 Analysis of waste dat for CU2 facilities (2012)

Table 9.7a Solid Waste (Externality) T-Account

Table 9.7b Waste water T-Account.

Table 9.7c Emission water T-Account.

Table 9.7d Environmental Liability T-Account

Table 9.8 Travel miles and emissions produced during Project A

Table 9.9 Periodic accounting of emission aspects due to travel-miles in Project A

Table 9.10 Externalities incurred/saved due to the business activities of CU1 (2011)..

Table 9.11 Externalities incurred/saved due to the business activities of CU2 (2012)..

Table 10.1 GHG profiling of organisation processes (using proposed framework)

Table 10.2 Step-down Allocation of Aggregate GHG on CU1 Processes (in absence of GHG Profile

Table 10.3 CEA and Carbon Accounting.

Table 10.4 Change in environmental intensity (EICI) using sector aggregates in select indicators (Base year: 2007-08)…...159


ABC - Activity Based Costing

ABM - Activity Based Management

APA - American Psychological Association

CBA - Cost Benefit Analysis

CCX - carbon commodity exchange

CDM - Clean Development Mechanism

CDP - Carbon Disclosure Project

CEA - Corporate Environmental Accounting

CER - Certified Emission Reductions

CERES - Coalition for Environmentally Responsible Economies

CMA - Carbon Management Accounting

CP - Cleaner Production

CSR - Corporate Social Responsibility

CVP - Cost-Volume-Profit Analysis

ECA - Environmental Cost Accounting

ECEA - environmental capable enhancing asset

EMA - Environmental Management Accounting

ENRAP - Environment and Natural Resource Accounting Framework

EPA - Environmental Protection Act/Agency

EPI - Environmental Performance Indicators

ERP - Enterprise Resource Planning

ETP - Effluent Treatment Plant

ETS - Emission Trading Scheme

EU - European Union

FA - Fly Ash

FCA - Full Cost Accounting

FDF - Finnish Defence Forces

FIFO - First-in-First-out

GAAP - Generally Accepted Accounting Principles

GACAP - Generally Accepted Cost Accounting Practices in India

GCC - Global Climate Change

GDP - Gross Domestic Product

GHG - Greenhouse Gases Accounting

GRI - Global Reporting Initiative

HVAC - Heating, Ventilation, and Air Conditioning system

IAS - International Accounting Standards

ICAC - Instituto de Contabilidad y Auditoría de Cuentas, Spain

ICAI - Institute of Chartered Accountants of India

ICWAI/ICAI - Institute of Cost Accountants of India

IFAC - International Federation of Accountants

IFRS - International Financial Reporting Standards

IMU - Institute fuer Management und Umwelt, Germany

INR - Indian Rupees

ISO - International Organization for Standardization

JI - Joint Implementation

KPI - Key Performance Indicators

LCA - Life Cycle Analysis

LCC - Life Cycle Costing

LIFO - Last-in-First-out

MCA - Marginal Cost Analysis

MCDA - Multi-criteria Decision Analysis

MCX - Multi-Commodity Exchange

MDF - Medium Density Fibre

MFA - Material Flow Accounting

MFCA - Material Flow Cost Accounting

MIS - management information system

MSW – Municipal Solid Waste

NAMEA - National Accounting Matrix including Environmental Accounts

NPO - Non-Product Outputs

NPV - Net Present Value

PIOT- Physical Input-Output Tables

PPM - Parts per million

QC - Quality Centre

SAM - Sustainability Assessment Models

SEA - Social and Environmental Accounting

SEBI - Security and Exchange Control Board of India

SEEA - System of Ecological and Environmental Accounting

SME - Small and Medium Enterprise

SNA - Systems of National Accounting

SPOC - single point of contact

SWM - Solid Waste Management

TBL - Triple Bottom Line

TCA - Total Cost Accounting

TCO - Total Cost of Ownership

TPD - Tons per Day

UNDSD - United Nations Department of Sustainable Development

UNFCCC - United Nations Framework Convention on Climate Change

USEPA – United States Environmental Protection Agency

WBCSD - World Business Council for Sustainable Development

WRI - World Resource InstituteChapter 1. Introduction

Thomas Friedman, in his book “Hot, Flat, and Crowded” described the environmental concerns we faced today [1, p. 37]:

“The convergence of global warming, global flattening, and global crowding is driving those five big problems – energy supply and demand, petrodictatorship, climate change, energy poverty, and biodiversity loss – well past their tipping points into new realms we've never seen before.”

Similar sentiments and views of thinkers, researchers, and leaders reflect the impending dangers that we have pushed earth – our only home – to. As a student of business and management, I am privileged to be contributing to this debate through this research project, introspecting what has gone wrong and investigating what could be done to arrest the landslide in sustainability. Economic growth during post-industrial revolution era explains material progress of human societies. There has been tremendous improvement in the state of how industries have been able to consume natural resources for the betterment of societies and inhabitants. At the same time, the industrial progress has created waste and externalities whose long-term impacts are hardly known or understood. Somewhere in the quest to achieve higher growth rate and drive economic prosperity in market-based economies, industries have undeniably contributed to shape the anthropocentric views of the world. This has resulted in industries and businesses getting driven solely by the economic goals (McLaughlin, 1993).

Being the dominant force that the industrial corporations are – including the power and resources they own and control – they could participate in effectively shaping the long-term future of the earth. However, there has been a great degree of variations in how the industrial corporations have been reacting to the emerging voices of the stakeholders in taking care of social and environmental sustainability. Their responses and activities have been further shaped by the absence of governmental interventions (which could arrest the decline through legal provisions and force organisations to be environmentally sensitive) and lack of commitments at supra-national levels to address the growing perils of environmental interactions of industries, although some degree of achievement could be seen as part of the formation of Kyoto protocol. The efforts include voluntary declarations reflecting organisational commitment towards corporate social responsibilities (CSR) (Kolk, 2010; Lamberton, 2005), improve ‘greening’ of products and processes by reducing waste and environmental impacts (Esty & Winston, 2006; Gradel & Allenby, 2003), and reporting performance in international reporting platforms, e.g., GRI, UN Compact, CDP, etc. (Carter et al., 2007; GRI 2006; Ulrich 2010). Although it could be argued that these multiple avenues are crucial to support sustainability at some level, the efforts are yet to shape into a significant change in the outlook of organisations. With no external control over the “voluntary” efforts of firms, risks of these actions are disproportionate to the benefits, if Millennium Ecosystem Assessment report (2005) is anything to go by. Besides, these efforts are not deep enough to trigger revolutionary change, changes that are needed to restore the faith of society that industries are working towards achieving “inclusive” growth which will protect the inter- and intra-generational equity. Way back Hardin (1985) has warned that the crowding that compels societies to replace unmanaged commons by private property leads to zero-sum games in which some people get the pluses while the corresponding minuses devolve upon others. Only, the minuses in this game are being handed down to the future generations!

1.1 Context and rationale for the study

The Millennium Ecosystem Assessment report (2005) has presented a grim reality on the stock of natural resources, perceived as highly probable threats to the intergenerational equity. Equally disturbing has been the lack of accountability of the industrial organisations towards the impending disaster and the failure on the part of societal and stakeholders’ efforts to institute significant changes in the behaviour of industries. A part of this lapse should also to be borne by the accounting profession which has contributed in translating organisational activities into economic equivalents that market and stakeholders can understand, but ignored the areas that are outside the economic realm. Such lack of inclusiveness in accounting is true to the economic interests but detrimental to bring firms outside the purview of economic outlook of markets. Accordingly, the need for accounting function to assess the environmental performance of organisations is being actively debated, with the hope that it would bring transparency in assessing and reporting overall performance of firms. However, this would need a framework to generate information that could support firms in improving environmental consideration through eco-sensitive operational and decision-making activities. These improvements should also result in an engaged level of dialogue between firms and society that is based on shared trusts and concerns. The discussions also need to promote awareness about the role of economic progress and consumerism that contributes to the growing externalities (Daly, 2005).

Accounting and its methodologies play a great role in shaping the beliefs of management, stakeholders, market, and society in how they would view the performance of an organisation and evaluate its investability and worth in a market-based system. However, prevailing accounting and reporting practices have avoided incorporating environmental impacts of firms by classifying social and environmental liabilities of firms as externalities (Nikolaou & Evangelinos, 2010), coupled with unresolved challenges of incompleteness of contracts and missing legal statutes (Block, 1998), inability to convert environmental aspects into monetary equivalents (Gray and Babbington, 2001), and lack of standardised accounting interpretations (Schaltegger, 1997). While monetisation of these aspects is one end of the problem, developing objective interpretations for decision-making is another. If the accounting methodologies fail to provide constructs that can help organisations evaluate and track environmental risks and warn societies about the impending loss of natural capital that is getting traded-off for the economic benefits, the limitations of how it is being used translates to as an inherent shortcoming of the language itself. In recent past, environmental management accounting (EMA) has evolved to improve the environmental considerations as part of the accounting language and bring objectivity to the corporate decision making processes.

Within the accounting world, US Environmental Protection Agency (USEPA, 1995) was the first agency to propose alternate construct of environmental cost accounting (ECA) within the corporate accounting framework and help businesses with environmental thinking as part of cost accounting function. Subsequently, waste accounting methodology was developed to support identification of environmental costs from accounting ledgers and use the information to improve decision-making process (UNDSD, 2001). Guidance note on EMA (IFAC, 2005) consolidated the efforts in this direction and supported other techniques like materials flow cost accounting (MFCA), life cycle costing (LCC), and environmental performance indicators (EPIs) to measure and improve environmental sustainability of firms. In parallel, World Resource Institute (WRI) and World Business Council for Sustainable Development (WBCSD) promoted accounting and reporting of greenhouse gases (GHG) and helped businesses manage GHG exposure risks in the carbon-constrained world (WRI & WBCSD, 2004). In addition, institutionalisation of other reporting frameworks – triple bottom line (TBL) global reporting initiative (GRI), UN compact principles, carbon disclosure project (CDP) – have led to the development of diversified protocols, languages, and standards. These frameworks remained disconnected from the formal accounting framework and institutionalised the practice of reporting inscrutable performance of firms in form of voluntary reports. Advancements in social and environmental (SEA) research reflect a larger disconnect that exists between the accountability of organisations and the efforts of the firms to incorporate ethical considerations in business through voluntary reporting (Unerman & O’Dwyer, 2007).

Grey & Bebbington (2001) have equated the inability of the firms to account for the externalities as “McNamara Fallacy” and highlighted the nature of industrial growth that is blindsided by economic performances alone, undermining social and environmental implications. Daniel Yankelovich (1972) in the book “Corporate Priorities: A Continuing Study of the New Demands of Business” described McNamara Fallacy as (as cited in Gray & Bebbington 2001) [1, p.26]:

“The first step is to measure whatever can be measured. This is OK as far as it goes. The second step is to disregard that which can’t be easily measured or give it an arbitrary quantitative value. This is artificial and misleading. The third step is to presume that what can’t be measured easily really isn’t important. This is blindness. The fourth step is to say that what can’t be easily measured doesn’t exist. This is suicide.”

This research is an academic journey to explore the situation, re-affirm observed gaps, validate findings, and develop an alternate viewpoint on the issues. A different viewpoint on the subject is intended to address the root cause of the problem by experimenting with new costing and accounting methodologies, develop physical and monetary accounting of aspects that would green the accounting framework further, and support firms to move beyond eco-efficiency measures. Such a framework could be instrumental in evolving the way the environmental responsibilities of businesses are being approached as a problem how the information needs of management, stakeholders, and institutional and market agencies could be supported.

1.2 Setting, nature and method of the research project

This research project has been set-up against the backdrop of for-profit Indian organisations which has provided the much needed contextual relevance to analyse the role and limitations of the contemporary EMA methodologies and the incomparability of environmental performances across firms. By exploring the internal working of two firms as representative cases, the study would compare and contrast the over-emphasis of contemporary focus on the manufacturing sector at the cost of diluting the attention from equally polluting service industries, e.g., aviation and hospitality. As the prevailing accounting frameworks and voluntary nature of organisational efforts have made it difficult to aggregate, compare, and validate the environmental performance of the firms (even with the use of data from standardised reports like GRI reports), the need to develop costing methodologies with reduced industry specificity, evaluate cost of externalities, and evolve a construct that could provide information on aspects, deepens. Accordingly, the objectives of the study are:

- Understand state-of-the-art on the methodological developments in environmental accounting,
- Investigate the variability of environmental aspects across firms and how these could be handled seamlessly,
- Examine the role of contextual variables like local laws and regulations, and its impacts on the adoption of environmental sensitive frameworks,
- Explore costing methodologies to evaluate externalities,
- Advance methodological improvements to analyse the activities of the firms and develop information support needed for reporting and decision–making purposes, and,
- Theorise new knowledge to support accounting, information, and reporting needs of firms.

This research project is exploratory in nature and has its roots in the pragmatic nature of accounting theories. It examines the shortcomings of the accounting methodologies in supporting environmental sustainability by understanding how aspects and organisational disposition actions generate environmental impacts. Accordingly, the project has used field studies to conduct investigation in selected firms and explore how the environmental aspects could be captured as part of a framework and support information generation, reporting, and decision-making needs of the organisations. The case study method used to conduct these field studies, which has been an oft-used method in the research area of management accounting and EMA, and supportive of studying firms and its activities in natural setting and over longer durations. For the purpose of this research, field investigations have used mixed-method approach where qualitative information on the working of the firms could be collected through unstructured interviews, while templates were designed to collect data on quantitative performance over a number of reporting periods. The data analysis process has used quantitative methodologies from EMA toolkit.

To improve repeatability and external validity, the field studies followed same methodology in both the cases, whereas internal and construct validity has been achieved by repeatedly observing organisational performances over a number of reporting periods. To support generalisability of the proposed construct, a third case study was conducted in an altogether different environment and industry. Other than that, innovative costing techniques like full cost accounting (FCA) and total cost approach (TCA) are explored to model costing of aspects and difficult-to-quantify externalities. Beyond this, the project has also experimented with different constructs to enhance information contents that could meet internal (management) and external needs (reporting) of the firms. As the aim of the research is not to engage in the development of a complete accounting construct that can handle environmental aspects and its book-keeping in entirety, the accounting language leveraged in this dissertation is limited to translate the observations and support arguments to substantiate the capabilities of accounting language, and refute the views of prevailing paradigms. Also, the study has consistently used the term environmental aspects to relate to the non-saleable waste outputs (or environmental assets) that are generated as a by-product of business activities. The exploration of environmental impacts (quantification of change in the behaviour in different ecological receptors due to complete or partial discharge of aspects) is limited to indicate the after-effects of externalities and associated costs of remediation.

1.3 Structure of the thesis

This thesis is arranged in three logical sections. The first section has covered the review of literature on greening of accounting and explores how environmental responsibility has emerged to be the part of extended framework of cost and management accounting. The second section details the conceptual layout of the research along with the framework and methodology adopted for the project. The third section analyses the findings and offers a theoretical and methodological improvement to encapsulate aspects, its accounting, and information needs in a holistic way. The thesis has used American Psychological Association (APA) standard 6.0 for references, with in-text reference following guidelines of the Institute (to use ‘et al.’ for more than two authors). The overviews of individual sections are presented next.

Section one has chapters two through five and covers the review of literature on the subject. Chapter two has explored the background of how the economic viewpoints of organisations have shaped the way accounting has emerged and limited its support to the organisational greening process. Chapter three has covered the contemporary developments in the field of greening of accounting, SEA theories that have emerged to support the accountabilities of the organisational processes at philosophical level, EMA and its methodological improvements, disclosure based practices of the organisations, and progress of green accounting at regional levels. Chapter four has explored the methodological innovations of EMA and its contributions in detail. Chapter five has focused on the niche methodological developments within the field, including the ones supporting carbon accounting and reporting processes, that are yet to fully integrate as part of organisational processes and relevant theories.

Section two of the dissertation is comprised of chapter six and seven, and provides the conceptual layout of the research process and framework. Chapter six draws on the review of literature to reflect the gaps and establish conceptual framework by interlocking the concepts derived from the review of literature. The chapter defines the research aim and objectives, and explores ontological position to reflect on the nature of enquiry and open pathways for epistemological and methodological choices. Chapter seven explains the research process and methodology adopted to investigate the research question and includes discussions on the approach, methods of data collection, and analysis. The chapter explains the need and suitability of using case study method to conduct the research and EMA methods to analyse the collected data.

Section three is comprised of chapter eight, nine, and ten, and covers the discussions on how the project progressed through successive stages and results derived from data analyses led to generalise the findings. Chapter eight summarises the case studies, discusses the findings to establish the need of reviewing the fundamentals of how the accounting of aspects is handled within the contemporary EMA frameworks. Chapter nine proposes “dimensionality” of accounting as the core philosophy to establish the stakeholders’ need as the boundary within which accounting frameworks operate and establish the need of an accounting framework to develop repository of aspects, preserve temporality, and operate independent to that of the existing frameworks. The chapter experiments with such a framework by retro-fitting the data from the case studies and adds a third case study to test its generalisability beyond proximate research. Chapter ten explores its managerial implications by experimenting with few extensions that are conceptual in nature but lends support to the fundamental premises of the previous chapter. Chapter eleven summarised the entire project, reflects on significant contributions, limitations, and future research areas.

This chapter has introduced the thesis and established the broad context of study within the greening of management accounting that could help firms embed environmental sustainability as the part of its existence and help them move beyond eco-efficiency. The constructs propositioned in the research is expected to help the firms partner with larger issues being faced by humanity and play a vital role as an important pillar in the growth and development of human society. To reiterate, voluntary efforts of organisations towards enhancing the environmental performance cannot be a replacement to the accountability it owes to the human society in its ethical treatment of nature and its resources, neither could it be a transparent and unbiased framework to uphold organisational commitments (Unerman & O’Dwyer, 2007). However, without adequate methodological support, expecting firms to contribute voluntarily towards the improvement of planetary resources and ecosystem is a clear and present danger and demands our immediate attention. This research is positioned at this cross-road with the hope that the efforts would contribute to reduce the impending risks!

Section One – Literature Review

Chapter 2: Organisational Externalities and Contemporary Accounting Practices

Chapter 3: Contemporary Developments in Green Accounting

Chapter 4: Methodological Analysis of Environmental Management Accounting

Chapter 5: Advancements in Other Corporate Environmental Frameworks

Chapter 2. Externalities and Contemporary Accounting Practices

2.1 Introduction

Industries and business organisations are important constituents of social environment, continuously influencing and shaping the way human societies interact with nature. Societies might choose to accept the way organisations interact with nature in their bid to justify economic compulsions but it cannot escape the externalities generated by these activities, nor control how nature would counter the impacts of the anthropogenic changes. Waste and emissions are the ‘accepted’ by-products of these interactions and forms part of the responsibility for societies to deal with in today’s world (barring few exceptions). This section is a discussion on the role of business activities in generating externalities and developing understanding how the prevailing accounting practices are shaping the business decisions to ignore these externalities. The understanding of the role of contemporary accounting practice is important to appreciate the support it provides to the social and environmental commitments of organisations. Along with this, this chapter also covers a normative discourse on the established theories of cost and management accounting highlighting its limitations in handling externalities. The understanding of environmental aspects, externalities, and role of organisational responsibilities are the focal points to appreciate the issue of environmental care within firms, or lack thereof, and search for alternatives. These vexed issues are explored in this chapter.

2.2 Environmental aspects of organisational activities

Business organisations are the agents of economic growth, engaged in mining, manufacturing, processing, marketing, and distributing of goods and services that are meant for the consumption of society and its inhabitants. However, along with the goods and services, organisational activities also generate unwanted by-products like waste and emissions (environmental aspects), which are considered as inevitable outcome of the economic activities. While these aspects could result due to the technological limitations of production processes or be inherent to business processes, but eventually gets discarded by the firms during the conversion process (material waste, waste water, emissions) from raw to finished products and services. Some form of waste is also generated by consumers before, during, and after the consumption of products and services (e.g., packaging, parts discarded during maintenance, and end-of-life disposal), and ultimately ends in the public pool. The unintended effects of these by-products create environmental impacts and result in externalities, defined as the inevitable outcomes of business activities in economic theories, not bargained or paid for by the consumers and society, neither controlled by the market forces or its invisible hands (McLaughlin, 1993).

Economic theories have considered externalities as market failures, when the ‘invisible hands’ of market fails to control the flow of unintended goods and services. Neoclassical economics has treated pollution and all forms of wastes as market failures or negative externalities, and its subsequent treatment has been a never-ending debate between different schools of economics. Neoclassical economists have chosen to avoid externalities due to the difficulties associated with rearranging the resources and comparatively miniscule nature of these externalities that does not shift the market equilibrium (theoretical) dramatically in absence of any treatment (Dahlman, 1979). On the other hand, new institutional economists are of the view that such implications can be handled through contractual agreements between impacted parties wherein the associated transaction costs might lead to suboptimal arrangement – a solution rooted in the incompleteness of contracts between parties – á la Coase theorem (p.143, ibid). In other words, negative externalities can be viewed as lack of optimal contracting facility, which is theorised to be salvaged through the application of transaction costs (per transaction cost theory), even though the exceptions to the Coase theorem remind that the private arrangement between parties might not reduce the impacts of the publicly disposed private waste (e.g., smokes releasing CO2 in air). By equating negative externalities to the social costs, free market economies have allowed the market forces to incentivise environmental wrongs (Block, 1998) and developed policy option (i.e., market-based instruments and command-and-control approach) targeted to reduce these (Pirard, 2012).

Since waste and emissions are not always environmentally benign in nature, its subsequent handling and disposal activities would need public resources (infrastructure), not to mention, the costs associated with marginalising or reducing its impact on public goods (ambient air, clean water bodies, uncultivated land, forests, etc.). The cost of remediation or to neutralise the contamination is neither understood completely nor covered by the firms through the fees paid for disposal activities, and this results in social overheads - the present and future costs that are/would be incurred by society and its inhabitants towards mitigating the negative impacts of these goods. However, since the environmental goods (like air, water, and soil) are outside the market valuation, this sub-optimal arrangement results in private gains in short term at public cost the in long run.

2.3 Ownership of wastes and tragedy of commons

Other than the moral dilemma that undermines the “shared responsibility” in favour of right to waste or pollute (Gayer & Horowitz, 2005), the present discussion also intends to highlight the obscure nature of the ownership of waste and the absence of legal framework to ascertain it, which has helped the industries in shifting the private burden of externalities to the public domain. Waste in any form (like industrial fluids, waste water, air emissions, nuclear and bio-hazards) is non-saleable valueless outputs of firms, meant to be discarded/disposed. However, the moot point of this discussion is whose waste is it anyway?

Following the economic processes, firms purchase materials and/or services from different producers. The purchased materials and services carry ownership rights along with the goods and services that are transferred from seller to buyer through the commercial transaction and duly supported by the legal frameworks. Same is the case of manufactured goods, which would carry the associated ownership rights and change hands depending on the terms and conditions of sale. However, economic studies on wastes have stopped short of defining ownership upon its transfer from industries to waste management facilities and/or public pool (Bose & Blore, 1993; Chaturvedi, 2003; Pongrácz & Pohjola, 2004), except for, in case of radioactive wastes. Irrespective of whether the waste disposal mechanisms are privately owned (in developed economies) or owned by the local administration (in case of developing economies), the ownership of waste has not always been covered under express or implied contract upon its transfer. In absence of any express arrangement to this effect, waste retains the ownership of the firms discarding it, although it can be characterised as a property with relinquished or abandoned ownership rights and which should not become the exclusive responsibility of society to deal with (Pongrácz & Pohjola, 2004).

On the other hand, in case of radioactive wastes, the provisions for transfer and disposal of high- and low-level radioactive wastes are covered through special legislations in countries like Sweden, Canada, and U.S., where private firms are allowed to participate in civil nuclear programs (Sjöberg & Drottz-Sjöberg, 2009). In other countries, where the nuclear facilities are under government control, the waste disposal activities are handled by the specialised agencies. This indicates the acknowledgement of stakeholders to clearly demark the transfer of responsibilities of nuclear wastes in post-production period. Although the ownership of wastes and legal rights are understudied areas in literature, the question here is if legislations can exist to reclaim certain specific class of waste, its absence in other cases do not indicate automatic transfer of ownership from private to public domain. There could be a counterview to suggest that radioactive wastes are different as its harmful effects can be traced back to the source. Still, unless the waste is proven to be environmentally benign and its impacts on natural environment upon entering in the public pools are neutralized, it cannot become societal property just because the failure of linking it back to the source. Same is the case with emissions. This improves the question further that if waste is not rightfully belonging to the society, why should the harmful impacts and costs associated to mitigate these be borne by the society? In principle, should this not be the responsibility of its rightful owners? However, if these are abandoned goods and are to taken care of by the society, should the cost (rent seeking?) be not recovered from the set of entities that produce it, i.e., industries? Within the under-explored cross-over of legal and environmental boundaries, the question remains.

In view of the market failures and inevitability of the negative externalities, Pigouvian taxes (command-and-control approach) have been proposed in economic theories to regulate the supply of externalities. On the other hand, market-based instruments could be used to develop permit/quota system with the intention to create artificial shortage of permits in the market and develop incentives for the participating entities to lower the level of externalities. However, these mechanisms would need overwhelming support of the legal structure in defining the terms of cap-and-trade system and developing level-playing fields for the participants to transact uniformly. Contrary to the expectations, the asymmetry in taxing the polluting companies in form of taxes/duties does not benefit the citizens being affected in the process, not to mention the long run nature of the externalities (Dascalu et al., 2008) that points to the shortcomings of the economic measures.

2.4 Sustainable development and our common future

The sustainable development or sustainability (used interchangeably in this manuscript to reflect the philosophy of preserving intra- and intergenerational equity, even though experts have differed on equating the two – Gray & Bebbington, 2001) is a philosophical argument around the present level of consumption of materials and resources, which is believed to be robbing the earth of its natural carrying capacity in satisfying the needs of future generations. In saying so, it is important to understand how the world economy is excavating minerals and fossil fuels to drive economic growth, churning goods and services at breathtaking speed and forcing increase in consumption levels. While the economic growth could have regional imbalances due to the differential rates of industrial progress and types of growth model adopted, overall the process is responsible for generating waste as part of the cradle-to-grave lifecycle of goods and services. Growing consumption levels are also pushing up the levels of waste, forcing the environment to be under continuous duress to counter the negative impacts of anthropogenic impacts and maintain sustenance.

Scientists and ecologists fear that the increasing levels of wastes and emissions are exceeding the absorption rate of nature for it to maintain the present level of sustenance, and could result in permanent shift of its behaviour. The changes within the ecosystem, if permanent, could create effects that are not very well understood as part of our current stock of knowledge (Daly, 2005). Gowdy & Hall (2010) have offered a comprehensive assessment of philosophy of economics that views the world and its interactions using unidimensional approach of Walrasian economics, with closed cycle of interaction between firms and consumers that influence policy setting parameters to apply cycle of prices and Pareto improvement to every problem, in contravention to the laws of thermodynamics and biology. Instead of considering anthropocentric values, if the goods of the same type are not substitutable but carry value for the entire ecosystem that is not known or understood, this outlook could impact the entire ecosystem. This also raises the issue of discounting as the only way of understanding the future impacts of policy choices. So, it is essential to discard the current core of economic model and support development with new and better understanding.

Ulrich (2010) has decomposed the ideological basis of sustainability development and questions the relevance or means to achieve it, which in his opinion would never come out of the present mess. Questioning the economic outlook and political mindset to drive such changes, he argues that a great deal of social and ethical unrest is foreseen that would push the world towards more unsustainable trends. He would rather support the national economies to join hands together in creating a supranational stage and work towards a common theme, away for selfish national identities. These goals should be guided to arrive at more matured aspects of social development that is focused to measure standard of living based on the life enrichment values instead of the level of material possessions. Considering sustainability as an integrated subject between social, political, and economic decision makings, instead of looking through eco-efficiency it would need to view economic outlook with industrial and environmental efficiency.

Another way to look at it is by taking cue from the recent economic slowdown around the world. If economy could be considered at three levels – financial (assimilation of flow of money, values, and associated transactions), productive (involving manufacturing and creation of goods and services), and real (source of energy and materials) – the development of Keynesian economics as the engine of long-term growth and survival might not be the sustainable one (Alier, 2009). For example, replacing one source of energy (fossil fuel) with another (renewable sources) does not account for depleting resource levels (degenerative ones). On the other hand, de-growth or negative growth theory could help in lowering the consumption of materials and resources. The current negative growth of economy in developed countries could be taken as an opportunity to think about the real economy where sustainability can be supported through local growth, employment, and conservation of resources (ibid). However, this would require new methodologies and social organisations to manage uncertainties and ethical complexities. While it is normal to accept monetary justifications in pragmatic and forensic evaluation of economic activity, the language is not universal unless it has a place for wider choices. A common language should also find a way for expression of something that we hold priceless, e.g., sounds of a songbird, (Funtowicz & Ravetz, 1994). Such a common language should further support the plurality of commitments and perspectives, and reflect the shared responsibilities and multi-disciplinary approach of ecological wisdom.

2.5 Role of corporate accounting in book-keeping of externalities

As the mechanism to translate the impacts of waste into monetary liabilities is not covered within the accounting standards nor the responsibilities of waste outside the organisational boundaries are owned or considered by the firms, the practice to push the externalities outside the boundaries of accounting artefacts has become an accepted reality. Financial accounting framework follows the generally accepted accounting principles (GAAP) in developing the accounting interpretations of business transactions that an entity participates in (Gray & Bebbington, 2001). The accounting principle of conservatism allows valuation of the inventory at cost or market price, whichever is less, and dissuades the business entities from booking profits or losses by intentionally re/devaluing inventories. However, as the discards are considered valueless, the waste (solid, liquid and emissions) does not form part of financial accounts. Instead, the practice to load finished products with the value that is lost in form of waste, results in waste remaining out of considerations.

One of the arguments advanced for not considering externalities in accounting artefacts is the lack of causality that fail to link organisations to the externalities it generate (other than the tort claims or contingencies of environmental accidents). In case of tort claims or contingencies arising out of environment accidents, the organisational obligations are based on the potential economic damage it is causally responsible for (Gray & Bebbington, 2001). However, government being the keeper of environmental interests on behalf of society to protect the interests of the commons could provide limited mechanisms for the society to claim damages for the environmental mess (Rodgers Jr., 1997). In any case, by keeping these costs outside the accounting boundaries, management, decision makers, and stakeholders are being offered limited information on the liabilities and potential worth of an organisation. The extended liabilities of an organisation might not appear as part of balance sheet but forms part of financial risks that rapidly expands in a changing environment, and any change in statutes or practices could bring the responsibilities for externalities within the business practices (IFAC, 2005). Second, the narrow view of accounting and its dependency on the external contracting to establish basis for accounting, limits information that forces management to take decision based on pure economic considerations. Third, in a bid to outperform markets and competitors, these decisions would often support short-term benefits which might outrun long term considerations, introducing risky and environmentally unsustainable practices and helping firms to appear as unconcerned corporate citizens to the stakeholders.

Saravanamuthu (2004) has explained the important side effect of accounting standards by using the example of lending functions of the World Bank. The author argues that the World Bank has short changed the long-tem plans of the poor and needy countries for its own economic gains, thereby creating lending processes that have benefited the bank at the cost of long-term losses to these countries. However, the effects of such damaging lending processes have not been included in the regions’ development reports or captured within the balance sheet of the institution. The inappropriateness of the financial accounting framework to guide management in balancing growth against social and environmental needs runs counter to the standardisation of accounting practices. Although accounting processes standardise corporate reporting across countries and bring objectivity into the process, the same system also helps management to generate profits that hinges on the economic principles of profit maximisation alone. In addition, the compartmentalisation and concretisation of the complex interconnections of socio-economic-environmental needs are hardly reflected in uniformly designed reports (Saravanamuthu, 2004).

The entity concept of accounting reflects that the economic nature of resources is mandatory for it to be considered as part of the accounting process. However, as the social responsibilities or collective assets are not part of accounting artefacts, these remain excluded to the accounting process. Similarly, the matching concept upholds the economic measures of the costs, but ignores its excesses and unfair practices towards the local environment and social needs. The paradox of unfairness has been a fact of economic viewpoint (Saravanamuthu, 2004). So, by virtue of being standardised, accounting standards represent interests of only a section of the stakeholders but not surely the “fair” view. However, as the environmental sustainability is related to our common future, the changes within accounting theories need to help firms and decision-makers with information about environmental impacts of business activities.

2.6 Environmental considerations – missing element of conventional cost and management accounting

Cost and management accounting are the financial constructs to help management with scientific decisions-making approach. Although the accounting literature has merged these two streams as part of management accounting, this dissertation has used the two terms to reflect two separate but important aspects of decision-making. Cost accounting is referred primarily to reflect the techniques of storing data and generating information, whereas management accounting has been referred to methods that use and interpret information as part of decision-making process. This section is a reflection on the classical treatise of the subject and explores the environmental considerations, which is missing and could reduce its usability in supporting challenging information needs of businesses.

2.6.1 Cost Accounting

Cost accounting has been defined as the science, art, and practice of classification, collection, and account costs along the value creation process of a firm, so as to analyse, measure, and derive the costs of activities, processes, and products. In contrast to the financial accounting (which covers book-keeping of transactions with external entities in exchange of money or money’s worth), cost accounting records, transfers, and accumulates costs based on the internal transactions involving cost centres, products, and/or cost objects. Cost accounting grew as an independent accounting technique to generate information on the value creation process that is internal to the organisation and adapted the industry practice to which it is applied. Cost accounting allows it to depend on the historical cost of materials (purchase cost), resources (cost of buying or renting), and overheads (indirect expenses) and uses the information to account and build costs of products, processes, and services (Prasad, 1977).

Traditional costs formulations consider direct costs as sum total of direct materials, resources, and expenses of products and services that form part of its ingredients (bill of materials and resources), while indirect costs or overheads are levied on to the products or services based on predetermined formula/relation of activities, processes, and/or resources with the cost drivers. The unit cost of products/services helps management to understand capacity utilisation levels, deviations in processes, overhead earning levels, and to forecast future performance. Cost accounting can also be considered as the financial interpretation of value chain and a tool to accurately develop cost profile of activities, processes, products and services. Based on the type of industrial activity, the relevant cost accounting method can be used to report actual performance (historical) and forecast future performance (Horngren et al., 2009). Table 2.1 lists different costing methods and its industry association.

Table 2.1: Costing methods based on the type of industry

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Another important area of cost accounting is the accounting of materials and resources. Materials and resources accounting (as part of cost accounting) traces the temporal movement of materials and resources and generate inventory accounting that records transactions involving materials and resources. Cost accounting uses historical costs and follows specific rules of accumulation to generate inventory accounting. For example, inventory can follow LIFO (last in first out), FIFO (first in first out) or any other disposition methods, which would need cost accounting to trace and generate temporal valuation of materials. Simultaneous accounting of physical quantities (inventory accounting) and value as part of cost accounting records is more granular than the financial accounting and provides insights needed for effective inventory management. However, material wastes are tracked in cost accounting at physical level only, as the valuation rules transfer the costs to the final products (Prasad, 1977). To control costs in mass-scale manufacturing environment, techniques like standard costing and budgetary control have been developed. Standard costing acts as pre-determined cost of a cost object being produced within standard operational parameters/conditions. The difference between the standard and actual performance levels would accordingly generate variances that are used for responsibility accounting and performance evaluations. On the other hand, budgetary analysis helps in establishing the targets, compares it with actual performance, and focuses on the responsibility accounting for deviations (Horngren et al., 2009; Prasad, 1977).

The historical nature of cost accounting and charging overheads to the cost centres has its own share of criticism. Experts have argued that the uniform rate of charging overheads to the cost objects is not causal in nature and does not result in controlling the costs of products and services. Neither does it offer control on overheads. Using new costing methodologies like activity based costing (ABC) that evolved into activity based management (ABM), the movement of costs are traced against the chain of activities which can better relate to the products or processes. In addition, techniques like throughput costing, target costing, and quality costing are advanced to define costs using customer-centric approach (Horngren et al., 2009). These new methods are supported in the computerised accounting environment as part of enterprise resource planning systems (ERPs). ERPs are able to capture the costs along transactions and record cost entries that can be used to develop cost sheets and generate financial as well as cost accounting entries from same set of information (Granlund & Malmi, 2002).

2.6.2 Management (Managerial) Accounting

Management (managerial) accounting is defined as the methods and techniques used by the management accountants to aid in the decision-making activities of management by using information generated from the organisational and accounting records (including cost and financial accounting). The decisions supported by management accounting could include operational (make vs. buy, cost allocation, repair vs. salvage, in-source vs. outsource), investment (invest vs. outsource, fixed assets vs. rental opportunities), and/or financing related decisions (lease vs. buy, invest vs. sell) and would need information to evaluate the evidence in support of selecting any particular option. In that sense, management accounting shifts the emphasis of costs from record-keeping to the generation and use of cost-related information for scientific decision-making process. This would also include developing “what if” scenarios to simulate different options and develop systemic perspectives to support strategic decisions (Kaplan & Atkinson, 2009).

The theory and application of management accounting can be divided into three areas: a) formulation of decision problem, b) collection of relevant information, and, c) objectively interpret information to help in better decision-making. The core decision making areas can cover the areas of strategic management, performance management, and risk management. For the purpose of decision making, management accounting might use methodologies like ABC, transfer pricing, capital budgeting, and resource accounting. The performance measurement activities are supported by techniques like balance scorecard, budgetary analysis, and profitability analysis (Horngren, 2004), while risk management areas would need risk evaluation and mitigation framework. Detailed analysis on the standard discourse of these methodologies is not the purpose of this thesis as these are extensively covered as part of standard texts, and instead it is to highlight its economic nature. It is important to note that the cost and management accounting is positioned within the economic realm of business and use the common language of finance to translate every business activity into the common denominator of monetary valuation.

Even though management accounting uses different techniques to approach decision-making (discounted cash flow for capital investment decision making, marginal costing for evaluating make vs. buy decisions, optimisation levels for production activities), these methodologies follow cost-benefit analysis (CBA). CBA demands every decision variable to be converted into a common denominator and use financial value as numéraire to compare the aggregate costs with the benefits associated with a particular decision scenario, discounting the future costs and returns to the present value (Bebbington et al., 2007).

2.6.3 Externalities and limitations of traditional cost and management accounting

Traditional cost and management accounting and its techniques are dependent on the generation and interpretation of information on costs from different sources. While cost accounting refers to the methods and techniques to capture transactions and ledgerise costs by following internal value creation process, management accounting uses methods and techniques to generate information and help users interpret these within valid decision-making contexts. The traditional role of waste analysis in costing and estimation techniques is limited to plan procurement of materials and services and drive process efficiency by controlling waste within the defined boundaries. Similarly, waste resources (say, idle hours) are used to load resource costs on the products or processes and earn overheads as part of the performance (Horngren, 2004). Accordingly, even though the costing system collects information on waste materials and resources, its usefulness is limited to drive process efficiencies.

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The advanced techniques of lean accounting (in lean manufacturing environment) and throughput accounting (along the value chain) has been designed to capture the redundancies within the customer value creation process, but this has not been used to handle the negative effects of the activities either (e.g., dematerialisation, reuse of end-of-life products). On the similar lines of CBA, cost-volume-profit (CVP) analysis and marginal cost analysis (MCA) mirror corresponding economic methods to support decision-making with organisations. CBA is used to compare the present value of future benefits of any strategic decision against the associated costs, accumulated at the present value at specific discounting rate. Rooted in the economic principle of present value being higher than the future returns, the discounting factors are adjusted to transfer the costs and benefits to the present value. Similarly, MCA is relevant to the economic theory of marginal cost of production, as it provides organisations with information on incremental costs that it has to incur to increase the production of a given product by one unit, assuming no change in the capacity. Similarly, CVP maps the movement of cost vs. volume and profit to support firms with economising volume of activities (Bebbington et al., 2007).

As externalities take place outside the accounting books and beyond the organisational boundaries, traditional cost and management accounting framework would be constrained to generate information different other than what it has been traditionally designed for. For example, to reduce per unit cost of steam, a firm could invest in biomass-fired boiler and replace its coal-fired boiler. However, the decision would primarily be governed by the economic priorities and not to improve environmental impacts. The resulting environmental gains, if any, would be the by-products of the economic decision. In other words, if cost of steam remains same in both cases, would the firm switch to coal-fired boilers so as to reduce environmental aspects? Traditional theories in decision making is rooted in the concept of better performance (in economic terms) and supports the fiduciary duty of management to increase the market worth of the organisation. Since environmental issues are not addressed in the traditional form of accounting and costing, it would be premature to imagine the use of the conventional decision-making methodologies of management accounting to support environmental perspectives. However, the changes needed within the accounting functions to handle the environmental issues of an organisation could bring a fundamental change in the way organisations use accounting.

Accounting function of an organisation is designed to give visibility to things, as it institutes a calculative practice and a domain of economic actions through which values and beliefs are incorporated into organisation culture (da Silva Monteiro & Aibar-Guzmán, 2010). Accordingly, changes in the accounting practice might induce organisation-wide change (morphogenetic change) that could change the tangible attributes of the accounting system and introduce new mechanisms of reporting and decision-making. This is in contrast to the changes within firms if environmental considerations are confined as part of decision-making activities alone (morphostatic changes) (Fraser, 2012).

2.7 Conclusions

While the process of transferring private waste to public arena has led to private gains at the expense of public goods (loss of public welfare), continued ignorance of economic agents regarding externalities has led to environmental degradations, unsustainable use of resources, increasing level of waste, and less than optimised life-cycle of materials. While industries are generating private profits, waste and emissions are getting transferred to the public pool and becoming societal responsibilities. In the absence of legal framework, there is no legal recourse to seek rent for the care in which society has to invest in or claim damages that these would lead to. In absences of legal frameworks and economic incentives to care for environment, economic progress has resulted in unprecedented level of consumption of materials and resources, not to mention waste and emissions that are impacting the regenerative capacity of the earth and robbing the future generation their share of natural capital. This is not only dangerous, but also pushing the ecosystem to the tipping point beyond which the present level of life-support might get permanently altered. Although the organisations are rising to the wakeup call and seeking ways and means to change their behaviour, their efforts are limited to voluntary reporting of performances and avoid legal and social sanctions.

The current accounting practices are supporting firms in scaling new economic heights but without accounting for the harmful impacts the firms produce. As a result, the organisational practices are not scrutinised (in a systematic manner) for its irresponsible behaviour. Like any other activity within an organisation, the accounting practices should accept its larger role in shaping the behaviour of firms and translate business performance into discrete sets of information that characterises its place on being sustainable and trustworthiness, over and above its investability. The prevailing accounting practices and reports (including profit and loss, balance sheet and cash flow statements) are yet to reflect the organisational contribution beyond economic performance. While traditional cost and management accounting has produced some good methods to analyse costs and improve information support to support management, which could lead better utilisation of materials, funds, and resources, these techniques could hardly evaluate environmental performance as: a) organisations are yet to learn how to imbibe environmental aspects as part of a decision-making process, b) the traditional techniques are not devised to capture data on environmental aspects other than the quantity of waste, c) the methods to quantify environmental aspects are still to be standardised, d) the methods and techniques of cost and management accounting are based on historical costs and not on environmental aspects, and e) lack of uniformity in interpreting environmental aspects and its usefulness in decision making. So, there is a need for right set of tools (methods), techniques (uniformity in interpretations), and mind-set (management intent) to envelop environmental considerations as part of the organisational existence.

For organisations to become environmentally savvy, a fundamental change is needed in the way firms operate and the accounting practices would need to bear equal responsibility by taking part in the change process, including evolving methods and techniques to integrate contingencies being incurred against any person, party, environment, or society at large. The ‘inclusive’ thinking of accounting would help in establishing sustainability considerations as part of the business thinking of firms while innovative methodologies would help to contribute towards it. This research project is an exploration to search for and contribute towards methodological improvements that could handle multiple objectives and support uniformity of approach.

Chapter 3. Contemporary Developments in Green Accounting

3.1 Introduction

Environmentally conscious accounting has been a subject of intense debate in last two decades and enriched by the contributions of scholars and practitioners from around the world. However, being emerging field of study, it is still to address the multitudes of definitions, overlapping ideas, and lack of taxonomy. Environmental (green) accounting has been part of different accounting systems that range from systems of national accounting (SNA) at national/regional level to the firm-level accounting systems and describes the environmental considerations as part of the accounting world. Within the parlance of SNA, green accounting is expected to reflect spatio-temporal insights of growth and depletion of regional resources due to industrial activities, whereas at the corporate level, environmental accounting has been considered as part of the theories and models that would study and reflect upon the behaviour and responsibilities of firms and how environmental considerations are taken care of. This chapter reflects on the emerging trends in this exciting field of research and the new theories that are part of environmental sensitive accounting.

3.2 Environmental (green) accounting – theory in the making

Even though the field of green accounting at regional or macro level is not the core focus of the study, the review of literature is included here to appreciate how firm-level activities aggregates and influences regional progress, and leverage ideas from the this field that can support similar developments at firm-level.

3.2.1 Green accounting at regional or mega level

The accounting of natural resources at an aggregate (regional or national) level is parallel to the traditional framework of system of national accounts (SNA) which aggregates goods and services transacted at regional or national level, using established monetary equivalency (Rout, 2010). Within SNA, non-market driven values like carbon sequestration, flood controls, and soil erosion are generally ignored, in favour of tangibles that are derived from the natural resources. Accordingly, environmental degradation is not reflected as part of SNA. The traditional flaws of SNA can be improved upon by using different approaches like pollution expenditure accounting, physical accounting, development of green indicators, and extension of SNA type systems like system of ecological and environmental accounting (SEEA). Pollution expenditure accounting is the restatement of already accounted information of GDP whereas physical accounting involves accounting of physical stock of natural resources that has passed through volume change, e.g., the one developed in the Netherlands – national accounting matrix including environmental accounts (NAMEA). However, physical accounting of resources would have to deal with multiple accounts and need large data sets to record. Another way could be to use green indicators approach which can be developed in line with the social indicators to measure social well-being in addition to the industrial progress (Rout, 2010).

Vannella (2004) has studied the difficulties in developing integrated systems for economic and environmental accounting at regional and state levels. For sustainable development of a region, it has become mandatory to understand the environmental variables that would carry the impacts of human population within the region. SEEA separates and elaborates all environmentally related flows within an economy to develop the physical accounts of natural resources. Extensions of SNA type system can create satellite accounts, which could be another way forward to develop environmental or green accounting. SEEA and environment and natural resource accounting framework (ENRAP) – also known as Perkins Framework – are two methods that are in use in environmentally advanced countries (Rout, 2010). In contrast, if NAMEA project has to be used as a platform to identify costs associated with monitoring, control, and repairing environmental damage at regional level, this would need the development of the registry of variables through which the state of health of environment could be measured. Alternatively, coexistence model could be used, e.g., study of environmentally polluted areas along with its economic well-being, but this would need the development of a database to monitor environmental plan, spatio-temporal profiles of the aspects, and presence of strong national bodies to participate in the research and draw inferences. However, as the knowledge of interactions within entire ecosystem is not known, it would need progressive work to develop meaningful observations and draw future developmental plans (Vannella, 2004).

Pedersen & de Haan (2006) have developed the interlinking of SNA and SEEA by developing physical input-output tables (PIOT) to demonstrate the economic relevance of material flow accounting (MFA) within the economy. SEEA has developed environmental functions of an economy that could extend to SNA by using additional accounting constructs. It also includes accounts for environmental protection activities, valuation techniques for measuring environmental depletion of natural resources and relate to SNA. However, as the role of development is to study the consequential losses of natural resources in this process, it has been found to be difficult to establish without developing multidimensional nonlinear causal relationships. On the other hand, PIOT connects physical quantities of input-output for multiple industries and generates data for analytical purposes by using interconnected equivalencies. Another way to handle this shortcoming would be to let SEEA physical accounts approximated to MFA type accounts and add indirect flow of materials as accounting extension (Pedersen & de Haan, 2006).

Hoekstra & van den Bergh (2006) have created a complete PIOT for an economy, based on the earlier works at few of the European Union (EU) countries like Denmark, Germany, Finland, Italy, and the Netherlands, and integrated SEEA with SNA. The ‘full PIOT’ framework refers to the full description of physical flows and use specific terminologies to indicate the type of flows being addressed. On the other hand, developing countries like Indonesia, Costa Rica, China, Philippines, and Brazil are experimenting with more conservative version of the same theme and by using model promoted by Repetto et al. (1989), where based on the mass and energy relationships, the environmental impacts could be linked to the specific type of economic activities. From these discussions, it can be inferred that green accounting at regional level also contributes to the debate of environmental protection versus economic growth, relating the environmental impacts to the policies being followed, and opens the links between environmental and economic policies. The research in this area is shaping as a separate line of study within ecological economics and has shared terms and references, which could be leveraged at firm or entity levels. A deeper insight reflects that the traditional framework of accounting at national level is facing the same set of issues as that of firm level accounting, reflecting deeper roots of anthropocentric views of economic thinking.

3.2.2 Environmental accounting at firm level

Similar to the advent of green accounting at regional levels, the environmentally conscious accounting at corporate level is not a well-defined subject either. Once the question of unsustainable practices of industrial world is established, researchers and thinkers have questioned the economic viewpoint of accounting and its role. The concept evolved as a set of changes expected within the accounting functions of a business enterprise that could develop green thinking in a firm. However, most of these advances have happened in silos. Previous chapter has raised the ineffectiveness of accounting due to the limited boundary of considerations and the need to study the feasiblity of connecting accounting to environmental sustainability. Still the growth of literature can discern these ideas into distinct line of thoughts (Debnath et al., 2011).

The first one is the use of organisational disclosures to disseminate the policies, programs, and practices being adopted by the firms towards greening of products, processes and services by using different disseminating channels like annual accounts, webcasts, investors’ forums, and corporate announcements. A number of articles from different theories have studied the level of disclosures and linked it with different performance areas like financial performance, market response, organisational intent, and so on, in a bid to draw empirical rules governing the behaviour of firms. Another line of thought has evolved around the development of internal accounting artefacts to help management with information on waste and the associated costs, in form of advances within environmental management accounting (EMA). A third school of thought has emerged in form of social and environmental (SEA) accounting and offers the philosophical basis to support the development of environmentally conscious accounting in theory and practice. These developments are expected to address the changes needed in the accounting artefacts, flow of information, decision-making paradigms, and the attitude of accountants. However, the developments within the accounting sphere are yet to assimilate into theories that could be disseminated to inculcate environmentally conscious and socially relevant accounting practices. The remainder of the chapter reflects these advances in detail.

3.3 Social and environmental accounting (SEA)

Social and environmental accounting has evolved as the study of advances in the accounting theories and includes social and environmental considerations as part of the business conduct. In last 20 years a substantial body of work has evolved under this umbrella concept and covers the breadth of discussions on the subject. At a philosophical level, the concept of financial reporting and its economic implications can be used to demonstrate the implicit assumption of firms to move from less economic desirable state to the more desirable one. Basic accounting function converts the experiences of social construction through a measurement scheme that reflects such desires, even though it might not promote environmental and social welfare. However, it is argued that unless accounting is able to meet social justice of present and future generations, it would be meaningless to assume its sustainable values, but the accounting process has no construct or capability to reflect it (Gray, 2006). Still, based on the rights of the society over the allocation of resources and responsibilities of economic entities to keep the stakeholders informed, SEA promotes accountability to be part of accounting convention (Gray, 2008). SEA, in that sense, challenges the conventional wisdom.

At a methodological level, Bebbington et al. (2007) believe that SEA needs to explore means to cover monetary and non-monetary aspects of social and environmental impacts of businesses for it to improve dialogue with the stakeholders. Although monetisation is not always a fully grown option, the authors believe that it improves the logic form of accounting from the perspectives of polyvocal citizenship. Parker (2005) has reviewed research conducted in the field of SEA (since late 1980) to classify the developments in two theories: 1) the augmentation theory, and 2) the heartland theory. The augmentation theory reflects the works done on the basis of economic agency, decision usefulness, and legitimacy theories. These theories are positivist in nature and relates to the financial implications of SEA. On the other hand, heartland theory is based on organisation-society dialogue, similar to the eco-feminist and deep green approach. A second review by Parker (2011) on the subject reflected a balance in the research of “environmental” versus “social” subjects, although engaged level of research is awaited. The literature reviewed in these articles have reflected the general trends in developed economies who have embraced environmental considerations at national level, e.g., Australia, Finland, the Netherlands, New Zealand, Spain, and the UK.

Fraser (2012) believes that the SEA and its technologies are in a better position to influence internal operations of organisations and support sustainability related accounting applications. The SEA technologies could also play the role of a catalyst to change the behaviour of a firm and be part of an important assemblage to carry on the change process in the surroundings that could result from no impact to morphostatic (reactionary) ones. These assemblage/characteristics might include items like descriptors, senior management’s permissions, sustainability project co-sponsorships, and role of accountants. Eventually, the changes could lead to the morphogenetic or second order changes and bring sustainability as part of the organisational existence. Philosophically, SEA can be viewed as a method to develop a dialogue between the society and organisations. Even though SEA could be represented insufficiently through financial units alone, the need to disclose relevant information in financial (monetary), non-financial (monetary and physical units), and/or mixed units (either) will help firms to develop an honest and open dialogue between the firms and society, that would support the firms to move from “trust me” (disclosure based approach) to “show me” (achievements).

The effectiveness of SEA could also be defined as the extent to which it would meet the objectives of maximising the social and organisational benefits at least cost and meet financial and non-financial information requirements of internal and external stakeholders of businesses (Orlitzky & Whelan, 2007). One of the experiments within SEA is to develop unified social and environmental management accounting system that works in coordination with the existing management accounting system. In the absence of discussions on social and environmental information, biases could be introduced in the decision-making processes that might lead to information asymmetry and risks (Nikolaou & Evangelinos, 2010). To develop such a system, a conceptual model was proposed by Petcharat & Mula (2012), overlapping and interlocking regions of economic, environmental, and social accounting perspectives. However, on a voluntary basis, companies would prefer to use SEA for internal reporting as compared to the external reporting, as gathered from the survey of Australian companies (Herbohn, 2005). The surveyed firms had modified the existing accounting system to improve environmental and social management accounting practices. The best practicing companies were able to support cost accounting data of environmental and social impacts to support internal decision-making on cost savings and comply with the internal and external reporting requirements (as that of GRI). However, the lack of general theorising within SEA evidence that further work is required to engage practitioners’ perspective and bring changes within the accounting practice (Parker, 2005).

Brown & Fraser (2006) have provided an analysis of three comparing approaches of SEA, i.e., the business case, stakeholder-accountability and critical theory approach. Business case approach covers the corporate sustainability responsibilities (CSR) that views SEA as a means to develop win-win relationship between businesses and stakeholders. In this case, CSR and SEA are extensions of managements’ toolkit to enhance shareholders wealth and avoid conflict of interests in the process. Stakeholder-accountability approach is based on the theory that large organisations are quasi-public and responsible for promoting open, transparent, and democratic society. This view is supported by the accountability of businesses towards developing social and ethical issues, which helps the firms to demonstrate its responsibilities. While the business case seems to suffer once the low hanging fruits are realised, stakeholder-accountability suffers from the organisational concerns about image make-over. The critical theory approach, on the other hand, is radical and refers to the worrisome conduct of capital orientation within the business environment, which may force the organisations and SEA policies to fall prey to these tendencies.

Gray & Laughlin (2012) have discussed SEA development as an independent branch of research by challenging the underlying accountability of existing business practices. Other than the disclosure and reporting practices, it also highlighted the tensions within the ‘light’ and ‘deep’ green environmentalism and between regional managerialism and incrementalism versus deep and fundamental change in methods of economic organisations. Although there has been a less success to generate financial equivalents in SEA, and it might increase the relevance of socially responsible decisions to involve accountability and sustainability become part of substantial, and not marginal, change in society – firm relationship. Lungu et al. (2009/10) have discussed the possibility of using SEA as a medium to report risks and uncertainties associated with the business. The reporting of past performance by the organisations is included in its ability to forecast the future, but its reliability cannot be assessed due to the uncertainty of future, whereas reporting standards emphasise the increasing inclusion of present and future oriented information. Lack of information about risks is one of the main weaknesses of current accounting literature. Even with the disclosure rules, empirical studies have found large variations and deficits in risk reporting. This can be related to the uncertainty of information endowment and lack of credible communication. The risk regulation framework encourages companies to disclose financial risks, but other than the market risks, all financial and non-financial risks relies purely on the voluntary information. As SEA is still to develop into a formal framework, the bigger question would be if SEA reporting would be sufficient in achieving sustainability (Raluca et al., 2009), without corresponding changes in the accounting methodologies.

3.4 Environmental accounting – disclosure based practices

This segment explores environmental disclosure practices of firms from different countries. The disclosure practices are supported by legitimacy and stakeholders’ theory in the reviewed literature. The reviewed literature has featured environmental disclosure practices of Australia (Gadenne & Zaman, 2002), Europe (Moneva & Ortas, 2010), Fiji (Lodhia, 2003), India (Malarvizhi & Yadav, 2008/2009; Singh & Joshi, 2009), Philippines (Rao et al., 2009), Spain (Llena et al. 2007), Sweden (Nyquist, 2003), Taiwan (Huang & Kung, 2010), Thailand (Robkob & Ussahawanitchakit, 2009), and US (Dorweiler & Yakhou, 2005; King & Lenox, 2001). Although these articles are not devoted to understand the advances of environmental accounting within the firms, they reflect shared taxonomy and view organization disclosures as a sign of recognition of responsibilities by the firms to take cognizance of its behaviour towards society.

Study from Spain has shown improved quantum of environmental information in the annual accounts of Spanish companies, once environmental disclosures were made mandatory by ICAC (Accounting and Auditing Institute of Spain). The findings were achieved by comparing annual reports of firms ten years apart, i.e., before and after the issue of the directives (Llena et al., 2007). However, similar improvements were not observed within Indian organisations in two studies conducted three years apart and involving two different dissemination channels – internet based reporting and annual accounts of listed organisation – without any corresponding change in the mandatory accounting norms (Malarvizhi & Yadav, 2008/2009; Singh & Joshi, 2009). In a similar study from Thailand, the voluntary disclosures made by organisations from foods and beverage sector are found to be correlated to multiple factors like corporate image, customer acceptance, and firms’ commitment to sustainability (Robkob & Ussahawanitchakit, 2009), whereas study of environmental disclosures of 759 Taiwanese firms could not come out with any definite conclusion by linking financial performance and environmental disclosure (Huang & Kung, 2010).

Considerable attention has been paid to in some of the studies in establishing, analysing, and predicting a relationship between performance and disclosure practices (Eugénio et al., 2010). However, Branco & Rodrigues (2007) have rightly pointed to the methodological issues and difficulties associated with the interpretation of the empirical data from the disclosure based research reports, including the inability to measure the extent of disclosures and its quality to reflect the advancements in taking care of social and environmental externalities. The interpretation of information can be in seen from its decision usefulness, economic performance, and contribution to social and political theories. Political economy theories view disclosure practices as a response to competing pressure from various stakeholders, whereas stakeholder theories define these as a motivation for strategic support and ethical responsibilities to disclose information. Legitimacy theory supports disclosure practices as strategies used by firms to seek acceptance and approval of their activities from society. In effect, the diversity of results from these studies could generate sufficient inputs to conduct empirical investigations to study the communication practices of the firms. However, the use of voluntary disclosures did not corroborate the changes embraced within accounting practices or its use in the decision-making areas of the firms.

3.5 Environmental management accounting (EMA)

EMA is the umbrella term used to refer to the theory and practice of institutionalising changes in the accounting practices and enable firms with environmentally conscious accounting and decision-making. The primer of USEPA (1995) was the first document to propose environmental cost accounting (ECA) as an extension of corporate accounting framework for organisations to advance environmental considerations in accounting and information generation. Although accounting has claimed to have sufficient armoury in handling the environmentally sensitive costs, GAAP did not cover costs beyond the organisational boundaries and addressed the larger concern of environmental impacts of business activities.

The review of the literature on state-of-the-art has been covered in article one Debnath et al. (2011) and can be referred for further detail. This sub-section covers major ideas covered in the article and to reflect that the purpose of EMA is to cover environmentally sensitive physical (covering energy, water, and materials) and financial (covering environment related costs, earning, and saving) data and provide information to the decision-makers on the stock and flow of materials, energies, waste, water, or any other environmentally sensitive element that are being used, consumed, and/or wasted to manufacture and market goods and services (IFAC, 2005). Within EMA framework, a number of methodologies have been proposed and experimented with by the researchers and practitioners (explored further in chapter 4). Waste accounting and reporting methodology was developed under the aegis of UNDSD to help firms improve environmental performance by analysing overheads from the books of accounts using environmental cost drivers (UNDSD, 2001). The development of accounting based methods, like MFCA and waste accounting used accounting-based constructs but without venturing beyond organisational boundary to define costs (IFAC, 2005; Kokubu & Nakajima 2004; MOE, 2005). Other non-accounting based decision making tools like life cycle methods, full cost accounting (FCA), environmental performance indicators (EPIs), and total cost approach (TCA) have experimented to incorporate costs (beyond organisational boundaries) and contributed to the alternate theories. Some of these methodologies are experimented as part of EMA implementations and others in isolation, but the diversity observed in accounting language as part of these experiments and lack of taxonomy remained.

Jasch & Lavicka (2006) believe that as compared to the control of waste through internal costs, environmental externalities should be handled as part of a different construct like environmental accounting, wherein different valuation methods (contingent valuation or avoidance and restoration method) can be legitimised to help organisations monetise externalities. However, the authors believe this is not the responsibility of firms. Still, advances within EMA has led to the identification of new areas of cost measurement, develop improved methods of cost analysis, rethink strategic decision-making approaches, and work towards new performance measurement system – covered in detail in Debnath et al. (2011).

3.6 Contextual relevance of environmental accounting

Pulver (2007) has challenged the conventional wisdom that the developing countries are environmental laggards and are responsible for poor environmental upkeep of business practices. But, it is equally true that transnational organisations have been shifting polluting industries to the developing nations but without transferring the technological know-how. As the environmental laws are yet to acquire stringency in these countries, lower technological capabilities might contribute to the higher pollution levels. In addition, the close collaboration of market and export led growth have forced firms from developing countries to adopt shorter route, like certifications, to claim seriousness of their efforts. It would need multiple areas of cooperation like knowledge-sharing, collaborative research, technological aspects, and political collaboration, to help developing economies improve its environmental responsibilities as part of the business conduct (Rosendahl & Strand, 2011).

In India, Companies Act 1956 acts as central legislation to cover regulatory aspects of entire life-cycle of private and public companies (company formation to winding up) through its various statutory provisions. Companies Act and its subsequent amendments, as well as accounting standards issued by the Institute of Chartered Accountants of India (ICAI) – the apex body for defining accounting standards in India – have no provision, whatsoever, for organisations to issue statements or prepare, maintain, and report accounts of environmental performance. Same is the case with Security and Exchange Control Board of India (SEBI) – the watchdog for market regulations in India – to develop any norm/regulation for listed organisations to report environmental performance (Singh & Joshi, 2009). So, it can be inferred that Indian organisations, listed or otherwise, do not have any legal obligation to account for and report its environmental performance. Accordingly, environmental disclosures by Indian companies are entirely voluntary in nature. At national level, the practice of green accounting has been mostly at the state levels and yet to progress beyond forest accounting (Rout, 2010)

From the perspective of cost accounting, section 209(1) (d) of the Companies Act mandates the adoption and maintenance of cost accounting records by companies involved in production, processing, manufacturing, and mining activities. Companies belonging to these industry sectors are expected to maintain records of materials, labour, and other items of costs in specific formats and as prescribed by the law. Section 233B of the same act empowers the Central Government to issue audit notifications to such class of companies (as per Companies Cost Audit Report Rules, 2011). To uphold the framework of cost accounting in Indian companies, the Indian Parliament has passed the Cost and Works Accountants Act, 1959 and created ‘The Institute of Cost Accountants of India’ as the apex body to promote cost and management accounting practices in the country. The Institute has since issued generally accepted cost accounting practices (GACAP) and fourteen other cost accounting standards for organisations to follow and report on cost data (, 2011). GACAP promulgates the use of GAAP as the default method of accounting and inventory valuation (p.21, ch.7) (Cost Accounting Standards Board of ICWAI, 2011).

3.6.1 State of greening in hospitality industry

This segment has been added to cover the reference to the hospitality industry which has been part of the case study as part of this research. The literature on the environmental sustainability within the hospitality industry from different countries have shared the context specific findings from different region including Thailand (Anuwichanont et al., 2011), Greek islands (Karatzoglou & Spilanis, 2010), Mauritius (Prayag et al., 2010), Ghana (Mensah, 2007), and others. Anuwichanont et al. (2011) have pointed to the empirical evidence to support that irrespective of environmental orientations, future travel intentions of customers are positively linked to the destination competitiveness and environmental concerns of the hotel. Prayag et al. (2010) have also supported the view that the environmental sustainability is a serious agenda of action for the management of hotels. In comparison, Mensah (2007) has found that the management of hotels in underdeveloped countries are not as serious about the environmental concerns of hotels.

Literature has evidenced the growth of environmental considerations in hospitality industry in form of investigation of benchmarking opportunities in environmental performances (Ball & Taleb, 2011), energy saving measures experimented in hotels (Chan et al., 2008), solid wastes management practices (Radwan et al., 2010), and developing competitive environment for green lodging (Jackson, 2010; Lee et al., 2010). Other than that, attitude of customers and pro-environmental strategies of hotel management have also been studied (Levy & Duverger, 2010; Robinot & Giannelloni, 2009). The findings like attitude of hotel chains towards sustainability in Europe (Bohdanowicz & Martinac, 2003), attitude of customers towards green hotels in India (Manaktola & Jauhari, 2007), and green initiatives taken by lodging industry in US (Liu & Sanhaji, 2010) have contributed to understand the environmental considerations of travellers. The literature referred above supported the role of environment management in the greening of hospitality industry and supply chain effects on eco-tourism, thereby emphasising the role of the greening process and its positive influence on customers’ perceptions towards environmentally sensitive facilities.

Radwan et al. (2010) have discussed waste management practices in small hotels in UK and the role of Environmental Protection Act (EPA), 1990 in shaping the practices in commercial establishments to use the services of authorised waste carriers. Improvising upon the traditional hierarchical model of waste management, the authors have considered ‘composting’ as an important method of waste management and has encouraged the establishment of a waste management system where biotic waste flows could be directly linked to the composting facility. A community level composting scheme can also support food wastes from small hotels and effectively integrate these as part of the solid waste management (SWM) program of the region. In comparison, Jackson (2010) has proposed green lodging to cover improvised waste management strategies and involve core operational aspects in greening the practices, which might involve substantial investments. This includes use of water and energy, heating, ventilation, and air conditioning system (HVAC), hazardous effects of goods and services being used in the facility, awareness of employees to reduce waste in all aspects of business. Supporting the argument further, the quality management system of a hotel can also lead to the prevention of waste, as the empirical relationship of environmental strategies and its impacts on the performance in Spanish hotels have suggested (Claver-Cortés et al., 2007).

Comparing the voluntary approaches of hospitality industry towards sustainability, Ayuso (2007) has supported the adoption of code of conduct, best environmental practices, environmental management system, and reward system to be the effective methods to promote environmentally supportive behaviour. The overall performance of the facility could be measured by using environmental performance indicators to link the hotel environmental strategies to management control. The measurement and monitoring of operational, environmental, and financial key performance indicators (KPIs) can become the barometer of effective EMS and develop as a service differentiator for ‘green’ customers (Chung & Parker, 2008). While measurement of sustainability outlook within hospitality industry cannot be discounted and is appreciated by the customers, the greening process might not always lead to higher revenue, but could earn higher loyalty of customers and improved levels of social acceptance.

3.7 Conclusions

To bring the environmental considerations within the accounting theory and practice, there have been multiple threads of development within the contemporary literature, but with substantial overlap. The developments within parallel themes of research evidence overlapping use of terms, multitude of definitions, and intense academic debate on different concepts. The environmental considerations of firms have been supported in theory of accounting for its inclusion in different areas like disclosures, separate accounting constructs to record information on environmental aspects, frameworks to report waste and other environmental aspects in standard format, and in other voluntary efforts of the firm – sometimes within the umbrella term of corporate social responsibilities (CSR). As with any evolving area of study, these overlaps are yet to converge. Similar efforts of greening system of national accounting are work-in-progress and completely disconnected from the micro level efforts. In that sense the greening at micro and macro levels are out of sync and the models are yet to develop the interconnectivity.

At the micro level, SEA theories are reflective of the efforts to bring environmental accountability within the organisational conscience (from morphostatic to morphogenetic changes), where EMA has produced some methodological improvements to support the organisation implement these changes. This includes cost computation methodologies to evolve from fixed-recipe based computations to the one that could handle uncertainties in information. On the other hand, disclosure based accounting practices have evolved the thinking on organisational commitments and its dissemination to the wider audience in support of the responsibility towards external stakeholders. The learning from contextual perspective supports the inability of conventional costing techniques in supporting the evolving needs of the organisations, bounded by the regulatory demands that are insensitive to the needs of changing times. Insights from the study of environmental considerations within hospitality industry indicate that the trend of random greening of business activities might not guarantee the competitive edge. If the firms could generate a business case that supports environmental care, it could expect higher level of social acceptance and customer loyalty. Even though the hospitality industry is being considered as one of the resource intensive service industries which contributes to waste and externalities significantly, the strategy to reduce the consumption of resources is found to be the favoured method with the firms, reflecting short-termism and opportunistic behaviour of firms to target the low-hanging fruits, which could bring the inevitability of environmental sanctions closer to reality.

Chapter 4. Methodological Developments in Environmental Management Accounting

4.1 Introduction

Environmental management accounting (EMA) is a collective stream of thoughts, contributed by scholars and practitioners to evolve management accounting embrace environmental thinking. In this process, a number of tools and techniques have been developed, experimented, and improvised that are designed to help businesses understand waste of materials, resources, and costs. This chapter is relevant in understanding how parallel lines of research and scholarship have been instrumental in developing new methodologies for capturing and developing information on environmental aspects of business activities. Additionally, the chapter has reviewed the theories on how the cost of aspects could be derived and be made part of the information system. In this process, the divergence in valuation methods and risks associated with assigning numerical values as ‘costs’ to the environmental aspects, are explored. Some of these methods have been tested through case studies, while others are more at a conceptual level.

In terms of EMA techniques, waste accounting and reporting develops information on waste by targeting expenditures incurred on generating and/or avoiding waste, while MFCA is capable of computing the cost of waste by analysing the cost of ingredients and resources forming part of it. LCC builds the cost of environmental considerations in asset acquisition/development process while FCA covers development of costing methodology to include externalities along the chain of activities by breaching organisational boundaries. The understanding of these costing methods and its comparative positioning vis-à-vis traditional ones is core to develop the environmental considerations as part of new methods and techniques.

4.2 UNDSD waste accounting methodology

USEPA (1995) was the first agency to promulgate the environmental cost accounting (ECA) and generate environmentally sensitive cost information. This was followed by waste accounting methodology, developed under the aegis of UNDSD (2001). Waste accounting methodology is the first accounting inspired methodology to use environmental cost drivers for identifying and classifying environmentally sensitive expenditures from the accounting ledgers. The method is simple to implement and has been piloted through a number of case studies. Waste accounting method generates post-operative statement(s) reflecting environmentally sensitive incomes and expenditures of a firm. However, such a restatement remains within the traditional boundary of financial accounting and does not incorporate environmental contingencies (Jasch, 2003; Jasch, 2006). Based on the understanding that the expenditures incurred by organisations on creating and avoiding wastes remain buried as part of administrative overheads in financial books, suitable environmental drivers can be explored to identify and setup a causal link to these expenses. With the help of environmental cost drivers, expenses can be controlled and grouped under the cost categories of a) material costs of waste, b) non-product outputs (NPOs), c) waste and emission costs, d) prevention and other environmental costs, and, e) research and development costs (ibid.). These cost categories represent expenditures being diverted from the organisation value chain. The basic formula to derive environmental costs is:

Total corporate environmental costs =

= Costs of wasted materials + Costs of wasted capital and labour (NPOs) + Cost of waste and emissions + Environmental protection costs (emission treatment and pollution prevention) + Research and development costs (4.1)

A number of case studies across organisations have explored this framework (Gale, 2006; Hyrslová and Hájek, 2005; Jasch, 2003; Jasch, 2006; Jasch & Danse, 2005; Staniskis & Stasiskiene, 2006). Other than the NPOs, the costs developed as part of this method would derive information from different accounting heads, whereas NPO needed information from cost accounting to compute costs and allocate to waste (Gale, 2006). MFCA could generate the NPOs and its costs and from the production cycles. But, the identification, separation, and classification of environmentally sensitive costs and revenues from business transactions would generate post-hoc statement, by reclassifying recorded transactions into environmental sensitive expenditures and incomes. Information generated through the analysis is expected to support management with alternative arrangement of costs. These methods are not designed to include costs that would be incurred by society – at present or in future – to handle the negative aspects of waste and by-products (Jasch, 2006; UNDSD, 2001).

Subsequently, IFAC (2005) included externalities within the EMA framework by introducing the additional cost category of “Less Tangible Costs” to cover environment-related externalities, not available within corporate accounting records. This was an important improvement as compared to the earlier stand of EMA (UNDSD, 2001) and broadened the definition of environmental costs by incorporating difficult-to-quantify internal and external costs, including externalities. This shifted the focus of the EMA from eco-efficiency based outlook, at least in theory. However, review of literature from the later period revealed that the externalities and less tangible costs did not always form part of EMA scholarship (Jasch et al., 2010; Laurinkevičiūtė et al., 2008; Lee, 2011; Stasiškienė & Juškaitė, 2007; Viere et al., 2007). In other cases where its inclusion is witnessed, diverse perspectives are offered in literature. Papaspyropoulos et al. (2012) have opined that the economic valuation of environmental aspects can be included as part of less tangible costs and used GRI indicators to map physical accounting of aspects. Burritt et al. (2009) have factored the potential revenue generation from certified emission reductions (CERs) to evaluate investment in cleaner production (CP), whereas Schaltegger et al. (2012) have avoided explicit monetisation of externalities, but considered emissions in physical quantities while illustrating the EMA approach to CP in beer manufacturing. Clearly, the lack of uniformity to integrate externalities and less tangible costs is visible within EMA scholarship.

4.3 Material flow cost analysis (MFCA)

MFCA was developed by IMU (Institute fuer Management und Umwelt, Germany) as a technique to allocate costs to waste materials produced during manufacturing and processing activities, by following the principle of process costing. While process costing allocates cost of all the ingredients to the finished product and follows the economic principle to transfer costs between by-products, joint, or co-products, MFCA differs on apportionment of costs on the basis of output quantities (including wastes), thereby treating waste similar to the joint products. As a result, this technique evaluates waste based on the cost of materials and resources that are being turned away from the value chain (figure 4.1). Accordingly:

Material Input + starting inventory

= Finished goods + ending inventory + Material Loss (4.2)

Or, (Material Input + starting inventory) - (Finished goods + ending inventory)

= Difference (material loss) or wastes (4.3)

illustration not visible in this excerpt

Figure 4.1: MFCA example with material flow values (UNDSD, 2001)

Following the principle of mass-balance, MFCA was able to develop an alternative interpretation on waste by associating economic importance to it (Burritt et al., 2009; Onishi et al., 2009). Experiments conducted within Japanese industries using MFCA reported improved yields and process efficiencies (Nakajima, 2011). However, MFCA did not alter the cost structure or incorporate costs that are contingent to and/or outside the boundaries of the firm. In that sense, the transactional boundary of MFCA remained within the economic realm of the business. Within EMA, MFCA ranks closest to the existing set of costing tools. This method was popularised in Japan by the combined efforts of the Ministry of Economy, Trade and Industry (METI) and the Ministry of Environment (MOE) (Kitada et al., 2009). Kokubu & Nakajima (2004) have experimented with MFCA implementation by using case study method and provided in-depth analysis of EMA in Tanabe Seiyaku Co. The study traced material flow quantities at operational levels and recorded waste as negative products. The organisation used MFCA as an extension of existing SAP R/3 ERP system and cost data were simulated to generate quantified waste value from different processes. Nakajima (2009) revisited the case studies on MFCA experiments that were carried out in four of the major Japanese organisations as pilot studies by METI in the previous decade and offered insights to use the cost accounting tool that could help management with environmental cause and offer visibility of losses within the material chain which is not available in the traditional costing methods.

Kitada, et al. (2009) contrasted the case findings from earlier implementation of MFCA to the small and medium enterprise (SMEs) and came to conclusion that this method helped in uncovering the aspects of wastes that were ignored earlier. In the case study of Nihon Denki Kagaku Co. Ltd., the company could identify the process deficiencies and improvise the processes to generate lower waste and better quality levels. The study verified that SMEs are characterised by relatively weak negotiating position and fewer management resources, which could become constraints in successful implementation of MFCA. Still, it could help SMEs to improve resource productivities in shorter time frame. Kokubu & Kitada (2010) have reasoned that MFCA helps management to look at operations in a way that is different than the traditional costing approaches, so it would be beneficial to adopt non-traditional thinking and gain full advantage. Based on the adoption of MFCA in three organisations and the concepts from responsibility accounting, the authors illustrated that different approach within MFCA might present conflicting situations to the decision makers if environmental decisions are weighed against the economic benefits.

These case studies support the ability of MFCA to improve understanding of EMA and the role of environmental accounting in decision-making. These studies have also examined the practical utility and operational aspects of MFCA implementation (mostly) within the manufacturing industry. ISO (2010) has proposed MFCA as ISO 14051 standard and introduced Quality Centre (QC) as a unit of production, service, or warehouse, within which material flows can be studied. The new ISO standard could be considered as a step closer to connect sustainability with quality and manufacturing functions (ibid.). However, MFCA is not designed to include waste outside the mass-balance and failed to embrace emissions within its framework (Nakajima, 2011), not to mention the inapplicability of the framework to handle services and projects.

4.4 Life cycle costing (LCC)

Life cycle studies using life cycle analysis (LCA) or LCC methods are not new. These methodologies have been in use for quite some time. While LCC was designed by US Department of Defence during energy crises in ‘70s, these have mostly been used in construction and defence industries (Korpi & Ala-Risku, 2008). The scholars from this field are improvising these techniques to enhance its usage in environmentally sensitive decision making and to promote wide spread use of these methodologies (Gluch & Baumann, 2004). Sterner (2001) has improved LCC to incorporate the considerations for green procurement in construction industry, while Steen (2005) could offer the perspectives of joining LCA and LCC, and understand the feasibility of developing a model that can enhance identification and understanding of environmental costs and benefits. Similar to LCC, LCA methodology was also developed in ‘70s in US and deals in energy and mass balance computations, although not routinely used in organisations. It can be easily imagined this being not so popular within the accounting fraternity due to its nature of handling only physical data. However, LCA enthusiasts believe that it has substantial potential to support environmental impacts and could offer support to other methodologies (Steen, 2005; Tukker, 2000).

Norris (2001) provisioned to integrate LCA techniques with the LCC, resulting in an integrated tool to handle the life cycle and economic implications of the time factored costs. By incorporating economic implications of decision making with life-cycle analysis, it could improve its usability. Designed as full LCC, it could improve cost implications on a traditional LCA by adding cost factors. Software tools like PTLaser and TCAce is positioned to improvise decision making capabilities by taking environmental impacts into consideration. Traditionally, capital decisions would convert futuristic costs to the net present value (NPV) by using suitable discounted cash flow rate. In case of environmentally sensitive LCC, the definition of cost is improvised to add the ones that would neutralise environmental impacts during manufacture, usage, and disposal of products. The imputed costs are calculated on “voluntary basis” or on the basis of “polluter pays principle” (Gluch & Baumann, 2004). Polluter pays principle offers the commercial equivalent of reconditioning environmental damages whereas voluntary basis is the token amount that the organisation needs to pay to legitimize its activities. Based on the success criteria in these projects, organisations can choose to act accordingly. Due to the need of exploded information, these methods might prove to be data and time sensitive. However, in case of unavailability of suitable data, proposals may still be worked out using suitable proxies. The impacts of proxies need to weigh the size of approximations these it might introduce. In addition, organisations can institute life cycle tools by implementing business relevant ISO standard(s) (ISO 14040-9).

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Geissdoerfer et al. (2009) have debated if LCC can be a standardised model for cost management. Viewing LCC as a non-standardised model, the authors postulated it to be used along with the total cost of ownership (TCO) – a common model within specific types of decision making, e.g., capital investments. However, the use of these models across industries is a matter of debate. Rebitzer et al. (2004) proposed to extend the usage of LCA to measure the social and environmental performance of products and services. The tool could calculate the impacts as part of responsible product/service strategy and links CSR with corporate environmental management. For the purpose of establishing methodological framework, step-wise approach can be used to derive the impacts of individual CSR element.

Lindholm & Suomala (2007) have provided the insights on developing the cost of the products through the life stages by using life-cycle costing (LCC). Using the case study of field guns from Finnish Defence Forces (FDF), the product life cycle costing exercise developed the cost profile of different life-stages. It was proposed that the deeper insights from the field could be used as a feedback by the designers and manufacturers in the design and manufacturing of next prototypes, and could include views of the customers as well. Although the exercise did not invoke externalities, it created sufficient room for it to be considered. From the review, it can be inferred that LCC can embed environmental implications as part of its methodology. Environmentally sensitive LCC would depend on considerable amount of data that might not be available within the organisational records. It might need a separate database to hold the information needed for it to use and derive decision options. Its sensitivity to the discounting factors to derive the present cost of future environmental obligations is an unsettled issue. Still the technique could sensitise decision-making process with environmental considerations and uncertainties that is a function of time.

4.5 Full cost accounting (FCA)

The prevailing accounting framework limits the accounting process within the economic boundary of operations and covers operational costs of transactions by following GAAP. This leaves difficult-to-measure costs, including social and environmental liabilities of economic activities, outside the accounting framework (Gray & Babbington, 2001). While monetisation of external costs is one end of the problem, building objective interpretation for decision-making is another. FCA is an accounting technique that has been proposed in literature to incorporate complete range of costs, beyond what could be recognised in the books by following GAAP (IFAC, 2005). Even though FCA can be considered as an ideological shift towards “inclusive accounting”, it is yet to develop into a practical accounting tool. FCA is capable of including not only the financial costs, but also the hidden ones, contingent liabilities, intangibles, and environmental costs (Bebbington et al., 2001). However, these costs are not always easily ascertainable, may vary with the scope of investigation, and could add to the interpretive bias of economic agents (Herbohn, 2005). In spite of some successful attempts by companies like Ontario Power Generation, BSO/Origin, PowerGen, and others – setting frameworks to capture external costs have proved to be time-consuming, tedious, inconsistent, and fraught with methodological challenges (Antheaume, 2004).

Bebbington et al. (2007) have proposed the use of sustainability assessment models (SAM) by combining FCA with multi-criteria decision analysis (MCDA) method for effective decision making. With respect to the decision making, MCDA acknowledges the plurality of values and supports the growing complexity of decisions within socio-political contexts. Instead of using CBA which shows over-reliance on monetisation, subjectivity of calculations, political influence (as positivist method), distributional issues (focus on monetary goals, without worrying about how costs and benefits are distributed), and over-reliance on experts, MCDA supports dialogic approach to decision-making. Contrary to the CBA, subjectivity is a recognised area in SAM and allows discussions amongst participants to increase objectivity in socially relevant issues. Similarly, it covers the distributional issues by including stakeholders without needing them to be experts. To counter the challenges of unsustainable development, FCA could be one of the techniques to integrate environmental considerations with business decisions. To support this better, FCA might also need to consider methods like damage cost approach, shadow pricing, eco-assessment methods to monetise environmental losses, and develop new techniques of cost estimation (Dascalu et al., 2008).

4.6 Environmental performance indicators (EPIs)

Literature evidences that to measure environmental performance of organisations different parameters are to be set up as goals and its progress has to be tracked over time. In some research models, different environmental performance indicators (EPIs) have been formulated and studied as part of ‘eco-efficiency’ (Ehrenfeld, 2005), whereas in other cases, authors have proposed to use balance scorecard and improvise it with sustainability indicators (Laurinkevičiūtė et al., 2008). Environmental performance indicators (EPIs) can facilitate comparison of certain parameters or ratios over time (trends) and help organisations devise strategies to reverse or neutralise ‘worsening’ ones. Although scholars are divided between the benefits of using performance per unit of environmental impact (eco-efficiency) versus environmental impacts per unit of organisational activity (eco-intensity), the idea behind deployment of ratios would be to improve processes, products, and methodologies in generating outputs that could ultimately improve environmental bads (Ehrenfeld, 2005). EPIs can be adopted or designed as in table 4.1. These and other such EPIs can be institutionalised and benchmarked for industries, processes, and/or products, and could be implemented as part of EMS for control and reporting purposes.

Eco-efficiency = Financial or physical performance / Environmental Impacts (4.6)

Eco-intensity = Environmental impacts / Financial or physical performance. (4.7)

Table 4.1: Some examples of environmental performance indicators

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4.6.1 Eco-efficiency

A detailed discussion on EPIs is covered in Debnath et al. (2011 and 2014) and can be referred from therein. Still, it would be pertinent to point out here that EPIs could be developed using internal (financial and environmental performance measures) as well as external data sources (KLD ratings, S&P green index, sustainability metrics indicator, ISO 14031, and others). However, it is up to the management to ask for measures that would help it understand the performance of firms better. WBCSD (2000) defined eco-efficiency as the performance level to deliver competitively-priced goods and services that would satisfy human needs and bring quality of life, while progressively reduce ecological impacts and resource intensity that is in line with the earth’s estimated carrying capacity. Eco-efficiency is also considered as the measurement of organisational performance per unit of environmental impact (Braungart et al. 2007). Organisational performance as well as its environmental impacts can be measured in diverse terms and accordingly multiple sets of indicators can be derived (Seiler-Hausmann et al. 2004). The trends of these indicators could be used to track and understand organisational or industrial performance over time.

Scholars have not always been optimistic about eco-efficiency as a possible contributor towards sustainability. The lack of standardisation could turn the comparison of same ratio between competing firms somewhat asymmetrical. The EPIs, being measured as ratios of mathematical nature, completely hides the impact areas like technology, quality, and overall consideration towards cradle-to-grave life cycle. Also, the ratio might show indifference towards relative consumption levels of resources or degradation due to the proportionate change in the measures that could offset the change in the performance levels. This would result in nullifying directional changes in the measures, neutralising the effects of performance on environment (Gray & Babbington, 2001). In spite of these challenges, eco-efficiency has been found to be easier to compute and interpret. Moreover industries can design their own measures that could be standardised as part of industry practices (IFAC, 2005; WBCSD, 2000). The details of the alternate measure of eco-intensity or eco-effectiveness are explored in Debnath et al. (2014) with the help of GRI reported data of 16 Indian organisations.

4.7 Contextual relevance of environmental accounting

So far as the development of corporate environmental accounting practices in India is concerned, studies have contributed to understand the voluntary disclosure practices of Indian organisations (Malarvizhi & Yadav, 2008/2009; Singh & Joshi, 2009), comparison of environmental and financial performances (Sahay & Singh, 2004), and proactiveness of environmental strategies within Indian organisations (Sangle, 2010). Some of the articles have also studied the prevailing environmental laws and legal jurisprudence within the backdrop of industrial development (Perez, 2002; Sidhu, 2011). The contrasting practice of voluntary nature of environmental reporting and statutory cost accounting practice (section 3.6) limits the scope of Indian organisations to experiment with new ideas in cost accounting. Besides, the trend of research on EMA in India is nowhere close to that of the developed countries.

Still, certain contextual challenges remain unanswered if EMA is to be adopted within the Indian environment. Other than the barrier of statutorily promoted cost accounting (for select set of industries), the cost accounting procedures are based on GACAP which promulgates GAAP as the default base of cost accounting practices (p.21, ch.7) (Cost Accounting Standards Board of ICWAI, 2011a). GACAP supports transfer of costs of normal scrap, defectives, and rejects to the saleable finished units. Also, in case of abnormal losses, material costs are to be treated as loss after giving credit to the realisable value, if any (principle 11 of the same GACAP, p. 24 and standard 5.4 of Cost Accounting Standards, CAS-6, p.6) (Cost Accounting Standards Board of ICWAI, 2011b). As a result, even if waste is considered as a joint product (per MFCA), the associated costs cannot exceed its realisable value (principle 5 of Joint costs, p.43 of GACAP). In essence, MFCA contradicts the established valuation norms of products (costs and net realisable value, whichever is less) and limits its scope to a simulation tool.

4.8 Conclusions

This chapter has covered the review of methodological developments within EMA and explored different techniques like MFCA, LCC, and FCA. However, each of these methods has its own take in terms of deriving cost of environmental aspects. Waste accounting and reporting identifies the cost of environmental aspects by retrieving the accounted expenditures on waste or its prevention, treatment, or disposal. MFCA on the other hand defines cost of waste through its bill of materials and resources (constituents) that could causally be linked to it. Accordingly, environmental costs in both these cases are used as a controlling mechanism to improve the usage of resources and reduce waste. Also, both the methods are restricted to material waste.

In comparison, FCA allows the development of cost function based on the chain of events and could stretch beyond organisational boundaries, while LCC demonstrates the capability to consider environmental impacts during and after the life of the products and/or services and develop cost function to derive present value of investments. So, FCA and LCC can explore costs beyond times and boundaries, and expand cost formulations. These developments are important in building the knowledge base and to understand environmentally conscious decision-making. On the contrary, eco-efficiency represents business-oriented approach to evaluate organisational performance by comparing the physical performance with the environmental aspects, or vice-versa. This offers simpler yardstick for the organisations to follow and improve operations in a way that would reduce environmental aspects per unit of output or dollar value. Even though literature has advocated standardising these measures within and across industries, so that firm level performances could be compared, practice is far from embracing it. This firmly establishes that the ongoing discussions on the subject are far from over, including exploring the difficulties of firms in adopting, measuring, and reporting its environmental performance. Literature also supports that the environmental performance of an organisation is a not an isolated incident. In systemic perspective, this is derived from improved consciousness of its people, processes, and operating environment.

Chapter 5. Advances in Other Corporate Environmental Frameworks

5.1 Introduction

Contemporary developments within cost and management accounting domain have supported corporate environmental considerations in one way or another. The review of literature also indicates development of other pro-environmental frameworks that are being experimented to offer niche solutions by supporting specific segment of environmental considerations in businesses. This chapter is a review of advancements in literature on carbon accounting, greenhouse gases (GHG) accounting, carbon management accounting (CMA) and sustainability reporting. The study of these diverse bodies of work is important to develop holistic understanding of greening of accounting. While carbon accounting has relevance to the annex-1 countries due to the legitimation of Kyoto protocol (KP), GHG accounting addresses the inventorisation process of GHGs or Kyoto gases. In comparison, CMA is the advancements in developing management accounting framework for carbon management and reflects the challenges as part of corporate exposure and decision-making to adapt to the carbon regulations. Sustainability reporting, on the other hand, targets the development of voluntary reporting process covering economic, environmental, and social performances of the organisation in the line of triple bottom line (TBL) that firms might participate in. The coverage of these areas is important to explore the emerging trends, develop better understanding of the issues, and align these within the overall scope of corporate green accounting.

5.2 Emissions & carbon accounting

The climatic changes due to the rising levels of carbon dioxide (CO2) is believed to create future problems like access to clean water, supply chain challenges due to weather and infrastructural strains, market risks due to rise in sea levels, changes in the customer needs due to unpredictable demands, and country specific risks due to political and security conditions (Schultz & Williamson, 2005). Considering the fact that the government and supra-national bodies have responded to the threat of global climate change (GCC) with responses like developing awareness, support for energy efficiency measures, carbon impacts on consumer choices, and economic responses to GCC, the greenhouse effect can be considered as real and threatening (Bebbington & Larrinaga-González, 2008). Historically, the atmospheric concentration of CO2 stayed between the levels of180 and 300 parts per million (ppm) for over 600 thousand years. However, industrial revolution led to the sharp rise of CO2 concentration to 430 ppm by the end of last century and a further rise in concentration could push the surface temperature by 2 degrees which could produce damaging effects and include the runaway impacts of weather changes (Bebbington & Larrinaga-González, 2008; Schultz & Williamson, 2005)

Post Kyoto protocol, European Union (EU) has been issuing emission quota under cap-and-trade scheme to approximately 12,000 industrial facilities within EU and imposing limits of CO2 that could be released by these firms to the atmosphere. The total quota issued is lesser than the expected release of CO2, and hoped to stimulate organisations to find cost-effective solutions for pollution abetment. At the same time, the carbon allowance is traded as part of the EU Emission Trading Scheme (ETS), where the shortage of carbon permits is expected to push the level of prices further. Considering the impact of emission quota on businesses, opportunities are to be discovered and converted into successful business propositions, turning carbon credits into profit. This would also need the firms to assess carbon exposure, develop competitive initiatives and rethink options to mitigate carbon risks (Rosendahl & Strand, 2011).

Kyoto Protocol also introduced schemes like clean development mechanism (CDM) and joint implementations (JI) to balance the demands of emissions and allow Annex-B countries to reduce their overall emission. One of the ways to achieve this is to shift operations to non-Annex B countries (mostly developing countries). Non-Annex B countries are expected to secure projects and programs that would reduce the GHG as well as support regional development agenda. However, CDM is an offset mechanism and its objective is not to reduce overall global GHG emissions. Also, during the transfer of projects from carbon restricted countries to non-Annex B countries, the leakages occurring within the process due to the differential prices of the fossil fuels would go unnoticed. With the increase in numbers of CDM projects in non-Annex B countries, without any cap on emissions, consumption of fossil fuel would change its demand and supply pattern and contribute to the leakage (Rosendahl & Strand, 2011).

Tol (2005) has used literature survey to form a probability density function from the 103 estimates of marginal cost damage of carbon dioxide published in 28 studies and asserts the best guess of around USD 50 per equivalent ton of CO2 (tCO2e), even- though the estimates depend on the discounting rate and aggregation of monetised impacts over countries. In comparison, the going rate of carbon in the year 2012-13 has been hovering around € 4-5 per tCO2e in the ETS market and has failed to match the earlier estimates, contributing to the controversial and uncertain nature of market-based solution. Still, the market rates can provide benchmarking values for policy decisions. As knowledge gap exists in understanding and analysing the level of these impacts, different set of policy goals and growth models could result in unpredictable outcomes. Another way to achieve the same set of objectives would be to aggregate the impacts and develop understanding of its relative importance which could contribute to value judgment. However, not all impacts are well-understood; neither the nature of vulnerabilities of regions contributes to global estimates.

5.2.1 Accounting implications of carbon trade

Ratnatunga & Balachandran (2009) have offered a pragmatic approach for the incorporation of carbon accounting within the business accounting framework. Considering the international emission trading to be an accepted reality of future, it would be essential to account for the transactions which would need improved accounting structure to incorporate emission trading as part of overall business cycle. Detailing the provisions of the Kyoto protocol, Bebbington & Larrinaga-González, (2008) have referred to the mandatory cap-and-trade system for Annex – B countries within the commitment periods, where companies might participate to purchase and sell certified emission reductions (CER) in voluntary market as this could be an economic stimulus for companies to move towards low-emission alternatives. From accounting perspective, organisations would need to match their actual emissions annually with carbon allowances (available through national allowance) plus the CERs and surrender these to the national registry. Violating the cap would lead to the financial implications in terms of fines as well as purchase of balance CERs from market at prevailing rates. EU has set the penalty rate of 100 €/EUA (European Union Allowance) while the market traded at 30 €/EUA (Bebbington & Larrinaga-González, 2008).

The correct procedure to measure carbon credits is another issue facing academics and practitioners, and there is no consensus regarding the method of valuation and uniformity of procedures. Bebbington & Larrinaga-González (2008) suggest that the recognition of assets and liabilities and its reporting might follow net approach, where the allowances are considered to be granted at nil value while the obligation is recognised at carrying value. There has been accounting implications to this but no amicable settlement is within sight. It is believed that the accounting of GCC would need a change in the conventional accounting to reflect the associated risks and assist decision makers. Since, GCC implications for countries are varied and no long term solution is available yet, it becomes important for the companies to manage regulatory risks and devise policy instruments at supra-national levels (ibid). In comparison, Machado et al. (2011) have focused on the use of international accounting standards (IAS) like IAS20 (accounting for government grants and disclosure of government assistance), IAS37 (provisions, contingent liabilities and contingent assets), and IAS38 (intangible assets) to account for the carbon trade. For the valuation of carbon credits, IAS 38 can be used by considering emission rights as intangible assets, while keeping in mind the differences in timing and valuation. If the permissions for these are allocated by the government at a value lesser than the fair market value, the differences could be recognised as per IAS 20, whereas any liability associated with CER or penalty has to be accounted as per IAS 37.

Ratnatunga et al. (2011) have used asset capability framework to develop the valuation and report carbon emissions. Terming it as environmental capable enhancing asset (ECEA), two types of carbon credits are recognised: a) the ones issued by government, and b) generated due to internal capability enhancement. However the issues for accounting would be: a) the valuation and reporting of carbon credits, b) valuation and reporting of intangible assets, and, c) how organisation is going to meet its environmental and social responsibilities. The accounting issues can be further related to: a) valuation of permits, b) valuation of liability over time, and, c) recording of grants. As carbon credits are intangible, the accounting process should take care of carbon offsets as well as the associated financial value. Another way would be to value it based on its prevailing market rate and not to follow historical cost to represent fair value accounting. The variations in the transactional values can be recorded using “capability” states rather than the historical costs. From internal control purposes, Ratnatunga & Balachandran (2009) have proposed the use of product-miles as a proxy for unit of carbon emission generated due to product travel and account the impacts of product movement on environment. The third option would be to improve strategic cost and management accounting to provide suitable structure. Clearly, carbon accounting is struggling to handle the aspects, set-off, carbon credits, and associated financials in a seamless manner.

5.2.2 Greenhouse gases (GHG) accounting

GHG accounting is an independent process of inventorising the greenhouses gases associated within organisational existence. GHG accounting has been standardised to cover GHG related risks of industries through multiple reporting standards issued by WRI & WBCSD (2004). Although industrial activities might generate different types of gases, the GHG accounting standards apply to six gases[1] (CO2, CH4, N2O, HFCs, PFCs, and SF6) that are covered as part of Kyoto protocol, measured in the common unit of equivalent tonnage of CO2 (tCO2e). However, it is up to the firms to leverage the same mechanism to account other (non-Kyoto[2] ) gases like CFCs, NOx, SOx, and F-gases, within the applicable scope and build/report extended emission inventory (ibid). TBL reporting indicators – EN16 to EN18 – recommend the reporting entities to follow corporate GHG reporting standard to report on GHG emissions (GRI, 2006).

GHG accounting involves identification of emission scope followed by categorisation and calculation of GHGs that are released to the environment as a result of business activities. Scope 1 emission is associated with the generation, transmission, and distribution of electricity and other energy sources, owned and operated by firms within its ownership boundary. Scope 2 emission is attributable to electricity consumption, sourced from external producers/distributors. It is pertinent to mention here that Scope 2 GHG can relate to actual consumption of energy of a process, only if the measurement instruments (e.g., energy meters) are installed to capture actual consumption. Otherwise, GHG generation would have to depend on the total energy input, and would need subsequent allocation to processes and generate carbon profiles. Scope 3 emission is classified as emissions associated with all other activities (e.g., purchase, business travel, transportation of goods and services, customer services, and so on) that do not belong to the other two categories. The GHG standard for corporate reporting serves as a basis for business organisations to develop emission inventory (Kyoto and non-Kyoto gases), generate information to monitor and improve performance, and participate in voluntary or mandatory compliance/ reporting.

The discussion on GHG as part of green accounting is relevant to emphasise that emissions are a part of waste chain and should be supportable within the corporate environmental accounting framework. With increasingly stringent emission norms, organisations would have to manage its carbon related business risks better (Schaltegger & Csutora, 2012). Huang et al. (2009) have discussed the use of input-output analysis (IOA) for the purpose of analysing GHG across supply chains and boundary of cut-off or threshold emission that could be used for marginally costly resources. IOA can also be used as a screening tool to capture emissions from the supply chain and to derive anticipated life cycle emissions. However, decision makers would need to know the complete footprints to take business decisions and need to consider sectoral averages and the consumer demands to aggregate and develop reduced carbon footprint of products/services. It would be difficult for the corporate organisations to build a response towards carbon footprint due to incomplete understanding of its profile within the supply chain and sectoral levels.

5.2.3 Carbon disclosure project (CDP)

Kolk et al. (2008) have studied the organisational responses towards GCC through the study of CDP reports, which has been initiated under an autonomous body and invites businesses to join voluntary reporting process, similar to that of GRI by CERES (Coalition for Environmentally Responsible Economies). GRI seeks reporting of constituent members on the sustainable performance based on triple bottom line. CDP invites organisations including institutional investors to join and report its carbon management and disclosure following CDP5 questionnaire. While there could be future implications of linking voluntary carbon disclosure with carbon trading, its reporting through CDP is still a political debate. CDP can be considered as a form of corporate governance in which civil society actors employ disclosure mechanism to exert pressure on businesses to establish and comply with the environmental and social norms. Due to broad nature of questions and subjectivity of answers, there is apparently less possibility to generate quantitative information from the submitted data. However, the institutionalisation process should be able to rely on the ‘commensuration’ to establish a valid logic or causal chain of events to convert qualitative information into quantitative one.

5.2.4 Carbon management accounting (CMA)

The development of GHG accounting and related research is confined to develop emission profiles of products and processes at gross levels by developing inventories of GHGs. However, its systemic integration within management accounting to help management take corrective steps is being researched as carbon management accounting (Schaltegger & Csutora (2012). Burritt et al. (2011) have reflected on the carbon management practices of some of the leading German companies to define what could be considered as “carbon management accounting” (CMA). Defining it as a component of sustainability accounting framework, the authors have explained how it could help the organisations approach carbon management with physical as well financial data that would be needed to participate in emissions trading, saving energy, and gaining market advantage. However, such integrations are yet to mature.

5.3 Sustainability reporting and Global Reporting Initiative (GRI)

GRI originated in 1997 out of CERES and it was established as permanent and independent international body in 2002 with multi-stakeholders governance structure, supported by United Nations Environment Program (UNEP). The reporting standards of GRI follows standard disclosure profile that includes four sections and would allow the organisations to report on its strategy and analysis, organisational profile, report parameters, and governance aspects. In addition, the report has six categories and each category has relevant aspects. The reporting categories are economic performance, environmental performance, human rights, labour practices, society, and product responsibility. These categories cover reporting of different aspects and divided into core and optional indicators. GRI indicators are derived from practitioners’ perspective and are categorised into three sections and each section is further collected into various aspects. The reporting is voluntary and has scope for external assurance. The reporting levels are divided as A, B, and C – with decreasing number of mandatory indicators to be reported corresponding to each level. More details about GRI and its reporting indicators can be found at its website (‎). The benefit of using GRI report is its standardised reporting format and prescribed methodology to calculate individual indicators. Although the reporting format encourages qualitative and quantitative terms based on the reporting area, the platform is yet to publish any consolidated findings, based on the reports submitted so far.

5.4 Contextual findings in the advancements of sustainability accounting and reporting

With reference to India, the pipeline of CDM projects is worth 28 million CERs. Although the issues of recognising the accounting implications of these CERs and taxation issues covering transactions between local and international parties remain, the current policy guidelines are not a permanent solutions, as the tradability of CERs is hampered due to the restrictions placed (Sarkar, 2010). Although Kyoto protocol has been ratified by establishing UNFCCC (United Nations Framework Convention on Climate Change) and subsequently emission trading schemes ensued, absence of accounting principles is becoming a major handicap in this area, locally as well as internationally. Citing the lack of accounting standards at international levels (including scrapping of IFRIC 3 – accounting of emission rights), Sarkar (2010) validates the applicability of IAS 20, IAS 38, and IAS 37, and the tax treatments applicable to the business under these provisions, which is an issue in cotemporary accounting practices in India. This includes the implications in current and future emission trading in multi-commodity exchange (MCX) and the possibility of expanding voluntary carbon market in India (in line with the carbon commodity exchange, CCX). However, the business case of carbon management is very much dependent on the factors like cost savings, CSR, regulation issues, and impacts of climate change.

On the sustainability reporting, Indian organisations started GRI reporting by the start of this millennium, but years 2001 - 2005 did not see any significant increase in the number of reporting companies. Year wise growth of companies reporting to GRI is detailed table 5.1. Maximum participation from Indian organisations was found during the period of 2007-10. In spite of high level of compliance and number of indicators claimed to have been reported in GRI content index, the extracted data of GRI reports displayed lack of uniformity.

Table 5.1: Absolute number of companies participated in GRI reporting[3]

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The study of GRI reports of 16 Indian organisations and its triangulations with financial performance has been covered in Debnath et al. (2014) and could be referred for further details. In reporting environmental and economic performance, one-third companies of the selected sample have used reporting boundaries for economic performance different than that of financial performance. Separate reporting boundaries to report economic, environmental, and social performances do not help readers to generate uniform view of sustainability efforts within the organisations and lowers comparability of data. This would force the users and readers to resort to other sources (e.g., annual financial statements to gather financial performance) to understand about these efforts. This also indicates that corporate reporting is still to develop holistic approach and merge different reporting streams and develop sustainability as part of the core business thinking.

5.5 Conclusions

This chapter has covered the developments of pro-environmental frameworks that have evolved in parallel to the EMA. Carbon management accounting (CMA) is proposed as an umbrella framework to institute systematic investigation of GHG related impacts on decision-making. However, its interactions with EMA framework are still to evolve. Similarly, GHG accounting developed stand-alone construct to inventorise Kyoto gases. It could be argued that the effectiveness of EMA framework would improve if it can be based on the environmental performance of the organisation covering waste as well as emissions. However, in absence of any interaction of EMA with CMA and GHG accounting, integration of emission accounting with EMA remains a partial solution. In addition, the absence of accounting standards to support carbon accounting remains. With this chapter, section one of the thesis covering literature review comes to a close.

To recap, the literature review (section one) began with the background of needs and limitations of information on environmental considerations as part of prevailing accounting frameworks, followed by investigating the role of traditional cost and management accounting and its distance from environmentally conscious information generation and decision-making activities (chapter 2), contemporary developments in the field of environmentally sensitive accounting frameworks (chapter 3), insights on the methodological support of EMA as part of internal decision-making activities of firms (chapter 4), and finally, other contemporary and independent pro-environmental frameworks (chapter 5). It could be observed that these developments are fragmented and have contributed to support environmentally conscious accounting and decision making in silos. However, few interesting point remained common though. Other than GHG accounting, none of these frameworks tested or developed constructs by considering temporality as an important requirement. Second, most of these methods remained occupied with physical quantification and found monetising of aspects challenging due to insufficient theoretical support. All these frameworks acknowledged the multitude of measurement units and undefined monetary equivalency. Also, limited efforts were seen to extend the methodological considerations beyond organisational boundaries and derive scientific basis to calculate cost of externalities. In that sense, the efforts concentrated on reducing the quantity of environmental aspects with the hope of reducing corresponding impacts.

For an organisation to consider environmental performance seriously, it would need the support of a construct that offers 360 degree view of the aspects, including credits, offsets, and associated financials on waste. Such a construct would need uniformity in methodology to quantify and monetise aspects and remove interpretive bias. In addition, it would have to concern itself with multitude of accounting principles (formal vs. informal types of accounting principles), measurement differences (financial vs. non-financial or mixed units), and content of information (nature of information) (Nikolaou and Evangelinos, 2010). The transparency and authenticity of information is vital and needs to be taken care of by the accounting information system. The next section is the journey to evolve such a framework and develop the theoretical basis to support it.

Section Two – Conceptual Framework and Research Methodology

Chapter 6: Research Framework

Chapter 7: Research Methodology

Chapter 6. Research Framework

6.1 Introduction

The preceding five chapters collectively constituted as section one and have covered the review of relevant literature. This chapter draws on these developments to present the conceptual basis of the research. For this purpose, first the findings from the literature is summarised to reflect and how the individual chapters are relevant in contributing to the research, followed by exploring the gaps in literature that formed the bases of this research. Thereafter, the research rationale, aims and objectives are deliberated, which is followed by the discussion on ontological basis of this research. The research paradigm adopted in the research is based on the nature of enquiry, its positioning within the extant literature, and how these arguments supported and substantiated the research aims and objectives.

6.2 Conceptual framework

The present study draws on multiple fields of research and knowledge, and its review is presented relevant literature in section one. The interlocking and relevance of these concepts are captured in this segment. To begin with, the conceptualisation of joint stock organisations (during the industrial revolution) is the single most important invention in the history of business that changed the way human societies ever conducted trade and commerce. The institutionalisation of artificial entity that could own assets, hire people, and operate with latest technologies to produce mass-scale of goods and services, was instrumental in developing market system and supporting economic progress. This redefined ownership of firms and separated it from management, limiting the liabilities of owners in the event of dissolution of firms. The joint stock companies could behave as natural entities with limited or unlimited liabilities (as constituted), tap capital markets to raise capital, manufacture, trade, and sell goods, and seek new markets for its products and services. Countries and their governments have patronised these efforts to advance economic progress and promote greater good. The companies have grown today into large enterprises and developed into a common platform through which human societies interact with nature and environment, where its interaction with nature ultimately turned into a by-product of economic considerations (McLaughlin, 1993).

By developing the concept of shared ownership of firms that could be traded in the stock market, like any other commodity, the worth of the firms became the derivative of market valuation of its shares. The investability or market value of a commonly traded stock of an organisation would depend on its past performance, the returns (dividends) it offers to the shareholders, and expected future appreciation. It has since been established that markets generally reward firms with better financial results and influences management to strategise operations in a way that would continuously promote better performance, albeit in economic terms. The accounting practice of the firms use standardised constructs to translate the performance and disseminate information that helps markets and investors understand it and draw comparison with that of the peers (Gray & Babbington, 2001). As the side effects of these industries (in form of externalities) have hardly any impact on its performance or market valuation, these are ultimately left outside the overall economic considerations.

In such an arrangement, management (being the agents of the owner) would be interested in the externalities to the extent of abiding by the legal norms or if it could help in improving the top/bottom lines. However, the later part of last century saw the emergence of alternate theories that expanded organisational considerations to incorporate wider arena of societal considerations (stakeholders’ and legitimacy theories) and improved the narrow focus of agency theory to support beyond shareholders’ needs, including social and environmental responsibilities. In addition, it became increasingly apparent that incongruence exists between pursuing accelerating growth of human economic sub-system and finite capacity of natural resources (Daly, 2005). Still, the externalities and its relation with the business activities are yet to be systematically explored and this is easier said than done. Considering the prevalence of economic paradigm as part of the decision-making practices, the method to accommodate socially or environmentally relevant information is one area of the issue. Developing an acceptable framework that supports diverse information is another.

Waste and emissions arising out of organisational activities are conventionally arranged to get transferred from private to public domain, duly supported by the absence of legal considerations to behave in environmentally sensitive manner. Accordingly, the damage to the natural resources, environment, and costs to be incurred by the society towards remediation of the negative effects of the externalities produced by the waste remain external to organisational considerations. The accounting system is capable of recognising the tort claims if firms could be linked to any environmental accident or disaster. But, as there is insufficient knowledge and methodological support in evaluating and accounting the destruction of common goods and hold the firms liable (other than tort claims), limited treatment is available within the corporate accounting system to include these environmental considerations. This supports the decision-making process to ignore the externalities, where causality and future claims cannot always be established (Gray & Bebbington, 2001) (figure 6.1).

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Figure 6.1: Green costs and its impacts on decision-making/value creation

Changing climate, role of anthropogenic activities, and wasteful tendencies of firms have been prominent in bringing sustainability as part of organisational responsibilities towards stakeholders, nature, and society at large. There have been voluntary efforts on the part of the organisations to assess and report its practices and to reflect how it has been contributing to maintain and/or improve environmental and social capital. These efforts have been theorised as part of corporate sustainability responsibilities (CSR) and its voluntary reporting. Still, experts are of the opinion that the voluntary efforts of firms in reporting its environmental performance might not change the way the organisations would use resources, improve accountability, or necessarily promote sustainability (Unerman & O’Dwyer, 2007). While CSR activities and its inter-relations with other business functions is a separate area of study in itself, it would not dilute the need of methodologies and tools that could support the accountability of environmental outlook of businesses. As against CSR and disclosure practices that involves structured communications to stakeholders’ on sustainability related efforts, SEA defines the need for firms to be accountable towards people and planet by enacting, absorbing, externally reporting, and communicating the changes within the organisation that are based on ethical considerations and promote environmental and social effectiveness. On the other hand, EMA supports the methodological changes to handle material waste within the decision-making system (explored in chapter 3 & 4).

For organisational decisions to incorporate externalities, arguably it has to be aware of the environmental impacts of business activities and a way to capture relevant information. Second, it would also need the information on how to negate it. Third, it would need the materiality of impacts, and last, how the relevant information would be communicated to the decision-makers. From the reviewed literature, these viewpoints are captured as relevant gaps and used in formulating the research rationale. Some of the most relevant gaps are listed here, which formed the backbone of this project:

- Existing EMA methodologies have covered solid and liquid waste but failed to include emissions as part of its framework. WRI & WBCSD (2004) developed an independent framework of GHG accounting to account inventory of Kyoto emissions. No efforts are found in literature to converge these, which would force the firms not to resort to multiple frameworks.
- The applicability of EMA beyond manufacturing industries is not well established, which has ignored the unsustainable nature of service industries (hospitality industry being an example in this case). Accordingly, there is an urgent need to explore its capabilities in other industries.
- EMA methodologies crossed the economic boundaries of costs in a limited way where the quantification of the aspects and relevant costs remained algorithm driven, making it subjective to interpretive bias of information agent.
- Accounting, as an internal information system, is yet to develop how it would capture information on environment and support environmental management system.
- The applicability of EMA in Indian environment is not tested earlier, so the contextual learning is a missing element in the reviewed literature.
- EMA methodologies support linear flow model, wherein waste generation could follow principles of mass-balance. A line of research could be pursued to understand environmental performance based on the impacts these aspects produce, instead of focusing on the internal working of the firm or industry.
- It is still unclear how all this would fit together, or within the overall scheme of sustainability.
- The progress in greening of accounting at macro and micro levels has no meeting ground. How would the impacts of firm level percolate to industry or region level?

6.3 Research rationale, aims and objectives

It is evident that organisational processes and records provide necessary inputs to generate information to let firms operate and decide in the ever changing economic environment. For the businesses to operate, and decisions, and processes to be environmentally and socially relevant, other than the organisational intent and societal pressure, firms would also need methodological support. In the context of management accounting, it would need the support of accounting information system to generate relevant information, and this latter part is the focus area of this research. The methodological support would involve development, experimentation, and dissemination of tools and techniques that could support firms in such endeavours. In addition, these new methodologies are expected to be free from industry specificity so as to be applicable across industries. In the absence of suitable methodologies, businesses are free to use methods and techniques that would result in arbitrary outcomes and lead to the decisions that could prove contrary to the beliefs with which these are being taken. On the other hand, concerted efforts of academicians and practitioners might not lead to an all-encompassing solution in immediate future, but that should not be a reason to abandon the search for methods and solutions that could help firms understand environmental harms better and negate societal costs.

Accordingly, this research aims to explore the accounting processes, its artefacts, and methodological developments, so as to expand the theory of costs and include externalities within the accounting framework, and integrate these as part of information generation and decision-making activities. In other words, the research is an academic endeavour to contribute towards the development of environmental accounting system (what) by including suitable methods and techniques of physical and monetary measurements (how), so as to account environmental performance of organisations (why) and, in turn, support sustainability (so what). The research will seek answer to questions like how do we understand environmental aspects of organisational activities in systemic perspectives, what could be the issues in bringing these within an accounting constructs, can costing methodology and accounting construct be evolved to handle externalities better, improve the decision-making process, and contribute towards sustainability. Accordingly, the objectives of the research are to:

- Understand state-of-the-art on the methodological developments in the field of environmental accounting,
- Investigate the variability of environmental aspects across firms and how these could be handled seamlessly,
- Examine the role of contextual variables like local laws and regulations, and its impacts on the adoption of environmental sensitive frameworks,
- Explore costing methodologies to evaluate externalities,
- Advance methodological improvements to analyse the activities of the firms and develop information support needed for reporting and decision–making purposes, and,
- Theorise new knowledge to support the accounting, information, and reporting needs of the firms.

Before proceeding ahead, it is important to understand the nature of enquiry and its ontological positioning that would influence the overall research process. For doing so, the research paradigm has to be explored. The next section explores research paradigms and ontological position of the nature of enquiry.

6.4 Research paradigm

Literature on research methodologies generally relates the search for knowledge to different research paradigms that are representatives of the basic belief systems and/or philosophies to support the nature of enquiry and bring objectivity in the research process. Depending on the nature of enquiry, research in social science may adopt any paradigm between the continuum of positivist and interpretivist ontology. From ontological perspectives, positivism considers reality as objectively constructible and measurable, whereas interpretivism believes in subjective nature of the truth that is defined through the beliefs, customs, and social realities. While positivism uses positivist methods like experiments and surveys (e.g., to verify if certain set of accounting results would establish the marketability of the stocks of a firm) to establish the objective interpretation of phenomenon under study, interpertivism aims to understand social interactions to develop new theories like in this context, how the information agents (accountants, auditors, managers, etc.) would interpret and communicate information generated by the accounting artefacts. Positivists would define testable hypotheses from the literature and use quantitative techniques (instrument design and sample selection) to collect data and use statistical techniques to validate and generalise the findings. On the other hand, interpretivists would generally use qualitative techniques (interviews and surveys) to understand the social realities and develop alternate interpretations of the social constructs through data analysis methods like pattern recognition and content analysis, improving overall understanding of the social realities (Cooper et al., 2013).

As the aim of this research is to develop systemic understanding how information on externalities could be generated by the accounting artefacts and used by the economic agents in transforming the way businesses would function, the research design has followed pragmatic approach. In between the extremes of positivist (understanding derived from data and associated facts) and interpretivist approach (understanding developed from observing changes in behaviour, attitude or other qualitative attributes of the social phenomenon), and where positivist believes nature of enquiry to be the objective truth and interpretivism considers reality to be a subjective construction of the observer, pragmatism is an in-between path that believes the objective reality of social sciences is evidenced in the practical realm or through utilitarian terms. While interpretivism and its different variations like conservative, constructivist, critical, and deconstructionist, could have been suitable approaches to effectively explain the actions and interactions of actors as part of the research, development of new tools and designs would need the support of practical relevance in its use and placement within the theory (Goldkuhl, 2012). Let us explore how the chosen paradigm is any different than the critical theory approach.

Critical realism is dependent on deriving meanings and truths that are socially constructed and can reflect social practices empirically. This paradigm has gained grounds to assimilate views of different philosophical schools like post-modernism, post-constructivism, and pragmatism, and introduced objective measures to understand subjective experiences better. Accordingly, researchers following this approach can use research methods and tools to develop and validate theories while acknowledging social beliefs and faiths that would form part of the user accounts. While critical theorists could improve the dialogue between the participating entities by (re)constructing the social realities, pragmatists would consider the world and its events, including meanings, beliefs, rituals, concepts, and language, as contingent, rejecting any deterministic outlook, ready to be shaped and changed by informed human action and its practicality. Critical realism would work better with research areas that are grounded in language and its cultural interpretations (e.g., hermeneutics, semiotics, and phenomenology) (Lee & Lings, 2008), as opposed to the methodological changes needed within business accounting and management information system that is less dependent on natural language or culture.

If we consider the accounting theories as a language to explain business activities, the relevance of methodological improvements is dependent on its utility, i.e., how the new knowledge would help in explaining organisational performance to generate objective and relevant information, based on the accounting norms and standards (Merino, 1993). Accordingly, accounting theories can be considered as inherently pragmatic in nature (Cowen, 1968). If data and information generated by accounting processes could be considered as symbols, its utility lies in its usefulness within the broader social perspective. The role of pragmatism here is not to dispute the pluralism in the meanings that could be associated to the interpretations of accounting information, but to verify if these meanings could play the guiding role (Philip, 2012). This discussion is not intended to get into the nuances of these philosophies or to analyse these further, but to emphasise on the general approach of enquiry adopted in this research which is to bring objectivity within social (re)construction of subjective realities. In any case, the difference in these philosophies is not that of kind but of degree of the objectivity that it would introduce to the process. Accordingly, this research has followed pragmatic approach to explore, develop, and understand knowledge by relating the new found understanding to its practical utility, which could derive the meanings of the terms from the established literature. Table 6.1 details the nature of enquiry and its ontological and epistemological approach.

Table 6.1: Basic belief system of alternative inquiry paradigms (adapted from Christie et al., 2000)

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6.4.1 Pragmatist ontology

John Dewey has been one of the most popular exponents of pragmatism. The essence of pragmatist ontology is actions and change. Pragmatism is concerned with how knowledge is created while accepting things and events as they are, i.e., independent of the observer, but at the same time emphasising reasons and thoughts as the originators of elements from the external world. In that sense, pragmatism is taking a middle road or overlapping position between positivist and interpretivist ontologies. Accordingly, it is also labelled as constructive realism in literature. Methodological pragmatism considers the role of researcher in creating data and theories as the centre theme. The creation of a design that is helpful in any organisational context is a good example of pragmatism. As compared to interpretivism, where the main idea is to understand the nature of enquiry that has its own value and relevance, pragmatism defines understanding in context of what is being observed as its core tenet, explaining and accounting the variability in the observations that is independent of the observer (Goldkuhl, 2012).

One of the main ideas central to pragmatism is the meaning of an idea or a concept to lie in its practical consequences. Pragmatism is concerned with what works, and ties that with the utilitarian arguments (Rutherford, 2013). Accounting theories are utilitarian in nature, as it is mostly driven by the human needs, and in that sense, essentially pragmatist (Cowen, 1968). So, the generalisation of knowledge is dependent on ‘what works’, must work consistently and across societies (Rutherford, 2013). Accordingly, to develop new knowledge around the methodological innovations as part of this research, pragmatic approach would need to explain the findings/developments within the definitions of accounting sciences and acceptable standards of practice, which could be generalised to support the complex information needs of management. This also supports the modified objectivist epistemology that accepts many different viewpoints and reconciles the perspectives using pluralistic means.

Baker & Schaltegger (2013) believe that to witness idealism in the corporate accounting has been the central tenet of SEA research. However, accounting practices could also be progressively idealistic (instead of waiting for it to completely redesigned) where developing the need for enactment of the truth could help in dealing with the broader social and environmental issues. Accordingly, the study has primarily focused on environmental aspects, where the term refers to the environmental assets generated as the valueless waste and by-products of business activities that are generally discarded by firms, and how its knowledge could improve environmental performance of firms. As the environmental impacts and its quantifications is a subjective and under-developed area in literature (explored in section 9.5), it would risk the on-going dialogue between society and businesses, if idealistic solution is pushed too early and without complete knowledge.

6.5 Conclusions

This chapter brought the inputs from section one (covering the review of literature) to establish the framework of the research and the context within which the enquiry is formulated. The aim and objectives of this research is derived from the literature and observed gaps that contribute to the need of change in the accounting practices, information generation, and decision-making practices. The objectives support the boundary of the study around developing the knowledge of externalities that are generated during the course of business and the costs being borne by the society at present or would incur in future. In this process, the research also aims to improve our understanding around the bounded rationality of aspects and its negative impacts.

The last part of this chapter has covered the research paradigm to reflect the ontological positioning of the nature of enquiry, which would drive the research methodology – topic of discussion for next chapter. The research paradigm is concerned with defining the nature of the enquiry and connecting it to the epistemological and methodological approaches selected to investigate the problem. Comparing the available ontological positioning which would range from positivism to interpretivism of how the ‘truth’ is being viewed and researched, this research is aligned within the pragmatism school, which is concerned not only with the social construction of truth but also to explain its objectivity through its utility and practical relevance. Accordingly, this would need the research to be carried out not only by exploring the state-of-the-art but develop theories from data and observations that can be positioned within the practical realm of business and accounting practices.

Chapter 7. Research Methodology

7.1 Introduction

The preceding chapter has focused on the research framework and gaps in literature that are critical to develop the aims and objectives of the study. This has also helped to position the nature of enquiry within the methodological pragmatism and ground the research methodology to support research process (as part of this chapter). Based on the research theme, the research design would need to select a methodology that supports the scientific investigation of the research question(s). This chapter details the research design and methodology adapted in the project. Research design is the blueprint of the project, whereas research methodology includes instrument design, sample strategy, and selection of methods and tools for data collection and analysis. This project has relied on field studies to investigate the research problem and fulfil the objectives of the project. Accordingly, a segment of literature in this chapter has referred to the case studies in the area of environmental accounting and its relevance, to reinforce that case study method has been widely used in the field of environmental accounting and has handled pragmatic as well as interpretive approaches with equal ease. In addition, this chapter has explained the phases of the case study method, interlinking the data collection procedures, methods, and tools that are used in the process.

7.2 Research design

To support the research aim, this segment has explored the research design that links two parts: a) the problem definition, theoretical understanding, and the research aim, b) use of specific methods (as part of methodology) to collect data and develop understanding in relation to the research aim. As the research areas is yet to be incorporated within the business practice, the research aim is rooted within the realm to explore the field and experiment with different methods and techniques of green accounting. Exploration would allow the researchers to study the area of interest deeply and uncover different constructs that remain, hitherto, unexplained. The review of literature has established the multi-dimensionality and exploratory nature of the subject. An exploratory study would expect the observer to observe the research area deeply, freely and repeatedly, along with the flexibility and opportunity to consider different aspects of problem, and improvise research procedure to gather relevant data (Kothari, 2009). Accordingly, the research has primarily been exploratory in nature. Exploratory research can be used for theory building exercise and is based on evaluating and collecting information about theory and practice to assess how exactly research would best contribute to theory, and design methods to explicitly gather empirical evidence that supports theory building or theory testing, as the case may be (Dul & Hak, 2008).

Research methodology binds the methods and tools together to support the research approach, and in that sense, more abstract in nature as compared to the methods and tools. As Roethlisberge (1977) has explained, case research is particularly appropriate for certain types of problems where the research and theory are at their early and formative stages, whereas Bonoma (1983) feels, it is appropriate for "sticky, practice based problems where the experiences … are important and the context of action is critical". Accordingly, case study has been the predominant method in this research to study events under observation in its natural setting with deeper reach and for longer duration. This has also offered the freedom to use tools of data collection that could be improvised, depending on the progress and situation.

7.3 Case study research method

Odum & Jocher (1929) have defined case study method as a technique by which individual factors in a setting are analysed in its relationship to others in the group. Yin (1994) has defined case study as an empirical enquiry to investigate a contemporary phenomenon, where the boundaries are not clearly defined. Case study might not have the control to influence the variables, but would allow to generate in-depth understanding of a phenomenon and its context by using qualitative (covered through words and meanings) and quantitative methods (concerned with numbers and measurements). Case study research can be used for theory development as well as theory testing by using single-case or multiple-case design (Darke, Shanks, & Broadbent, 1998). A single case study is appropriate where it is considered as unique or revelatory, whereas multiple case studies could be used to attain objectivity, reliability, and generalisability. Multiple-case designs are desirable, when the intent of the research is description, theory building, or theory testing. Multiple-case design also allows for cross-case analysis and extension of theory that would yield to generalise research findings (Benbasat, Goldstein, & Mead, 1987).

As evident, case-based strategy tests the practical relevance of theoretically determined factors and complex processes wherein links could be investigated better as the study of events in natural setting might allow researchers to consider various factors simultaneously (Schalteggar & Synnestvedt, 2002) and if such field based study is done correctly, it might show the way to truly understand the antecedents and consequences, as in case of research concerning managerial accounting practices (Ittner & Larcker, 2002). Young (1999) has established that field research is playing important roles in contemporary management accounting researches and more so, in manufacturing industries. However, the difference between field study and case research is a matter of degree and less of method. Case research postulates availability of variables and theoretical constructs that are derived as a result of literature survey. In order to retain objectivity, findings from the case(s) were abstracted to build logic that is supported through the data and observations. In this project, the generalisability of the research is maintained by confining the study within the area of interest (Lee & Lings, 2008). The traceability and verifiability of data has been maintained by cross referencing data with organisational records and understanding gathered from the interviews, reflecting the chain of evidence.

7.3.1 Integrity of case study research

Literature is divided in accepting the generalisability and validity of the findings from a case study, which deviates from the positivist methods. Christie et al. (2000) have defined five approaches to improve the rigour and validity of case studies. These approaches include construct validity, confirmability, internal validity, external validity, and finally reliability. This segment explores how these approaches have been satisfied as part of the research project.

a. Construct validity: Unlike statistical measures, construct validity in case studies could be supported by developing constructs from theory and establishing multiple chains of evidence. In this research, the extant theories on environmental accounting is used a base and the existing methodologies provided the basic construct to test the data. The source and traceability of data has been established by linking data to its source and by following the causal chain.

b. Confirmability: Confirmability is the ability of the research to satisfy observers and reviewers that the research has been carried out in a way it has been described and that it has created an audit trail that would help an external observer to trace the logical progression of reasoning from the evidence to the conclusions. The case progress in this project has been covered through chronological recording of interviews and performance data, which finally led to the analysis and development of new understanding. The quantitative data is recorded against the period to which it belongs to, and accordingly, data used in any part of the dissertation can be conveniently traced back to original source.

c. Internal validity: Internal validity in a case study can be defined as the credibility of the study and can be achieved by using triangulation, peer-debriefing and clearly declaring the theoretical assumptions. The cases are designed with clear set of boundaries and regularly debriefed to the guides, thereby forming part of research review process. The assumptions are clearly defined in the research report and data collected from the organisational activities are triangulated from the understandings gathered from the interviews and linked to the observations.

d. External validity: External validity is defined as the ability to replicate the findings beyond proximate research and generalised. As compared to the statistical generalisation used in the positivist research, case study research generates analytical generalisation in which particular findings are generalised into a broader theory (Yin, 1994), while the replication of the process could be tested by using multi-study strategy, where the same steps are repeated to record the results. In this case other than following two-case strategy for exploring the field, a third case study was conducted from an unrelated industry to validate the framework and findings.

e. Reliability: Reliability or dependability of a case study is to test the ability of researcher to carry out the same study and achieve similar results, i.e. single reality of a research case can be studied repeatedly (Merriam, 1988). Unlike natural sciences, where different samples of same material(s) can be passed through the same process multiple times; in social science, it is difficult to generate the same set of conditions to ensure repeatability of the organisational performance. So, instead of considering the repeatability of data or isolated observation(s), the repeatability of the process, framework, or behaviour is ensured, which in this case has been tested in three diverse industries. In this research, other than following multi-case strategy, organisational operations have been studied repeatedly and over multiple reporting periods, where the collection of data across periods could support the reliability of observations.

These elements have established the integrity and robustness of multi-case study as the adopted research method.

7.3.2 Research process

The research process explains how the research progressed through different stages and offers a blue print to trace its journey. The research steps detailed here reflects how the steps were organised as part of the entire process (figure 7.1).

Step 1: To find different variables, conflicting theories, and overlapping ideas from the review of literature, including contextual learning from prior studies.

Outcome: As the research area is still being explored, the process generated the state-of-the-art on the topic and developed the literature base of different theories, multitude of definitions, and cross-over ideas. The state-of-the-art review of methodologies is covered in Debnath et al. (2011).

Step 2a: To run EMA supported construct by using data collected from primary sources and run computer based simulations to develop understanding on the stock and flow of aspects, and,

Step 2b: To study gaps and develop alternate theoretical or methodological constructs.

Outcomes: The case studies 1 and 2 were the outcomes of step 2. The learning from case study 1 was harvested in study 2 to understand the field of study better. Research article (Debnath (2014) and Debnath & Bose (2014) resulted at this stage.

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Figure 7.1: Research process

Step 3: Pragmatic evaluation of new theory by running simulations on new constructs by using data collected from different sources, and to improvise the construct further; disseminate the findings through reports and publications.

Outcome: Case research 3 was conducted to find out the feasibility of combined knowledge and its fitment in an independent environment.

Step 4: Contrast new understanding from theoretical perspectives and theorise new knowledge.

Outcomes: The comprehensive learning from the experience is covered in section three of this thesis and is the synthesised outcome of new theorising. Research articles Debnath & Bose (2014) and Debnath (2015), and section three of this dissertation is the outcome of this step.

7.4 Prior case studies in environmental accounting – few examples

Case study method has been used in the field of environmental accounting to study, evolve, and test new methodologies, and study its relevance in different industrial settings. Some of these cases are reiterated here to support the claim, although detailed in Debnath (2011).

a. Viere & Schaltegger (2007) have applied case study method in a Vietnamese Coffee exporter, Neumann Gruppe Vietnam Ltd. to explore the perspectives of life cycle studies and understand the improvements in supply chain efficiency. Within the specific business scenario of coffee growing, processing, and exporting, the case offers analysis of generic supply chain in coffee business and use of life cycle analysis to understand the application of materials flows in this industry.

Case objective: to explore theoretical constructs in practice.

b. Jasch (2003) has used the case study in Swedish pulp and paper company – SCA Laakirchen – to depict techniques of material flow balance (MFA) and input-output analysis (IOA) by creating the boundary around costs that are either under-explored or classified as different overheads and did not associate to the products or processes that generated it.

Case objective: to experiment with new methodology.

c. Case study from Honduras (Jasch et al., 2010) offered insight of UNIDO (United Nations International Development Organisation) sponsored project wherein TEST (transfer of proven practices of environmentally sound practices) and EMA are used as the baseline techniques to calculate environmental costs and associated savings of cleaner technologies. The project targeted local industries within selected sub-sectors located in the catchments of Rio Blanco and highlighted the use of available methodologies to guesstimate environmental costs where perfect information is not available, instead of investing time in perfecting it.

Case objective: to validate new methodology/methodologies in industrial environment.

d. Wu & Chang (2007) have used economic model of input-output analysis at the micro entity (organisation) level to evaluate the impact of environmental costs as a component of total costs of the products. The categories of environmental hazards used for this purpose are air and water pollution, and solid waste. The authors conducted the case study at a textile dyeing industry in Taiwan to demonstrate the inclusion of environmental costs into the equation of total costs, emphasising the need of incorporating costs of environmental hazards into the production, which could help organisations to produce environmentally benign products and adopt less harmful production programs.

Case objective: to propose new methodology

e. Falta et al. (2006) have studied the cases of employee safety in blending process of a food production farm and pollution resulting from the use of marine assets, and measured costs after analysing the uncertainties surrounding them. In these two cases, authors used models based on physical activities and ran simulations to define a statistical model to define the environmental costs.

Case objective: to test previously developed models

f. Masanet-Llodra (2006) has studied the environmental management systems (EMS) in the ceramic tiles sector in Spain and was surprised to find the development of environmental accounting anything beyond recognition of environment related expenses, although environmental system has already been in place for these cases, whereas theories explain EMS support implementation of environmentally conscious accounting.

Case objective: to validate previous theory

These and other studies explain how case study method has been one of the widely used methods in understanding the practical relevance of the problem and to develop thought process that is based on the diversities of experiences and management accounting practices. From the contextual perspective, the statutory nature of cost accounting practices in India does not allow the researchers to understand the overlap of management information system (MIS) and accounting practices of organisations from a distance. In addition, empiricism would not contribute to understand the issues that would challenge the feasibility to develop/conceptualise/implement new accounting methodology that are yet to be established as part of the practice. As a result, field study was necessitated.

7.5 Case selection and phases of the case study

To achieve the research objectives, two field studies were conducted to explore and understand the relevance of environmental accounting as part of the prevailing business practice. The first case was conducted within an ISO 9001:2004 certified manufacturing plant, which produces pulps and concentrates for industrial consumption, whereas the second case was conducted in two co-located Ecotel® certified business hotels from the hospitality industry. The cases belonged to different industries (manufacturing vs. services), sectors (food processing vs. hotel and tourism), products (fruit pulps and concentrates vs. hospitality services) operational settings (batch manufacturing vs. stay and dine facilities), and degree of environmental awareness (no system vs. environmentally certified), which could provide much needed contrast and industry characteristics to support validity and generalisability of the findings. The sample firms selected for the purpose of this project are inherently purposive in nature, as they were meant to support certain agenda. Also, these firms were participative enough to be engaged in long-term studies. As I was residing within a reachable distance from the sites, the proximity helped in conducting the studies. Both the cases followed similar approach of study outlined here. In addition, a third case study was conducted as an ex-post study in information technology industry to validate the proposed construct, detailed in section 9.7.

7.5.1 Phase One: Develop understanding of the key processes of the organisation

Once the management of the selected firms agreed to be part of the project, the first part of the study was to nominate main contact person who would serve as the single point of contact (SPOC) during the entire engagement and help in understanding the functioning of the organisation and role of different departments from the perspectives of value creation process. In this phase, information on overall working of the organisation, processes, and industry were collected. This was usually achieved within first one to two rounds of discussions, and the exchange of information helped the selected organisations to understand the background of the research and how it would be conducted over the engagement period. In discussion with the SPOC, schedule of interviews with the departmental contacts were finalised.

Next, interviews were conducted as per schedule and field notes were taken. The interviews were unstructured in nature and aimed to understand the functioning of different departments, its position within the value chain of the firm and relevance to the core area of research, i.e. what role it could play to support the environmental sustainability of the firm. This also led to free-form discussions with the contacts. The interviews were pre-arranged and lasted up to an hour. At the end of the session, the field notes were read back to the interviewees, so as to remove any ambiguity. If subsequent observations were found to be contrary than what was learnt earlier, these were resolved through follow-up interviews or over emails. Both the organisations did not allow audio/video recording of interviews. Accordingly, the discussion notes were used as the primary mode of documentation and interview- transcripts were submitted.

7.5.2 Phase Two: Collect and collate data of periodic performance

The second part of the research was to collect periodic performance data. For this purpose, a format was devised to closely represent the value chain of the firm and shared with the SPOC. The SPOC would generally communicate these with the departmental contacts and make sure that data is made available. At the end of each reporting period, data was collected in the given format. Sample data was verified with the organisational records, statements, and reports. In case of any discrepancy noticed, the deviations were brought to the notice of the concerned contact and corrections were recorded. Collected data would cover organisational performance, consumption of resources (water, energies, fuel, electricity, raw materials, etc.), waste generation and disposal (solid waste, liquid waste, and emissions), and outputs (physical performance data). Needless to say, as the cases pertained to different industries, the formats were adapted in accordance to the value chain of the firms.

7.5.3 Phase Three: Improvise understanding of researched area through analysis of data

This part of the study is internal to the researcher, where collected data was analysed using EMA methodologies and environmental performance of the firms were derived. The use of specific accounting tools helped the researcher to identify the limitations and test the fitment of other methodologies that would explain the gaps better. For example, case one is analysed by using MFCA, as it has a close match to the industries following manufacturing firms and could follow mass-balance, whereas second case could only be analysed by using waste accounting and reporting. The analyses helped in identifying gaps and theorise findings.

7.5.4 Phase Four: Documentation and case study reports

The last part of the study included report writing and sharing the findings with the guides and doctoral committee as part of review meetings, including data gathered from phase two and three. These studies did not fall within the purview of separate ethical considerations to protect the rights of individuals participating in the study, as the discussions covered working of the department, role of individuals within the value chain, and practices related to the conservation of resources, which fell within the assigned roles and duties of the contacts. Accordingly, no separate contract or agreement was entered into or agreed upon, other than obtaining express permission of these organizations to conduct study for research purposes.

7.6 Research method and data sources

The research has followed mixed-method approach, as the field investigations collected qualitative inputs from interviews along with quantitative data on periodic performance. Mixed-method research is not an independent method of research but combines qualitative and quantitative methods to carry out investigations. Qualitative data developed understanding of the working of the firm with contextual support to understand quantitative data collected from different departments by using different templates. The performance data helped in exploring the organisational practices, evaluating the environmental contributions of the firms, including the generation of environmental aspects and its dispositions. Reported data was cross-verified with the organisational records on sample basis. As the organisations were not open to share financial data, a mix of arbitrary and market rates have been used to translate physical performance into monetary equivalents.

The case studies have used research tools like in-depth interviews, field observations, and documents from organisational records, which also acted as primary data sources. Other than that, secondary data sources have been gathered from different sources to analyse and compute the environmental aspects. Although qualitative research method places a great degree of importance around the discussion elements collected from the interviews, the case studies have used information from the interview process solely for the purpose of developing the understanding and working of the organisation, and correctly place quantitative data to model the value chain. Accordingly, this has absolved the research from the need of using advanced tools like content analysis to code and unearth hidden patterns and meanings from the qualitative data collected from interviews.

7.7 Conclusions

This chapter has covered the research design, sample selection, and data gathering procedures. The pragmatic paradigm of the accounting research has been used as the basis to design the study and exploratory nature of the subject supported the selection of field study as the predominant methodology and case study as the research method. A review of case studies on EMA is added in this chapter to reflect the relevance and importance of case study research in the field of EMA, which suits well to support the practicality and utility of the theories. The objective outlook of the case study is maintained by following multi-case strategy and following same procedural steps to conduct the study so as to ensure repeatability and external validity of the study, while internal and construct validity is ensured through periodic capture of data regarding the same event, and verified from the organisational records.

This is followed by the discussion on the selection of relevant cases and phases of the case study as part of the lifecycle of the study. The research method used mixed-method approach which blended qualitative (in-depth interviews, case study notes) and quantitative (organisational performance data) methods to supported the research objectives, and used EMA tools to analyse data. With this section two of the thesis comes to a close. The next section discusses the findings from the case studies and includes a discourse on how the research design achieved its aims and fulfilled its objectives. Accordingly, the ensuing section explores the methodological variations to account environmental externalities and converges to develop a theory that could improve the outreach of the accounting frameworks and support environmental considerations of the firms.

Section Three – Research Findings and Discussions

Chapter 8: Application and Relevance of EMA methodologies

Chapter 9: Corporate Environmental Accounting – An Independent Dimension of Accounting

Chapter 10: Dimensionality as part of Corporate Framework – Few Managerial Implications

Chapter 8. Application and Relevance of EMA methodologies

8.1 Introduction

This section covers the learning from case studies and how the experiences gathered from the field have come together to support the aims and objectives of the research. The chapter concentrates on explaining the first two case studies and explores its findings. This chapter has covered the brief outline of how these were conducted, findings and learning derived, and challenges that management might face in using prevailing environmental accounting methodologies. The gaps discovered and/or confirmed through these cases established the contextual understanding and explored practical limitations of the prevailing EMA methodologies. In addition, the studies reflected upon the environmental practices of the studied units and the role of environmental considerations as part of the respective businesses. The chapter also covers cross-case and contextual analyses by synthesising the findings. The cases generated industry-specific learning that has not always been captured in literature. The cross-case analysis has been important to explore the findings and generate new learning. However, the emphasis of the cases has been less to understand the contemporary accounting and costing methodologies in these firms and more towards developing arguments that could expand the knowledge base of environmental management accounting theories. These gaps are meaningful in establishing why a change is needed in the focus of contemporary research to advance the subject and to develop new insights.

8.2 Case study I

The first case study was conducted in a manufacturing unit and detailed in part in Debnath (2014) that includes detailed data analysis by applying prevailing methods of contemporary EMA methodologies. Here summarised version of the case is presented along with review of the project site, manufacturing environment, operational details, and analysis of key findings. Some parts are a repeat from the study report but included in here to offer a complete picture of the study.

8.2.1 The project site

The study was carried out in one of the manufacturing units (Case Unit 1 or CU1, hereinafter) located in Mumbai, India. CU1 was in the business of manufacturing pulps and concentrates of tropical fruits and is an ISO 9001:2004 and HACCP (hazard analysis and critical control points) certified production unit. The first part of the study covered onsite visits of cumulative six to eight days (between February and April 2011) to understand the overall business. Questions related to the seasonality of the industry, processes, and data recording procedures were covered through unstructured interviews conducted with the departmental contacts. Subsequently, operational data were gathered throughout the year at monthly intervals (May – December 2011). The unit ran exclusive processing of mangoes during May – July 2011 (also called mango processing season) due to the seasonal nature of the fruit, followed by banana, guava, papaya, and pomegranate (although not in same order). As the organisation was not keen on sharing financial data, a mix of arbitrary and market rates have been used as financial proxies to translate physical data into financial equivalents.

8.2.2 The manufacturing environment

CU1 specialised in manufacturing of pulps and concentrates of tropical fruits as natural extracts, hermitically packed and sealed in aseptic bags of standard pack sizes of 1Kg (as sample bags), 20 Kg (in corrugated boxes), and 200 – 250 Kg (in steel drums). The products are of standard specifications and sold in local and international markets. This fully automatic plant is manned by a permanent staff of around 40 employees. Based on the production schedules, contract labour is hired during the processing seasons to support production activities. During full load, the plant operated in two to three shifts of eight hours each. The outline of the manufacturing environment (gate-to-gate cycle) is detailed in the block diagram (figure 8.1).

Inputs to the process boxes show stage wise consumption of physical quantities of materials, water, and energy, while the discards are shown as outflows from the processing blocks to waste to the dump yard (materials) or effluent treatment plant (ETP for waste water). CU1 manufactures fruit pulps and concentrates through sequence of physical operations labelled in the block diagram as procurement (P1), unloading and ripening (P2), processing (P3), and packing and warehousing (P4). The finished products are used by the industrial manufacturers as raw ingredients in varieties of food items, e.g., fruit drinks, ice creams, chocolates, flavours, and other food items (, 2011). Based on customer orders and dispatch schedules, finished goods are transported (P5) to the customers (figure 8.1).

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Figure 8.1: Operational layout of CU1

8.2.3 Analysis of key findings

This section covers the key findings from the case study. CU1 offered direct application of EMA methodology of MFCA to analyse flow of materials, energies, water and waste. Although this was believed to be a straight-forward application of EMA framework, the exercise raised some new questions and generated learning that is contextual, but could be generalised for food manufacturing industry. The application of MFCA as part of EMA method to CU1 did not result in any surprise. Since the maintenance of cost accounting records is part of the statutory framework in India (discussed earlier in section 4.7), the role of any alternate cost accounting exercise in practice would remain confined to an alternate computational method. Although CU1 need not follow these rules as it did not fall within the criteria for doing so, still the statutory nature of cost accounting limits the role of EMA within accounting fraternity, unless statutorily promoted.

As the manufacturing process of CU1 is based on the principle of mass-balance, MFCA was applied to evaluate waste and ascertain corresponding monetary loss. Accordingly, the monetary value of waste would consist of cost of raw materials and resources incurred up to its entry in the waste flow. The stage-wise cumulative production waste from the case study is detailed in table 8.1. The solid waste, waste water, and yield percentage (ratio of pulp output over input quantity of raw fruits) were tracked by CU1 as part of existing MIS. So, EMA could only add information on the cost of waste which could help management by providing a sophisticated method to redistribute costs, generally borne by the finished goods. The externalities generated by the waste remained outside the boundary of the organisation.

Table 8.1: Summarised flow of costs on account of waste in CU1 (2011)

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The review of data reflects that CU1 averaged at 65% yield in 2011, although individual fruit yields varied. In monetary terms, the yield reflected a loss of 33% value through waste stream. The waste disposal process of CU1 was limited to transfer the waste to the municipal solid waste management system, where the costs incurred in collecting and transferring the waste from the plant to the municipal collection point was internalised in form of payment to the contractors. This cost did not cover the ones incurred by municipalities to dispose the garbage from dump site to landfill, and remained out of considerations. A part of solid waste was also used by the contractor for plantation activities, but the exact usage and quantities could not be verified. Moreover, CU1 did not charge contractors for this diversion. So far as waste water is concerned, it was passed through ETP and partially used in gardening activities. Excess grey water was released through the public drainage system.

Considering the fact that EMA supports the organisations to understand waste chain and allows it to be optimised by bringing the considerations of in-house recycling and other options, another unique insight could be achieved. Within engineering industry organisations can use 5 R’s (reuse, reduce, recycle, remanufacturing, and reverse logistics) to lower waste (Kakkuri-Knuuttila et al., 2008; Kasai, 1999), however, CU1 would not use waste pulps and peels in the production of fresh pulps as it would severely compromise the pulp characteristics (pH, acidity, brix, colour, and pigmentation), and result in contaminated products that would lead to unwanted losses. Accordingly, this points to the yield having a theoretical upper limit which could be true for the entire food processing sector. This forces us to acknowledge that even with the deployment of most advanced technologies, waste is an inherent part of any conversion process. Still, CU1 could have sought ways to use waste (like biogas, organic manure, compost) and reduce or nullify corresponding environmental impacts, but it did not, and could be related to the lack of environmental thinking. The EMA computations for CU1 are tabulated next (table 8.2).

Table 8.2: EMA computations for CU1 during 2011

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8.2.4 Conclusions

From the findings, it could be concluded that the contextuality of country specific regulation and industry background of the selected case helped to explore the feasibility and suitability of EMA methodology and its support towards generating management information on the aspects. The fruit yields computed by MFCA were in line with CU1 MIS, and the financial loss on waste could generate additional information for the management, albeit of little use. On the other hand, the statutory nature of cost accounting in India is seen as a potential barrier to help EMA evolve as part of practice. The insights gained from the study helps to ideate that the environmental impact of business activities are not a direct result of generation of aspects, but how the aspects are discharged or disposed-off in the environment. If CU1 considered leveraging external recycling mechanism for solid waste or reuse treated waste water, environmental impacts would have significantly reduced. The second case study explores these findings against a different contextual background.

8.3 Case study II

The rationale for the second case study was to generate a view on environmental accounting in an industry where mass-balance is not the primary method to establish input-output link. A service organisation could force the researcher to develop a different view on the stock and flow of environmental aspects that has not always been covered in the literature (Debnath et al., 2011). Armed with the learning from the previous case study, the second case study was conducted in a hospitality firm. The case details are covered in Debnath (2015). The following section summarises the study and its findings.

8.3.1 The project site

The second case improved the understanding and relevance of EMA in the hospitality sector in general and expanded the knowledge base with the findings. The study covered two co-located hotels (5-star and 3-star) in the western suburbs of Mumbai, India (Case Unit 2 or CU2, hereafter). The study followed the same methodology from case one to conduct the study (chapter 7). First, the site was visited and the need for the study was explained to the management. This helped the firm to nominate SPOC, his role, and the departmental contacts. This was followed by gathering information on working of the firm and understanding the processes by conducting interviews with the departmental contacts, which was completed over a period of three months (10 – 12 visits). Questions related to the working of the facilities and processes were covered through unstructured interviews with the departmental contacts. Thereafter, operational data was gathered at quarterly intervals to cover the operational performance within Apr 2012 – Mar 2013. As in case of the first case, the generalisability of the research was maintained by confining the study within the area of interest. Accordingly, the study focused on understanding of the environmental considerations of the firm and used EMA artefacts to explore the data collected from the site.

8.3.2 The service environment

Both the facilities are full-service business hotels and offer boarding/lodging, boutique restaurants, bars, and lounges facilities to the business travellers along with banquet arrangements and conference halls. The guest service lifecycle covers the reservation of rooms to check-in, followed by stay, boarding, and check-outs. The guest amenities and services consume materials, water, energy, and other resources, and produce waste as one of the outputs. As the management of CU2 facilities was not keen on sharing financial data, a mix of arbitrary and market rates have been used as financial proxies to translate physical data into financial equivalents, wherever required. The site visits helped to map the processes and connect the collected data to the stock and flow of materials/services to compute the environmental aspects. The outline of the service environment (gate-to-gate cycle) is detailed in the block diagram (figure 8.2). Being Ecotel certified – certification of environmental and social leadership in hotel/hospitality business (UNEP.Org, 2012) – both the facilities were equipped with the infrastructural and operational arrangements to support environmental conscious operational arrangements, as discovered from the interviews and verified from the environmental handbook of the facilities.

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Figure 8.2: Operational layout of CU2

8.3.3 Analysis of key findings

Before detailing the quantitative performance, the findings from CU1 are validated in this segment. So far as the application of MFCA as part of EMA method to CU2 and use of mass-balance to evaluate cost and flow of waste were concerned, CU2 being service-based organisation, MFCA could not be applied as the services did not follow mass-balance. Also, the cost of waste was not derived as yield and operational losses were of little concern to CU2. Accordingly, waste reporting method is used here that is based on the cumulative waste quantities. In any case, the internal cost of waste could not have helped management as it could not relate to the cost of services due to the lack of causal relationship, neither recycling of food and packaging waste was feasible, explained next. Similar to CU1, the generation of solid waste and waste water were tracked by CU2 as part of its existing MIS reports.

From the study, it was found that CU2 followed a different mechanism for waste disposal process (including waste water) which limited the environmental impacts, explained later. However, unlike the engineering industry, where the organisations can use 5 R’s (reuse, reduce, recycle, remanufacturing, and reverse logistics) (as explained in case one), CU2 could not recycle waste to improve resource efficiencies in the area of F&B (food & beverage) services. This supports the argument that waste is inherent to any process and in-house recycling has its own limitations. The insights supported the learning from CU1 that the environmental impacts of waste would depend on how the aspects are discharged in the environment. At the contextual level, statutory cost accounting rules applicable to the Indian organisation are not mandated for CU2, as the service industries are outside the purview of the legal statute of cost accounting.

So far as new findings are concerned, it could be inferred that as the statutory cost accounting practices referred is not applicable to service industries, CU2 had no incentive to maintain the cost sheets other than the ones required for internal decision-makings. So far as waste handling is concerned, CU2 would transfer bio-waste to in-house vermicomposting facility and waste water to community ETP for recycling. Vermicoposting would generate compost as bio-fertilizer that was sold at nominal rate whereas treated recycled grey water was received back. CU2 had specific layout of pipes to circulate grey water and used it for designated purposes. Other types of waste were reused, while the ones that cannot be reused or recycled (butter paper, oil cans, etc.) were sent for landfill. Considering complete recycling of bio-waste and use of grey water, CU2 saved environmental impacts that would have generated if the aspects were disposed in conventional manner. This resulted in saving of social costs of waste disposal. As part of its social commitments, CU2 participated in programmes that would reduce community waste and save social costs. These tangible savings could not be incorporated as part of present EMA construct . As a contrast to these practices, CU2 had outsourced its laundry services, where the waste water could not be reflected as part of EMA construct, as it is yet to incorporate supply chain impacts as part of the construct. Accordingly, the EMA computations for CU2 are tabulated next (table 8.3).

Table 8.3: EMA computations for CU2 during 2012-13

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8.3.4 Conclusions

The findings from CU2 (as compared to the CU1) reflect the shift in industry context (from manufacturing to hospitality services) and dilution in quantitative evaluation of costs that would otherwise offer limited benefits in analysing cost of waste On the other hand, the new findings of positive externalities and contribution to social costs were unique to the firm but could be generalised as outcomes of pro-environmental strategies of businesses. This included the key service areas that could be outsourced by firms and remain outside the traditional construct. In that sense, the findings from CU2 expanded the learning from CU1 and added variations and richness to it. At the same time, by following the same methodology to conduct the study, the generalisability and repeatability of the adopted methodology could be tested. The findings further establish that the management of an organisation can improve care for environment if it could understand its competitive positioning within the industry and how other firms are handling the contemporary environmental challenges, detailed in Debnath (2015).

8.4 Cross-case analysis – learning synthesised from the case studies

This section discusses the learning synthesised from the two cases and how it helped in gaining new knowledge to support improvements in the environmental accounting of firms.

8.4.1 Solid waste and its disposal

Waste is inevitable by-product of any production process that is usually discarded, but could be reduced to certain extent using technological improvements. The internal costs to generate and quantify waste would offer more information to the management and could lead to the improvements in operational arrangements, but information on environmental externalities and social costs would still remain outside the firms’ accounting practice. From contextual perspectives, in absence any specific regulations for waste disposal by the commercial establishments or industries (other than ‘hazardous’ under Waste Reporting Rules (2000) in India or ‘hazardous’ or ‘special’ categories of waste by EPA, 2010), organisations would depend on the community disposal mechanisms to dispose waste, so long as the cost of using these facilities turns commercially unviable. The use of municipal waste management system creates social costs, detailed in Debnath & Bose (2014), and the externalities are borne by the environment and society, which remains a methodological concern for EMA. Although, developed countries have internalised the cost of waste disposal through market mechanisms (Jasch & Lavicka, 2006), these solutions are yet to reflect in overall decline of waste levels. On the other hand, it has institutionalised the ‘right to waste’ that could be purchased at a fee without corresponding improvement in the utilisation or resources. Conscientious corporate citizens like Interface Global, Patagonia, and 3M have developed sustainable waste reduction techniques as part of cradle-to-cradle life cycle (Esty & Winston, 2006). Others may follows suit, if the organisations are aware of or held accountable to the externalities they generate.

8.4.2 Waste water

In both the studies, we could see the transfer of waste water from the operations to local or site-specific effluent treatment plant (ETP). While CU1 had limited use of it and released excess water to the local drainage system, it would otherwise be the case if no site-specific ETP was available. The public drainage system generally carries water to community ETP plants, where the water is treated and released to the water bodies. However, this has not always been the case in India, where waste water, at times, is released to water bodies without sufficient treatment. This adds to the severe loss of water resources. Although, waste water can also be handled by developing in-house or community level grey water recycling system and treated water could be used for reasons other than drinking or human consumption, Indian cities are yet to develop infrastructure support or have the legislation in place to promote grey water recycling as a mandate for the community. As a result, waste water would depend on the natural water cycle to bring it back in use. The cost of recycling water is yet to be factored by municipalities to reflect as part of its market rates (Mahadevia & Wolfe, 2008). CU2 was found to be advanced in developing entire layout for grey water, which could have been improved further by installing rainwater harvesting facility. Anyways, EMA could only reflect the cost of wasted resource and not what CU2 saved in social costs.

8.4.3 Emissions and its accounting

The emission of GHGs and non-GHGs has harmful effects on biosphere and contribute to the changes in climatic conditions. While GHG accounting offers a way to inventorise emissions, there is no integration of emissions stock within the EMA framework. In the absence of its suitable incorporation within the environmental accounting process, the decisions to move from high energy intensive machineries, equipments, and processes to the lower ones (e.g., installation of bagasse-based boiler in CU1 instead of the oil-fired boilers) would depend mainly on the economics of decisions (lowering cost per kg of steam), with no or lesser degree of considerations towards environmental benefits. On the other hand, the use of technological solutions to reduce the use of energy (e.g., use of glycol chiller technology, automatic water level controllers, and timer-based energy devices amongst others) could result in optimised use of energy in CU2. Still, carbon neutrality is something that CU2 needs to consider. EMA does not support emission accounting but dependent on a computational arrangement to reflect market value of equivalent carbon impact. The expectation would be to develop a construct that can highlight the generation/saving of emissions due to business activities and bring temporality into it.

8.4.4 Approach towards environmental performance

EMA methodologies develop environmental performance through rearrangement of costs, without considering the social and environmental externalities of business operations. This limits its use and reflects upon the inability to consider positive externalities and savings in the social costs due to the modified processes. The inherent differences in the nature of the industries (fruit pulp manufacturing vs. hospitality business) of the selected cases reduce the feasibility to compare the environmental performance of one business unit with another. Even within the hotel industry, it would be difficult to compare the environmental performance of CU2 with other firms, who are yet to develop any policy towards environmental advancements. The limitations of EMA methodologies are evidenced in case of CU2, where the quantitative data on waste cannot be assigned any value, neither the efforts would be of any worth beyond certain point.

The cases also presented a contrasting approach towards environmental care. At a theoretical level, CU1 could be considered at the initial stages of developing environmental performance as one of its goals, whereas CU2 has managed to develop environmental considerations as its competitive edge. CU1 is still to plan and bring environmental considerations as part of its operations, whereas CU2 has developed entire infrastructure and operational arrangements to incorporate environmental considerations as part of its business. In that sense, CU1 could be classified as an organisation with no or minimal change due to environmental reasons, while CU2 has risen to the morphogenetic level, where environmental outlook has changed its business conduct (Fraser 2012). Ecotel certification provided CU2 with necessary impetus to help its environmental care emerge as the competitive differentiator (Debnath, 2015).

8.4.5 Environmentally sensitive decision-making

While CU1 collected information on waste and develops metrics on internal efficiencies of fruits and consumption of resources whereas CU2 used similar set of data to monitor the environmental and business performance. CU1 has SAP R/3 ERP to capture data on operations, whereas data collection of CU2 was rudimentary, at best, and maintained in excel worksheets. Even with this seemingly odd situation, the decisions within CU2 were governed by the first priority to be environmentally benign. The comparative positioning changes the paradigm of decision-making in these organisations. In classical sense, CU1 would explore decisions as (formulated as multiple criteria decision-making):

Min Z =∑ Cij (Minimise costs over i activities and j resources) (8.1)

However in CU2, the decision framework adds another additional objective criterion:

Min Z1 = ∑ Eij (Minimise environmental impacts over same set) (8.2)

Methods like goal programming, analytical hierarchical programming (AHP), or any other multi-criteria decision-making could be used in such situations to trade-off different alternatives. The environment outlook of CU2 was based on having the purchase decision built on with no negative environmental impact as the first priority (∑ Eij à 0). However, in business terms, it shifts the decision paradigm completely. For example, the CU2 facilities did not use wooden hangers (to reduce load on natural resources), and instead used the ones made from natural materials (e.g. cardboard hangers made from recycled paper or made of medium density fibre (MDF) wood). Obviously, the price and life of eco-friendly hangers are not comparable to that of the wooden ones, and neither the environmental benefits contributed by the former is comparable to the cost differentials. This renders the classical decision-making paradigm of comparing the opportunity cost of environmental care against the economic benefits redundant, and emphasises the of needs subjective criteria to go beyond isolated identification of costs and consider environmental impacts of the business activities in a holistic manner.

8.5 Conclusions

The case studies of CU1 and CU2 supported the first-hand understanding of how business activities generate environmental aspects and result in social and environmental externalities. The two-case strategy was helpful in analysing the crucial links that forms part of the environmental considerations of firms. While repetition of the observations is a major challenge in social experiments, this could be achieved in these experiments by studying the repetition of underlying phenomenon in multiple reporting periods. The chain of evidence was established by recording the observations and verifying sample data from organisational artefacts. The variations in using different EMA methodologies to evaluate the outcomes have been exhaustively covered as part of relevant chapters in section one and these case studies helped in placing the findings against the theory.

This chapter also reflects on the limitations of the using EMA methods and its specificity towards manufacturing industry. We can view CU1 as a class of organisations where environmental leadership is yet to emerge and develop sensibility towards environment and resources. On the other hand, CU2 could be viewed as a representative firm that has risen to environmental superiority beyond the certification level to establish it as a competitive differentiator. Its care for societal and in-house bio-waste could be learning to others. But at the same time, the outsourcing of resource intensive laundry services cautions the importance of having a system that can track resource utilisation beyond organisational boundaries. The limitations of EMA are visible in these cases which could not reflect the savings in costs CU2 generated by recycling solid waste or lowered social costs by better use of resources. Even the accounting artefacts did not capture these savings and let these remain outside the reporting boundary. This reflects EMA computations being only a step away from the economic viewpoint.

Importantly, EMA and contemporary sustainability theories are yet to develop the theoretical construct to support and measure the environmental embeddedness of firms – the in situ environmental care that could become competitive differentiator – as in case of CU2, where the actions and decisions of the firm are guided by the central philosophy of upholding the commitments of being eco-friendly, an open contract that it has entered into with the society at large, instead of measuring the outcomes against costs alone. Accordingly, it can be asserted that the care for externalities emanates from an approach that is holistic in nature, notwithstanding the incompatibilities of firms, nature of industry, and other variables, and extends beyond mass-balance to support environmental sustainability of firms. The limitations of prevailing methodologies reflect the short-term focus of current environmental accounting and reporting frameworks. The learning reflects the need for expanding the methodologies that could shift focus from costs to something more basic, e.g., how waste would impact environment upon its disposal – a topic for discussion in the next chapter.

Chapter 9. Corporate Environmental Accounting – An Independent Dimension of Accounting

9.1 Introduction

The learning from the case studies (previous chapter) has brought practical perspectives in terms of the concepts from literature and the diversity that exists within the theories. While CU1, owing to its manufacturing background, could adapt to the computational arrangement of environmental aspects at the process level, CU2 could hardly connect multiple chain of activities to the intangible nature of hospitality services. From the findings, it is obvious that CU2 operates in a more environment-friendly manner and industries need to be contributing in similar manner, there is no way to frame this learning within the contemporary developments in accounting theories, and open the discussions on how to capture the impacts that firms produce on environment. The learning from the case studies is backed by the understanding that accounting of externalities would need to assimilate the fragments from different theories to develop an approach that ties these elements together. To develop verifiable account of environmental performance, an environmental accounting framework is proposed in this chapter which could record environmental aspects of business transactions while remaining independent to the existing accounting framework and maintain audit trail to the underlying business transactions. In addition, this chapter has focused on developing an in-depth approach of modelling cost of the externalities by exploring causal linkages and flow of costs beyond organisational boundaries. The proposed accounting framework could tie the temporality of externalities with the business activities and used externalised costs to develop accountability of the firms towards environmental aspects they produce. Accordingly, data from previous cases validated the concept, while a third case study, incorporated from IT industry, tested the extensibility and comprehensibility of such a framework.

9.2 Dimensional view of corporate accounting process

Recent developments within EMA has furthered environmentally conscious decision-making through methodological advances and consider externalities to certain extent, while SEA has developed the philosophical bases to bring environmental considerations as part of external reporting and corporate social responsibilities (Bebbington, et al., 2007). However, the efforts are still falling short to be part of an accounting information system that is transactional, cover externalities, and could be standardised as a part of the organisational practice. Although an accounting framework with similar characteristics has been envisaged as environmental accounting in literature (Jasch & Lavicka, 2006), there has been very little work to develop it as an integral part of corporate accounting function. For the firms to handle externalities better, it needs information that could provide uniform interpretation of its business activities without losing temporality and transparency. However, such a construct would have to address overlapping accounting principles (formal vs. informal types of accounting principles), measurement differences (financial vs. non-financial or mixed units), and information content (or nature of externalities) (Nikolaou & Evangelinos, 2010). The chapter lays the foundation to propose such a construct and the next chapter explores how it could support management with better tools and information.

9.2.1 An independent construct to account externalities of business

For the businesses to understand the aspects and devise methods to control and reduce these, it would need information that are precise, tie to individual business activities, follow uniformity in quantification and interpretation, and show temporality in nature. The prevailing environmental accounting methodologies have developed isolated views of the aspects and developed methods that are computational in nature, but less relevant to the accounting process. To support information needs of the firm, the aspects would have to be traceable and verifiable and should form part of an overall transactional system, instead of getting derived from the computational black-boxes. Before proposing any such design the first step would be to analyse business transactions and separate the accounting needs of environmental aspects at transactional level – detailed in table 9.1.

Table 9.1: Comparative accounting viewpoints of sample business transactions

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As could be seen from table 9.1, the accounting of environmental aspects is not covered as part of existing accounting frameworks. From the sample transactions, it could be generalised that the environmental aspects of a transaction ‘X’ in time ‘t’ – representing an organisational event connecting process state ‘A’ to ‘B’ – could be discovered by analysing the transaction and by applying uniform rules of evaluation. While financial accounting records the transactions to reflect its material value and direction of transfer, cost accounting would analyse it from the perspectives of value creation. Similarly, the firm – environment exchange of every transaction could be considered as a dimension that is separate from the financial and accounting needs and has not been considered as part of any existing framework (figure 9.1).

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Figure 9.1: Accounting implications of same transaction in parallel accounting worlds

As the stakeholders’ needs to understand environmental considerations of firms are different from what could be satisfied by financial or cost accounting (Perrini & Tencati, 2006; Schaltegger & Burritt, 2006; Taplin et al., 2006; Yakhou & Dorweiler, 2004), it would be a stretch to imagine seamless integration of these considerations within the basic schema of financial or cost accounting. Arguably, reinforcing environmental accounting within the existing accounting frameworks might pressurise the existing frameworks to rewrite rules which would be time-consuming and could severely compromise the cost and quality of information on environmental performance of organisations, not to mention the difficulties in developing ecological accounting standards as part of GAAP (Gray & Bebbington 2001; Schaltegger, 1997). While IFRS (International Financial Reporting Standards) has called for global standardisation of accounting standards, it could hardly reflect regional, local, or environmental diversities or imbalances (Saravanamuthu, 2004) (explored in section 2.5).

Accordingly, a separate accounting framework could be better equipped to capture and translate the environmental perspectives of business transactions and encapsulate it with in an accounting schema that would offer temporal view of the aspects. The information generated by using the data from such a construct would be auditable, verifiable, and could have its own set of rules and standards to follow. In generic terms, accounting frameworks can analyse transaction ‘X’ to create book-keeping entries that would reflect the viewpoints of the accounting framework within which it is being recorded. As a result, environmental accounting could encapsulate the environmental aspects of inter- and intra-firm transactions while remaining independent to the financial and cost accounting entries, but connected to these through underlying transactions and develop a transactional base of aspects. Theoretically, such an independent accounting framework could effectively handle the information needs (external as well as internal) on environmental aspects.

To further support the need of an independent account framework to handle environmental considerations, the author would like to draw upon the origins of cost accounting and reflect on few valuable insights. Cost accounting evolved as a response to the constraints faced by the decision-makers in extracting information on value creation process from financial accounting of transactions (Edwards & Newell, 1991). The need of better information on the value creation processes and the flow of costs along the value chain led to the development of cost accounting and its techniques, which grew (mostly) outside the formal structure of financial accounting. By leveraging double-entry principle, cost accounting legitimised materials and resources accounting and satisfied accountability, control, and decision-making needs of management (Hoskin & Macve, 2000). In due course, cost accounting was established in the accounting literature as a separate and independent accounting framework, one that could satisfy specific boundaries of accountability around transactions and serve stakeholders’ interests (e.g. financial well-being vs. overhead cost analysis) and decision-making needs of management.

In the evolution of accounting sciences, we are yet again at the crossroads to experiment with the accounting of environmental externalities. Keeping inherent limitations of existing accounting frameworks within considerations, a separate and independent viewpoint of corporate environmental accounting (CEA hereafter) is better equipped to help firms book-keep environmental aspects (similar to the accounting of stock quantities and material values within cost accounting) and generate verifiable bases for information to support environmentally conscious (internal) decision-making and (external) reporting requirements. At this juncture, it would be pertinent to clarify that the words – accounting viewpoint or dimension – used interchangeably throughout the dissertation, reflects isolated boundaries of common considerations to map firm – environment exchange, and in no way reflects the dimensionality proposed by Ijiri (1987). Table 9.2 reflects the comparative positioning of environmental accounting with other frameworks.

Table 9.2: Comparative positioning of CEA

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This discussion should not to be construed as the concluding comments on accounting of the environmental impacts of business activities on natural habitat. CEA being discussed here is limited to the book-keeping of environmental aspects produced/sequestered by the business activities and not meant to replace the needs to evaluate the ecological sustainability of businesses (figure 9.1), which is beyond the scope of this dissertation. Corporate response to ecological challenges and its accounting (ecological accounting?) being mentioned here is to emphasise that an all inclusive accounting framework might be an ideal choice, but elusive at this point of time.

9.3 Process flow of CEA

CEA would follow the process of identification, quantification, monetisation, and ledgerisation of environmental aspects, generated by every inter- and intra-firm transaction. Within the proposed framework, a 4-step process would follow (figure 9.2).

Step 1: Select a transaction and ascertain types of aspects involved.

Step 2: Decide on the technique to calculate the aspects in applicable units of measurement (UOMs). The quantification techniques can be a standard one and/or approved by the environmental management system (EMS) of the organisation. EMS being the owner and expert on environmental aspects, can recommend suitable techniques like ISO 14031, ISO 14051, input-output analysis, and LCA to establish corporate parameters for determination and quantification of different types of aspects, rightfully absolving the accounting function from the responsibilities of identification and quantification of aspects.

Step 3: Once quantified, the aspects might need suitable methods of conversion to be translated into equivalent monetary value. The monetisation process is not a scientific cost ascertainment and might follow any of the valuation methods (e.g., at cost, at replacement cost, market determined rates, contingent valuation method, cost avoidance method, or any other combinatorial proxy), so long as it could be used consistently and approved by the management, reflecting the intent of management to view the externalised liabilities. Any change in valuation method would generate adjustment entries to reflect the changes in CEA.

Step 4: The final step will be the ledgerisation of the quantified and/or monetised aspects by using standardised journal entry process in aspect ledgers.

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Figure 9.2: Environmental accounting framework

9.4 Systemic integration of CEA within corporate accounting framework

Interrelationship of multiple accounting constructs is the natural outcome of using accounting language to interpret transactions according to the domain of interest. The commonality of business transaction would retain the interconnectivity between the viewpoints. For example, ‘receipt of materials’ is recorded in cost accounting as a transaction that increases the inventory and generates financial accruals. Proposed construct would check for environmental aspects generated due to the ‘receipt of materials’. Since scope 3 emission (due to transportation of materials) could be associated with the transaction, the emission aspects would be quantified, monetised, and recorded in the environmental books. Depending on the number of viewpoints, every transaction would fall in any of the seven (or 2n – 1 interaction, where n is the number of dimensions) types of accounting relationship (A to G) (table 9.3).

Table 9.3: Transactional interrelationship within accounting dimensions

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- Type (A) transactions would impacts in all dimensions, e.g., purchase and sales transactions. These may involve exchange of inventories, financial obligations, and generate environmental aspects.

- Type (B) transactions would cover materials and financial entries but would not impact environment, e.g., revaluation of on-hand stock quantities.

- Type (C) transactions would create only financial and environmental impact. Purchase and trade of Kyoto units from emission market would be this type of transactions.

- Type (D) transactions are of true financial mature, e.g., issue of stock, interest on working capital, borrowing money, funds transfers between units, amongst others.

- Type (E) transactions are result of production activities and are recorded in cost and environmental dimensions.

- Type (F) transactions would cover cost-specific adjustments and do not create any financial or environmental impact, e.g., overhead cost allocation is restricted within cost accounting.

- Type (G) transactions are of true environmental nature and without any economic or material impact, e.g., changes in the Kyoto units due to emission calculation revision, etc.

9.5 Valuation of externalities using different costing models

Before testing CEA framework by using data from the case studies, this section experiments with independent constructs to model monetisation of externalities. The modelling exercise expects to contribute to the valuation of externalities that has been a lexicon in environmental accounting theories (chapter 4). The costing of externalities intends to contribute to the scholarship of ecological modelling and help businesses appreciate the impacts of waste in nominal terms. As the research within ecological modelling is yet to develop common unit of ecosystem services (Atkinson et al. 2012; Pirard, 2012) valuation of ecosystem services could use economic proxies including abatement, willingness-to-pay, and restoration cost models. These valuation models could be standardised as part of policy initiatives within a region and bring some degree of objectivity in understanding the impacts of industrial externalities. In this segment, individual cases are expected to support the valuation exercise and monetisation step of CEA framework.

9.5.1 FCA framework to evaluate cost of municipal solid waste disposal

This first framework is to model the externalised costs of solid waste management system (SWM). Since CU1 and CU2 were dependent on the municipal services of the region to handle some part of their waste, it became kind of imperative to understand the social costs of public system that is external to the organisational boundaries. Accordingly, the cost of disposal of solid waste by the municipality of the Greater Mumbai area (MCGM) is developed as part of FCA framework, as in India SWM is (almost) a free (zero-cost) service. The development of this framework is covered in Debnath & Bose (2014). For the sake of frugality, only the bare construct is abstracted here, while the details can be referred from the said article. This starts with defining the total cost of MSW services that is sum total of internalised costs plus the cost of externalities

Where cost of MSW services (SWC) at specific efficiency level

= [Cost of collection + Cost of transportation + Cost of segregation + Cost of Disposal] – Revenue generated by the municipalities (9.1)

Unit cost of SWM services (in functional currency / TPD or tons per day)

= Cost of SWM disposal services (in functional currency) / Total quantity of waste collected (TPD) (9.2)

Where cost of externalities is the equivalent costs incurred due to the externalities of MSW. Two of the important externalities are incorporated in this construct to integrate the cost of waste. These externalities are contextual and its formulations are covered as under:

i) Net savings to the municipalities due to the involvement of the informal sector

= Saving in costs due to (reduced municipal solid waste (MSW) tonnage + saving due to extension of life of landfill capacity – economic contributions of the informal recycling. (9.3)

Where, savings due to extended life of landfilling area

= Saving in landfill capacity converted into time period of equivalent present value of rental earning of the land. (9.4)

ii) Cost of methane emissions from landfill

= Methane generation potential derived based on the degradability of the solid waste X Gross Calorific Value (GCV) of methane X Density of methane (9.5)

The use of FCA framework offers the feasible method to incorporate the costs that are being incurred by the society along the life cycle of waste and externalised. In that sense, the externalities and its social cost of mitigation improves our collective understanding of the impacts that aspects produce. The construct reflects the cost of disposal of waste as equivalent cost incurred by the municipalities and supports externalities directly. The cost of disposal of solid waste by the municipal system of Mumbai works out to be close to INR 3500 mt-1 and has been used in rest of the thesis to reflect the cost of waste disposal that is not internalised by the firms.

9.5.2 Leveraging Total Cost Approach (TCA) to build cost of externalities

This sub-section builds upon the experiments on costing methodologies to infer that the cost models are based on causal relationship of its constituents and are expected to follow pre-determined pattern. However, costing methodologies would suffer in cases where causal relationships are not firm and aspects could follow multiple pathways. Translating the problem to the sustainability domain, if the movement of the aspects and its constituents cannot be traced back to the origin once it has reached the common pool, costing methods cannot be applied directly. In such cases, modelling of costs would have to depend on other studies, viz., economic studies, ecological modelling, demographic studies, and so on. To develop a generalised cost model, the ecological impacts of waste and its movement would have to be considered over different biological and ecological receptors and through successive layers of dispersion. Accordingly, this would need to include environmental impacts of an aspect on air, soil, humans, and ecosystem. To explore the impact along a receptor, the flow of aspects would have to be traced along every branch of dispersion till the desired node is reached (figure 9.3).

Based on the flow of aspects in environment, the corresponding impacts could be modelled as classification tree (to accept qualitative variable – presence/absence or yes/no) and regression tree if the impacts could be evaluated as equivalent risk numbers (quantitative evaluation). Accordingly, the model would explore the aspects and multiple pathways by branching along, as it diffuses through interactions with multiple entities (Sorvari & Seppälä 2010) as displayed in figure 9.3. In such cases, multi criteria decision analysis (MCDA) could be used to evaluate the aggregate cost of remediation, which is based on the principle of disaggregating a complex problem into a set of decisions or decision theories and model the uncertainty by following expected utility rule to ascertain underlying course of action (Barzilai, 2010).

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Figure 9.3: Flow of aspects and impact tree

Similar to the objectives in a tree, flow of aspects are characterised as essential, understandable, operational, non-redundant, concise, and preferentially independent (Franco & Montibeller, 2009). Assuming rationality in decision-making and building a set of coherent rules, each intermediate decision step would need to build probability laced expected pay-offs. Accordingly, if a decision would need to follow series of events like E1, E2, E3,…. with associated probabilities of p1, p2, p3… as corresponding outcomes, the expected payoff of an outcome x after i steps can be generalised as:

E(x) = ∑ Ei * pi ….. for all i ’s (9.6)

For the purposes of developing costs at an end point i, it would be the sum total of costs associated with each node multiplied with the share of burden it would carry. As the actual dispersion of an aspect or element could follow multiple pathways, a child branch will bear only a specific share of the burden and proportionate costs. The sum of shared weights at the parent node would always be equal to one. The linearity in modelling helps to avoid circular reference and overload along a branch. So, the overall cost function for an impact x at an endpoint i will be the sum of costs along the branches C1, C2, C3, …. with corresponding share s1, s2, s3, ….:

P(x) = ∑ Ci * si ….. for all i ’s (9.7)

In traditional MCDA approach, the problem is structured to handle the ecological modelling of alternatives with optimisation as the objective. Here, the decision tree is used to develop the cost structure of externalities of any waste as it spreads through the ecosystem. Although, there have been challenges to accept the additivity and multiplicity nature of expected payoffs when the preferences of decision makers and resulting payoffs might not follow uniformity of expression, Barzilai (2010) is clear in explaining the homogenous nature of the preference to develop a good model. The methodology has been further explored in developing the lifecycle costs of fly ash (FA) that reflects the layered nature of externalities and our limited understanding of successive layer of impacts, discussed next.

9.5.3 Cost vs. valuation of aspects – cognitive limitations

This sub-section contributes to the longstanding debate on developing cost formulations to evaluate the environmental aspects of waste and reflect its relevance within CEA framework. Organisations might incur certain costs before handing over waste to the societal disposal mechanisms as the first layer of costs. Post that, the costs incurred by the disposal mechanism would include cost of disposal, recycle, and reuse, which might not have been always paid for by the market mechanisms, and sometimes part of informal waste recycling as well. Accordingly, the total generalised cost of waste would be:

Cost of waste = Cost incurred by firms + Cost incurred by disposal mechanism

– Costs already internalised (fees and fines) + Hidden costs (9.8)

However, waste could follow different routes of recycling, reuse, and disposal. For example:

Manufacturer à

- (recyclable waste) Recycler à Reprocessing à Entry to material chain

- (Hazardous waste) Hazmat handler à Safe disposal

- (Non-recyclable waste) Municipal disposal à Landfill

- (End of life) Reclaiming for recycling à Recycler à Disposal

Each route has its own set of costs and would generate externalities accordingly. In other words, even though organisations can scan the upstream and downstream supply chain and develop inventory of externalities, the discovery of the layers in the chain would depend on the time and efforts needed to investigate complete waste cycle and its impacts, which is relative and not absolute. On the other hand, emissions are the only types of waste that has a standard route of disposal, but knowledge of its impact on biosphere is incomplete, e.g., how excess CO2 would interact with the ecosystem over time. The problem compounds with loss of causal relations once the waste enters into the arena of public goods, not to mention the regional complexities associated with its subsequent dissemination. So, it can be safely inferred that the quantification and monetisation of aspects would depend on our contemporary understanding of the ecological profile of waste. Accordingly it would be impossible to cover all the impacts, considering the cognitive limitations in discovering how it would interact with different receptors. The same analogy is applicable to costs that would be incurred by the society, now and in future, to handle the externalities (figure 9.4).

The boundary of knowledge on externalities would include reasons like uncertainty in deriving costs and the future impact of health and ecological effects, where the monetary assessment of damage/remediation/restoration is yet to be established (methodological limitations), lack of information on exact causal relation between aspect and its impacts, including the absence of ecosystem service unit to interpret the damages in terms of losses (cognitive limitations), and the second and higher order impacts of environmental aspects that might not establish causation (interpretive challenges). In absence any standardisation to assess environmental damages, different valuation methods have been proposed in literature to evaluate the cost of waste and emissions. As a result, CEA would need the capability to work with the range of possibilities – from no valuation to valuation using different methods, for different aspects and account the aspects in physical and monetary terms.

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Figure 9.4: Layered nature of environmental impacts and costs

9.6 Testing CEA framework by using data from the case studies

In this segment, CEA framework and the process of developing aspect ledgers is tested by using the data from the case studies of CU1 and CU2.

9.6.1 Case I: CU1 – Quantification of environmental aspects

To retro-fit data from CU1, table 9.4 has tabulated operational data covering procurement (P1) and ripening and processing (P2-P3) operations (figure 8.1). Data is accumulated on monthly basis and temporal accounts of environmental aspects are generated. The first step towards this is to quantify the aspects that were generated from the MFCA exercise. Emissions due to transportation of raw materials covered procurement (P1) of raw/ripened fruits involved its transportation from orchids to the plant in trucks/lorries (8-11 MT per consignment), which would generate scope 3 emission (as per GHG accounting) and computed by using emission factor (GHGs – 2417.95 g km-1; SOx – 1.42 g km-1, and PM – 0.2 g km-1) for ‘Trucks and Lorries’ in India (Ramachandra & Shwetmala, 2009) for the distance travelled. Emissions due to energy use is based on the electricity sourced from grid and consumed during the processing (P2) which would generate scope 2 emission and computed as per the emission factor of 980 tCO2e/ kWh (Central Electricity Authority, 2011).

Table 9.4: Select environmental aspects of CU1

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9.6.2 Case I: CU1 - Valuation of environmental aspects

Next, the physical quantities from table 9.4 are converted into equivalent financial values. The solid waste is monetised using the social cost of disposal not internalised. The cost of solid waste disposal is INR 3500 mt-1 as the uncovered cost not internalised as part of municipal services in Mumbai (as discussed previously). GHG emission is valued at the market rate of USD 4.5 per tCO2e (INR 225 at exchange rate of INR 50 per USD) (Ecosystem Marketplace, 2011, p. 27) – average rate for Indian projects in voluntary emission credit market. Waste water is valued at the resource replacement rate of INR 50 kl-1 (Gale 2006).

9.6.3 Case I: CU1 - Environmental ledger of aspects

The journralisation and ledgerisation process (table 9.5a-b) has used double entry system to transfer the aspects to the respective aspects account (of asset nature) by debiting it, as these aspects are physical in nature and adds to the natural asset pool of waste and emissions (same as finished products). The credit would go to the respective environmental account (of liability nature) to reflect corresponding externalised liability. The reverse of it would reflect the liabilities being nullified. If any environmental aspect is not monetised (e.g., non-GHG emissions), it could remain in the physical (or inventory) account only. The following accounting rules are followed in this process:

a. The journal entries should be balanced across all quantities and values.

b. One accounting entry would use the same units of measurements (e.g., INR, mt, kl, etc.)

c. In case of unavailability of monetisation, only aspect accounting (in physical terms) will take place.

d. To account more than one aspect in one transaction, each aspect would have to have its own journal entry.

Accordingly the environmental ledgers are drawn (table 9.5a-b).

Table 9.5a: Solid Waste (Externality) T-Account

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Table 9.5b: Product B – Total Environmental Aspects T-Account

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Table 9.5a reflects journalised entries of waste account for May – Dec 2011, which resulted in a period-end balance of 1687 MT of solid waste creating externalities of INR 5.73 million on account of disposal using municipal waste management system. On the other hand, table 9.5b reflects the ledger account of product B which has resulted in overall environmental load of INR 1304 -thousand. Table 9.5(a, b) present combined form of t-accounts recording physical and monetary conversions together. However, organisations can maintain separate accounts to record aspect inventories and its monetary implications. As evident, the accounting entries maintain temporality and traceability to the underlying transactions. Also, non-GHG entries, like SOx and PM, have been accounted physically – in absence of suitable monetary conversion. This reflects that the aspect quantities might not always be equated at quantitative level (due to the non-convertibility of units).

9.6.4 Case II: CU2 - Accounting of aspects

To analyse the robustness of the CEA, the same exercise is repeated for CU2 facilities for the equivalent period (Apr – Dec 2012) by tabulating the aspects in (table 9.6). The valuations of the aspects are held at the same level as the case one, except for, in case of solid waste. As CU2 did not transfer solid waste to the public domain but converted into compost by using in-house vermicomposting facility, it generated positive externality that is reflected as credit entries representing saving in social costs at INR 3500 mt-1 (table 9.7a-d).

Table 9.6: Analysis of waste data for CU2 facilities (2012)

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Accordingly the environmental ledgers are drawn. The credit balance of table 9.7a reflects the social externality saved due to vermicomposting of bio-waste in form of equivalent cost of municipal solid waste management. Table 9.7b could bring the supply chain effects into the books of the beneficiary, in form of resource accounting of waste water of outsourced laundry and accounted it as an environmental liability of CU2. Table 9.7c reflects equivalent carbon value of emissions. Accordingly, environmental liability at period-end could represent monetised balance (in quantity and monetary terms), reflecting externalities not annulled by the organisation (table 9.7d). As the scope of this research is to understand the role of accounting artefacts in the information generation process, secondary accounts of aspects is assumed to be the logical follow through of the process. Accordingly, this has not been delved nay further and could be taken up as part of future research.

Table 9.7a: Solid Waste (Externality) T-Account

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Table 9.7b: Waste water T-Account

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Table 9.7c: Emissions T-Account

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Table 9.7d: Environmental liability T-Account

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9.7 Case Study III - To validate CEA in an independent environment

To test the generalisability of CEA beyond proximate research, a third case study was conducted that could validate the framework in an altogether different environment and demonstrate the capability of handling diversity of industry, aspects, and time. This case study was an ex-post study and used historical data from one of the system implementation projects executed by my employer and in which I was a team member. From the methodological perspective, environmental familiarity helped me to bypass the phase I of the method used in these studies. Rest of the process involved collection of data from organisational records and experiment in the simulated environment. This prevented conflict of interests, if any, and protected the identity of the client. As per the agreed terms, the name of the client and service provider has been referred here as “Company D&B” and “system implementer”, respectively.

9.7.1 Background

A system implementer bagged a “procure-to-pay automation project” contract (Project A, hereafter) and rolled it out to the India division of Company D&B as a test pilot. The pilot project started in Aug 2013 and went live on Jan 2014, involving a team of 12 consultants (two US based and rest India based). From the client side, the project was spearheaded by two representatives from UK (as part of project management office or PMO) and four subject matter experts (SMEs) from US. This case study is limited in scope to understand the environmental aspects generated during this project due to the travel of the project members from different locations to India at different points in time. To keep the validation study focused, emission inventory (generated by international air travel of project team members) is the only environment aspect explored in the study.

9.7.2 Computation of environmental aspects

The study has used data from the organisational records to develop the environmental records and include the international air travel of the project members by converting the information into equivalent tonnage of CO2 (tCO2e) and accounted against the pro-rata billing cycle which is based on the billing estimate of USD 421 thousand. The travel details of the project team during the milestone period are as under (table 9.8).

Table 9.8: Travel miles and emissions produced during Project A

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9.7.3 Valuation and accounting of environmental aspects

To compute and account the aspects, the gold standard of average € 15 per ton of carbon equivalent has been taken as the offset to monetize emissions (IATA, 2008). The result reflects that the project generated an incremental environmental load of 77 tCO2e over 412 thousand travel kilometres, equivalent to a thousand euro in terms of abatement value, which remained out of commercial and accounting considerations (table 9.9). Although the scale of project was small and people moving between different countries were few, it could assert that the technology projects are not environmentally benign, not to mention the aspects due to electricity use, stay in hotels, car travel, etc., that were not considered due to lack or inaccessibility of data. If the project was for an organisation in an industry from non-Annex B region of Kyoto Protocol, it would have brought the additional considerations of arranging for the carbon commitments as part of the project. Even otherwise, the current project management practices are still to evolve beyond regular costs and accrued revenues (Curkovic & Sroufe, 2007). Accordingly, it would need the support of CEA to capture environmental aspects of project activities.

Table 9.9: T-account of emission aspects due to travel-miles in Project A

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The experiments conducted in section 9.6 and 9.7 evidence that accounting language is capable of handling multiple units of measurement as part of system and generate accounting ledgers in physical and monetary terms. The uniformity of procedures in this segment could establish the feasibility of CEA framework to handle aspects in general and support generalisability of the overall process. It also supports the repeatability of case methodology to handle research process of similar nature. The next segment details how the construct could support the generation of information that is vital for management and stakeholders.

9.8 CEA framework – integration of social externalities

9.8.1 Results from Case I

This segment reflects the integration of social externalities and its impacts on the performance of the organisation (table 9.10), based on the performance data from table 9.4. By considering the social costs of the externalities, CEA could evolve information on the externalities incurred by CU1 from the environmental accounting records that were synthesised from the data. By deriving information from the accounted aspects, the monetised impact of CU1 operations turns out to be nearly INR 6.60 million or close to 2600 INR mt-1 of finished products, improvising information on the impacts that the aspects produce.

Table 9.10: Externalities incurred/saved due to the business activities of CU1 (2011)

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9.8.2 Results from Case II

As compared to CU1, CU2 facilities can be calibrated against the externalities that it incurred or saved as part of its operations. The performance of the CU2 facilities would also indicate the social costs it saved for the society, and are captured as part of the environmental accounting constructs. This could also enable inter-firm comparison of environmental performances within the same industry and included the saving of social cost of SWM services to clean community waste (Mann & Thadani, 2010) (table 9.11). The waste water generated due to the outsourced laundry is a waste of natural resource, as commercial laundries drain the waste water instead of recycling. This is negative externality and is considered as part of environmental performance of CU2 facilities. By excluding in-house laundry facility, CU2 could overstate its environmental performance as compared to others but this would also result in incur a cost of INR 8.75 million per annum (at resource replacement rate).

Based on the selective performance data of 2012 (table 9.6) and its accounting, these externalities created environmental obligation of around INR 3.8 million for 26 thousand guest nights or INR 147 per guest night, which could now become part of corporate considerations as part of the CEA construct. However, as reflected earlier, the hotel management also interacts with school children from around the locality and undertakes workshops with other business facilities to impart practical tips on being environmentally friendly (Mann & Thadani, 2010). These activities of the firm generated positive externalities, but which would need suitable valuation methods to find a place in the proposed scheme.

Table 9.11: Externalities incurred/saved due to the business activities of CU2 (2012)

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9.9 The generalised construct of CEA and sustainability

This chapter has focused on developing CEA into an accounting construct that could support accounting of aspects and improves our understanding of how aspects generate environmental impacts that would result in environmental, social, and business externalities. This section explores how the information base is supportive of sustainability.

First, the extension is relevant in explaining how accounting has evolved – a two dimension construct of time and money – into a language to decipher the business transactions. CEA extends it into the third dimension by measuring the impacts of business transactions on environment and resources. This encapsulates separately identifiable stakeholders’ demands and organisational interests to identify and understand the environmental impacts of businesses. Second, environmental aspects from human activities – in form of organisational interactions with nature – and its impacts on biosphere is subject to the cognitive limitations of human knowledge and would remain so, until the intricate nature of cause-effect relationship of human activities and ecological responses across time are well understood. These cognitive limitations would support our exploration in understanding the overall cycle of natural interactions. This supports the layered nature of externalities and limits its ‘complete’ view. Accordingly, all impacts of an aspect would not be known at all times, and so would our efforts to derive costs (abatement or opportunity) to abate or harvest the aspects (figure 9.4), qualifying sustainability as an effort that would need support from all of us to maintain/improve status quo bring ethical considerations in business.

This relates to the third point that the environmental aspects of business or its possible monetisation does not have a well-established knowledge base and would remain work-in-progress in time to come. Instead of developing a solution that is dependent on the frozen costs of each element, CEA provides an in-principle accounting construct that could become a placeholder of all aspects – present and future, monetised or otherwise – mirroring the ability of financial accounting to cover all types of business models and their transactions. Fourth, the cost of externalities is not an absolute in itself. It would depend on the path chosen by the organisation to dispose its waste and average cost of disposal of such costs set by society. In altruist sense, it is the externalities generated by the chosen path of the waste should reflect as the externalised cost of an organisation. Although the generation of aspects could be a natural outcome of a process (in form of waste), the impacts of the waste is dependent upon how the disposal process would impact with the ecosystem. Accountability towards externalities would help- businesses in thinking about the best way to dispose waste that would produce least impact.

Fifth, as the causality linking waste to its impacts dilutes with increase in distance from the origin or centre of the activity, it would be meaningful to use monetisation as a method that is not dependent on the causality of the events and could be adapted based on a standardised convention. As the discarded waste loses identity once it enters the common pool, its environmental impacts become increasingly generic. Considering the general loss of causality beyond the first impact zone, a standard convention supports equalised treatment to how waste impacts can be seen. However, where waste could maintain causal link to the source, e.g., radioactive waste or environmental accidents (oil spill, gas leak, and other isolatable incidents), the impacts could be identified and cost to mitigate the impact could be accordingly built. These points lead to the discussion on the practical relevance of CEA and its capabilities from the perspective of information generation and decision-making that characterises management accounting. These characteristics are explored as part of a general accounting framework to validate the relevance of information to support management accounting.

a. Traceability: CEA creates the transactional backbone of environmental aspects to be used by the information system to extract relevant and verifiable data for environmentally conscious decision-making. This would absolve EMA and corporate management information system from the need of using arbitrary methods to quantify aspects, and improve the temporality, transparency, and traceability of information. The traceability can link the piece of information to the source business event/transaction and other accounting frameworks.

b. Timeliness: CEA opens the door for the organisations to actively consider externalities as part of its business activities and improve transparency in reporting. Waste creates externalities upon leaving the area of private ownership. Accordingly, the information is available as soon as the activities are recorded and remain tied with time improving the ‘accountability’ of the firms.

c. Relevance: CEA allows the existing accounting frameworks to continue in ‘as-is’ form which would save time and resources needed to modify these and institutionalise environmental accounting within a single framework. This will also help in developing and implementing standards for sustainability and ecological accounting separate to the existing accounting standards. Accordingly the information would be relevant and could be traced to the transactions causally.

d. Uniformity: CEA separates the computational complexities of quantification and monetisation from the accounting process. Needless to mention, identification of aspects and its calculation to generate environmental input-output inventory would need the inputs and active cooperation of environmental experts, while accounting of aspects through valuation and ledgerisation processes can remain within the accounting functions of the business. This brings active role of EMS in conceiving environmental activities of business to be a cross-functional activity that would seek active cooperation of other business functions and establish uniformity to interpret as well as disseminate information.

9.10 Conclusions

Although SEA evolved as the philosophy to advance the need of accountability of the firms towards environmental and social externalities and EMA provided the methodological support to influence the internal decision-making processes, these efforts did not challenge the accounting processes to change significantly. However, the prevailing methodologies are struggling to help organisations beyond the obvious, failing to integrate ‘external’ costs of waste that the society would have to incur – at present or in future – to mitigate the negative effects. The inadequate coverage of under-defined ownership of waste and inheritance of economic theories in accounting has contributed to shape the role of corporate accounting system to ignore externalities.

Business organisations form a major pillar of societal existence and it would need an accounting framework to help it better manage, report, and control externalities (proactive), instead of waiting on policy enforcements to act responsibly (reactive). Also important to note that the stakeholders’ concerns towards environmental performance of organisations might create a tension by challenging market-oriented performance reporting, where the firms would need the capabilities to handle environmental performance alongside the financial or economic ones. The feasibility of CEA to collaborate with other environmental methodologies (emission accounting, life-cycle methodologies, flow cost accounting, and GHG accounting) and accounting frameworks was explored in the case examples. Well-defined information is critical for businesses to take decisions that could reduce the negative impacts on the society and planet and improve ecological contributions.

CEA offers transactional transparency of environment-firm exchange to help firms take corrective steps (e.g., choice of cleaner technologies), contribute towards environmental sustainability (e.g., resource usage, cradle-to-cradle cycle, no waste policy), and retain temporality that is part of the accounting system. The ‘dimensionality’ conceived in this chapter is to conceptualise parallel frameworks of accounting – each one having specific and independent viewpoint of business transactions. It helps the proposed accounting framework to cover environmental interpretations of inter- and intra-firm transactions in entirety and expand the boundaries of accounting by absolving it from being subservient to economic interests of firms, reducing its dependency on monetary unit as the only numéraire. It is natural to be critical of the risks associated with the exploratory nature of the CEA framework and under-defined rules, but its standardisation can be taken up at national or supra-national levels and develop meaningful interpretation of data across firms and/or industries. In ever complex world of business, overall performance of an organisation would seldom be judged in near future by its financial performance alone. The proposed framework is expected to bring the other dimensions of organisational performance within the equation and help firms follow sustainability thinking as a natural corollary of accounting. The next chapter elaborates on the managerial implications that CEA could produce.

Chapter 10. Corporate Environmental Accounting Framework – Some Managerial Implications

10.1 Introduction

This chapter continues from the previous one and explains how CEA supports information needs of management and help firms in their tryst to improve environmental performance. Following from CEA, this chapter has proposed some constructs that are independent, nascent, and experimental in nature, but are based on sound business and accounting principles. These extensions include development of integrated view on waste and emissions (quantitative construct experimented with data from CU1), integrate waste management as part of strategic thinking (qualitative construct developed with the findings from CU2), and test feasibility of developing carbon accounting (extended accounting construct). The last extension proposes the aggregation of aspects at micro-level (firms) and develops meso-level (industry) indicators that can help policy makers to review the impacts of economic development on the ecological/environmental level. Other than presenting diverse ideas, the chapter is relevant in bringing these together by using CEA as the common denominator to establish how management could gain from improved information and understand environmental performance better. In that sense, this chapter proposes integrated view on environmental aspects and experiments with different ideas that could be developed as part of the information base and help firms develop business excellence and reduce impacts on environment.

10.2 Extension 1 – Integrated waste and emission flow

The first extension proposes a theoretical construct to develop unified flow of waste and emissions by integrating GHG accounting based on the materials and energy flow. The findings from the CU1 helped to conceive the integration of these two flows and bring GHG accounting within the waste flow. To improve the visibility of emissions, the energy flow could be used to calculate and inventorise the GHGs, created or sequestered through business activities. Although, energy flow is not studied independent to the materials flow per MFCA, the complementary strength of both these methods show promise beyond isolated mapping of waste streams. In the absence of integrated framework, firms would have to implement separate systems to capture material waste, energy flow, and emissions.

An independent GHG accounting system could compute GHG at gross levels and allocate these to individual processes, irrespective of actual emissions of processes, similar to that of the allocation process of overheads. This might lead to incorrect emission profiling of processes and wrong reporting of hotspots. Instead, a better way would be to create a GHG metrics that is causally linked to the energy consumption or any other factor and leads to the generation of aspects as part of the underlying process. This would help to identify the hot spots better and improve accuracy of emission profiles. This section has captured the formulation of how GHG generation could be captured as part of the energy flow and integrates waste flows within a single framework and develop holistic view towards it. Although the details are covered in Debnath (2014) and could be referred from there, the formulation and application of unified construct is captured here.

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

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

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where, (Q) = equivalent physical quantities,

$ = rates per physical unit, and,

CC (conversion costs) = Σ RQi * $i, where, RQi =Quantity of ith resource.

The uniqueness of MFCA is not in the summation of elements but to follow the iterative process to scale up the costs through every process and load the value on the outputs, proportionately. On the other hand, as per GHG accounting, GHG produced during process X would be:

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Further, GHG (CC) = GHG (Energy) + GHG (Other resources) (10.4)

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

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

Step 2: The total emissions for the period would be the sum total of respective emission quantities (G1, G2, G3, …., Gn) calculated based on emission factors corresponding to the individual fuel types. If Gtotal represents total emission for the cumulative energy consumption during period ‘t’, it can be calculated as:

Gtotal = ΣΣ Enf * EFf .during time period ‘t’ (10.5)

where, Enf = Equivalent energy input summed over ‘n’ processes for fuel type ‘f’,

and, EFf = Emission factor for specific GHG corresponding to fuel type ‘f’.

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

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where, s f = source or sink (represented as +1 or -1 or vice-versa)

Depending on the creation or sequestration in a process, the emission quantities can be recorded as positive (debits) or negatives (credits) to the emission (GHG) stock account. This process covers scope 1 and 2 emission.

Step 3: To build scope 3 emissions as part of this construct, GHG profile associated with support activities are to be created. The scope 3 emissions can be loaded to the production activities based on direct calculation of GHG a result of support activities.

In this experimental construct, MFCA plays the important role of providing the basis of causal linkages to individual processes within the value chain functions and associate GHG inventories to its sources. Compared to manufacturing industries, service industries could use the energy profiles (instead of mass-balance) to develop the same construct with equal ease.

10.2.1 Validation of the experimental construct using data from CU1

Table 10.1 shows the generation of the GHG profile based on the consumption of energy and transportation of materials. The transportation of raw material (RM) and finished goods (FG) is converted into product travel (t-km), before applying conversion norms to derive GHG stock and measured in equivalent tons of CO2 (tCO2e). The GHG profile in table 10.1 is based on the emission factors (EF) selected for conversion process as per UNFCCC Project Reference # 1497 (Fresenius Kabi India Private Limited, 2009). EF of electricity is as per Central Electricity Authority (2011) and transport load (by road) as per emission norms of Indian road transport for Truck and Lorries (heavy duty diesel engine with capacity > 3.5 ton/Gross Vehicle Weight (GVW)) (Ramachandra and Shwetmala, 2009) for aggregate 186,000 km (461 consignments of raw fruits) inward and 1920 km (96 consignments of local dispatch with assumed average distance of 20 km) outward product travel.

The next exercise is to show the limitations of traditional GHG framework that works at aggregate levels of resource consumption. In the absence of GHG profile of individual processes, organisations may choose to allocate overall GHG quantities on to the individual processes by using suitable allocation driver. Assuming annual GHG load of 1048 MTCO2e (due to energy and total product travel only) at CU1, suitable process drivers could be used to perform step-down allocation of emissions over the processes (table 10.2).

Table 10.1: GHG profiling of organisation processes (using proposed framework)

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Table 10.2: Step-down allocation of aggregate GHG on CU1 processes (in absence of GHG Profile)

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The first level allocation of GHG (table 10.2) is based on the electricity consumption and second level is based on the application of transportation tonnage (product travel) on residual (unallocated) amount. Finally, GHG allocated to the processes from the exercise is compared with real GHG profile derived from the application of extended framework (table 10.1), which reflects the inaccuracies of this approach. The role of CEA as part of this construct is to develop data on aspects while maintaining the causal linkage with the energy consumption recorded as part of cost accounting records. Data from CEA could directly be used to identify the GHG hot-spots. In that sense, the traditional cost accounting framework converges with CEA at transactional level and develops an information base that could provide data on resource usage and environmental aspects and generate temporal profile of activities that is not a result of quantitative evaluation.

10.3 Extension 2 – Integrated waste management framework

This extension follows from the case analysis of CU2 and generalises integrated waste management that could be implemented even without the requirements of legal or statutory compliance to account for environmental performances, as evidenced from the case study of CU2. Also, CEA would support an integrated view of aspects by aligning with the information framework and could promote it as part of strategic thinking. Full details of the construct are explained in Debnath (2015). This segment summarises the relevance of CU2 and findings from the case study.

10.3.1 Integrated waste management framework – Evidence from CU2

CU2 facilities seized the early movers’ opportunity to embrace environmental stewardship and developed it as competitive differentiator within the hospitality industry. A progressive environmental outlook helped the facilities to gain prominence in environmental superiority in the region and provided opportunities to develop a business case for pro-environmental thinking in a country where environmental sensitivity and business interests are yet to converge to form common ideology (Sidhu, 2011). To cover all the aspects of waste management efficiently, CU2 facilities built infrastructure to handle collection, flow, and subsequent treatment of the wastes in an integrated manner and assimilate these as part of individual business process that included solid wastes cycle (using 4-bin theory), gate-to-cradle cycle of bio-waste, waste water cycle, efficient energy use, and employee training – explained next.

As part of solid waste cycle green materials were reused within the hotel, e.g. discarded linen was used for making uniforms, caps, pillow covers, and dusters for maintenance activities and saved expenditures on tissue paper and dusters, the recyclable materials are sold to recyclers. Non-recyclables were transferred to landfills, while food waste was transferred to composting, whereas bio-waste collected from the bins was composted by using vermiculture within the in-house compositing facility. In addition to composting, food waste was also routed to animal farms like piggeries. On the other hand, waste water cycle covered the use of grey water for the purpose of flushing, cleaning, and gardening. This reduced the load on potable water consumption. The piping system of the facilities was laid to flow grey water through the designated areas. The water inlet pumps were equipped with variable water level controllers to control inflow of water, based on the current level of the main water tank. The intelligence saved energy and optimised water inventory. As part of efficient energy use, the structural elements of the hotel supported low consumption of energy (e.g., use of double glazed glass, light emitting diodes (LEDs), spots, and timer control). HVAC was reinforced with glycol chiller technology to minimise the peak load (NSW, 2011). The heat from the air-conditioning system was re-routed to heat water, saving the consumption of energy.

CU2 facilities sourced products that are green. This included green toiletries for guest use, bio-chemicals for cleaning the facilities, room amenities that are free from plastic or any other synthetic material. For these practices to be ingrained as part of the organisational culture, human resources (HR) facilitated training to employees, sensitising them with the importance of environment care in running the facility. Training programs were organised at regular intervals and ensures effective employee participation through sharing of ideas. CU2 would also involve employees in social programs like arranging workshops for school children and participating in cleanliness drives. These activities generated positive externalities and helped the facilities towards the fulfilment of its social commitments.

CU2 adopted Ecotel certification as its external environmental quality certification, which is one of the pro-environmental certification standards for hotels and promoted by the US based environmental consulting firm, HVS International. Certification is provided under ECOTEL brand and awarded after completion of onsite audit procedures. Recertification and auditing procedures are carried out after every two years (Mann & Thadani, 2010). The certification criteria covers energy efficiency, waste management and recycling, water conservation, legislative compliance, and employee education (also called 5-globes). HVS International works with the hotel management to provide hands-on technical services and information on environmental sensitive manufacturers and service providers (UNEP.Org, 2012). The certification played the role of binding agent or stimulant to help the facilities achieve control over consumption of resources and integrate waste chain as part of every process.

10.3.2 Generalisation and further scope

As compared to manufacturing industry, service industries generate intangible outputs that are delivered to the customers as a bundle of experience. Waste on the other hand is tangible by-products of service creating activities. Since CU2 facilities were operating with environment-friendly infrastructure and complementary operational processes, the performance of its waste management system cannot be viewed in isolation as compared to its operational arrangements, a point crucial to operate integrated waste management framework (IWM). This is different from the usual chain of waste generation and its disposal along with environmental considerations towards minimising the waste, which is end-of-the-pipe solution. Based on the findings from the case study of CU2 and leveraging systems perspective, a generalised framework of IWM is proposed (figure 10.1) by extending the solid waste management model of municipalities (Marshall & Farahbaksh, 2013), which is capable of instituting morphogenetic or second-order change in the organisations (Fraser, 2012) and help the firms imbibe environmental care as one of the primary focus of business, one that is not subservient of its economic performance.

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Figure 10.1: Integrated waste management system

In general, waste management practices of an organisation are responsible for minimisation of wastes through collection, treatment, and disposal activities. Waste mitigation arrangements involve prevention, minimisation, reuse, recycling, energy recovery, composting, and disposal of waste in decreasing order of preference (Radwan, et al., 2010). However, IWM approach starts with strategic design to prepare the organisation towards improved utilisation of resources and prevention of waste. This would need the strategic support to invest in facility design with necessary hardware to achieve control of water, heat, lighting, and energy, acquire industry accredited certification and redesign processes, facilitate continuous training programs to its employees, and audit processes to validate the performance of the system as part of the business approach. The flow of information on waste and its management could be achieved as part of CEA that could help businesses monitor its activities, generate reports, develop information base, and take suitable decisions for further improvements. In that sense, CEA could capture the performance and support the feedback process, thereby completing the loop.

The comprehensive efforts described above improves the embeddedness of environmental thinking within employees, processes, and services, and contributes in developing it as a competitive differentiator, instituting waste management in an inherent part of the organisational success. This could also be considered as the in situ environmental care that the organisation develops as its internal expertise. The case study of CU2 has verified the use of data from waste management as integral part of its MIS reports which could help it in monitoring the performance and critical to the success of IWM. The performance of CU2 facilities can be viewed through CEA framework to generalise that upfront thinking by management to steer the organisation towards understanding environmental impacts and investing in the infrastructure is necessary to institute better practices. As part of decision-making, it shifted the focal point from “least cost” followed by “environmentally benign” to “absolutely environmentally benign” followed by “ least cost” and helped the organisation to adapt to the new realities that are not based on lower price tags. These activities supported social commitments of CU2, improved its social acceptance, and generated positive externalities by way of spreading knowledge and awareness, thereby absorbing social costs. Debnath (2015) has extensively used data from the study to support IWM, which could be formalised through the implementation of CEA and support information backbone for decision-making and reporting needs (internal as well as external).

10.4 Extension 3 – Carbon accounting using CEA

This extension is based on the needs to institute carbon accounting that has relevance to the carbon trading in emission markets. Kyoto Protocol (KP) annex B lists annex-1 countries that need to enter into binding targets of GHG reductions within individual commitment periods. Governments of respective countries are free to fix emission ceilings for their emission intensive industries. These binding emission targets are a way to create artificial shortage of carbon in the market and offer economic incentives to the industries to reduce overall GHG exposure that would support the respective governments to honour their share of commitments under KP. Countries are free to establish compliance markets and allow trading of emission allowances in form of allowable accounting units (AAUs) that are granted to the industries and administer these through suitable regulatory mechanisms. Organisations are allotted AAUs with absolute threshold – beyond which they are not permitted to generate emissions. Emissions generated over and above agreed levels may be penalised through compulsory purchase of emission units and cover such shortfalls at penalty rate (Bebbington & Larrinaga-González, 2008) (explored in section 5.2).

Following emission regulation norms, firms from these countries are expected to manage their GHG exposure and keep it below allowed ceiling to avoid penalties. They can reduce their obligations by purchasing additional AAUs from the compliance market (if allowed and available) and/or acquire certified emission reduction rights (CERs) from the voluntary emission markets. Also, firms are free to generate CERs by participating in the registered projects under clean development mechanism (CDM) with firms from non annex-1 countries or as joint implementations (JI) with firms from other annex-1 countries. To make financial gains from lowered emissions, firms might as well sell-off excess AAUs in cap-and-trade market or trade CERs in voluntary market (subject to legal norms) (UNFCCC, 2008). While individual countries can have multiple varieties of such instruments and market mechanisms, the present discussion analyses sample transactions from such interactions without assigning any contextual reference.

Example: Let us assume the total emission of an organisation ABC (within capped regime) is at α tCO2e, at an operating level of ‘X’. Let us assume, ABC is planning to operate at level ‘Y’. The allowed emission level would be:

Emission level allowed (Legal limits) = A tCO2e

Total potential GHG at ‘Y’ level of business activity

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If C>0, then ABC is well within its capacity to carry on its activity. Still, ABC can further reduce emissions by participating in CDM/JI, sell excess AAUs, and/or acquire CERs from respective emission markets. On the contrary, if C<0, this leads to the shortfall in projected emission level that would have to be covered by augmenting emission rights through CDM/JI projects and/or purchase of additional credits or AAUs and/or carbon credits from respective emission markets and cover the shortfall. The ensuing discussion explains that carbon accounting is not just limited to financial accounting. It needs additional accounting construct to collect, hold, and transfer CERs, AAUs, and actual emissions (in equivalent Kyoto units). Conventional accounting constructs are struggling to provide suitable mechanisms to handle the situation (Bebbington & Larrinaga-González, 2008). CEA proves to be helpful by separating the accounting treatment of the transactions based on the area of interest. To illustrate the point, five types of transactions from carbon trade cycle are covered in table 10.3.

Table 10.3: CEA and Carbon Accounting

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The business activities and environmental stewardship should make windfall of such situations and leave the organisation with a situation where (B) – (C) < (A). As can be seen, financial viewpoint does not offer the visibility into the consumption pattern of AAUs due to the emissions generated from business activities or signal coverage required to avoid penalty for excess emission. Moreover, AAUs being legal limits and intangible in nature should not be mixed up or set-off against real emissions, because unlike allowances, real emissions are physical assets generated by the firm. Currently, the accounting process in broken and being carried out is ad-hoc manner, not to mention the unavailability of any other accounting framework as well as lack of standard accounting constructs from IFRS (refer to section 5.2). The accounting of emissions using CEA would maintain the overall transaction and link with the financial transactions, resulting in vastly improved information flow. This not only supports financial accounting but also improves the decision-making process by increases the visibility of carbon exposure and environmental performance of the firm.

10.5 Extension 4 – Environmental performance index at industry sector level

By aggregating individual performance of firms, an attempt is made in this extension to understand the industry sector level performance. WBCSD (2000) has long been a proponent of eco-efficiency, whereas GRI (2006) reporting has helped organisations to concentrate on the eco-efficiency and improve organisational fingerprint. Also, IFAC (2005) advocated using cross-cutting EPIs that could be linked to the economic performance. However, the study found practical difficulties in using eco-efficiency as a measure to compare and improve efforts towards sustainability. For this purpose, the eco-intensity change index (EICI) is used as a construct to aggregate the comparable performance of firms in a given year. EICI was originally proposed by Xie & Hayase (2007) as an index to compare the annual performance across industries. However, the construct is explored to cover multi-year analyses of sectors along with offering a platform to compare the environmental performance of individual sectors with its financial performance and derive first degree information on the incremental environmental loss. The relevant details to develop the construct are covered in the article Debnath et al. (2014). The article has verified the construct by using three-year data from the 16 Indian organisations (environmental performance reported to GRI during the period 2007-10). For the sake of frugality only the construct is abstracted here:

Step 1: The absolute values of indicators reported by the participating firms in a year within the same sector and with same units are summed up. The aggregate values are divided by the selected financial aggregate arrived in similar manner. In other words, the ratio of environmental performance for indicator x for sector j and year t ‘EnI(x)tj’, and selected financial performance ‘FinBasetj’ for same year ‘t’ and sector ‘j’ would give the environmental intensity for the indicator ‘x’, EI(x)tj for same period and sector.

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Both the variables could be rationalised so as to keep equal number of observations in both the sides and dropping missing observations that had only one leg reported.

Step 2: Derive the ratio of environmental intensity over the base year to understand the relative change as compared to the base year. So, if EI(x)j for year t+1, t+2, … and so on is divided by the EI(x)j , t being the base year, eco-intensity change index (EICI) would be derived for successive year. The comparative change across the years would indicate the temporal movement of environmental indicators for an industry sector ‘j’ with respect to the fixed base year ‘t’.

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Step 3: If EICI (x) is greater than one in any year, it would mean increased environmental impact per unit of financial performance for the sector for the specific indicator, signifying bad performance; and vice-versa for less than one. Comparative values across years would indicate the resource intensity of the sector and its direction. Result of EICI computation aggregated within industry sector is displayed hereinafter. The growth in turnover was computed using compounded annual growth ratio (CAGR), whereas financial ratios of: a) Power & Fuel/Turnover, and, b) Power, Travelling, and Outward Freight/turnover (expenditure/INR of sale) are not indexed (table 10.4).

The construct has been tested with self-reported data of 16 Indian firms. The role of CEA is relevant in reflecting the reporting of authenticated data that would lead to the better information and help policy and decision makers, which could also be audited by following audit guidelines. While calculation of aspects was not the sole focus of this extension, its informational aspects reflect that if the computational abilities are used for the sole focus of reporting, the responsibilities of the organisations to use environmentally benign methods would become a short-term focus. CEA not only improves the accounting of aspects, but it also supports the objective reporting of its activities and memory of the organisation by helping the firms assess itself objectively against the benchmarked values of the sector and work towards improving it.

The results from the EICI of these industries (table 10.4) show decreasing trend but for wastage (other than metal products and mining sectors) indicating lowered environmental resource usage in the selected firms. The exception is in mining and metal sector and this could partially be attributed towards improved reporting levels, but further generalisations are avoided due to low number of participating firms. Amongst all these indicators, waste showed increase over the base years, which is commensurate with higher production levels (using ‘Sales growth’ as a proxy), as no corresponding change in the production methodologies was reported. However, in the absence of comparative studies, these findings could not be corroborated further. Although, the effort refrained from standardising EICI as the intention was not to rank firms or sectors but to study the suitability of eco-intensity for sector level analyses, standardisation could be tried out to rank the performances and help policy makers with better information on the sector profiles. The sectoral differences inherent to the data could have some bearings on how data is being classified.

Table 10.4: Change in environmental intensity (EICI) using sector aggregates in select indicators (Base year: 2007-08)

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NR – Not reported; (F) – Financial ratiosThis extension supports the use of eco-intensity based indicators measures to link micro- to meso-level of economic activities, which could be achieved by using suitable aggregation methods. The meso-levels can fold to the macro level performance of region. The progress of green accounting at national level has seen the lack of directly integrating micro-level performance as part of SEEA or similar framework (refer to section 3.2 for details). Using eco-intensity, temporal comparison within and across sector levels can be generated and benchmarked. However, due to the inherent nature of eco-intensity as a ratio, the variations across industry sectors cannot solely be attributed to industry performance alone, and this might help in formulation of pro-environmental policies by regulatory authorities. Jollandsa et al. (2003) have demonstrated the possibility of using similar aggregation by using panel data for New Zealand across multiple periods and industries. With reference to India, the development of data bank to capture environmental performance of industries would need the support of policy makers, but can certainly slow down the increasing trend of environmental litigations (agencies for industrialisation vs. pro-environmental activity fronts), one that is consuming valuable resources (Singh, 2005).

10.6 Conclusions

Continuing from the previous chapter on CEA framework, this chapter has experimented with some new ideas to explore the role of CEA and discover managerial implications. The first extension experimented with materials and energy flows to develop combined emission profile of business activities and bind environmental aspects as part of a common framework. The construct used the temporal data across the processes to develop GHG profile and reflected upon the inaccuracy of identifying hot-spots by using arbitrary cost driver to achieve pro-rata distribution of GHGs. The second extension showcased how environmental care and its embededdness within a firm could become a competitive differentiator for business, change the way decisions are made, where CEA could be effectively used to monitor performance in an integrated waste management strategy. The third extension is theoretical schema of how CEA could support carbon accounting and cover carbon exposure along with financial implications of business transactions in dealing with accounting Kyoto units. Due to the uniqueness of CEA in handling the aspects carbon accounting could benefit from this segregated accounting approach. The last extension develops a link between micro and macroeconomic levels by introducing aggregation of data at meso (industry) level that could be useful for the policy makers to study the comparative performance of industrial sectors and relate to the environmental accounting at national level. In addition, it improves the eco-efficiency outlook of businesses that is short-term in nature and cannot be used beyond a step. Instead the eco-intensity framework equalises measuring criteria by focusing on the environmental aspects per unit of activity and allows firm to compare with the data from the same industry. These extensions could source data from CEA in a structured manner and would provide a platform to support organisation in information generation and reporting.

With this, we come to the close of third and final section of the thesis. To recapitulate, the last section has covered the findings of the research and added richness to the subject by introducing multiple perspectives. The section started with exploring the findings from the case studies on CU1 and CU2, and elaborated on the limitations and risks of current EMA methodologies. The contrast of these two studies supported the need of an overarching theory on environmental accounting (chapter eight) that can support information needs of management and stakeholders. Accordingly, corporate environmental accounting (CEA) is conceptualised as a framework to account aspects and provide space for computational and monetisation processes, validated through retro-fitting data from the previous two cases, in addition to the third case study from a non-related industry. The costs of externalities are explained through its layered structure and cognitive limitations, apart from experimenting with FCA and TCA constructs to explain different waste diffusion scenarios (chapter nine). The last part of this section is a review of some managerial implications of CEA, which are based on some experimental constructs and conceived as part of this research to improve the overall understanding of environmental sustainability of firms (chapter ten). The next chapter summarises this fascinating journey!

Chapter 11.Conclusions

11.1 Overview of the study

In the era of rapid industrial developments, increase in population and demands for goods and services have been fuelling the ever-increasing consumption of natural resources and which in the cradle-to-waste life cycle is impacting environment and its natural carrying capacity, overtaking the ability of the ecosystem to subsume the negative impacts generated by the industrial processes like rising level of CO2, waste generation, landfilling and leachate generation, underground and fresh water contamination due to industrial and landfill leachating. The resulting ecological disturbances could be detrimental to the sustainable survival of planet in the long run. The industrial organisations are shaping the common behaviour of how we ‘humans’ are dealing with Nature. And arguably, while the firms are busy in the voluntary demonstration of how they have been taking care of planet and people, the situation is deteriorating further. Existing industrial practices are already at a distance to associate accountability of firms towards these impacts and calibrate decision-making processes of management; but even with the advancements in the management accounting methodologies in its environmental avatar, we might still be allowing sufficient leeway for the organisations to compromise on the sustainability of planet and its resources.

Use of latest management methodologies and its role in supporting the environmental considerations have been deliberated at length in the thesis along with the short-term nature of benefits derived through the economics of cost-benefit analysis. The sector specificity of methodologies and economic focus are yet to achieve environmental neutrality and effectively handle externalities. Arguably, it would be difficult to augment the present accounting frameworks to adapt to environmental thinking without considerable changes which could be time-consuming, tedious, and fraught with methodological challenges. Accordingly, an independent accounting framework has been proposed to record environmental aspects and its externalities as recorded impacts of a business transaction. Based on the need of effectively handling stakeholders’ expectations in managing environmental considerations of businesses, such a framework could operate independently, offering much needed freedom to develop extended view on the subject, offer latitude to experiment with new methodologies, while letting other accounting frameworks continue to function.

This chapter intends to capture the overall summary of the dissertation. To summarise the thesis, the literature review was presented in the chapters two through five. Chapter two has detailed the background of the research to discuss the premises why the accounting theories need to expand beyond the economic focus and help businesses deal with contemporary problems, which is near-sighted by the use of economic methods. Chapter three has highlighted the developments in the contemporary accounting theories to support organisations with environmentally conscious accounting theories. Chapter four has elaborated on the methodological developments including different costing methodologies, and how it balances the needs of internal and external information on environment and address stakeholders’ concerns. This included discussions on new methodologies like UNDSD methodology, MFCA, FCA, and LCC, along with the discourse on how these methods could help management in improving the environmental outlook of the firms. Chapter five has discussed the niche solutions that have emerged in the field of carbon and emission accounting, including the dissemination of organizational performance through voluntary platforms.

Chapter six and seven of the dissertation presented the conceptual framework of the research and the interlocking of concepts to define the research rationale, aim, and objectives, and develop ontological stand. Chapter six has explored the ontological view of the nature of enquiry that is rooted within the tradition of methodological pragmatism and believes in the practical relevance of proposed design to explore the questions raised. It also explains how the tradition of exploration could help the researchers to look for new clues by observing the field in its natural settings. Chapter seven has elaborated on the research design that has followed case study research in field setting, and explains how it could be helpful to investigate the field of enquiry. The chapter has outlined the process used in conducting the case studies in different organisations.

Chapter eight, nine, and ten have comprehensively explored environmental accounting methodologies within the context of newly industrialised country as that of India and by using findings to analyse the environmental performance of the firms. Chapter eight has reflected on the findings from the case studies to build the foundations of the contextual reflections and the externalities which the current theories are unable to bring in within its boundary. Chapter nine has built on the logic of inevitable fallacy of prevailing methodologies to develop an alternative viewpoint to consider environmental aspects and externalities comprehensively. By considering the environmental aspects to be inevitable by-products of firm – environment interactions, an independent framework of accounting could use double entry book-keeping accounting to carry out accounting of aspects which can help management derive complete information on the environmental considerations of business activities. In addition, a detailed view on the incomplete understanding of externalities is relevant in developing standardised norms of externalised costs. The requirement of comprehensiveness of costing methodologies and its contextual relevance is a valid reminder that the economic costs are highly overstated ones, and it would need separate considerations to standardise cost of externalities. Chapter ten has extended the theory to experiment with a number of extensions that could help management in the decision-making areas by generating new information that the proposed framework could account for from the information base of aspects, thereby, improving the accountability, information, and reporting needs of the firms.

11.2 Corporate environmental accounting – costing of externalities and accounting of aspects

To expand on the theme of corporate accounting framework, it is essential to understand that the prevailing accounting and management information frameworks are designed to support the information needs on economic health, performance, and longevity. These frameworks are designed to support these needs better than evaluating the ecological preservation of resources. If the environmental performance and sustainability related information needs emerge as the need of the hour, existing information structure would have to stretch, to accommodate these demands. As environmental considerations and ecological preservation of resources are evolving constructs as compared to the economic viewpoints, the existing frameworks and theories could develop some degree of convergence towards the new requirements by expanding existing methods, but not beyond what it could assimilate naturally, i..e, without compromising on its original intent. Otherwise, it might compromise its own position to sustain the existing practices. Thomas Kuhn (1996) has elaborated in “The Structure of Scientific Revolution” that old theories would respond to the anomalies and new challenges by stretching the boundaries of existing paradigms. However, once these new ideas generate new questions that cannot be explained through the existing theories, the knowledge base would demand more comprehensive frameworks to subsume the old theories and expand it further.

If environmental accounting intends to help firms with the information on environmental aspects they produce, costing of externalities cannot remain confined within the organisational boundary of costs. Logically, the cost of these aspects would have to be built based on the damages it causes to the humans and ecosystems, which could include the efforts needed to restore the situation. Unless firms develop accountability towards these and become responsible for externalised liabilities, they would not be operating any different than today. The proposed accounting construct would bring visualisation to these liabilities and help the firms develop improved perspectives. As the quantification of damages produced by the anthropogenic activities and its impacts on ecosystem are not well-defined, it would have to be subjected to the policy choices and consensus-based approach. The thesis has evolved few models to develop costs of difficult-to-quantify externalities by using FCA/TCA approach. Valuation of externalities has been explored in this dissertation to emphasise the need of new thought process in costing and management accounting theories and incorporate the out-of-boundary costs. Since the research to establish standardised ecosystem service units as part of ecological modelling is in nascent stage, and as complete understanding of externalities that an aspect would generate is subject to cognitive limits, knowledge of how an aspect would behave and interact in an open system and difficulty in isolating these impacts once the aspects moves away from the centre of the impact (second and higher order impacts) would remain. Based on these boundaries, the thesis could establish that it would be impossible to determine total impact and overall cost of any aspect with complete accuracy. To promote scientific understanding of ecology and its interconnectedness, experts from different fields are needed to model these interactions, which can support the policy makers to develop and establish regional averages on impacts and benchmark costs of remediation or avoidance, as the case may be.

Other than the externalities, the challenges of environmental accounting and holding the businesses accountable for the aspects cannot be settled amicably within the existing accounting paradigm, by resorting to half-hearted approach. While it would be easier to use quantitative methods to generate information that is blindsided to the business intricacies and temporality, a ground-up approach to improve the situation would need deeper thinking. Even though the prevailing theories have been accommodating new demands of information by extending themselves, dimensionality of accounting is a pragmatic approach to help businesses understand the challenges that are pluralistic in nature. If environmental aspects of business activities are to be accounted as part of an accounting framework, it would cover the universe of externalities that a business might produce and force firms to rethink the way businesses could be carried on. Based on the stakeholders’ needs of improved information on environmental performance and decision-making, environmental accounting could operate independently – as a new framework of accounting – and link financial and cost accounting through underlying transactions. Accordingly, the new accounting viewpoint could exist in parallel but remain conjoint to the existing accounting frameworks. This would need new sets of rules for its institutionalisation and effective handling of aspects, monetisation, audit, and reporting needs. Some of these ideas have been taken to the next level in chapter ten by exploring how these developments could be used to integrate material waste and emissions within a single framework, develop integrated waste management framework as a business strategy, simultaneously account financial and environmental transactions to support carbon accounting, and connect firms to the industry sector levels by allowing comparison of sector-level ecological growth or decay, as the case might be, vis-à-vis its economic performance.

11.3 Significance of the study, limitations and future research directions

In shaping the way human societies are interacting with nature, the role and might of corporate organisations cannot be over-emphasised. However, organisations need to be open and transparent about how they are interacting with the collective wealth of nature and be sensitive to the externalities that are risking the human survival in future world, respecting the contextual background within which they are operating. The need of the hour is not to let the organisations short-change sustainability with CSR reports which could hardly be a force to improve material, energy and waste intensity of products and services transparently. On the contrary, firms would also need innovative methods and tools in this endeavour. The research has explored how corporate environmental accounting (CEA) could help firms support the internal information needs, and improve the transparency in dissemination of information that is based on organisational records and verifiable data. In this process, different costing techniques are experimented with, which could be used by the firms to assess the environmental impacts of the waste and improve performance. The proposed CEA framework and its extensions could develop a holistic view of the externalised costs of waste in a particular industry.

This discussion would remain incomplete without reflecting on the limitations of this research project. The research is limited in terms of exploring a field of study that is yet to be part of practice and in a country where cost accounting and its practice is governed by regulatory choices. The use of two field studies could not have captured all possible areas of environmental information. The proposed framework has assumed the generalised structure of accounting framework that has been tested with limited set of transactions to explore the book-keeping of different environmental externalities. This limits to generalise the rules of engagement. The accounting framework proposed here is exploratory in nature and lacks the breadth and support enjoyed by established accounting frameworks. In absence of unified rules and procedures, such a construct invites multiplicity of interpretations. The externalities might suffer from heterogeneity in costs, which would render these incomparable within an industry, till some degree of standardisation is achieved. Although adoption of quantification and valuation methods are open to firms, environmental performance results shared by the firms might not allow inter-firm comparison, unless some level of standardisation is achieved. The framework has used generalised approach in handling emissions that might not reflect the peculiarities associated with non-CO2 gases (like F-gases), with different global warming potentials than that of GHGs. Uncertainty in modelling externalities opens the debate of ease of approximation vs. accuracy in methods. The absence of legal norms to support a new framework puts the onus for change on the organisations. The future studies can experiment with the framework to develop it further and support the development of other environmental sensitive areas like complete accounting constructs to reflect environmental trial balance, greening of information system, projects and strategies, green business models, and support green design process of products and services. Some of these ideas are further elaborated.

Recent developments within the field of environmental accounting supports the need of information that is not limited to the accounting elements per se, but cover consumption of resources (oil, gas, water, energies, raw materials, waste and its disposal), timing of the aspect generation (the business activities, quantity of generation, place of generation), and costs of avoidance, wherever known. This could also mean the need to have an information system that could cover extended supply chain framework and life-cycle of products (from supplier to end-user) and its impacts (environmental, economic, and social). Green information system framework could be a way forward to achieve link of these disparate needs together. Green information system is rightly poised to use the advances of green accounting and develop information architecture to capture, store, and disseminate sustainability related information, and promote standardised methods and language.

On the similar lines, valuation of the aspects is another area that can be improved upon as a part of future research. Valuation of aspects could be an organisational effort or could follow as a standardised approach based on norms, e.g., assessment of ecosystem damages due to CO2. Firms and institutions can work towards developing standardised or benchmark costs of remediation for a region, e.g., the notional value of damage that any specific waste element might have on the ecosystem. Impact of waste would always depend on the human knowledge to establish the pathways of its dissemination and scientific evaluations of impacts, which could be used to develop a cost model with acceptable level of certainty. For example, the evaluation to assess health damages of fly ash and its elements are dependent on the scientifically established facts of the health effects due to different elements. Second, the pathways of the aspects would have to be investigated and scientifically correlated to develop relationships which could be tested for its significance, while covering the spatio-temporal variations in the adsorption and dispersion rates of the aspects and its constituent elements.

Future research could also develop institutional studies to understand the factors responsible to institute environmental accounting, experiment with ecological standards which could be tested as part of the framework, integration of such a framework as part of corporate accounting framework, and how accountants and costing experts could negotiate with prevailing frameworks to promote environmental consciousness. This could also leads to the development of ecological accounting as an advancement of environmental accounting to study the changes in the resource profiles of a region. Research could also explore the role of costing process in green supply chain, green product design, and changes needed as part of decision-making techniques. This brings us to important point that the knowledge of environmental externalities would have to be improved upon but that also would need deeper contributions from science, technology, and, commerce by establishing common theme to improve our understanding of nature and our interconnectedness. This crucial piece of knowledge would support us progress towards improving it collectively and achieve consilience in knowing nature.

As an African proverb has said, “If many small people in many small places change in a small way, the face of the earth changes”; and this research is one small step towards it.


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[1] CO2 – carbon dioxide; CH4 – methane; N2O – Nitrus Oxide; HFCs – Hydrofluorocarbons; PFCs – Perfluorocarbons; SF6 – Sulpher hexafluoride

[2] CFCs – Chlorofluorocarbons; NOx – Nitrogen Oxides; SOx – Sulpher Oxides,

[3] Source: GRI Website

[4] Abbreviated units: eMT – Equivalent metric tons of inputs (raw fruits); FG – Finished goods; INR – Indian Rupees; kl – Kilo litres; kWh – Kilowatt hour; mt – Metric tons.

[5] Emission costs at INR 225/tCO2e (USD 4.5 at assumed exchange rate of INR 50/ USD) (Ecosystem Marketplace, 2011)

[6] Cost of Ecotel Certification (Tiwari, 2013);

[7] Assumed maintenance cost of vermicomposting facility (1 person @ INR 5000 per month)

[8] Emission costs at INR 225/tCO2e (USD 4.5 at assumed exchange rate of INR 50/ USD) (Ecosystem Marketplace, 2011)

[9] Excluding ripening of Banana (fresh)

[10] Production usage + tanker water

[11] Excluding waste from Banana (Fresh)

[12] Units: km – Kilometre; mt – Metric Ton; tCO2e – eq. tons of CO2; kWh – Kilowatt-hour; kl – Kilo litres. SOx – Sulper Oxide emissions ; PM – Particulate Matter

[13] All figures for emissions are in tCO2e, unless otherwise specified.

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