Guide: Reduce Your Costs With

REDUCE YOUR COSTS WITH ENVIRONMENTAL MANAGEMENT ACCOUNTING
GG374R
GUIDE
ACCA (The Association of Chartered Certified Accountants)

With a move towards a low carbon economy seen as fundamental to long-term
survival, sustainable development should be integral to corporate strategy. As
carbon and water become commoditised and their use restricted, the value
placed on such items will help businesses understand the importance of
measuring sustainability performance and the influence this has in financial,
environmental and societal terms. Such governance will help ensure risk is
reduced, opportunities are created and long-term success is achieved.
The Chartered Institute of Management Accountants (CIMA)

CIMA and its members are well positioned to help ensure that organisations
both survive, and are successful, in light of climate change and other
environmental issues. CIMA helps organisations to consider environmental
issues in a strategic context and integrate sustainability into their long term
decision making process. Management accountants have a key role to play
in this process, providing vital business intelligence to support strategy and
influence decision making.
Environment Agency
Environmental management accounting can help companies to report publicly
on their environmental impacts and the actions they are taking to reduce
them and their associated costs. This can lead to better relationships with key
stakeholders, including environmental regulators, financial institutions, investors,
customers and local communities.
The Environmental Management Accounting Network (EMAN)

The Environmental Management Accounting Network is continuing to witness
increasing interest in environmental and sustainability accounting, and many
innovative organisations have identified ways in which accountants can valuably
contribute. This Good Practice Guide translates this into practical actions that
accountants working for or advising businesses can take to realise economic
and environmental benefits both in the short-term and also taking a longer-term
strategic perspective to help ensure that their businesses are sustainable into
the future.
The Institute of Chartered Accountants in England and Wales

(ICAEW)
Trusted flows of relevant and accurate information are vital to business
sustainability. Such flows and the systems and processes that support them are
the natural territory of accountants and that applies to environmental information
just as it does in other areas of management accounting. This publication will
help organisations improve environmental and business performance and
this is one of the aims of our own Sustainable Business thought leadership
programme.
The Institute of Chartered Accountants of Scotland (ICAS)

The accountancy profession has an important role in encouraging organisations
to adopt environmental management accounting techniques and to be more
accountable to the public for the resources they consume. This practical Guide
shows how this can be done - and how organisations can make better informed
decisions which benefit both their business and the wider community.
REDUCE YOUR COSTS WITH

ENVIRONMENTAL MANAGEMENT
ACCOUNTING
This Good Practice Guide was produced by Envirowise

Prepared with assistance from:
Martin Bennett and Mabbetts & Associates Ltd
SUMMARY
Envirowise has worked with a number of accounting professional
bodies and interested agencies to deliver this updated Good Practice
Guide to help accountants and finance professionals use environmental
accounting techniques.
Environmental accounting techniques involve identifying, analysing, managing and
reducing costs associated with raw materials, utilities, services and waste, with the
aim of saving money and reducing the environmental impact.
This publication offers practical advice and case studies to help organisations review
their decision-making and information flows to enable improved environmental
performance to become a key element of their strategy.
Some accounting professionals may believe that resource efficiency is not their role
but there are many reasons why the accounting profession should get involved and
they are explained in this Guide.
It should be noted that this Guide does not cover financial reporting of environmental
issues such as liabilities or costs arising from business activities.
The Guide does cover the environmental aspects of raw material waste, water,
energy, transport, the supply chain and explains aspects of various environmental
management initiatives.
Each section features details on:
legislation;
likely environmental issues;
potential accounting responses in the short-term and the long-term.
The Guide also includes a variety of case studies to help illustrate the possible
responses to different environmental challenges and signposts to the relevant
organisations that can help with aspects of the opportunities discussed in this Guide.
Contents
1
INTRODUCTION
1.1
Environment and management
1.2
The business benefits of good environmental performance
1.3
Environmental accounting
1.4
The purpose of this Guide
ENVIRONMENTAL ASPECTS AND IMPACTS OF BUSINESS
2.1
What are an environmental aspect and an environmental impact?
2.2
Why are these relevant for an accountant?
WASTES
11
3.1
Business activities and environmental impacts
11
3.2
Accounting responses
18
WATER
21
4.1
21
4.2
Legislation, regulation and public policy
22
4.3
22
4.4
Big Splash and the Rippleffect
23
ENERGY USED IN BUILDINGS
25
5.1
25
5.2
25
5.3
29
5.4
Footprinting, offsetting and adaptation
31
TRANSPORT
33
6.1
33
6.2
33
6.3
34
10
SUPPLY CHAIN MANAGEMENT
39
7.1
Introduction
39
7.2
Supply chain management, the environment, and accountants
39
OTHER ENVIRONMENTAL MANAGEMENT INITIATIVES
44
8.1
Environmental management systems (EMS)
44
8.2
Environmental reporting
47
8.3
Key Environmental Performance Indicators
48
Sources of Support
52
9.1
Envirowise
52
9.2
Carbon Trust
52
9.3
Energy Saving Trust (EST)
53
9.4
National Industrial Symbiosis Programme (NISP)
54
9.5
Waste & Resources Action Programme (WRAP)
54
9.6
Manufacturing Advisory Service (MAS)
55
9.7
Scottish Manufacturing Advisory Service (SMAS)
55
FURTHER READING
APPENDIX 1
Glossary
APPENDIX 2
Contact details for accountancy institutes and the Environment Agency
APPENDIX 3
Additional case studies
56
60
60
63
63
65
65
1.1 Environment and management

Concern is growing over the increasing pressures that our activities
as workers and consumers are imposing on the natural environment
as both populations and standards of living rise. The rate at which we
consume energy and resources is outstripping generation. Resource
consumption, in turn, gives rise to by-products, some of which may
create local or global pollution. In particular, evidence is accumulating
that climate change as a result of the use of fossil fuels is already
happening and will have an increasing effect.
SECTION 1
INTRODUCTION
Until recently, pollution and environment may have been perceived as the realm of
scientists. A significant factor in opening up the business opportunities and threats
from climate change was the publication in 2006 of the Stern Review The Economics
of Climate Change, summarising There is still time to avoid the worst impacts of
climate change, if we take strong action now.
Sir Nicholas Stern, Head of the Government Economic Service and former World
Bank Chief Economist, stated: Using the results from formal economic models,
the Review estimates that if we dont act, the overall costs and risks of climate
change will be equivalent to losing at least 5% of global GDP each year, now and
forever. If a wider range of risks and impacts is taken into account, the estimates of
damage could rise to 20% of GDP or more. In contrast, the costs of action - reducing
greenhouse gas emissions to avoid the worst impacts of climate change - can be
limited to around 1% of global GDP each year. Economic mechanisms influence the
costs of raw materials - the costs of gold, steel, copper and chemicals, for example,
fluctuate depending on global supply and demand. Businesses facing rising costs
must, therefore, look to resource efficiency and reducing energy use, waste creation
and materials usage where possible.
Fig 1 Environmental costs of business operations
INPUTS
Materials
Packaging
Energy
Water
PROCESSES
OUTPUTS
Products/
services
Packaging
Wastes
Effluents
Air emissions
SECTION 1
Most activities involve some impact on the environment and use it in one or both of
two ways:
A
s a source of resources that provide inputs. These resources may sometimes be
sustainable within certain limits, such as fishing stocks. In other cases they may
be critical resources that once used can never be replaced, such as the use of
fossil fuels and the extinction of species of wildlife or plants.
A
s a sink to accept the wastes (pollution) which represent the unwanted outputs
from activities - not only solid wastes, but also liquid wastes going into water and
gaseous wastes such as CO2 emissions discharged into the atmosphere.
Business can use the environment in a positive way to generate growth and reduce
impacts through sustainable development. Business decisions are influenced by
facts, figures and costs. Accounting for the environment in business, therefore, has an
influential role in helping to control overheads and making businesses more profitable.
This Guide is specifically directed at the contribution that accountants and others
carrying out accounting roles can make to support the businesses they serve in this.
This includes both accountants working directly for businesses and those in public
practice who provide professional accounting services to clients.
1.2 The business benefits of good

environmental performance
Traditionally, most businesses main concern for environmental issues has been to
make sure that they comply with all relevant legislation and regulations that aim to
reduce and control pollution. This has usually been of the traditional command-andcontrol variety where the regulator sets rules and issues permits, then checks to
confirm that businesses are complying. Where necessary, the regulator then enforces
these with prosecutions, fines and improvement notices.
The responsibility within businesses for compliance has usually been handled by:
specialists in environmental management, or;
t hose responsible for health, safety and quality (for whom environment has been
added on to the job-role), or;
p
roduction manager/site manager/engineer-type roles - since most regulation
has traditionally been directed at those sectors with obviously significant
environmental impacts such as heavy manufacturing.
Historically there has been little obvious role for accountants. However, this is
changing as environmental performance is coming to affect many businesses in ways
beyond merely complying with regulation. These new pressures on businesses can
affect the businesss value far beyond the occasional expense of permit fees and
fines. Environmental issues which can affect businesses include:
R
isks of environmental effects on a business such as water restrictions, oil
shortages, increased flooding or other severe weather conditions. Costs
associated with insurance may rise.
SECTION 1
Environment-related costs, which can increase faster than normal inflation. This is
partly due to taxes and other Government policies which are deliberately designed to
achieve this effect, such as green taxes. Even without this, environment-related costs
will still tend to rise faster than average due simply to the usual laws of supply and
demand, as prices reflect the increasing scarcity of environmental resources.
P
oor environmental performance can damage stakeholders perceptions of
the business and this can have a damaging effect on reputation and image.
Stakeholders include groups such as customers, governments, staff, investors,
press and non-governmental organisations (NGOs), all of whom can play an
important part in the businesss ongoing success. This type of impression is not
easy to quantify but is increasingly important to monitor. Conforming with the
standards expected by society can be seen as an implicit social contract, and a
form of unwritten licence to trade.
Some leading businesses are taking a forward-looking approach to environmental
issues and are creating value by managing environmental risks and opportunities.
They are thinking about how they can respond to environmental issues in ways
that can improve performance, and are considering environmental issues in longterm decision-making and strategy. As a result, they are seeing both financial and
reputational benefits.
Ultimately, it is likely that more and more businesses will have to make strategic
changes in order to maintain their competitive advantage in markets where there is
ever-increasing attention on environmental issues such as climate change. As well
as making short-term changes, businesses should also be considering the longterm risks and opportunities that environmental issues present and focusing on
performance as well as conformance.
1.3 Environmental accounting

The term environmental accounting can be used to cover a range of different
techniques and activities. Most of these are ways of adapting or extending conventional
accounting in one way or another in order to help businesses address the new
challenges posed by the environmental issue.
External reporting by businesses on their environmental performance is the most
obvious environmental accounting activity since, by definition, this is already in the
public domain. External reporting is touched on briefly in section 8 of this Guide, but
our main focus is on the use of accounting information and techniques to support
management, known as environmental management accounting (EMA).
Environmental resources have not traditionally been recognised explicitly as assets
in the same way as man-made items such as buildings, plant and equipment, since
they have always been assumed to be indefinitely available in unlimited quantities.
SECTION 1
However, we are now slowly coming to recognise that environmental resources are
finite and, therefore, just as scarce and valuable as assets legally owned by a business.
There are several ways in which accountants can adapt their existing skills and usual
job responsibilities to help their businesses to deal with environmental issues, and in
many ways accountants are in a position to make a unique contribution. However, if
this role is not taken on by accountants, it could instead be filled by others.
Accountants have a direct interest in controlling and reducing business costs and
increasing profits. They have the necessary skills and experience to:
monitor, measure and control costs;
manage information systems so that the outputs are accurate and reliable;
identify and plan financial budgets for improvement projects;
help both to formulate and to implement strategy;
provide highly regarded advice.
Environmental management accounting offers an opportunity for accountants to
develop the services they offer beyond the traditional core activities. Two accounting
skills are particularly relevant here:
C
osting. It is essential that the environmental costs of products and services are
understood and allocated properly so that they can be managed and prices can
be set at an appropriate level.
I nvestment appraisal of projects. Accountants have an important role to play in
ensuring that all relevant environmental costs are considered in project proposals.
A small number of products often generate a disproportionate share of total
environmental costs. The problem is that environmental costs frequently get hidden
as overheads and allocated inappropriately. Treating environmental costs as a general
overhead rather than allocating them to individual products leads to some products
appearing to have higher costs than is actually the case, while other products appear
to be cheaper to produce than they really are. Accountants have the skills and
experience to determine the true value of environmental costs.
This problem also applies to many other types of cost. The technique of activitybased costing (ABC) develops a detailed understanding of costs and identifies
cost drivers which reflect the links between causes and effects, and then uses
this information to recalculate the costs of products, processes and services. This
approach shares many similarities with the techniques described in this Guide. Many
businesses do not fully understand the implications of environmental factors on their
operations - often because the accountants, environmental managers and others with
relevant information are seldom brought together to consider the matter. Applying
environmental management accounting techniques gives businesses an opportunity
to take a more strategic view of how current and future environmental factors might
affect a businesss short-term profits and long-term competitive advantage.
In order to keep this Guide focused on what is most likely to be immediately relevant
for most businesses, it does not attempt to cover:
fi
nancial reporting of other environmental issues such as provisions made for
environmental liabilities such as contaminated land1;
SECTION 1
In searching for ways to deliver quality products and services to customers using
fewer materials and utilities, businesses may also find better design and distribution
solutions that result in cost savings and an improved reputation.
s ocietal costs or other costs to the environment that are external to a business but
may arise partly because of its activities, such as acidification of lakes due to air
pollution.
1.4 The purpose of this guide

This Guide aims to help both accountants and financial managers in businesses and
accountants in practice and financial advisors to use environmental management
accounting techniques to:
identify and analyse materials, utilities and waste costs to help the business to:
-- make informed decisions about operating costs;
-- i dentify priority areas for cost-effective environmental improvement and
increased profitability;
a
llocate environmental costs to different processes to help stimulate process
improvements and cost-saving projects;
c
ompare the environmental costs of different products and services to identify
areas of the business for future expansion and stimulate cleaner design projects;
i ncorporate environmental considerations into decisions about investment in new
technology and equipment;
enhance team-working between accountants and non-financial managers.
The techniques described in this Guide are applicable to all sizes and types of
business in all sectors including the private sector, the public sector, and not-forprofit organisations such as charities2. However, for simplicity and brevity we use the
term business in this Guide to refer to organisations of all types.
This Guide is intended to provide practical guidance for accountants which can be
applied directly and immediately.
Section 2 explains how a business can have environmental impacts, and how these
can be linked both to adverse business impacts and to the role of an accountant.
The treatment of contaminated land in financial reporting is addressed by financial reporting standards FRS12 in the UK
and IAS37 internationally.
We have therefore deliberately taken out the phrase increase your profits that was part of the title of the first version of
this Guide, which was published in 2002.
SECTION 1
Sections 3-7 are intended to help accountants gain an understanding of the areas of
waste, water, energy, transport and supply chain management, and of how environmental
management accounting techniques can be used here to a businesss benefit.
Section 8 outlines other environmental management initiatives such as environmental
management systems, environmental reporting, and key performance indicators.
Section 9 outlines the free advice and guidance which is available from Envirowise,
Carbon Trust, Energy Saving Trust, National Industrial Symbiosis Programme,
Manufacturing Advisory Service and the Waste & Resources Action Programme on
the related environmental management accounting topics which are discussed in
Sections 3-7.
The Guide also includes:
b
usiness examples highlighting the benefits of environmental management
accounting;
a
short-list of further reading made available by British Accountancy Institutes and
Associations (Section 10);
a glossary (Appendix 1);
c
ontact details for the professional bodies which were involved in its preparation
(Appendix 2);
details of additional case studies which are included in this Guide but are not
available on the Envirowise website (Appendix 3).
2.1 WHAT are AN ENVIRONMENTAL ASPECT AND

AN ENVIRONMENTAL IMPACT?
SECTION 2
ENVIRONMENTAL ASPECTS AND IMPACTS

OF BUSINESS
An environmental aspect is an:

Element of an organisations activities, products or services that can
interact with the environment.
Whereas an environmental impact is:
Any change to the environment, whether adverse or beneficial, wholly or
partially resulting from an organisations activities, products or services.3
Once the most significant environmental impacts and associated business costs
have been identified, it is recommended that a business analyses these areas for
opportunities for environmental improvement and cost savings.
Fig 2 overleaf shows some common examples of environmental aspects and impacts
which accountants may observe at their place of work.
2.2 WHY ARE THESE RELEVANT FOR

AN ACCOUNTANT?
The impact of environmental matters on business performance is increasing and
will continue to do so. From Fig 2, it can be seen that there can be many potential
effects on business as a result of environmental impacts. By identifying a businesss
environmental aspects and environmental impacts, an accountant can identify a
clearer picture of their significance and how the business may be affected.
Although Fig 2 merely shows a single impact for each aspect, it should be noted that
some of a businesss activities can often each have more than one environmental
impact, for instance, the use of electricity from non-renewable resources impacts on
the environment through both air pollution and its contribution to climate change. It
is important for a business and its accountant to realise this and also that a single
environmental impact can often result from several different environmental aspects of
a business, potentially increasing the overall significance of that impact.
This significance can range from a minor short-term business effect such as noncompliance, financial penalties, and additional waste disposal costs, to more serious
long-term business effects such as negative public relations and lack of investment
which can ultimately threaten the businesss survival.
These definitions are according to ISO 14001.
SECTION 2
By using the environmental management accounting responses suggested in

Sections 3-7, a business can identify its environmental aspects and associated
environmental impacts as shown in Fig 2, and control their potential effects.
Fig 2 Potential effects on business as a result of environmental impacts
TYPICAL
ENVIRONMENTAL
ASPECTS
TYPICAL
ENVIRONMENTAL
IMPACTS
POTENTIAL EFFECTS
ON BUSINESS
RAW MATERIALS
AND WASTE
>>
Use of renewable resources >>
Packaging (eg plastic,

wood, cardboard)
>>
Use of non-renewable
resources
>>
Raw material use
>>
Carbon emissions from

transport of materials
>>
Paper consumption
Refrigerant gas
>>
consumption and emissions
Re-use of packaging
>>
Conserves non-renewable
resources
Solid landfill waste
>>
Greenhouse gas emissions

>>
from transport and disposal
Recycled or re-used
waste materials
>>
resources
>>
Use of hazardous materials
>>
Human health impact and

potential pollution
>>
Litter
>>
Visual impact on
environment
>>
Pollution of land through

disposal to landfill
>>
Hazardous waste generation >>
Depletion of ozone layer/

>>
climate change contribution
>>
Contributions to
climate change
Legal prosecution
and environmental
fines
Increased liability
and increased
insurance
premiums
TYPICAL
ENVIRONMENTAL
IMPACTS
POTENTIAL EFFECTS
ON BUSINESS
TRANSPORT
Use of fossil fuels (eg private >>

car, company fleet)
resources
>>
>>
resources
>>
Noise and vibration from

vehicle movements
>>
Nuisance to local residents

>>
and wildlife
Emissions from fuel use

(eg private car use)
>>
Global climate change and

air pollution
>>
Video and teleconferencing

services use
>>
Reduced greenhouse gas

emissions to atmosphere
>>
>>
Use of renewable resources >>
Water treatment
>>
chemicals
Effluent generation
and treatment
>>
Climate change from

>>
energy intensive treatment
Drainage systems
>>
Flooding and damage

to land
>>
Recycled process water

(eg closed-loop systems)
>>
and renewable resources
>>
Use of biofuels
SECTION 2
TYPICAL
ENVIRONMENTAL
ASPECTS
Increased
financial costs
to business
Stakeholder
pressure/
corporate risk
WATER
Water consumption
>>
Reduced
investment from
stakeholders in
the business
SECTION 2
10
Fig 2 Continued
TYPICAL
ENVIRONMENTAL
ASPECTS
TYPICAL
ENVIRONMENTAL
IMPACTS
POTENTIAL EFFECTS
ON BUSINESS
ENERGY
Electricity use (from fossil

fuels such as petrol
and coal)
>>
Air pollution and

contribution to
climate change
>>
Renewable energy use

(eg wind or solar)
>>
Reduced contribution to
climate change
>>
Natural gas use
>>
resources
>>
Biofuel use
>>
resources
>>
Hybrid vehicle use
>>
resources
>>
Negative public
image and damaged
public relations
Increased carbon
footprint
3.1 Business activities and environmental

impacts
Wastes have several impacts on both costs and the environment:
SECTION 3
WASTES
income, through a combination of lost raw materials and the cost of disposal;
t he transport, storage and handling of wastes consume labour resources and
incur additional costs;
p
otential for penalties and fines for breaches of compliance such as pollution
incidents;
loss of land resource through increased requirements for landfill space;
g
eneration of methane, a potent greenhouse gas which is generated as wastes
biodegrade.
A waste hierarchy of approaches can be defined. In order of preference, these are
shown in Fig 3.
Fig 3 The waste hierarchy
Start here
Material
Eliminate
Avoid producing
waste in the
first place
Reduce
Minimise the
amount of waste
you produce
Product
Re-use
Use items as
many times
as possible
Recycle
Recycle what
you can only
after you have
re-used it
Dispose
Dispose of
what is left in a
responsible way
11
SECTION 3
Using wastes creatively at NISP

One of the roles of the National Industrial Symbiosis Programme (NISP) is to
act as a sort of corporate dating agency by developing a network through
which it can arrange introductions between:
businesses which generate wastes;
o
ther businesses which could use these wastes as inputs into their own
processes.
This can sometimes involve considerable creativity in devising novel uses for
wastes. Examples have included:
r e-using the waste sand which foundries generate in large quantities as a
surface for horse racing tracks;
r e-using large wooden drums, which a cable business was previously
disposing of to landfill, in schools and youth groups as tables on theatre
sets and for display purposes;
c
rushing wastes from ceramics manufacturers so that the wastes
could then be used as a highly durable, decorative aggregate for use in
landscaping and footpaths, starting at a golf course in Essex;
c
onverting food wastes into a fuel vapour similar to natural gas which is
then used to produce energy for sale to the National Grid;
r e-distributing other food wastes to charities and community organisations
such as hostels and day centres;
a
rranging a supply of wood wastes for a propagator of garden plants who
could then use them to generate heat for winter propagation in their nursery.
These arrangements have helped to:
r educe wastes going to landfill (which was where most had ended up
previously);
r educe the use of environmentally sensitive resources, including fossil fuels
and, therefore, CO2 emissions;
r educe costs for the businesses using the wastes, and generate an extra
income stream for those creating them.
Details of these and further cases are accessible at www.nisp.org.uk.
12
Minimising the amount of wasted materials is an extremely effective way of improving

resource productivity, yet half of all businesses do not know how much waste they
dispose of each year. Refer to Envirowise publication GG414 Measuring to manage:
the key to reducing waste costs for help to identify opportunities.
When including the hidden costs of wasted materials such as energy, labour and
other added value costs, the true cost of wasted materials is typically between five
and 20 times the waste disposal costs.
SECTION 3
3.1.1 Wasted materials - the true cost of waste
On average, the true cost of wasted materials is about ten times the cost
of disposal.
Minimising waste in offices

Most offices find that they can reduce their waste costs by around 20%
through no-cost and low-cost measures. An office that adopts best practice
produces less than 200 kg of waste per staff member per year - this is a useful
guide when setting targets. For example, the average office worker uses up
to 100 sheets of paper per day, of which half is wasted. This is equivalent to
consuming over one and a half trees per person per year. A best practice small
office can use as little as 15 sheets per person per day - that is only a quarter
of a tree per person per year.
How much paper does the office use?
Fig 4 The true cost of waste
VISIBLE COSTS
Disposal costs
Lost materials
Energy
Lost labour
Liabilities and risks
Other costs
13
SECTION 3
3.1.2 Legislation, regulation and public policy

The Government and the devolved administrations have published a number of
policies and have implemented several items of legislation and regulations which aim
to reduce the UKs wastes:
Environmental Protection Act;
EU Landfill Directive;
Government Waste Strategies;
Landfill Tax;
Producer responsibility legislation;
Landfill AllowanceTrading Scheme (LATS).
For more information on legal aspects of waste generation, storage, transport and
handling and treatment/disposal, see www.netregs.gov.uk.
3.1.3 Environmental Protection Act 1990

The Act places on all businesses which generate wastes a legal duty of care for those
wastes, and requires them to:
store and dispose of all waste responsibly;
e
nsure that waste is handled or dealt with only by registered waste contractors people or businesses that are authorised to do so;
k
eep records for at least two years of all waste that is transferred to registered
waste contractors4.
3.1.4 EU Landfill Directive 2000

The Directive aims to prevent or reduce, as far as possible, negative effects on the
environment, in particular the pollution of:
surface water;
groundwater;
soil;
air;
the global environment.
This Directive does not directly affect waste generating businesses but has an indirect
effect by increasing landfill operators costs. This will then be reflected in the charges
they make to waste generators, and is intended to put pressure on governments to
encourage waste reduction at both national and local levels.
14
A waste consignment note is required for hazardous waste. This must be kept for three years.
A Waste Strategy has been produced for each of:

E
ngland (available on the Defra website:
www.defra.gov.uk/environment/waste/strategy);
Scotland (available on the SEPA website: www.sepa.org.uk/NWS);
SECTION 3
3.1.5 Government Waste Strategies
W
ales (available on the Welsh Assembly Government website:
http://new.wales.gov.uk/about/strategy);
N
orthern Ireland (available on the Northern Ireland Environment Agency website:
www.ni-environment.gov.uk/waste/strategyni.htm).
The strategies set out each countrys vision of waste management for a set time
period and, therefore, provide a signal which businesses can use to guide themselves
towards the most appropriate methods of waste management on which they should
be focusing, and away from any which they should be avoiding.
3.1.6 Landfill Tax

The Landfill Tax was introduced by the Government to:
help reduce the amount of waste being landfilled in the UK;
promote re-use and recycling;
provide funding for research into more sustainable ways of managing waste.
It is a tax directly on landfill site operators which they then pass on to their wastegenerating clients, thus increasing their costs. Landfill Tax rates from 1 April 2008 were:
Standard Rate of 32/tonne for all active waste;
Lower Rate of 2.50/tonne for all inactive (inert) waste;
VAT is also applied to the total disposal cost, including the Landfill Tax component.
In accordance with the Governments Landfill Tax escalator policy, the amount by
which the Standard Rate will be increased over the next two years has been set at 8
per tonne per annum, so that the rate in 2010/11 will be 48.
Further information on the Landfill Tax can be found on the NetRegs website:
www.netregs.gov.uk.
15
SECTION 3
3.1.7 Producer responsibility legislation

The principle of producer responsibility is that a manufacturers responsibility for its
products should not end when it delivers the finished product to its customer, but
should extend to the end of the products life when it becomes waste.
Design for environment covers the waste aspects of:
products;
vehicles;
electrical equipment;
packaging.
One reason for governments to introduce producer responsibility legislation is to
encourage manufacturers to pay more attention to the long-term effects of their
products at the end of their useful lives, at the stage when they originally design their
products. This can give an advantage to traditional materials such as metals and
natural textiles in preference to some plastics.
Asset recovery at Dell
Dell is one of a growing number of high-tech companies which are offering
their customers an asset recovery service under which the original supplier of
equipment will take it back at the end of its life.
Dell collects unwanted computers and related equipment from its customers
premises (what it is prepared to collect is not limited to only its own
manufactures). It then makes them safe technically by over-writing readable
hard discs and other technical processes to protect the confidentiality of the
customers data. Then, depending on the item involved and the customers
preference, Dell will either sell the item(s) on behalf of its customer, donate
it to a charity for disabled and disadvantaged children, or dispose of it in an
environmentally responsible manner.
Dell claims that since it introduced this service it has recycled millions of units,
and that only about 1% of used computer equipment that it has collected has
ended up in landfill.
There are two areas where producer responsibility regulations have already been
implemented into law in the UK:
packaging;
electrical and electronic products.
16
Businesses that handle more than 50 tonnes of packaging in a year and have
a turnover of more than 2 million are required to comply with the Producer
Responsibility Obligations. These obligations require businesses to:
register with the environmental regulator;
recycle and recover certain amounts of packaging waste.
SECTION 3
Producer Responsibility Obligations (Packaging Waste) Regulations 2007
Waste Electrical and Electronic Equipment (WEEE) Regulations

Businesses that need to comply with the WEEE Regulations are those that
manufacture, export, import, distribute and treat and/or dispose of electrical and
electronic equipment.
Each of these businesses will have different requirements determined by the Regulations.
Business users of electrical or electronic products must ensure that WEEE is
separated from other waste, keep records of their waste, and ensure that it is
disposed of properly. This can, of course, be through the take-back systems provided
by the manufacturers and distributors.
Further information on both schemes is available from the NetRegs website at:
www.netregs.gov.uk.
3.1.8 Landfill Allowance Trading Scheme (LATS)

The Government has set up a trading system in England (the Landfill Allowance
Trading Scheme (LATS)5). Under LATS, a local authority can:
trade its landfill allowances;
save some of its allowances for future years (bank);
use some of its future allowances in advance (borrow).
These allowances will give a waste disposal authority the right to send to landfill a
certain amount of biodegradable municipal waste in a specified scheme year.
Further information on LATS can be found at:
www.defra.gov.uk/environment/waste/localauth/lats/intro.htm.
This does not apply to the devolved administrations, at least as yet.
17
SECTION 3
Zero wastes
Following a similar philosophy to the zero defects principle of Total Quality
Management, some organisations are now aspiring to zero wastes. Bath and
North East Somerset Council has adopted the vision of zero waste as part of
its waste strategy, and plans to take a lead in developing further measures
to prioritise recovery over disposal and to commission new local resource
recovery facilities.
Some businesses are already there. Toyota won a Big Tick at Business in the
Communitys Environmental Awards for Excellence in recognition of achieving
zero waste to landfill at its Burnaston and Deeside plants in both 2004 and 2005.
3.2 ACCOUNTING RESPONSES

How much waste reduction is worthwhile depends on the particular business
and what it does. However, wastes, and usually opportunities to reduce them,
are universal to some extent in all businesses.
3.2.1 Short-term cost management

Simple direct actions can often achieve much, even before any help from the
accounting system. For example, emptying a waste skip before it is disposed of and
segregating its contents into different categories (eg metals, plastics, paper, etc).
Each category can then be weighed and its source within the business identified, and
rough estimates made of the costs of the materials being discarded. Photographs of
waste and where it is being produced can also help to highlight problem areas, and
convince others of the need for action and allow for future comparisons.
3.2.2 Accounting systems

Accounting systems can be used to draw attention to the full costs of wastes, though
this may often require some adaptation since:
W
aste disposal costs are often aggregated into accounting codes which also
include other quite different items under a general code for building management
costs or similar, and so may not be transparent to decision-makers.
E
ven when waste disposal costs are posted to their own code, this is usually
accounted for as a general overhead and either:
-- written off against a central budget;
-- i f re-charged to individual cost centres, then this is often done only on a
general basis of apportionment which would not reflect which centres were
creating the most wastes in the first place.

18
These limitations can be addressed by considering the design of accounting codes,

and regularly reviewing the allowances made in budgets and standard costs for
normal rates of wastage, and asking whether these are still appropriate or should be
reduced.
SECTION 3
Allowances are sometimes built into budgets and standard costs for normal
losses in production. Although this is pragmatic and realistic, it also sends an
unfortunate signal that a certain level of wastage is expected and tolerable.
3.2.3 Long-term decisions and strategy

E
nsure that occasional major decisions with long-term effects such as redesigning
products and processes are supported by analyses that include estimates of the
wastes that these will create, at realistic predictions of future costs.
R
emember that product design (which includes packaging) can affect the wastes
which the businesss customers will eventually have to dispose of. Make sure
that product designers are made fully aware of disposal costs and take these into
account, and have appropriate performance indicators to guide the design process.
A business with a demonstrable superiority over its competitors in this respect may
be able to create competitive advantage by using this as a selling point.
T
he accountants of businesses which are affected by producer responsibility
legislation should also consider whether provisions for end-of-life costs are needed.
3.2.4 Mass balances

A mass balance is a quantitative account which shows where resources such as
raw materials, water and energy enter and leave a business, and where within the
business they are used. It typically contains information about the amount (volume,
weight, etc) used by each main area or process, and in some instances can be very
detailed. Presenting the mass balance as a diagram makes it easy to understand and
use as a management tool.
For more information on mass balancing and process mapping, visit
www.envirowise.gov.uk and look at the following publications:
GG707R Measuring to manage: a how-to guide;
GG152R Tracking water use to cut costs.
19
SECTION 3
International Federation of Accountants (IFAC)

The IFAC International Guidance Document on Environmental Management
Accounting (EMA) presents a method of cost analysis which aims to link together
physical and monetary measures of performance. The results generated by this
method represent attention-directing information which highlights the high proportion
of the total costs incurred by many businesses that end up as wastes.
The IFAC method includes in its definition of environmental cost not only the costs
of disposal of wastes, but also the original costs of the original raw materials plus the
costs of other resources such as labour and overheads that have been incurred up to
the point at which the waste is created.
For further information see the IFAC website: www.ifac.org.
Similar projects include Lean Manufacturing6 where multi-disciplined teams
consider process steps, including costs and where actual value is added to (or
drained from) the process flow.
For more information on Lean thinking, see www.leanuk.org
Material flow cost accounting (MFCA)
MFCA is another application of the mass balance principle. An MFCA analysis aims
to analyse flows of materials and energy inside a business, and in essence it can be
seen as a particularly detailed and in-depth application of traditional process costing
techniques. Unlike traditional process costing, however, the primary aim is not to
calculate product costs but to identify losses in production by analysing physical
flows and the costs associated with them, in order to identify opportunities for
improvements in both cost efficiency and environmental performance.
MFCA requires that the business already has a production information system which
collects data in considerable detail for each stage of the process. It was originally
designed for large manufacturers which already have an Enterprise Resource
Planning (ERP) system such as those developed by SAP or Oracle, and can be seen
as effectively an optional add-on module to the ERP. However, this is not essential
and smaller businesses without such sophisticated systems can also benefit from
simpler applications of MFCA.
A guideline on MFCA (ISO 14051) is currently being developed for inclusion in the
ISO 14000 series.
For more help and information, visit www.envirowise.gov.uk and look at the following
publications:
GG707R Measuring to manage: a how-to guide;
EN509 No-cost and low-cost waste initiatives for businesses.
20
Or simply Lean, if applied to non-manufacturing organisations.

impacts
Water is becoming an increasingly expensive resource with mains,
sewerage and trade effluent charges rising, so there are several water
issues that can affect business costs. For example:
SECTION 4
WATER
T
reating and pumping both incoming water supplies and outgoing effluents and
sewage requires significant energy consumption.
C
limate change is likely to mean both more volatility and extremes of droughts
and floods, and also changing weather patterns (hotter, drier summers and
warmer, wetter winters). Some long-term climate projections forecast that by
2080, rainfall in the South East during the summer could be as little as one-half of
current levels.
Nearly all businesses have to pay for actual water usage, measured by meters. This
should create a financial incentive to be water-efficient but, outside of water-intensive
sectors such as foods and metals, water has not historically been a major cost for
most businesses.
Many businesses do not always appreciate the full costs of water use. Firstly, water
is paid for not once but twice - first to purchase, then again to dispose of as effluent.
Other costs driven by water consumption can include:
Energy used to heat or cool water.
M
eter charges, since water supply companies decide what meters to provide to
their customers based on an estimate of their likely consumption and charge a
rental based on the size of the meter that is fitted. Businesses with meters that are
larger than necessary will be charged more than they need to be.
T
he costs of materials or products lost in waste water, for example, metals lost by
poor control at metal plating facilities.
Pumping, storing and additional treatment costs.
The Environment Agency calculates that many businesses can save up to 50% of
their water costs through implementing simple and inexpensive water minimisation
measures, and that for those businesses that use water in their production processes,
this could represent 1% of their turnover.
21
SECTION 4
4.2 LEGISLATION, REGULATION AND PUBLIC POLICY

The Governments Water Strategy for England7 (issued in February 2008) mainly
addresses the water supply sector and domestic users, but some of its content
directly affects businesses.
The Water Strategy encourages not only metering but also the use of more intelligent
metering technology to support variable tariff structures. These could then be used to
encourage more efficient water use, such as through seasonal tariffs which link price
to seasonal availability. This would mean differing costs through the year, with higher
charges in summer than in winter, and probably a particularly significant differential in
regions of relative water shortage such as the South East.
4.3 ACCOUNTING RESPONSES

Businesses vary widely in how water-intensive they are, and this will determine how
far it is worth going to reduce water consumption. However, all businesses consume
at least some water, and there are many simple things that most can do to reduce
their water use without requiring significant investment or complex analyses.
The accountants basic responsibility as always is to make sure that adequate
and reliable information is available to draw managements attention to excessive
consumption and the potential opportunities to reduce this. Some actions which
accountants can take to support their businesses in this are suggested below.

Review bills regularly and compare these against water meters to avoid over-charging.
I nstall sub-meters in order to measure exactly where within the business water is
being consumed.
R
ead meters regularly, and monitor the amounts over time to identify usual usage,
leaks etc.
R
eview the Governments list of the water-saving equipment that is covered by
the Enhanced Capital Allowances (ECA) scheme (see the Water Technology List:
www.envirowise.gov.uk/wtl and section 5.2.3).
22
For more information see www.defra.gov.uk/environment/water/strategy
M
ake sure that the accounting codes capture and record costs in the most
appropriate way to support subsequent reporting and cost analyses. In particular,
make sure that there is a separate code for water costs so that they are not
aggregated with other items, and record charges separately for incoming water
supplies and effluents.
SECTION 4
R
ecord charges for water that are based directly on consumption separately from
other parts of the total cost such as standing charges.
W
here possible, set up fields in accounting codes to record physical quantities as
well as financial costs.
4.3.3 Long-term decisions and strategies

W
hen new buildings are designed or existing buildings are refurbished, make
sure that projected water consumption is considered as part of the investment
appraisal process.
L
ook for opportunities to incorporate water efficiency features in new or
refurbished buildings, for instance:
-- closed loop water cycles;
-- rainwater capture;
-- mains-fed water dispensers;
-- dual-flush toilets;
-- self-stop taps.
4.4 BIG SPLASH AND THE RIPPLEFFECT

Envirowise has introduced two initiatives, the Big Splash (Scotland) and the
Rippleffect (England), to support businesses by helping them to:
understand how much water a business uses;
identify simple ways to start saving water and money;
measure the water and cost savings that a business has made.
More information on these two initiatives and the support available in Wales and
Northern Ireland can be found on the Envirowise website: www.envirowise.gov.uk.
Also refer to the following publications:
GG522 Cost-effective water saving devices and practices - for commercial sites;
GG523 Cost-effective water saving devices and practices - for industrial sites.
23
SECTION 4
Accountant leads a water minimisation programme

As a result of an improvement programme led by the companys management
accountant, F Smales and Sons (Fish Merchants) Ltd has reduced water
consumption at its site in Hull by 39% and achieved cost savings of around
27,000/year by promoting water efficiency to its 200 employees and making
low-cost changes to its fish processing methods.
Following an audit of water consumption, meters were fitted at a cost of
870 to measure the amounts of water used in fish cleaning and production
processes. All employees were invited to offer their suggestions for ways to
reduce water consumption and effluent generation, and the meter readings
were used to set cost targets for each part of the factory. Section managers
were given responsibility for meeting the cost targets, which now form part of
their key performance indicators within the annual staff appraisal process.
Meter readings are taken twice a day by engineering staff and water
consumption graphs are fed back to the section managers each week. The
management accountant highlights any significant anomalies and overall
progress against cost targets is reviewed at monthly management meetings.
As well as reducing the volume of water consumed, the company has also
reduced the strength of its effluent by taking steps to minimise the amount of
waste materials entering the drains.
Many businesses can dramatically reduce their water costs by making simple
changes in operating practices or maintenance procedures.
For further information on water legislation and business responsibilities see the
NetRegs website: www.netregs.gov.uk
24

impacts
Energy is already a significant cost for many businesses in its own
right, so that taking action to improve energy efficiency is often easy
to justify in simple cost/benefit terms, regardless of any environmental
factors. In many cases there may be little or no cost involved in making
improvements, and even where there are, these are often easily justified
by the benefits they create. The relative attractiveness of making
improvements is enhanced even further by a number of Government
policies which aim to encourage businesses to be more energy-efficient.
SECTION 5
ENERGY USED IN BUILDINGS
Structured management of environmental aspects and impacts is part of good

general management. As with any business expenditure, costs will tend to drift
upwards if they are not reviewed periodically. Inefficiencies and wasteful practices
tend to creep into any system that is not monitored and controlled. Taking a
systematic look at environmental costs for the first time is, therefore, bound to
identify opportunities for improvements and cost savings.
Remember:
If you dont measure it, you cant manage it.
5.2 Legislation, regulation and

public policy
This section outlines six laws and policies that the UK Government has taken which
are addressed to climate change and which could be relevant for accountants. These
include both those which are currently existing policies, and some which are currently
being planned.
5.2.1 Climate Change Bill

The Climate Change Bill commits the Government to legally binding targets for
CO2 reductions in both the short-term and long-term. Progress towards this will be
managed through a new system of legally binding five-year carbon budgets, set
at least 15 years in advance. These are intended to provide clarity over the UKs
pathway towards its key targets and reduce uncertainty so that business can invest
and adapt appropriately with more confidence.
25
SECTION 5
Through the Bill, the Government will be enabled to:

implement policies to reduce emissions more easily and rapidly;
m
ake changes to carbon trading schemes (eg through the Carbon Reduction
Commitment, which will affect up to 5,000 medium energy users - see section 5.2.4).
Quoted companies will be required to:
d
isclose carbon emissions (from company cars as well as on-site equipment) in
the business review sections of their annual reports.
Further details of the Climate Change Bill are available on the Defra website at
www.defra.gov.uk.
5.2.2 Climate Change Levy

The Climate Change Levy (CCL) was introduced in 2001 as a tax on energy which is
generated from fossil fuels, and is currently levied at the following rates:
Fuel
Rate
Electricity
0.456 pence per kWh
Gas
0.159 pence per kWh
Petroleum gas or other gaseous

hydrocarbon supplied in a liquid state
1.018 pence per kilogram
Any other taxable commodity (eg coal)
1.242 pence per kilogram
NB: These rates will change each year in line with inflation - the above rates were
effective as from April 2008. Updated rates can be found on the NetRegs website:
www.netregs.gov.uk.
Energy that is generated from renewable sources (green electricity) is exempt, to
offset any extra costs of generating electricity in this way; so are approved combined
heat and power (CHP) systems and companies in sectors which are covered by
climate change agreements8.
The CCL was originally intended to be revenue-neutral. A portion of the revenue that it
raises (approximately 1 billion) is, therefore, applied to reduce businesses costs in other
ways to compensate, and to set up funds to support environmentally positive actions that
would otherwise have to be funded from general taxation. These uses include:
reducing employers National Insurance contributions by 0.3%;

50 million/year on providing free advice and guidance to businesses on energy
efficiency9;
100 million/year on Enhanced Capital Allowances.
26
Businesses operating in sectors which are deemed to be energy-intensive such as aluminium, chemicals and food, may
get an 80% reduction if they join an agreement negotiated between their trade body and the Government.
See section 9 for references to further sources of advice and information for business.
The Enhanced Capital Allowances (ECA) scheme allows companies that invest in
certain specified capital equipment to claim a 100% capital allowance against their
taxable profits in the year of purchase, with a consequent boost to cash flow and
reduction in the net cost of the asset. These are specified products of either energysaving plant and machinery, or water conservation plant and equipment. Some
examples are:
SECTION 5
5.2.3 Enhanced Capital Allowances
lighting;
motors and drives;
boilers;
refrigeration equipment;
combined heat and power;
solar thermal systems;
meters and monitoring equipment;
cars with low CO2 emissions.
A comprehensive list of the specific items that are approved can be seen at
www.eca.gov.uk. This also describes the criteria and procedures for manufacturers
to get their products approved to make them more attractive to potential customers.
5.2.4 Cap-and-trade schemes, the Emissions Trading

Scheme and the Carbon Reduction Commitment
Trading systems based on a cap-and-trade principle are an alternative way for
governments to implement environmental policy by using an economic rather than a
regulatory tool.
With a trading system, the Government sets a limit on the total quantity of a specified
pollutant that can be emitted, and then issues allowances to businesses which
wish to emit those pollutants. These initial allowances may be either sold off by the
Government, usually by auction, or simply allocated to current participants on the
basis of their past and present levels of emissions (known as grandfathering).
In either case, the key principle is that the allowances can subsequently be traded
between participants, so that a business which finds that it does not need all the
allowances which it owns can sell them to another. A business that emits more than
the allowance (via the permits it holds) will incur a fine. Emissions monitoring is
checked using a third-party audit.
There are two main carbon-trading schemes relevant to UK businesses - the
Emissions Trading Scheme (ETS) and the Carbon Reduction Commitment (CRC). The
ETS has already been operating for three years and is mandatory on heavy industrial
energy users such as power generators and manufacturers of steel and cement.
27
SECTION 5
However, the ETS does not cover sectors such as aviation, transport, and the
public sector.
The CRC10 is a UK Government initiative expected to be implemented in January
2010. It is intended to be more wide-ranging than the ETS, and to extend carbon
trading to middle-sized organisations11 which are not necessarily intensive users of
energy. These would include sectors such as banks, retailers, hotels, office-based
companies, Government departments and agencies, hospitals, universities, and large
local authorities. Further details of the plans for the CRC are available at:
www.defra.gov.uk/environment/climatechange/uk/business/crc/index.htm.
5.2.5 Energy Performance of Buildings Directive

The Energy Performance of Buildings Directive was published in 2003 and states that
over 40% of the energy consumed and of the CO2 generated within the European
Union is accounted for by its 160 million buildings12.
The Directive aims to promote the improvement of energy performance of buildings
within the Community taking into account outdoor climatic and local conditions, as
well as indoor climate requirements and cost-effectiveness. Its key elements, which
will be implemented in the UK, will include introducing:
a
comprehensive methodology to calculate the energy performance of
individual buildings;
m
andatory use of certificates to detail the energy performance of individual
buildings;
n
ew and enhanced energy performance standards for both new and existing
buildings;
regular inspections and assessment of heating and air-conditioning plant.
Within the UK, the assessment methodology has now been created and is in use. The
necessary framework for the introduction of Energy Performance Certificates will be
introduced across the UK between 2007 and 200913.
The introduction of Energy Performance Certificates in particular has considerable
implications for the ownership, rental and sale of buildings within the UK. A buildings
rating or certificate will obviously have a great impact on its saleability or let-ability.
With much of the current building stock being classed as inefficient, the introduction
of certificates will leave many owners and landlords at a disadvantage.
28
10
Previously known as the Energy Performance Commitment.
11
The term organisation is used deliberately here rather than business, since the definition of who the CRC covers applies
at a corporate level; and organisations rather than companies since the CRC also extends to non-corporate entities
such as Government departments.
12
Directive 2002/91/EC of the European Parliament and of the Council of 16 December 2002 on the Energy Performance of
Buildings.
13
The implementation timescales and approach differ slightly between the central UK Government and the devolved
administrations, with individual Building Standards authorities taking separate responsibility for the regions which are
covered.
5.3 Accounting responses

This section looks at ways in which conventional accounting systems and procedures
might be adapted in order to support cost management in both the short-term and
long-term.
SECTION 5
Key documents and discussions regarding the Directive and its implementation in
the UK are available through the Directive Implementation Advisory Group (DIAG)
website: www.diag.org.uk.

Energy consumption is a significant business cost for most businesses. Accountants
can help them adopt a two-step approach to maximise both energy savings and their
cost-effectiveness.
This approach consists of:
i mplementing a systematic approach to monitoring and controlling energy
consumption;
targeted investment in energy-efficient equipment.
Monitoring and lighting controls cut energy bills

Reed Business Information, a publishing house in Sutton, reduced its energy
consumption substantially by implementing a number of energy-saving measures.
A
building management system was installed to monitor air-conditioning,
chiller use and other plant to ensure they were operated only when needed.
A
lighting control system schedules lights to go off at periods throughout
the day and when the offices are unoccupied. Lighting in overlit areas has
been reduced.
L
ocal lighting controls are used throughout the building and selected lights
have been replaced with compact fluorescent lamps and lower wattage
bulbs.
Gas consumption has been reduced by 67% and electricity consumption by
15% as a result of these changes in energy management.
How much money would these measures help to save?
Further guidance can be obtained from the Carbon Trust and the Energy Saving Trust
(see section 9).
29
SECTION 5
The Environment Agency of England and Wales has taken this a stage further and, after
negotiations with its several energy suppliers, has designed a supplementary e-billing
system which runs in parallel with the main accounting system (see the box below).
After discussions with the Agencys several electricity suppliers, they all
agreed to send the Environmental Finance section a supplementary supporting
document in electronic format, ie e-bills. The use of e-billing proved to have
several advantages, including:
P
roviding additional detail in a standardised format avoiding errors in
interpretation.
U
ploading e-bills into a consumption and expenditure database showing
usage trends.
R
esponsibility for the accuracy of the invoices is now clearly located with
the local staff in the places where the energy is actually being consumed.
D
etailed information down to the level of individual sites is available to
support monitoring and planning.
L
ists of live sites can be generated to highlight any errors in the billing
system. For example, this showed that suppliers were still billing the Agency
for two sites which it had already sold.

Modern accounting recognises that many of the costs that a product will incur
over the whole of its life are largely determined during its design stage, even before
production has started. Life-cycle costing aims to measure the whole-of-life costs
and help to avoid making decisions which might save costs initially but then incur
higher costs later. For more details on life-cycle costing, see section 7.
Like costs, many environmental impacts are largely determined for several years into
the future once initial decisions are taken on matters such as investments in new
capital equipment or taking on long-term projects. For example, construction of a
building with inadequate insulation, or without provision for natural cooling to avoid
energy-fuelled air-conditioning, could prove to be an expensive short-term expedient
since subsequent retrofitting is invariably much more expensive and less satisfactory
than getting it right first time.
It is, therefore, crucial that decisions like these are taken in full awareness of all the
facts, including the likely costs and environmental impacts over the full life of the
project. Since the costs of energy and other environment-related assets are likely to
increase disproportionately over time compared to general inflation, this cannot be
done simply by basing decisions on the costs which are currently being incurred.
The accountants first responsibility here is to ensure that decision-makers and
planners are provided with adequate information and the analytical tools to use this.
30
As well as the conventional accounting responses described above, there are a

further three aspects which have recently become topical - carbon footprinting,
carbon offsetting, and adaptation.
5.4.1 Carbon footprinting
SECTION 5
5.4 Footprinting, offsetting and adaptation
The recent increased concern over climate change has led several businesses
to calculate, and sometimes also disclose externally, their total CO2 emissions or
carbon footprint. This is sometimes linked to a declared strategy of becoming
carbon-neutral and often also involves carbon offsetting (see below). Carbon
footprinting can be done at several different levels: for a business as a whole, for
different types of unit such as for a product or an event, or for an individual person14.
Riverford Organic Vegetables runs a vegetable box home delivery scheme.

The company has recently published the results of its first carbon footprinting
exercise on its website. This exercise has provided a metric to be able to
measure and manage activities. This has led to many changes in performance,
including:
R
edesign of packaging to use less materials and to use pallets more
efficiently. This has reduced emissions and costs.
E
nergy efficiency measures looking at the businesss refrigeration systems.
By making technical and routine maintenance improvements, both
emissions and costs have been reduced.
Helping businesses to measure their carbon footprint is something that accountants

are well positioned to contribute to, and guidance can be obtained from the Carbon
Trust website at: www.carbontrust.co.uk/solutions/CarbonFootprinting.
5.4.2 Carbon offsetting

Carbon offsetting is a process by which a business which emits CO2 can
simultaneously take some action to compensate for this by reducing CO2 emissions
elsewhere so that the net effect is zero.
In principle, this action could be undertaken directly or indirectly, for example:
planting trees which will absorb CO2 from the atmosphere (direct);
making a payment into a fund which will then be used to support actions to
reduce or avoid emissions elsewhere (indirect).
14
The Carbon Trust provides some initial guidance on carbon footprinting at www.carbontrust.co.uk/carbon/briefing/
31
SECTION 5
All businesses which claim to be carbon-neutral depend on indirect offsetting to

achieve this to at least some extent, since it is practically impossible to operate
commercially in the modern world without at least some activities which will involve
emissions of greenhouse gases. More information can be found at
www.defra.gov.uk/environment/climatechange/uk/carbonoffset.
Carbon offsetting is well established - it is a central feature of the Kyoto Protocol15,
for example, and is used by the UK Government which aims to offset the CO2 emitted
as a result of its own activities16.
5.4.3 Adaptation
The UK Climate Impacts Programme (UKCIP) has been set up by the Government to
support this with research and public information, and as part of this has developed
the Business Areas Climate Impacts Assessment Tool (BACLIAT). BACLIAT aims to
provide a process which businesses can follow to review their current and planned
activities and assess their vulnerability to the potential effects of probable climate
change, and then plan how best to respond. This can include taking advantage of
potential opportunities offered by climate change as well as defending against risks
and threats.
BACLIAT looks at seven business areas17, including finance. Issues for each business
to consider in the finance area, against the full range of both its present activities and
those planned for the future, include:
i mplications for insurance: potentially increased and less predictable premiums,
and some risks becoming uninsurable;
the need to future-proof investments, especially those with long asset lives;
t he risk that new liabilities could arise even in existing developments, and the
increased cost-effectiveness of higher specifications in future developments.
More information on BACLIAT can be found on the UKCIP website:
www.ukcip.org.uk.
32
15
See www.defra.gov.uk/environment/climatechange/internat/un-kyoto.htm for more information on the Kyoto Protocol.
16
See www.defra.gov.uk/environment/climatechange/uk/carbonoffset/government.htm for examples of the types of project

(usually in developing countries) to which the Government contributes for its own offsetting.
17
Logistics, finance, markets, process, people, premises, and management implications.

impacts
Transport has several environmental impacts, the most significant arising
from the use of fossil fuels as the main source of energy during the use
phase of a vehicles life.
SECTION 6
TRANSPORT
The main environmental impacts of transport include:

CO2 emissions;
o
ther pollutants to air - emissions from exhausts of nitrogen oxide, carbon
monoxide and particulate matter (PM10);
noise;
land use.
6.2 Legislation, regulation and

public policy
The main direct effect on business of environmental legislation on transport is to
increase the cost of road transport through a variety of taxes and, therefore, to
provide incentives to business to increase fuel efficiency. For instance:
6.2.1 Using more efficient vehicles with smaller

engine size
R
educed annual vehicle excise duty (VED) - for cars registered since 2001, this is
based directly on the standard CO2 emissions per kilometre for that model18.
R
educed total fuel costs - in 2007 around two-thirds of the cost of an average litre
of petrol was represented by fuel duty and VAT19.
Reduced tax on the initial purchase cost of the car.
18
The current VED rates for different classes of vehicles can be found at www.direct.gov.uk/en/Motoring/OwningAVehicle/
HowToTaxYourVehicle
19
Business Link advises that switching cars to run on liquid petroleum gas (LPG), bioethanol or biodiesel could almost
halve the rate of fuel duty. Current fuel duty rates can also be found at www.direct.gov.uk/en/Motoring/OwningAVehicle/
HowToTaxYourVehicle
33
SECTION 6
6.2.2 Travel on public transport

I ncreased productivity of staff: for example, using rail rather than road means that staff
can work whilst travelling and will usually arrive at their destination less fatigued.
Zero congestion charge costs.
6.3 Accounting responses

As with energy used in buildings, there are ways in which the usual accounting
systems and procedures can be adapted to support cost management in both the
short-term and the long-term. Both of these are best supported by appropriately
designed accounting systems and codes.
Much of this will already be standard good practice for those businesses where transport
costs are a significant business cost, such as road hauliers. The following is, therefore,
mainly aimed at the majority of businesses where the transport of people and goods is
only ancillary to their main business, but collectively represent the main impact.
The manner in which each business provides employees with remuneration policies
on transport options may have a significant bearing on the environmental impact
and cost to the business. For example, paying an employee a fuel allowance for
using a car which is not payable if public transport is used will incentivise him/her to
drive. Designing transport allowances more flexibly could mean cost savings for the
business, a reduced carbon footprint, and more freedom of choice for employees.

There are several simple actions that businesses can take to improve their transport
fuel efficiency and reduce their impact on the environment. The RAC estimates that
motorists are currently wasting 2.2 billion on petrol every year, almost 100 per head,
with the related CO2 emissions and other impacts that this represents, due to poor
basic maintenance such as incorrect tyre pressures and poor driving techniques.
It can be helpful if someone in a business keeps a central database of different
options for travel frequently done by staff, with relevant up-to-date information on
costs. This can then be used as the basis for occasional analyses of the full costs of
business travel by staff, including:
t he marginal costs per mile of travel - for cars this is not only the fuel costs but
also other variable costs, which can sometimes also include depreciation - see the
box opposite on the AAs analysis of motoring costs;
the cost of staff time spent in travel;
CO2 emissions (and other significant environmental impacts too if feasible).
34
The easy assumption unquestioningly made by many people is that the

marginal costs of running a car are limited to the fuel costs, and that this is
a sufficient basis for dividing the costs between occupants in car-sharing
schemes, for example. The Automobile Association (AA) regularly updates its
published calculations of motoring costs and makes these freely available.
They currently show that the costs of owning and using a typical four-year old
petrol-engine car which originally cost 15,000 and which covers a slightly
higher-than-average distance of 10,000 miles/year are:
SECTION 6
Motoring costs - fixed or variable?
4,112/year standing charges, ie fixed costs;

2
2 pence/mile running costs, ie variable costs (this is based on fuel costs at
113 pence per litre);
ie a total average cost of 63 pence/mile.
Fuel at 14 pence/mile represents two-thirds of the running costs, but other
variable items such as tyres, service labour, replacement parts and parking
account for the remaining 8 pence.
In addition, depreciation of 2,486 is included in the annual standing charges
and is, therefore, effectively treated as a fixed cost. This is, of course,
consistent with the basis for calculating depreciation for financial reporting
which most businesses follow.
However, most motorists replace their cars after a certain total mileage is
reached, or for mileage-related reasons such as increasing maintenance costs
or worries over reliability. Even for those owners who will change their vehicles
after a certain period of time in any case, an increased mileage will mean a
significantly lower resale or trade-in value at the end of the cars life.
If the timing of the end of a vehicles life and its disposal value at that time are
mainly determined by usage rather than by time, then depreciation is logically
a variable rather than a fixed cost. The total marginal cost per mile is then more
realistically calculated as 47 pence/mile (22 pence for fuel, tyres etc, plus 25
pence for depreciation).
If decisions on using private car transport were based on a perception that the
real marginal cost is around 47 pence/mile rather than only the fuel cost, then
current levels of private car use might be significantly reduced even without
any further increase through road pricing. However, there is still a widespread
misperception that fuel is not only the major cost of motoring, but also the only
marginal cost. This is due in part to a readiness to accept established wisdom
and published quantities without query, and also a popular misunderstanding
of what accounting concepts such as depreciation really mean.
NB: The AAs calculations of motoring costs are available at:
www.theaa.com/allaboutcars/advice/advice_rcosts_petrol_table.jsp (petrol)
and www.theaa.com/allaboutcars/advice/advice_rcosts_diesel_table.jsp
(diesel).
35
SECTION 6

As with other areas, good accounting starts with capturing data in sufficient detail,
and designing systems to record and process the data so that the results can be
used to provide helpful information to management.
At a minimum, separate codes should be set up for each of the main alternative
modes of travel - car, rail, air, etc. This will also help the business to calculate a
carbon footprint if it wishes, since the costs charged to each code will then be a
close proxy for CO2 emissions. Following requests from their customers, several
travel agents have now started to record in more detail the travel that they book for
them in order to keep a record of distance, frequency, whether journeys are long-haul
or short-haul, etc, in order to make subsequent conversions to CO2 easier.
The box below on the HEEPI study describes a situation in which poor design
of accounting codes not only made it impossible to carry out the benchmarking
comparisons which had been intended between different universities, but would even
have hindered any attempt by an individual university to use the information available
from its accounting systems to support its own environmental management.
Benchmarking travel performance in the university sector

A group of UK universities collaborated in a project to benchmark data on
their respective environmental performances in the HEEPI project20. The main
impact areas for universities arise from estates management of campuses and
buildings, and travel by staff and others on university business.
Some comparative data on estates management were already being regularly
generated since this was required by the sectors Funding Council. There was
nothing comparable in existence for travel, but it was planned to start from the
costs recorded in each universitys usual financial records and see how far this
was sufficient or needed to be supplemented with further detail.
However, it was quickly found that although the costs recorded by each
university might be adequate for its own purposes as a record of its spending,
they were of little value for benchmarking against different institutions. This was
due to fundamental differences in the designs of each universitys accounting
systems, and in particular the definitions used for their accounting codes.
In principle it could have been possible to work back from the amounts posted
to each universitys financial records to the original invoices and expense
claims in order to reconstruct the data in a sufficiently detailed and consistent
way to enable valid comparison, but in practice this would have been so timeconsuming as to be infeasible.
Although it had been hoped that the financial records would provide a good basis
for benchmarking, the study found that without consistency in record-keeping from
original data capture onwards, this could not be realised in practice.
36
20
Higher Education Environmental Performance Improvement.
SECTION 6
If practical, breaking down costs into separate records for each car and/or driver
will help to support management control since each car/driver can then be treated
as a separate cost centre. This can be used to assess different drivers relative skills
in driving efficiently and responsibly, and this can then also be encouraged with
incentives, financial or otherwise.
As with energy in buildings, some long-term plans and strategic decisions can lockin environmental impacts for several years into the future. There are two different
ways of approaching this. Firstly, acquire assets which meet the businesss need with
less environmental impact, for example, cars with lower CO2 emissions per mile or
energy-efficient buildings which are designed to require less heating in winter and
less air-conditioning in summer. Secondly and more radically, so far as possible,
reduce the need for personal mobility in the first place. In both cases, the accountants
responsibility is to ensure that decision-makers and planners have adequate
information and analytical tools to choose between the alternative options.
Acquisition
Acquire assets which meet the businesss need with less environmental impact, for
example:
cars with lower CO2 emissions per mile;
cars powered by more environment-friendly fuels;
buildings which are serviced by public transport and sustainable travel networks.
Elimination and reduction
Eliminate and reduce the reasons for the need for transport and personal travel itself,
for example:
using telephone and video-conference calling rather than face-to-face meetings;
online discussions;
encourage car-sharing;
promote sustainable travel, such as cycling and walking;
work from home initiatives and distance learning schemes;
locate new premises to be easily accessible by public transport.
37
SECTION 6
EDF Energy aims to be a leader in its sector in reducing its carbon footprint. In
2007 it voluntarily adopted a set of Climate Commitments including reducing
transport-related CO2 emissions by 20% by 2012 (versus a 2006 baseline).
Changes under review include:
e
liminate the need for travel so far as possible (increased use of video
conferencing, etc);
replace the current vehicle fleet with more efficient vehicles;
behavioural change programmes;
fitting speed limiters and air-conditioning default switches;
regular review of data.
Early results show that by the middle of 2008 emissions had been reduced by
5% versus the 2007 peak (see appendix 3 for more details).
Training and support
T
he Energy Saving Trust has a transport advice programme available to
businesses in England and Scotland, and offers practical solutions to help
reduce costs and improve the environmental performance of car and van fleets.
For more information see www.energysavingtrust.org.uk/fleet/organisations/
gettingstarted.
T
he UK Road Safety website www.uk-roadsafety.co.uk provides details on
various courses available to businesses in its Fleet/Corporate section.
Some long-term decisions can have a continuing long-term effect on the need for
personal mobility which may not always be immediately obvious, such as the location
of business premises and the structure of the organisation design. A design which
physically separates people who need to speak to each other regularly will increase
the need for travel, but relatively minor reorganisations can sometimes reduce it.
38
7.1 Introduction
Supply chain management (SCM) is the process of managing products
and services not only within a businesss own boundaries but also
upstream and downstream along the whole of its supply chain.
SECTION 7
SUPPLY CHAIN MANAGEMENT
SCM is broader than a traditional purchasing function, and includes all activities
involved in sourcing, procurement, and logistics. Effective SCM invariably requires
co-ordination and collaboration with suppliers, intermediaries, third-party service
providers, and customers.
SCM is a business function in its own right and is not usually the direct responsibility
of accountants. However, an awareness of SCM and what it can mean for a
businesss environmental performance and reputation is important since:
SCM is increasingly important within business;
s ome stakeholders, including pressure groups and the media, are increasingly
treating large businesses as being effectively accountable for the consequences of
their actions, not only within their own boundaries but along their supply chains too;
c
onventional accounting practices can sometimes have a negative effect unless
applied sensitively;
m
ore positively, accountants can alternatively provide support with help with data
collection, measurement and analyses.
7.2 Supply chain management, the environment,

and accountants
7.2.1 Information requirements
Accountants will appreciate how difficult it can be to ensure that data definitions and
the information that is generated from them are always consistent even within a single
organisation. This challenge is multiplied when these data are sought from a large
number of suppliers worldwide that may either have different data definitions or not
be collecting the necessary data in the first place.
The case study of the Carbon Disclosure Project overleaf describes one initiative to
attempt to simplify this challenge by setting a standard method of gathering carbon
footprint information from suppliers.
39
SECTION 7
Carbon Disclosure Project

The Carbon Disclosure Project (CDP) is an independent not-for-profit
organisation representing major institutional investors and on their behalf
seeking information on the business risks and opportunities presented by
climate change and greenhouse gas emissions data from the worlds largest
companies. The CDP website is the largest repository of corporate greenhouse
gas emissions data in the world.
In 2007, the CDP issued a call for more companies to sign up to its supply
chain reporting initiative. The scheme is currently being trialled by 11
multinationals including Cadbury Schweppes, Dell, LOral, Hewlett Packard,
Nestl, Procter & Gamble, Tesco, and Unilever. It requires each of these
companies to request carbon footprint information from at least 50 of its
suppliers and to promote emission reduction measures across the supply
chain. The CDP hopes that establishing a standardised approach for supply
chain emissions reporting will also help to minimise the administrative burden
on smaller suppliers of monitoring their carbon emissions and reporting
them to their customers and others, since they will then have to generate
only a single set of information which can be used to meet several different
customers requests for information.
7.2.2 Product design and the environment

Supply chain management starts with the design of the product - like costs, many
environmental impacts are effectively finally decided for the whole life of the product
long before the first unit is produced, and cannot easily be changed afterwards.
Product designers are, therefore, crucial. They need relevant and reliable information
immediately to hand in an understandable format in order to build the products future
environmental performance into its design, along with other objectives such as its
performance in use, product quality, and cost. They often have to work under severe
time pressures to get a product designed quickly so the business can get it to market
before competitors, so this information needs to be immediately to hand when
needed in an accessible and reliable form. The box opposite reports one study at a
major electronics business into different ways of achieving this.
Envirowise provides information and guidance on cleaner product design, or ecodesign. The Envirowise DesignTrack initiative (Scotland and Wales only) provides
audits and signposting for both packaging and product design advice. For further
information on eco-design, see the following publications at www.envirowise.gov.uk:
GG294 Cleaner product design: an introduction for industry;
GG295 Cleaner product design: examples from industry;
GG296 Cleaner product design: a practical approach.
40
A company manufacturing electronics products for use in telecommunications

recognised that in a sector like this where technology rapidly develops,
innovative design and time-to-market are crucial. At the same time the products
may have a physical life of several years or even decades, so until they become
technically obsolete, their environmental impacts may be long-lasting.
SECTION 7
Product design for environmental performance at an electronics business
The problem that it identified in its design process was that its designers were
not always clear on the environmental objectives to aim for in products and
what information might be relevant to assessing this, and how to make sense
of what seemed to be a mass of unfamiliar data. The company, therefore,
commissioned a study to develop a tool for designers to help them to clarify
and condense the data and make it easily usable at short notice.
Three alternative methods were investigated:
a
visual compass which showed the products profile in comparison
against alternatives for each of six different environmental attributes such
as energy demands over its life, the use of hazardous materials, and ease of
recycling or similar at the end of its life;
a
scoring approach which assigned points to these attributes and
aggregated them into an overall score;
a costing approach which aimed to identify the external costs of the product.
The study found that all three methods were potentially useful in different
ways in helping designers to understand environmental considerations and
take them into account. However, what was even more critical was to have an
adequate database of the necessary information to hand immediately as and
when needed, since the time pressures of product design did not allow space
for extensive data-gathering exercises.
41
SECTION 7
7.2.3 Shared savings (servicising)

When a business buys an asset, it is not the asset as such that it requires so much as
the services which that asset can then provide for the business. A familiar example of
this principle is when a start-up business may prefer to rent premises and equipment
rather than to purchase them outright. Although this may be more expensive in the
long-run, it is worthwhile if it helps to conserve a scarce resource (such as cash) at a
particularly critical time.
The same thinking can be applied to the purchases of raw materials and
consumables in order to realise environmental benefits and cost savings.
Traditionally, a purchaser would identify their needs for raw materials and
consumables, and then contract with a supplier to provide these at the lowest
possible price. The problem is that this traditional approach gives the supplier an
obvious incentive to increase its sales volume, and no incentive to help its customer
to minimise the quantity it uses.
In a servicised contract, the supplier is paid not for the volume of what is supplied,
but for its service performance. This responsibility for managing what was supplied
is thus being out-sourced by the customer, which provides the supplier with an
incentive to look for ways to minimise rather than maximise the quantities consumed.
This conserves resources and, with materials such as hazardous chemicals, can
reduce risks and environmental impacts. In the long-run, the supplier also has an
incentive to look for ways to redevelop or reformulate what it is supplying, possibly
even to substitute it with a different technology.
There are, of course, downsides to this arrangement since the customer is effectively
reducing its own direct control over part of its production process, and its own
incentive to minimise quantities used is correspondingly reduced as the suppliers is
increased. Whether this is worthwhile in any case depends on the relative balance
of knowledge between supplier and customer. In sectors such as chemicals where
servicising has become well established, the complexity of the materials means that
the balance of expertise is more likely to be with the supplier than with the customer,
since the costs of purchasing the chemicals may be much less than the costs of then
storing and managing them.
7.2.4 Life-cycle assessment and life-cycle costing

Life-cycle assessment (LCA) is a well-established environmental management
technique to assess the total environmental impacts of a product or service from
cradle to grave in the various different stages of the products life21.
Life-cycle costing (LCC), also known as whole-life costing, measures the total cost
of ownership of an asset or project over the whole of its life including capital costs,
installation costs, operating costs, maintenance costs, and disposal costs. An
example of LCC in practice is shown in the case study opposite.
42
21
Note that the terms life-cycle assessment and life-cycle costing when used in the context of environmental management
refer to the life-cycle of an individual product, rather than of a product-line which is how the term is usually used in
conventional management accounting.
SECTION 7
Life-cycle costing of batteries at the University of Cambridge
The University of Cambridge has a policy of basing procurement decisions
on whole-life costs, arguing traditionally, purchasing considerations went no
further than the initial purchase price [but] this initial outlay may not be the
largest expense whole-life costs include this initial outlay but also consider
the operational and disposal costs of the product.
A comparative analysis that it carried out on alternative types of batteries
shows how LCC can reveal a dramatically different result than would be
obtained from a traditional purchasing decision made on the basis of
minimising just the initial purchase cost.
Whole-life costing comparison of batteries
Alkaline
Zinc chloride
NiMH
Cost of a pack of 4
batteries ()
2.50
1.50
6.50
Battery life (hours)
15
Number of packs
needed for 1,000 hours
of power
67
167
Purchase cost ()
167.50
250.50
6.50
Recharging unit ()
10.00
Energy to recharge ()
1.43
Disposal cost ()
5.70
14.20
0.04
Total cost ()
173.20
264.70
17.97
The University suggests that it is worthwhile to do this sort of analysis both

for high-value products, and for low-value products that are purchased in
high volumes. Similar results can be obtained for other familiar and mundane
products such as light bulbs.
43
SECTION 8
OTHER ENVIRONMENTAL MANAGEMENT

INITIATIVES
8.1 Environmental management systems
(ems)
8.1.1 Understanding the basics of an EMS
Management systems help companies to take a systematic approach
to managing business issues. Best practice management systems are
based on a four-stage cycle (see Fig 5).
The Plan-Do-Check-Act (PDCA) cycle is the operating principle of environmental
management system standards.
Fig 5 Plan-Do-Check-Act cycle of an EMS
PLAN
Establish objectives and make
plans (analyse your businesss
situation, establish your
overall objectives, set your
interim targets, and develop
plans to achieve them).
ACT
Correct and improve your
plans and how you put them
into practice (correct and
learn from your mistakes to
improve your plans in order
to achieve better results
next time).
CONTINUAL
IMPROVEMENT
CHECK
Measure your results
(measure/monitor how far
your actual achievements
meet your planned
objectives).
44
DO
Implement your plans
(do what you planned
to do).
c
ompliance with relevant environmental legislation and other requirements to
which the business subscribes;
prevention of pollution;
SECTION 8
An EMS can be thought of as a communications framework of procedures and

management programmes which co-ordinate effective management of environmental
issues for a business. EMS standards such as ISO 14001 and the ECs Eco-Management
and Audit Scheme (EMAS) (see Section 8.1.2) require a business to manage:
continual improvement in its environmental performance.

This involves:
i dentifying relevant legal environmental requirements and the environmental
impacts of the businesss activities;
writing an environmental policy;
setting targets to reduce significant environmental impacts;
d
eveloping management programmes to allocate responsibilities, resources and
timescales to achieve the targets;
audits to check progress against targets;
management reviews to evaluate the overall effectiveness of the EMS.
For practical help and advice on implementing an EMS, contact the Envirowise
Advice Line free on 0800 585794.
8.1.2 EMS drivers

Manage a businesss impacts on the environment.
I mprove resource and energy efficiency and associated reduction in waste
volumes and costs.
Manage risks, liabilities and legal compliance.
Evaluate and improve a businesss environmental performance in a verifiable way.
I mprove communication and corporate image with employees, shareholders and
other stakeholders.
Conformity with customer requirements.
Promote sustainable procurement within a business.
A framework for continual improvement of a businesss environmental performance.
45
SECTION 8
EMS options
According to Defra, the Government recommends that organisations use a national or
international standard. There are three recognised standards or schemes.
ISO 14001
ISO 14001 is the international standard for EMSs which specifies the features and
requirements necessary to help organisations systematically identify, evaluate, manage
and improve the environmental impacts of their activities, products and services.
More information can be found at the ISO website: www.iso.org/iso/home.htm.
EMAS (Eco-Management and Audit Scheme)

EMAS is a voluntary EU-wide scheme which requires companies to produce a public
statement about their performance, focuses on legislative compliance and includes
ISO 14001 as the requirement for the EMS component.
EMAS is administered in the UK by the Institute of Environmental Management and
Assessment (IEMA): www.emas.org.uk.
BS8555
BS8555 is an addition to the EMS family and breaks down the implementation
process for ISO 14001 or EMAS into six stages. BS8555 encompasses criteria
used in the Acorn Inspection Scheme developed by the Institute of Environmental
Management and Assessment (IEMA), which enables companies to gain accredited
inspection and recognition for their achievements at each step as they work towards
ISO 14001 or EMAS.
The environmental performance focus of BS8555 is valuable within the supply chain
and concentrates on:
delivery of measurable benefits for participants;
delivery of performance data for internal/external reporting;
maximum credibility and competitive advantage.
For more information see www.iema.net/acorn/bs8555.
A recognised standard provides a sound basis for high-quality environmental reporting.
46
Environmental management accounting techniques can also help a business to

report publicly on its environmental policy and performance by providing trend data
on physical quantities and costs. This can protect or improve its reputation and
aid communication with a wide variety of stakeholders. Demonstrating concern
about environmental issues can differentiate the business from the competition and
attract customers and investors, and reporting can also enhance its reputation as a
responsible employer, thus improving staff recruitment and supplier retention.
SECTION 8
8.2 Environmental reporting
A businesss environmental performance can be reported by including an

environmental section in the annual report and accounts, or by producing a standalone report covering environmental performance (and most likely, wider sustainability
or corporate responsibility issues). Reporting is increasingly done over the Internet,
usually as a supplement to conventional hard-copy reporting but sometimes instead.
Where possible, businesses should include trend data in these reports to show how
their performance has changed over time.
The Global Reporting Initiative acts as a voluntary standard-setter in sustainability
reporting to try to harmonise practice across different businesses. Its Sustainability
Reporting Guidelines recommend the process that a business should follow in
reporting, and suggest 77 different performance indicators of different aspects of
sustainability which a business can consider reporting. These guidelines are available
at www.globalreporting.org.
The Accounting for Sustainability project set up by HRH the Prince of Wales has also
produced its own recommendations on Connected Reporting which can be found at
www.accountingforsustainability.org.uk.
8.2.1 Why report on environmental performance?

Interest from stakeholders in the environmental performance of businesses is at an
all-time high. The EU Accounts Modernisation Directive (AMD)22 means that whether
your business is a plc or a large private company, you will need to report to investors
on how environmental issues will affect your profitability. The Directive also requires
companies to include, where appropriate, non-financial key performance indicators
(KPIs) relating to environmental matters. Although the Directive applies only to large
companies, BERR encourages medium-sized companies to report on these issues
voluntarily in recognition of the benefits that such disclosure brings to the operation
of the business.
The Companies Act 2006 expands on the requirements of the AMD. The requirements
of the Act came into force in 2007 and 2008 and change the way in which companies
report on environmental matters. The Act introduced new reporting requirements for
quoted companies from October 2007 to the extent necessary for an understanding
of the development, performance and/or position of the companys business.
22
See www.businessandbiodiversity.org/pdf/EU%20Accounts%20and%20Modernization% for more information.
47
SECTION 8
Companies will need to ensure their Business Review includes information about:
e
nvironmental matters (including the impact of the companys business on the
environment);
the companys employees;
social and community issues.
More information can be found on the Office of Public Sector Information (OPSI)
website: www.opsi.gov.uk.
8.3 Key environmental

performance indicators
Key Environmental Performance Indicators (KEPIs) are tools that provide a quantifiable
metric for measuring and monitoring the environmental performance of a business.
As discussed above, there is an increasing acknowledgement that good
environmental performance makes good business sense, so the use of KEPIs will
help businesses to manage and communicate the links between the environmental
and the financial performance aspects of their business.
For instance, poor management of energy, natural resources or waste can affect
productivity rates; failure to consider rising costs and risks of environmental pollution
for a future in which environmental image and marketing of a business are likely
to be significant may risk the businesss long-term survival. The Government,
therefore, expects that businesses will need to use KEPIs to capture the link between
environmental and financial performance adequately.
Table 1 overleaf highlights commonly used KEPIs under each of the four sections
(raw materials and waste, water, energy and transport) that should provide a starting
point for a businesss measurement of its environmental performance. Each business
may have different appropriate KEPIs, but the important issue is to have visibility at
the bottom line of the real costs (and environmental impacts) to the business.
Businesses should seek to identify their most important environmental matters and
utilise the benefits that KEPIs will bring. Accountants have a critical role in informing
top management on business efficiency.
In January 2006, Defra produced a set of environmental reporting guidelines to help
companies to identify and address their most significant environmental impacts.
These guidelines outline how businesses might begin to set targets/KEPIs against
which to measure environmental performance. Businesses can make use of standard
data which is already collected, for example, from environmental management
systems and utilities bills. The environmental guidelines also provide guidance on
how data could be reported.
48
The environmental issue is fast-changing, particularly in terms of legislation and

regulation. This Guide was written to offer an accurate and balanced view of the
situation at the time of writing, but inevitably some of its content will become
outdated over time. The Environment Agency provides a regularly updated database
of the environmental legislation and regulation which can affect businesses, plus
guidance, on its NetRegs website (www.netregs.gov.uk).
SECTION 8
Further information on KEPIs can be seen on the Defra website at www.defra.gov.

uk/environment/business/envrp/pdf/envkpi-guidelines.pdf as well as on the Global
Reporting Initiative website mentioned above.
49
SECTION 8
Table 1 Commonly used environmental management accounting Key

Performance Indicators (KPIs)
Energy
Aspect
Unit
KPI
Gas
kWh energy
E
lectricity (from fossil
fuel)
m2 floor area
k
Wh energy/m2 floor
area
E
lectricity (from
green sources)
Fuel oil
Coal
Units of production
Number of employees
Cost ()
Total fuel usage
O
ther (woodchip/
biomass boiler fuel)
k
Wh energy/unit of
production
E
nergy cost/unit of
production
F
or total usage: % of
green fuel vs fossil
fuel usage
C
CL cost/unit of
production
C
limate Change Levy
(CCL) cost
CCL cost/person
Transport
Aspect
Unit
KPI
Diesel
Distance travelled
Petrol
Litres of fuel used
Biofuel
T
onnes of product
shipped
L
itres of fuel type
used per shipment per
person
H
ybrid engine fuel
usage
T
ransport mode
(private car, fleet car,
truck, public transport)
Bicycle use
Walking to work
T
eleconferencing and
videoconferencing
Unit of production
Number of employees
E
fficiency: fuel usage
per unit of distance
travelled
Cost ()
L
itres of fuel (and cost)
saved - by avoiding
journeys through
the use of remote
communication
solutions
M
iles and time of staff
journeys avoided (eg
by using IT-based
conferencing)
F
or total usage: %
of total transport fuel
from fossil fuel (vs
greener fuels)
Number of deliveries
N
umber of staff
journeys
%
of employees
walking/cycling to
work (vs private car
use)
50
Aspect
Unit
KPI
Water
Q
uantity of water
(litres/m3)
m3 water/employee
Effluent (wastewater)
Effluent quality
W
ater pollution
incidents
Q
uantity of effluent
(litres/m3)
Q
uality which meets
effluent consent/
permit levels
N
umber of
exceedances beyond
effluent consent/
permit levels
m
3 water/unit of
production
N
umber of water
pollution incidents per
year
SECTION 8
Water
N
umber of wastewater
permit exceedances
per year
Number of employees
U
nits of product
processed (number/
tonnes etc)
N
umber of water
pollution incidents
Raw materials and waste

Aspect
Unit
KPI
Paper/cardboard
Q
uantities of raw
material used (kg/
tonnes/litres etc)
Tonnes of materials
Plastics
Chemicals
Oils
Q
uantity of product
manufactured (kg/
tonnes/litres/m3 etc)
Packaging waste
Number of employees
P
ackaging materials virgin
Cost ()
Metals
P
ackaging materials re-used
W
aste to landfill (eg
general waste)
T
ime spent in
manufacture
Time and materials
Tonnes of waste
% of waste recycled
%
of paper recycled
vs paper purchased
Q
uantity of solid waste
per unit production or
per person
T
onnes of waste
generated per tonne
of raw materials used
C
ost of waste per unit
product
W
aste recycled (eg
aluminium cans,
paper)
Waste re-used
W
aste sent for
treatment as
hazardous waste
Landfill Tax
51
SECTION 9
Sources of Support
Accountants and business managers can obtain support from the
following organisations which provide information, advice and, in some
cases, on-site support and funding.
9.1 Envirowise
Envirowise offers UK businesses free,
independent, confidential advice and
support on practical ways to increase
profits, minimise waste and reduce
environmental impact.
Envirowise is represented throughout Scotland, Wales, Northern Ireland and the

English regions.
Envirowise offers UK businesses independent, practical and proven guidance
available through:
A
dedicated, free Advice Line: Envirowise has a panel of expert advisors able
to provide free, confidential and independent advice on all aspects of resource
efficiency and key environmental issues to businesses within the UK.
Information resources from Case Studies to Good Practice Guides.
Many events each year, from intimate seminars to major exhibitions.
An informative website.
For more information, call the Advice Line free on 0800 585794 or visit
www.envirowise.gov.uk.
9.2 Carbon trust

Carbon Trust is an independent company funded
by Government. Its role is to help the UK to move
to a low-carbon economy by helping business and
the public sector to reduce carbon emissions and
capture the commercial opportunities of low-carbon
technologies.
Carbon Trust has a wide range of products tailored to the needs of different organisations:
Large energy users:
-- Carbon management reviews.
52
-- Feasibility studies.
Intermediate energy users:
-- Opportunities assessments.
-- Implementation advice.
-- Low-carbon buildings design advice.
SECTION 9
-- LA/NHS/HE carbon management.
Smaller energy users (<50k energy spend):

-- Interactive web-based self-help tools.
-- Information sheets and how to guides.
-- Helpline and telephone advice.
Knowledge transfer:
-- Extensive publications library.
-- Technical training events.
-- Energy Technology List.
For more information, call the helpline on 0800 085 2005 or visit www.carbontrust.co.uk.
9.3 Energy saving trust (EST)

EST is a non-profit organisation funded by
Government and the private sector. ESTs aim is to
reduce CO2 emissions and encourage the sustainable
use of energy in the UK domestic, commercial and
public sectors. EST is working towards Government
targets to reduce CO2 emissions from 1990 levels by
20% by 2020.
EST offers tailored programmes to help:

Businesses/workplaces.
Consumers/households/individual motorists.
Consumer and community grant support for micro-generation technologies.
Housing associations and local authorities.
Fleet advice.
Vehicle manufacturers/technology developers.
Grant-based support for refuelling and recharging infrastructure.
For more information, visit www.energysavingtrust.org.uk.
53
SECTION 9
9.4 National industrial symbiosis

programme (NISP)
NISP is a business opportunity programme
which links companies from all industrial
sectors so that under-used resources such as
energy, water and materials which are wastes
from one company can be reprocessed,
reassigned or re-used by others:
Free of charge to business.

Cost savings and additional sales for industry.
Business-led approach.
Positive environmental outcomes.
Deals with ALL resources, including logistics, assets and expertise.
National membership base of over 8,000 organisations.
12 regional centres across the UK.
For more information, visit www.nisp.org.uk.
9.5 Waste & resources action programme

(WRAP)
WRAP is a UK-wide body focusing on
materials resource efficiency. Amongst
its various programmes, the following
are most relevant to businesses:
B
usiness Support Programme - a comprehensive range of support for businesses
in the specialist recycling sector.
M
anufacturing Programme - practical advice and technological support on the use
of recycled materials in a wide range of manufactured products.
R
etail Programme - working with retailers and their supply chains, mostly food
processing and packaging companies, to develop innovative products and
packaging to reduce the amount of household waste.
For more information, call 0808 100 2040 or visit www.wrap.org.uk.
54
MAS aims to address the practical needs of British manufacturers by delivering handson advice and assistance from experts in a wide range of manufacturing disciplines.
MAS is delivered through ten Regional Centres covering England and Wales.
SECTION 9
9.6 Manufacturing advisory

service (MAS)
MAS offers manufacturers the following key services:

Direct helpline support through the Regional Centres.
A
free one-day on-site diagnostic visit by a MAS manufacturing specialist to
review a companys entire manufacturing operation.
R
egional Centres can follow-up and deliver up to ten days in-depth consultancy
- to introduce, for example, lean manufacturing techniques, product or process
innovations, or design advice.
B
est practice activities, training and workshop activities for manufacturers across
each region.
Initial advice, information and diagnostic assessments are free of charge for small and
medium-sized enterprises (SMEs).
For more information, call 0845 658 9600 or visit www.mas.berr.gov.uk.
9.7 Scottish manufacturing advisory service

(SMAS)
SMAS is a service dedicated to the
manufacturing sector. Its specialist team
provides manufacturing companies of all
sizes throughout Scotland with expert advice,
one-to-one support, training and events.
SMAS can help you to:

Optimise workflow.
Source a suitable supplier.
Improve productivity.
Enhance performance.
Increase competitiveness.
Reduce costs.
For more information, call 0845 609 6611 or visit www.scottishMAS.com.
55
SECTION 10
FURTHER READING
ACCA
Going Concern? A Sustainability Agenda for Action - this report is an ACCA social
and environmental policy document available online at www.accaglobal.com/pdfs/
technical/tech-gc-001.pdf
ACCA research reports and publications on various related subject areas are
available at www.accaglobal.com/publicinterest/activities/research/reports/ and
www.accaglobal.com/publicinterest/activities/research/publications
Report of the Judges - ACCA report on ACCA awards for sustainability available
online (www.accaglobal.com/). This report provides the strengths of ACCA awardwinning reports and technical recommendations for improving UK sustainability
reporting.
ACCA Surveys - a collection of surveys on issue-specific topics such as climate
change, stakeholder engagement and human capital management are available
online at
www.accaglobal.com/publicinterest/activities/library/other_issues/surveys
ACCA Sustainability Library can be viewed online (www.accaglobal.com/
publicinterest/activities/library/sustainability/). The library provides a single point
of access for all the reading resources related to this subject to be found across the
ACCA website.
ACCA provides an Accounting & Sustainability quarterly e-newsletter which can
be subscribed to online (www.accaglobal.com/publicinterest/activities/library/
sustainability/accounting_sustainability/email). This newsletter summarises global
sustainability developments, including reporting, assurance, carbon accounting and
standards issues.
CIMA
CIMA (2008), Climate Change Calls for Strategic Change highlights why you should
adapt your strategy now, embedding climate change issues into normal business life
before it is too costly or too late. CIMA proposes ten actions that your organisation
can put in place to help you drive sustainable performance with regard to climate
change. Available from www.cimaglobal.com/sustainability
CIMA (2008), Managing Responsible Business Report and Survey. CIMA has teamed
up with the Institute of Business Ethics to produce a new report that explores the
debate on corporate responsibility and business ethics. The survey found the majority
of respondents agree that business has a moral obligation to help address global
issues such as climate change and poverty. Many also believe that environmental
impact is of growing importance and that it is an issue that companies cannot afford
to ignore. Available from www.cimaglobal.com/sustainability
56
CIMA (2006), Accounting for ethical, social, environmental and economic issues:
towards an integrated approach explores the extent to which information published
by companies about their sustainability performance discharges their duty of
accountability to external stakeholders on ethical, social and environmental issues.
Looks at whether this information is integrated into strategic decision-making. The
executive summary is available from www.cimaglobal.com/researchexecsummaries
SECTION 10
CIMA Publishing (2007), Accounting for Sustainable Development Performance

explores a variety of responses to the sustainable development agenda, introduces
the sustainability assessment model (SAM) and provides a case study of BP, that has
implemented SAM. The full report and executive summary are available through
www.cimaglobal.com/researchexecsummaries
CIMA (2006), Emissions trading and the management accountant - lessons from the
UK emissions trading scheme explores the costs and benefits of direct participation
in the UK Emissions Trading Scheme (UKETS). Outlines the role of management
accountants and their systems in motivating reductions in emissions that support the
general initiatives to mitigate the effects of climate change. The full report is available
from www.cimaglobal.com/researchfullreports and the executive summary is
available from www.cimaglobal.com/researchexecsummaries
CIMA (2006), The burden of complying with employment and environmental
regulation assesses UK businesses perception of employment and environmental
regulation in terms of compliance costs, quality of UK regulations and formalities,
quality of UK administration of regulations, and innovation and barriers to trade. The
executive summary is available from www.cimaglobal.com/researchexecsummaries
CIMA (2005), OFR and sustainability roundtable: examining the impact of the OFR
on sustainable development and corporate reporting reports on the discussion of a
wide range of experts on the impact of the OFR on sustainability reporting, including
quantitative and qualitative information, investors and investor pressure, CSR reports
and the OFR and shareholders vs the stakeholders. The report is available from
www.cimaglobal.com/technicalreports
CIMA Publishing (2002), Environmental Cost Accounting: An Introduction and
Practical Guide provides an introduction to corporate environmental accounting. It
outlines the business case and rationale for engaging in environmental accounting
and illustrates how leading UK companies are adding value and reducing risk through
the use of innovative environmental accounting techniques and methodologies.
Available from www.cimapublishing.com
Thorogood Publishing Ltd (2008), Managing Climate Risk: A Practical Guide for
Business. By treating climate change as more than a legal obligation, this book
explains how organisations can reduce their exposure to any direct threats, while at
the same time improve their efficiency and put themselves in a position to gain from
any shifts in how their markets operate. CIMA contributed a chapter to this book on
Accounting for climate change. Available from www.thorogoodpublishing.co.uk
57
SECTION 10
EA
Corporate environmental disclosures - EAs latest report looking at the environmental
disclosures of the 500+ companies in the FTSE All-Share http://publications.
environment-agency.gov.uk/pdf/GEHO1007BNGJ-e-e.pdf?lang=_e
Corporate environmental governance - research investigating the link between the
financial performance of a company and how it manages its interactions with the
environment http://publications.environment-agency.gov.uk/pdf/GEHO0904BKFEe-e.pdf?lang=_e
Environmental accounting case studies - the EA produces annual reports using
its environmental accounting system that examine its environmentally significant
expenditure; these can be viewed and downloaded from
www.environment-agency.gov.uk/environmentalfinance
EMAN
Schaltegger S., Bennett M., Burritt R. and Jasch C. (eds.) (2008). Environmental
Management Accounting for Cleaner Production. Dordrecht, Netherlands:
Springer Publishing.
Schaltegger S., Bennett M. and Burritt R. (eds.) (2006). Sustainability Accounting and
Reporting. Dordrecht, Netherlands: Springer Publishing.
Rikhardsson P., Bennett M., Bouma J.J. and Schaltegger S. (eds.) (2005).
Implementing Environmental Management Accounting: Status and Challenge.
Dordrecht, Netherlands: Springer Publishing.
Bennett, M., Rikhardsson P. and Schaltegger S. (eds.) (2003). Environmental
Management Accounting: Purpose and Progress. Dordrecht, Netherlands: Kluwer
Academic Publishers.
Bennett M., Bouma J.J. and Wolters T. (eds.) (2002). Environmental Management
Accounting: Informational and Institutional Developments. Dordrecht, Netherlands:
Kluwer Academic Publishers.
Bennett M. and James P. (2001). Eco-Management Accounting: Guidelines for
Accountants, Business Advisers and Environmental Managers. London: British
Standards Institution and Hitchin, UK: JL Publishing Ltd.
Bennett M. and James P. (eds.) (1998). The Green Bottom Line: environmental
accounting for management - current practice and future trends. Sheffield:
Greenleaf Publishing.
58
ICAEW, Sustainable Business thought leadership prospectus from ICAEW.

ICAEW, Sustainability: the role of accountants.
Bent, David, Forum for the Future (2008), Competitiveness and Sustainability: Building
the Best Future for your Business, ICAEW.
SECTION 10
ICAEW
Environment Agency and ICAEW (2009), Reporting on Environmental Issues in Annual

Financial Statements: A practice guide to report preparers, users and auditors.
The Business Sustainability Programme, www.icaew.com/bsp
ICAS
The Development of Corporate Websites and Implications for Ethical, Social and
Environmental Reporting Through these Media. Adams & Frost (2004)
(ISBN 1-904574-06-8).
The Professional Accountancy Bodies and the Provision of Education and Training in
Relation to Environmental Issues. Gray, Collison et al (2001) (ISBN: 1-871250-89-7).
The Valuation of Assets and Liabilities: Environmental Law and the Impact of the
Environmental Agenda for Business. Gray, Bebbington, Collison et al (1998)
(ISBN: 1-871250-60-9).
The reports are available to purchase from the ICAS Research Centre. The 2004
Report is available to download from the ICAS website and the Executive Summaries
for the two older reports are also available on the website.
59
APPENDIX 1
Glossary
British Standards Institution (BSI)
A leading standards and quality services organisation, independent of Government,
industry and trade associations. Provides systems assessment and registration,
product certification testing, commodity inspection and testing, and training,
publications and management.
Carbon Trust
An independent not-for-profit company funded by the UK Government to assist UK
businesses and the public sector to reduce carbon emissions and to take advantage
of any ensuing commercial opportunities.
Climate Change Levy (CCL)

A tax on the use of energy in industry, commerce and the public sector to encourage
energy efficiency and reduce emissions of greenhouse gases. This tax, which was
introduced in April 2001, is applied to energy bills before VAT is added.
Corporate social responsibility (CSR)

The management of a companys impact on society and the environment so as to
add value to the company and increase wider economic and social wellbeing through
its operations, products or services and through interaction with key stakeholders
such as employees, customers, investors, local communities, suppliers and others.
Eco-Management and Audit Scheme (EMAS)

An EU regulation allowing voluntary participation by companies in the scheme
launched in 1995 which enables them to evaluate, report and improve their
environmental performance.
Enhanced Capital Allowance (ECA) scheme

A Government initiative that enables businesses to claim a 100% first-year capital
allowance for investments in selected energy-efficient technologies. For more
information, visit www.eca.gov.uk.
Environmental costs
That part of a businesss costs which are related to environmental factors in some
way, such as where an environmental factor is a significant cost driver. These will
depend on the nature of the business, and on the managements judgement on which
of its costs should be considered environmentally related in order to support better
60
Environmental management accounting (EMA)

The generation, analysis and use of financial and non-financial information in order to
benefit a businesss environmental and economic performance.
APPENDIX 1
business decision-making. However, most businesses would usually consider costs

related to raw materials and wastes, water, energy and transport to be significantly
environment-related.
Environmental management system (EMS)

A communications framework of procedures and management programmes based
on the best practice model for management systems (plan, do, check, act) to
co-ordinate the effective management of environmental issues at a business.
Envirowise
A UK Government-funded programme providing practical environmental advice
for business.
European Union Emissions Trading Scheme (EU ETS)

An EU-wide cap-and-trade system covering five industry sectors, for reducing carbon
dioxide emissions. It is the worlds largest mandatory carbon dioxide emissions
trading scheme.
Greenhouse gases (GHG)

Carbon dioxide, methane and other gases that cause and accelerate the greenhouse
effect, thereby damaging the insulation of the earths atmosphere.
Institute of Environmental Management and Assessment (IEMA)

The IEMA was formed in 1999 as the professional body for the environment, with the
overall aim of promoting the goal of sustainable development through best practice
standards in environmental management, auditing and assessment.
ISO 14001
First published in 1996, this standard issued by the International Standardisation
Organisation (ISO) specifies the requirements for an environmental management
system (EMS). An updated version of the standard was published in 2004, ie ISO
14001:2004.
61
APPENDIX
SECTION 12
Mass balance
Comparison of the weight or volume of materials brought into a business against the
weight or volume of materials that end up in the final product (ie product yield), to
identify how much material is wasted in the process. Construction of a mass balance
involves balancing the amounts of materials purchased during the year against the
amounts of materials stored on site or leaving the business as product or waste.
Non-governmental organisation (NGO)

An organisation, generally non-profit seeking, which is set up for a specific purpose
and is independent from governments and their policies.
Resource efficiency
Producing more goods and services with fewer inputs of materials and utilities,
and with less pollution and waste. Also known as resource productivity or waste
minimisation.
Sustainable development
Development that meets the needs of the present without compromising the ability of
future generations to meet their own needs.
62
The Association of Chartered Certified Accountants (ACCA)

Rachel Jackson,
Head of Social and Environmental Issues,
ACCA, 29 Lincolns Inn Fields, London WC2A 3EE
Tel: 020 7396 5845
Fax: 020 7396 5730
e-mail: rachel.jackson@accaglobal.com
APPENDIX 2
Contact details for accountancy

institutes and the Environment Agency
Further information is available through www.accaglobal.com/sustainability.
The Chartered Institute of Management Accountants (CIMA)

Helenne Doody,
Sustainability Specialist,
CIMA, 26 Chapter Street, London SW1P 4NP
Tel: 020 8849 2262
Fax: 020 8849 2468
e-mail: helenne.doody@cimaglobal.com
Further information is available through CIMAs sustainability website
www.cimaglobal.com/sustainability.
Environment Agency (EA)

Howard Pearce,
Head of Environmental Finance and Pension Fund Management,
Environment Agency, Rio House, Waterside Drive,
Aztec West, Almondsbury, Bristol BS32 4UD
Tel: 01454 624332
Fax: 01454 624031
e-mail: howard.pearce@environment agency.gov.uk
63
APPENDIX 2
Environmental Management Accounting Network - Europe (EMAN)

Martin Bennett,
Reader in Accounting and Finance,
University of Gloucestershire Business School, The Park, Cheltenham GL50 2RH
and
Environmental Management Accounting Network (EMAN)
Tel: 01242 714349, 01905 821574
e-mail: mbennett@glos.ac.uk or martindbennett@btinternet.com
EMAN is an international network of researchers and practitioners who are interested
in environmental and sustainability management accounting and reporting. It holds
annual conferences following which it publishes an edited and refereed selection of
the best papers presented. Information about conferences organised by EMAN is
available on www.eman-eu.net.
The Institute of Chartered Accountants in England and Wales (ICAEW)

Rachel Bird,
Corporate Responsibility Executive,
ICAEW, Chartered Accountants Hall,
PO Box 433, Moorgate Place,
London EC2P 2BJ
Tel: 020 7920 8794
e-mail: rachel.bird@icaew.com
Information about the activities of ICAEWs Environmental Steering Group is available
on www.icaew.co.uk.
The Institute of Chartered Accountants of Scotland (ICAS)

Christine Scott,
Assistant Director, Accounting & Auditing,
The Institute of Chartered Accountants of Scotland, CA House, 21 Haymarket Yards,
Edinburgh EH12 5BH
Direct line: 0131 347 0238
Direct fax: 0131 347 0110
Tel: 0131 347 0100
Fax: 0131 347 0105
www.icas.org.uk
64
The following case studies were commissioned for this publication and
are not available on the Envirowise website.
Managing energy bills at the Environment Agency
Although the Environment Agencys primary objective is unique, in its operations it
is typical of many other large organisations (with 13,000 staff and an annual budget
of over 1 billion, it is equivalent in scale to a FTSE 100 company). This means
substantial environmental impacts and associated costs, including energy at its 2,000
sites with a metered electricity supply. In 2007/08, its total electricity bill amounted to
4.8 million. However, it found that its existing accounting system was not adequate
to support the control of electricity costs in sufficient detail, despite having been
designed to record physical units of measure (eg kWh, kilos, tonnes) as well as the
financial value of invoices. Several problems were identified:
APPENDIX 3
Additional case studies
Invoices were not being posted until they had been approved. This meant that
interest payments were incurred, and also made it impossible to attribute costs
accurately to the month in which the consumption had occurred.
I nput staff sometimes found it difficult to understand the bills sent by suppliers,
each of whom had its own format, and to identify from them the separate amounts
for units consumed, standing charges, and other charges respectively.
M
ost bills were estimated and it could take several months to correct them,
receive credit notes and then pay the supplier.
The result was that the information which was needed to support management
control over consumption was frequently late, inconsistent and incomplete.
The Agencys Environmental Finance section made several distinct but
complementary changes to the system to address this:
T
he invoice posting section was instructed to record and pay every bill within 10
days of receipt whether it had been approved or not.
T
he local regional staff were made responsible for ensuring the accuracy of each
bill and if necessary to submit to the energy supplier customer readings within
15 days of receipt of the invoice, to guarantee a credit in the following month.
Crucially, negotiations were held with each of the Agencys several electricity
suppliers by which they all agreed not only to submit their usual invoices for payment,
but also to send to the Environmental Finance section a supplementary supporting
document in electronic format. These e-bills would correspond with the main
bills but provide more detail, and would do this in a standardised format to avoid
errors by the recipients in interpreting their contents. These e-bills include details
of all transactions, including credits, for each month - site, meter identity, meterreadings at the start and end of the period, the type of each charge, kWh, and cost.
Environmental Finance uploads this every month into a database which is used to
generate information on both consumption and expenditure. This means that data
65
APPENDIX 3
can now be attributed to the correct month, comparisons can be made between sites
and regions, and usage and spending trends can be tracked and reported during the
course of each year.
Other advantages have also been found with this system, including:
R
esponsibility for the accuracy of the invoices is now clearly located with the local
staff in the places where the energy is actually being consumed.
D
etailed information down to the level of individual sites is available to support
monitoring and planning.
L
ists of live sites can be generated to highlight any errors in the billing system.
For example, this showed that suppliers were still billing the Agency for two sites
which it had already sold.
Further information is available from:
www.environment-agency.gov.uk/environmentalaccounting.
EDF Energy - Sub-metering

All electricity consumers have a gross supply meter which measures how much they
take from their suppliers and will be billed for, which is sufficient for their financial
control. They can also choose to install sub-meters downstream of this to measure
how much each part of their business is using and derive data in more granularity,
and thus improve their management control through both more well-informed
decisions and closer control over spending.
How far it is worthwhile to go in installing sub-meters depends on the balance
in any case between the cost of fitting and using them on the one hand, and the
opportunities available to realise savings on the other. Since there are several different
types of meters, and since opportunities to make savings vary between different
consumers, there are no hard-and-fast rules. However, broad guidelines can be
generated based on experts experience.
Ashley Pocock, Home Technology Director of EDF Energy, has been advising
customers on metering and energy efficiency for several years and has found that in
his experience an ongoing saving of 5-10% is typical when an area within a business
is sub-metered.
Even an average residential household will consume around 4,000 kWh of electricity
in a typical year, and at 20 pence per kWh (say) this will mean an annual bill of
around 800. All but the smallest businesses will consume several times more than a
household - a business or part of a business which consumes electricity equivalent to
ten households (say) will have an annual bill of 8,000. At this rate, a simple meter of
traditional design costing 500 to purchase and install would pay for itself in only 15
months, even with savings of only 5%. A basic smart meter for 1,000 would save
the trouble of manual meter readings and could be connected to appliances such as
real-time display devices, which would make the rate of energy consumption more
immediately visible to those in the business, and would still pay back within
30 months.
Note: This refers to electricity only, but the same also applies to gas and water.
66
As a leading energy producer, EDF Energy has a keen interest in carbon emissions
and aims to be a leader in the sector in reducing its own footprint. The main part of
this comes from its power generating stations, but it also has several other activities
such as transport which are common to most other businesses too.
EDF Energys Sustainable Future programme requires that all proposed new
investment projects in the business are assessed against social, environmental and
economic hurdles. In 2007 it voluntarily adopted a set of Climate Commitments under
which it committed itself to several targets, including to reduce transport-generated
CO2 emissions by 20% by 2012 compared to a 2006 baseline. Since, if nothing
were done, the underlying trend of transport use would be upwards, this effectively
represents an even more challenging target.
APPENDIX 3
EDF Energy - Cutting transport emissions
These emissions arise mainly from EDF Energys fleet of approximately 4,600 owned
or leased vehicles. These range from heavy freight down to small vans and cars
which are used to support power stations and distribution networks. Further impacts
are added by staff who use their own cars for business travel and then reclaim the
expenses they incur (some 22 million miles of travel each year) and rented vehicles,
as well as through air and rail travel. In 2006 this represented a total carbon footprint
of 27,100 tonnes.
EDF Energy is considering all feasible options to reduce the carbon footprint of its
use of transport. These include new technologies and fuels (eg electric cars, hybrid
vehicles, etc), replacing the existing fleet with more efficient vehicles, and in the longterm trying to eliminate the need for travel in the first place through technologies such
as video-conferencing. It also recognises that for a substantial and lasting effect, it
needs to reduce both the total mileage travelled and the fuel consumption per mile.
Two simple but effective innovations that it considered in order to reduce carbon
emissions were fitting speed limiters and air-conditioning default switches to certain
types of vehicles. When this was investigated and appraised it was found that these
could be fitted to up to 2,500 vans, and that together with behavioural change, this
would not only reduce annual carbon emissions by 5,000 tonnes (based on Defras
standard conversion factors), but that the search for ways of improving environmental
performance had also revealed opportunities for economic benefits which had not
previously been recognised. Initial financial appraisals showed that an investment of
1 million could generate an NPV of nearly 5 million over five years (after discounting
at a cost of capital of 10%/year), an IRR of 73%/year, and discounted payback of
2.33 years. Final investment cases are currently in development.
To derive maximum benefit, before-the-event appraisals need to be supplemented
by after-the-event monitoring of actual performance to assess how far the benefits
which were originally forecast are then being actually realised in practice. Collecting
the data to do this is practically complex as EDF Energys several different modes of
transport mean that several different business systems are involved in collecting the
data that is needed. As well as the main bought ledger, these also include expense
claims, corporate credit cards, car rental contractors, and travel agents (for air travel).
67
APPENDIX 3
The companys main accounting system is the focal point as all these sources of
emissions also incur costs, but the necessary physical data on quantities of fuel
purchased and miles driven are collected on a regular basis through a supplementary
spreadsheet-based system which draws data on physical quantities from the same
data capture systems that were primarily set up to feed into the accounting system.
These data capture systems will be enhanced as the project progresses. Amongst the
improvements being considered is a system to capture distances travelled directly by
automated odometer readings rather than by using fuel purchases as a proxy.
Early results are promising: by the middle of 2008 EDF Energy had begun to see
improvements, with emissions (measured on a like-for-like basis) down 5% from their
2007 peak.
www.edfenergy.com/sustainability/performance-report/performance/glance.shtml.
Sun Microsystems - Data centre efficiencies

Although computers are now universal in business, it is still not always appreciated
how significant are the environmental impact and related costs of their use. Globally,
IT costs businesses around $7.2 billion in utility bills every year and the annual cost of
energy is predicted to exceed that of the hardware itself within the near future. Since
the power consumption of data centres has doubled between 2000 and 2005, it is
little surprise that 25% of the average IT budget is consumed by energy costs alone.
Historically, this has been tolerated since the environmental impacts were largely
ignored, energy costs were low, and the available technology allowed little practical
opportunity to design more energy-efficient IT systems. However, this is changing
through both the use of new hardware and software technology which has only
recently been developed, and better use of existing technology.
Sun Microsystems has set up a specialist unit to exploit this opportunity both for
clients and in their own business. Peter Bennett of Suns Data Centre Efficiency
Practice section identifies a number of areas where many organisations regularly
and unknowingly waste energy unnecessarily. Over the years, many organisations
have built up rooms full of servers which incur major costs, not just in energy but
also in acquisition, depreciation, maintenance and management. Sometimes these
computers are no longer needed for their original purpose, but with staff turnover and
poor documentation, nobody is certain which these are. No one will dare turn them
off, just in case. Using modern tools and methods it is possible to identify these
with a high degree of confidence. In a typical audit of customers systems it is not
unusual for Sun to find that 10-15% of their systems can often be orphaned in
this way.
Similarly, many systems are found to be over-specified for the purpose for which they
were originally purchased, often to support only a single software application such
as a departmental email server. The result is that the equipment is under-utilised or
idle, with average utilisation figures of only 15-30% frequently being found across
a businesss total population of servers. When these systems were first designed
68
Recent developments in hardware stimulated by the need to save energy have also
created opportunities, through innovations such as the pod concept which uses a
self-contained group of racks and benches to optimise power, cooling and cabling
efficiencies in data centres. These replace the typical old inefficient configurations
with racks of computers in the centre of the room and air-conditioning units placed
around the perimeter. Similarly, the old dumb terminal concept is making a comeback in the form of modern thin client desktops which perform the same function as
conventional desktops, but more reliably and consuming as little as 5% of the power,
with the supporting infrastructure safely managed in the data centre.
APPENDIX 3
and implemented this may have been difficult to avoid, but new developments in
virtualisation software mean that computers can now safely and reliably share
workloads, driving up overall utilisation and often resulting in some very steep savings.
Sun applied these principles in its own business in consolidating multiple European
data centres into a single state-of-the-art facility23. Its original plan had been to
consolidate into 3,000 square feet of data centre space, but further analysis showed
that it could use its new pod technology to compress the equipment into only 450
square feet, and could achieve this within less than a year without any down-time.
The result was a saving of more than 80% in space, power and cooling costs, whilst
still providing the potential to expand IT capacity by up to five times.
However, Peter points out: Technical solutions on their own are only part of the
solution. Technical consultants can provide these, but the business needs first to be
aware of the potential for improvements which are represented by the current costs of
the energy and other resources used in its IT, and then to evaluate them intelligently.
However, sometimes the constraints imposed by some traditional accounting and
budgeting systems need to be worked around first. Many businesses simply arent
even aware of the costs they incur on energy to power their IT, so theres still a long
way to go.
Initially, Sun Microsystems chief motivations for innovating more cost-effective
approaches to building, managing and running IT systems were mainly internal.
However, after having successfully consolidated and modernised much of its own
IT worldwide, and saving millions in the process, it then started looking to see how it
could help its customers similarly. Today, through its Data Centre Efficiency Practice,
Sun is helping companies worldwide to build and maintain cost-effective eco
IT systems.
www.sun.com/aboutsun/environment/green/datacenter.jsp.
23
See www.sun.com/aboutsun/environment/docs/uk_datacenter.pdf and www.sun.com/customers/servers/sun_newark.xml

for more details.
69
APPENDIX 3
Carbon footprinting at Riverford Organic Vegetables

The Greenhouse Gas Protocol has defined the approach to carbon footprinting on
which the Carbon Trust bases its advice to companies, and which most companies
follow. This is built around a structure of three levels at which footprinting can be
done, defined in terms of the extent of their boundaries:
Scope 1:
Direct emissions from activities the organisation controls.
Scope 2:
Emissions from using electricity from an outside supplier.
Scope 3:

Indirect emissions, upstream along the supply chain and downstream

in the delivery and consumption of products and services.
Scopes 1 and 2 are obligatory, but Scope 3 is optional and it is up to each company
to decide whether to follow this too and, if so, how far upstream and downstream to
go in defining its own footprint.
Riverford Organic Vegetables runs a vegetable box home delivery service, competing
with other food retailers such as the big supermarket chains. Mark Howard,
Riverfords Sustainable Development Officer, is responsible for calculating Riverfords
own carbon footprint and is critical of the exaggerated claims made by some
companies: When you look at what theyre doing, you can find theyre only counting
a selective part of their total emissions, sometimes just to publicise newsworthy
initiatives which dont reflect the business as a whole. It may be well manicured
public relations, but this can actually impede sensible questioning of the real issues,
such as the packaging and energy used in the global sourcing of food which some
footprints just ignore. Instead, we get stories in the media about wine going up the
Manchester Ship Canal, but behind this its just business as usual.
Riverford aims to go as far into Scope 3 as possible in calculating its own carbon
footprint, although Mark recognises that there are practical limits to how far it is
feasible to go: We extend our calculation as far as we can, and concentrate on what
we can capture without too much difficulty and what we can have some influence
over. However, these calculations are still sufficient to dispel some popular myths
about what constitutes good environmental performance and how this can be
measured (see the next case study).
Riverford has published the results of its first carbon footprint exercise on its
dedicated website (www.riverfordenvironment.co.uk), together with details of much
of its other environmental work. Mark is currently developing a more embedded
system of calculating the carbon footprint on an annual basis, with the 2007 figures
expected later this year.
The calculation of CO2 emissions has provided a metric by which activities can
be measured and thus managed, and this has led to several changes in practice
to improve environmental performance and sometimes also reduce costs.
70
redesigning packaging materials to use less material, thus reducing both

manufacturing and transport emissions, and costs, through the more efficient
use of pallets;
e
nergy efficiency measures by looking at refrigeration systems in detail and
improving routine maintenance and making some technical improvements which
improved equipment performance, and reduced carbon emissions and costs;
APPENDIX 3
These include:
c
omparing alternative transport modes such as shipping from Morocco rather
than trucking (ships take an extra day to reach the UK, but incur only one-fifth of
the carbon emissions of trucks).
Further information is available from: www.riverfordenvironment.co.uk.
Riverfords search for balanced performance indicators
Most accounting textbooks and manuals offer several examples of how analyses
need to consider all the relevant costs and benefits associated with an action if they
are to result in a balanced picture which provides a good guide for action, and the
risk that an analysis which is partial and unbalanced could lead to inappropriate
actions. An obvious but classic example could be a performance measurement
system which measures the volume of production but not its quality, and so
encourages staff to cut corners in order to boost production quantities. The need
to ensure comprehensive and balanced performance measurement has driven the
development of approaches such as balanced scorecards.
Environmental accounting similarly needs to ensure that indicators are balanced
and complete, and provides examples of how results can be distorted if too much
importance is attached to only a single indicator taken on its own. In Riverford
Organic Vegetables sector, one example is food-miles. In the popular media this
is often simplistically assumed to be a meaningful indicator of the environmental
impacts of food supplies (in particular, of their climate change impacts), with the
implication that it is necessarily always more environmentally responsible for food to
be grown close to where it is going to be consumed.
Riverfords calculation of its carbon footprint brings in as much as possible of its
Scope 3 impacts as well as Scopes 1 and 2 (see previous case study). One element
in this is the carbon impact of transporting a kilo of tomatoes to the UK: 250 grams
if imported from Spain by road, 60 grams if imported from Morocco by sea, but only
around 50 if sourced from a UK supplier. However, to grow tomatoes in the UKs
climate requires artificial heating, and this pushes the total impact up to 2,250 grams
compared to only 300 and 150 if sourced from Spain and Morocco respectively.
Although the food-miles indicator on its own would suggest that sourcing locally is
more environmentally responsible, this would be a distortion of the full overall effect.
The exercise also showed the dramatic differences in carbon emissions per unit per
kilometre of alternative methods of transport. Trucking by HGVs incurs six times the
emissions of deep sea freight per kg transported, vans 20 times, and airfreight
40-100 times.
71
APPENDIX 3
Some of the results produced by Riverfords holistic approach to carbon footprinting

are counter-intuitive and contradict popular prejudices. It had, for example, expected
the carbon emissions generated in running its cold stores to be a major source.
Its analysis found that these were, in fact, outweighed not only by emissions from
transport (as it had expected) but also by those incurred in the manufacture of
its packaging.
Riverford had always used paper for packaging rather than plastics, expecting that
this would be more environmentally benign, but its carbon footprint calculation
unexpectedly showed that plastic can often have lower carbon emissions than
paper, even when it has been made from recycled fibres. Prompted by these results,
Riverford is now planning to restructure its packaging system radically by moving to a
system of returnable plastic crates which can be re-used many times for its vegetable
boxes. To encourage customers to return them, these crates would carry a deposit,
which will mean an additional accounting process to track them.
Mark Howard acknowledges that like any measurement system, carbon footprinting
exercises have to be realistic and recognise that what can be included may have
to be constrained if the required information is not currently available. We take
a pragmatic approach here. For example, at first we didnt attempt to include the
carbon emissions associated with actually growing the crops in the first place, since
the necessary data wasnt available for all crops. Since then weve done an extensive
review of academic journals and had several discussions with growers, and this has
uncovered the appropriate information for crops grown in greenhouses. This has led
us to consider moving some production to France where no heat is required and the
overall impact is lower. However, the picture is much more complex for crops grown
in fields and we dont expect to be able to resolve this in the near future, so for the
time being, well have to continue to leave these out of our calculations.
72
Envirowise - sustainable practices, sustainable profits. Envirowise is a

Government-funded programme dedicated to putting the sustainable
use of resources at the heart of business practice. It is managed by AEA
Technology plc and Serco TTI. Envirowise is funded by Defra, the Scottish
Government, the Welsh Assembly Government and Invest Northern Ireland.
Envirowise offers a range of free services including:

Free advice from Envirowise experts through the Envirowise
Advice Line.
A variety of publications that provide up-to-date information on
resource efficiency issues, methods and successes.
Best practice seminars and practical workshops that offer an ideal
way to examine resource efficiency issues and discuss opportunities
and methodologies.
ADVICE LINE 0800 585794
Glengarnock Technology Centre Caledonian Road Lochshore Industrial Estate Glengarnock Ayrshire KA14 3DD E advice@envirowise.gov.uk
www.envirowise.gov.uk
Crown copyright. First printed March 2009. Printed on paper containing 80% recycled post-consumer fibre. This material may be freely reproduced in its
original form except for sale or advertising purposes.

Guide: Reduce Your Costs With

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Guide: Reduce Your Costs With

Hochgeladen von

Copyright:

Verfügbare Formate

REDUCE YOUR COSTS WITH ENVIRONMENTAL MANAGEMENT ACCOUNTING

ACCA (The Association of Chartered Certified Accountants)

The Chartered Institute of Management Accountants (CIMA)

The Environmental Management Accounting Network (EMAN)

The Institute of Chartered Accountants in England and Wales

The Institute of Chartered Accountants of Scotland (ICAS)

REDUCE YOUR COSTS WITH

This Good Practice Guide was produced by Envirowise

Environment and management

The business benefits of good environmental performance

The purpose of this Guide

ENVIRONMENTAL ASPECTS AND IMPACTS OF BUSINESS

What are an environmental aspect and an environmental impact?

Why are these relevant for an accountant?

Business activities and environmental impacts

Business activities and environmental impacts

Legislation, regulation and public policy

Big Splash and the Rippleffect

ENERGY USED IN BUILDINGS

Business activities and environmental impacts

Legislation, regulation and public policy

Footprinting, offsetting and adaptation

Business activities and environmental impacts

Legislation, regulation and public policy

SUPPLY CHAIN MANAGEMENT

Supply chain management, the environment, and accountants

OTHER ENVIRONMENTAL MANAGEMENT INITIATIVES

Environmental management systems (EMS)

Key Environmental Performance Indicators

Energy Saving Trust (EST)

National Industrial Symbiosis Programme (NISP)

Waste & Resources Action Programme (WRAP)

Manufacturing Advisory Service (MAS)

Scottish Manufacturing Advisory Service (SMAS)

1.1 Environment and management

Fig 1 Environmental costs of business operations

1.2 The business benefits of good

1.3 Environmental accounting

1.4 The purpose of this guide

2.1 WHAT are AN ENVIRONMENTAL ASPECT AND

ENVIRONMENTAL ASPECTS AND IMPACTS

An environmental aspect is an:

2.2 WHY ARE THESE RELEVANT FOR

These definitions are according to ISO 14001.

By using the environmental management accounting responses suggested in

Fig 2 Potential effects on business as a result of environmental impacts

Use of renewable resources >>

Packaging (eg plastic,

Raw material use

Carbon emissions from

Solid landfill waste

Greenhouse gas emissions

Use of hazardous materials

Human health impact and

Pollution of land through

Hazardous waste generation >>

Depletion of ozone layer/

Use of fossil fuels (eg private >>

Noise and vibration from

Nuisance to local residents

Emissions from fuel use

Global climate change and

Video and teleconferencing

Environment and management

The business benefits of good environmental performance

The purpose of this Guide

ENVIRONMENTAL ASPECTS AND IMPACTS OF BUSINESS

What are an environmental aspect and an environmental impact?

Why are these relevant for an accountant?

Business activities and environmental impacts

Business activities and environmental impacts

Legislation, regulation and public policy

Big Splash and the Rippleffect

ENERGY USED IN BUILDINGS

Business activities and environmental impacts

Legislation, regulation and public policy

Footprinting, offsetting and adaptation

Business activities and environmental impacts

Legislation, regulation and public policy

SUPPLY CHAIN MANAGEMENT

Supply chain management, the environment, and accountants

OTHER ENVIRONMENTAL MANAGEMENT INITIATIVES

Environmental management systems (EMS)

Key Environmental Performance Indicators

Energy Saving Trust (EST)

National Industrial Symbiosis Programme (NISP)

Waste & Resources Action Programme (WRAP)

Manufacturing Advisory Service (MAS)

Scottish Manufacturing Advisory Service (SMAS)