Pleased Accountants Happy Environmentalists: Challenges of Environmental Management Accounting for Management Information Systems and Tools

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1 EnviroInfo 2006 (Graz) Managing Environmental Knowledge Pleased Accountants Happy Environmentalists: Challenges of Environmental Management Accounting for Management Information Systems and Tools Tobias Viere 1, Andreas Möller 2 Abstract By integrating environmental issues into conventional economically oriented management processes Environmental Management Accounting (EMA) plays an important role in moving businesses towards sustainable development. This paper elaborates the challenges of EMA for computer-based information systems and tools and reveals existing solutions. 1. Meeting the integration challenge of corporate sustainable development environmental management accounting The goals of sustainable development do not necessarily harmonize with the primarily profit-driven goals of enterprises; on the contrary they might even be conflictive. Therefore concepts and instruments aiming at making corporate sustainable development happen need to meet a twofold integration challenge: To improve and balance environmental as well as social effectiveness and efficiency with economic aspects, and to integrate the management of sustainability issues with conventional management (Schaltegger 2002), using e.g. the Balanced Scorecard concept: strategy maps and the Balanced Scorecard itself (Kaplan/Norton 2004). The concept of Environmental Management Accounting (EMA) meets this integration challenge of corporate sustainable development by providing environment-related physical and monetary information for corporate decision-making. EMA helps to manage the environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices (IFAC 1998, UNDSD 2001). Conventional management accounting assists managers in fulfilling a variety of tasks and goals and therefore comprises a range of tools (Horngren 2005). Likewise, EMA integrates environment-related information into conventional management accounting and serves various purposes and information demands. Hence EMA incorporates tools like environmental cost accounting, material and energy flow accounting, green budgeting, environmental investment appraisal, eco-efficiency analysis, life cycle inventories and life cycle costing (Burritt/Hahn/Schaltegger 2002). The increasing importance of EMA, indicated by successful institutions like the Environmental Management Network (EMAN) with subdivisions in Europe and Asia-Pacific, or the United Nations Division for Sustainable Development Expert Working Group on EMA, has recently been underlined by the International Federation of Accountants release of an International Guidance Document on EMA (IFAC 2005). In addition, management accounting research has started to deal with social aspects and their integration, leading to Sustainability Management Accounting research (Schaltegger/Bennett/Burritt 2006). 1 Centre for Sustainability Management (CSM), University of Lueneburg, Scharnhorststr. 1, D Lueneburg, Germany viere@uni-lueneburg.de, internet: 2 Institute for Environmental and Sustainability Communications (infu), University of Lueneburg, Scharnhorststr. 1, D Lueneburg, Germany, amoeller@uni-lueneburg.de, internet: 307

2 The various decision-making settings of EMA have been systematized and analyzed in the EMA framework of Burritt/Hahn/Schaltegger (2002). Economically oriented decisions require monetary EMA (MEMA) information while ecologically motivated decisions require physical EMA (PEMA) information. Depending on the actual situation the framework distinguishes further between demands for past or future oriented information, long or short term information, and routinely generated or ad hoc information (Burritt/Hahn/Schaltegger 2002). Beyond these content-related requirements, EMA challenges the underlying computer-based information systems and tools. 2. Environmental Management Accounting challenges for computer-based information systems and tools EMA aims at satisfying the information demands of accountants and financial managers as well as environmental managers and engineers in various decision-making situations. As the collection, measurement and analysis of information is usually accomplished by using computer-based systems and tools, EMA has become a topic for applied computer science (Bennett/Bouma/Wolters 2002). Considering the implications of the different decision-making situations described in the EMA framework of Burritt/Hahn/Schaltegger (2002) two main challenges for computer-based EMA can be identified (Möller/Prox/Viere 2006): 2.1 Monetary vs. physical EMA information demand Economically motivated decisions are based on monetary figures and units (e.g. net present value, return on investment, profit margin). In contrast, ecologically driven decisions require information in physical units (e.g. energy demand in kj, global warming potential in kg CO2-equivalents). EMA needs to provide both, monetary as well as physical information (MEMA and PEMA) and has to please the accountants and financial managers as well as the environmental managers and engineers. Computer-based enterprise resource planning (ERP) systems are the main provider of monetary information for the majority of enterprises; they even shape and standardize the business processes (Lee/Siau/Hong 2003). Naturally, they are considered and used to apply monetary EMA (Scheide 2001). Frequently, physical information serves as a basis for monetary EMA. For instance, to identify the real costs of non wanted outputs of production in environmental cost accounting, material and energy flow information are necessities. In Japan in particular, this kind of EMA application has become popular as flow cost accounting (Strobel/Redmann 2002, Kokubo/Nakajima 2004). However, physical EMA serves more purposes than just being a data source for monetary EMA considerations. It reveals the ecological advantages and disadvantages of different decisions, even when there are no monetary consequences. For example, the ecological advantage ratio supports environmental managers in choosing the best pollution prevention device by measuring whether and how much environmental impact added is reduced over the life of the investment (Schaltegger/Burritt 2000, 307). The combination of physical and monetary EMA, commonly stated as eco-efficiency indicators, is a further challenge (Burritt/Saka 2004). Computer-based solutions for providing physical EMA information mainly derive from environmental (management) information systems, usually based on engineering and natural sciences approaches (Bullinger 1998, Rautenstrauch/Patig 2001). Thus the integration challenge of corporate sustainable development appears to the technical level of EMA, too. Computer-based EMA needs to provide, integrate and combine natural sciences and engineering approaches delivering physical information and managerial approaches providing monetary information. 308

3 2.2 Machine vs. tool perspective of EMA EMA measures and assesses short term focused environment-related information of the past in a routinely manner, but it also gathers and analyses long term focused environment-related information of the future on an ad-hoc basis (Burritt/Hahn/Schaltegger 2002). For instance, EMA gathers environmental cost accounting data on a monthly basis, but it has to provide strategic information on the long-term consequences of changes in environmental policy, too. This diversity of tasks leads to different user perceptions regarding computer-based EMA. While some EMA users expect a machine, collecting and processing information in an automated manner, others expect a tool, allowing them to get new ideas by applying their expertise to unexpected challenges and simulating various scenarios (Möller/Prox/Viere 2006). This tool vs. machine contradiction emphasizes a fundamental challenge for computer-based EMA. On one hand, there is a great user demand for standardization to achieve an efficient integration of EMA information into daily operations. On the other hand, EMA users also demand flexibility to be able to deal with new, strategic, and even unpredictable environmental challenges lying ahead. 2.3 Existing solutions for computer-based EMA Different strategies exist how to realize computer-based EMA. To one extreme, EMA solutions can be applied as stand alone solutions; the other extreme is to fully integrate EMA into the existing computerbased information system (Rautenstrauch 1999, Page/Rautenstrauch 2001). An example of a stand alone solution is a computer-based life cycle assessment tool like SimaPro (Goedkoop/Oele 2001), covering one specific decision-making situation within the EMA framework. An integration example is an ERP-based flow cost accounting (Scheide 2001), which integrates one specific decision-making situation of EMA into the conventional management information system. In general, ERP systems are capable of monetary, machine-like EMA tasks, but fail to support most of the physical and tool-like EMA functions. (Möller/Prox/Viere 2006). Environmental management information systems originate from the need for ecological (physical) information on a corporate level (Rautenstrauch/Patig 2001). A comprehensive approach to environmental management information systems is the material flow networks approach, originally designed for providing physical environment-related information on material and energy flows (material flow analysis (MFA)) and environmental impacts (Schmidt 1997, Möller 2001). Material flow networks deliver input/output-balances, also referred to as eco-balances, and graphical presentations of the flows within the modelled systems, e.g. a company s production line or supply chain. The approach has been further developed to incorporate reference flow calculations and assessment. Certain objects within the material flow network, e.g. the final products, can be traced and allocated throughout the material flow network based on a process matrix. This allows for the compilation of life cycle inventories and the integration of costs (Möller 2000). The static character of the input/output-balances and life cycle inventories is supplemented by the flexibility of the embedded modelling approach, which allow for dynamic modelling and simulation (Wohlgemuth 2005, Möller 2005, Möller/Viere 2005). Material flow networks reach their limitations when it comes to monetary EMA tasks which are not directly related to material and energy flows. For instance, accounting for the environment-related research and development or human resources costs, or developing the environment-related figures in monetary budgeting is out of the scope of material flow networks. In between the extremes of stand alone solutions and fully integrated EMA applications, add-on and interface solutions can be found, e.g. to enable data exchange between ERP systems and material flow networks (Wohlgemuth/Niebuhr/Lang 2004). 309

4 3. Conclusions Computer-based Environmental Management Accounting is a prime example of the integration challenge of corporate sustainable development. It has to provide information on the ecological effectiveness of (environmental) management activities (physical EMA), on the economic effectiveness of these measures (monetary EMA), and on the combination of both (eco-efficiency, physical and monetary EMA). In order to be successful, it has to be integrated into the conventional management processes, which leads to a variety of tasks, from the routine collection and analysis of environmental cost accounting data to ad hoc simulations of environment-related scenarios of the company s future. From an information system development perspective it is neither necessary nor desirable to create one EMA software solution. Rather, existing solutions like ERP packages or MFA-based computer tools could be used to develop a component-based framework of computer-based EMA. Following the principles of componentization (Kobryn 2000, Sprott 2000), such a system consists of autonomous and replaceable EMA components offering clearly defined services instead of large scale applications. Previously coexisting information systems, like ERP systems or environmental management information systems, can share the same components to receive EMA information they require as well as to provide their EMA information for other applications. A componentization solution for computer-based EMA supports the versatility of EMA tasks. It satisfies accountants and financial managers, primarily worrying about the (environment-related) financial performance, as well as it keeps environmental managers and engineers happy, demanding information on the ecological effectiveness and eco-efficiency of their activities. Moreover, the flexibility of the approach allows for adding and exchanging components, e.g. to integrate developments in sustainability management accounting. 310

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