Environmental Sustainability: Tools and Techniques - CIMA

1 MA NAGEMENT ACCOUNT ING GUI DELIN E (M AG )ByHelenneDoody,BSc (Hons ), ACAEnv iron men talSus tai nab ility :Tool s and Te chn iquesPubl ish edbyTheSociety of ManagementAccountantsofCanada,theAmeric an InstituteofCer tif iedPublicAccountantsandTheCharteredIn st it uteofMan ce to ReadersThemateria l con ta in ed in th e Management Accou nt in g Guide lin e(MAG )EnvironmentalSustainability:ToolsandTec hniquesis designedto pr ovid e illu strati vein fo rmat ionwi th respec t tothesubjectmatter cov ere d. It does not es tabl ish sta ndards orpr eferredpr ac ti ce s. Th is mate ria l hasnotbeenconsi de re d oracteduponbyan y seni or or te chn ic al commit tee s or thebo ar dof di rector s of eith er th e AIC PA, CI MAor CMAC anada anddo esnotrepresentan off ic ia l op in io n or position of ei th er theAI CPA,CIMA or CMA Can ada .Cop yri gh t 20 09 byThe Society of ManagementAccountants of Canada(CMAC anada),theAmericanIn st it ute of Certi fi edPublic Accountants, Inc.

2 (AICPA)an d Th e Chartere d In stitute of ManagementAccountants (CIMA).Al l Ri ghtsReserved. Register edTrade-Mark is owned by TheSociety of ManagementAccountants of Canad this pu blication maybereproduced,storedin a retrievalsystemortr ansmitted, in an y fo rmor by an y means,wit houtthepri or writ tenconsentof thepub lisher or a licencefromThe CanadianCopyrightLicensingAgency(AccessC op yri gh t) . For anAccessCopyr ig ht Li cence,visit callto ll fr eeto 1 80 0 8935777 .ISBN:1-55 302 -2 52 -1Co nt ..4In ..4A St rategicApproach toEnvironmental oftheManagement Accou ..7 Key Iss in g Regulatory ..9 Reducing ..10 RespondingtoStakeho ..11 AchievingCompetitive ..12 Method s forId ..14 Priorities andPolicies ..17 ActionPlans, ..18 ToolsandTechniquesforStrategy agement .. 22 Informationan d DataCaptu re .. 23 Costing ..28 InvestmentAppraisal.

3 37 MonitoringandReportingonEnvironmental Susta in Management .. 49 Reporting ..56 AppendixA: Carillion s SustainabilityExc ..57 AppendixB: Commonlyused Environmental ..58 AppendixC: TheISO140 ..61 Useful ..66Bi ..73 Environmental Sustainability: To olsandTechniquesExecuti ve Su mmaryMany organ izatio nsfailto se e the rat ionalefor spendinganymoremoneyontheenvi ro nment thanre qui re d, particular ly in ti mesof economicdi ff icu lty. Enli ghtenedorg anization s, though , ar e movi ngfrompurelycomplyingwit h legalrequirementsto realizing that a fo cu s on envir onmental sustainability providesa co mpetit ivead vantage. For the seorg an ization s, environmentalsustainabilit y is (a)anessentialele ment of co rp or atestrategy, and(b ) synonymouswith long-ter mbusinesssu ssleader s sh ou ld be identif ying andun derst an di ngthekeyenvironmentalsu stainab ilit y issues anddri ve rs rele vantto theiror ganizati onan d developing theirstrategyaccord ingly.

4 Environmental sustai nabilit y shouldbeint egratedthr oughoutthe busine ss,in both strategic an d op er ati onaldecisionmaking,andactivi ti essh ou ld be alignedto th e co re gr ating env ir onment al su st ai nabili ty int o thedecisi onsmadethr oughouttheorg anizationreq uire s th e co mbine d skill s of manydi sciplines,includingmanage-ment accoun ement accountants analyticalandfinancialskillsan d th ei r ab il ityto makeobj ect ivedecisions,theyar e well pl aced to takea pi votalrole in moving th e environ mentalsu st ainability agenda forward. Environmentalsu stainab ilit y nee ds to be factore d into manyof theactivi ti esin whichmanagementaccoun tants arelikely to alr ead y be in volved,suchasplanning andbudgeting,in fo rmat ionan d datacaptu re, co st in g, investmentappraisal, performancemanagement , an d re po rt in environmentalsu st ainabili ty becomesa more signifi cantissue,newtools andtech ni ques areemerg ingto help organizat ionsmakethenecessarych r, th ere arealsomany traditi onalmanagement accountingtools andtech ni ques th at canbeap pl ie d or ad aptedto assist organizationsin theef fectivemeasurement an d management of Environmental impacts, costs, en , it is a caseof extend ing exi st ingpracticesto takenewissuesint o account,th in king beyondtheboun dariesof the or ganizat ion.

5 Andtakinga longertermviewof therisksan d opp ort un iti es th at envir onmental sustai nabili ty pr tr od uctionLeadin g org anizations areacknowl edgi ngthatlong-termeconomicgr owth is notpossibleun le ssth at gr owth is en vi ronmentall y andsociall y sses, environment al su st ainab ili ty hasbecomeanint egralpartof corporatestrategy . Howeve r, manyor gan iz ati onsarejustbeginningto understandtheim por tanceof (a)th is in te rp laybetweenst rategyandenvironmental sustainability,an d (b) the ef fe ctsof a chang ing andcomplexregional, national, andint ernationalenviro nmentalag end :ToolsandTechniquesOrg an izatio ns sh ould be consi dering Environmental sustai nabilit y wit hinthecontextof meetin g a bro adrange of st rategic objectives,suchas: Ensurin g co mpliancewi th al l le gal andregulat or y requirements; Ach ie ving ef fe ctiveriskmanagementandco nt ingencyplanning; Improving efficiencyandobtaining costsavings; Bett er meet ingtheneed s of cu stomers andinvestors; Attractin g andret aining top talent andimprovingemployee pr oductivi ty; Improving standingin thelocal, financial, andgovernmentcommunity; Positio ni ngtheorg an ization to th rivein a low-carboneconomy.

6 And Ach ie ving competit ivead vantageandlong-termpr ofi tabilit to planfor a futur e in whichenvir onmental sustainabilit y will bea si gnificantfactor mayput the lo ng-t ermvalue andfut ureof anorganization at so,org anization s that basethei r actionssolel y in termsof compliancewil l missoutonthe man y opp ortunities pre se nte d by Environmental sustai gui de lin e pro videsmanag ement accountants with adviceontool s, Techniques ,an d appro achesto assistth emin developing,implementing,monitor ing,andrepor ti ng on a co rp oratestrat egythat encompassesenvironmental su st ai d ef ficient useof resourcesis a keypart of environmentalsustai nabilityan d a maingoal fo r th e management accountant. It is of tenthemanagementaccoun tant who is tasked with providingcomplete andrel iable inf ormationtoenab le theorg an ization s re so urcesto bemanaged with ai mof thi s gu id elineis to provi de pr acticalguidancefor managementaccoun tants working within accoun tingandfinancefunctions,al thoughit alsopro vides a strate gic conte xt for th oseat senior levelsor whoar e rep resentedonthe Board.

7 Th e ap pr oaches describ ed maybeused andadaptedbyal l or ganizationsregardle ssof siz e, location, or se ct or. Gi venthebr oadrangeof contentcoveredbythis gu id elin e, use rs canse lect the sectionsmostrel evantto their needsandtheneeds of th eirorg an is acknowledg ed th at envir onment al sustainabili ty is only oneel ementof thewi de r sustainab ilit y ch allenge , an d that economicandsocial issuesar e equallyim por tant. This guidelin e fo cu sesonenvironmentalaspects,becausethere areanumber of meth od s for factori ng en vi ronmental sustainabilit y intobusinessdecisions th at ar e be co ming wi dely acceptedbyor ganizati ons,includinggovern ment s. In co nt rast,the valuat ionof socialimpacts is lesswelldevelopedandoften more co nt ro existin g ManagementAccountingGuidelineInte gr atin g So cial an d Pol iti cal Ri sk int o ManagementDeci sion Makingpr ovidesso meuse fu l gu id ancereg ar din g so s guidelinelooksprimari ly at environ mentalsustai nabili ty, manyof thepr inciples,parti cularly thepro po se d strategi c appro ach,canal sobeappliedto sustainabilit y in thewiderco nt Strategic App ro achto EnvironmentalSustainabilit yMany organ izatio nsar e start in g to respondto thegrowingenvironmentalsu stainab ilit y agen da, anda signifi cant numberar e rep or tingontheir activi tiesinthis area.

8 Howeve r, often this reportingdoesnotlinkenvironmental su st ai nabilityto theor ganiz at ion s overa ll st rategy. Instead,it appearsthatenvironmentalsu stainab ilit y is a b olt-on activit y that is dr ivenpri marily froma complianceorpublicre lation s per sp oug h re por tin g is anim po rtan t activi ty, it should notbethest ar ti ngpoint fororg anization s loo king to ad dressenvir onmental sustainabilit y. It is imperat ivetoin te grateenvir on ment al su stainab il it y wit hinst rategyandal ignit to thecorebusi ne sspurp dep ict edin Figure 1, organ izations shouldtakea st rategicapproachtoenvi ro nmentalsu stainab ilit y, firstident ifyi ngthekeyissuesanddri vers rel evantto the m, an d th en de ve lo pi ngtheir businessst rategyaccording ly. Tools andtech ni ques sh ou ld be applie d to help implementthi s st rategy,ensuringthatenvi ro nmentalco ncerns areintegrated intomanagerial decisionsin allparts andle ve ls of th e or gan ization.

9 A nu mber of traditionalmanagementaccountingtoolsan d te chniq uescanbeuse d to assist wi th thi s. Reportingshould thenbeaboutpro gr essto ward s imple menting an d achieving a st rat egyin whi chenvironmentalsu stainab ilit y is ful ly in gure 1: A str ategic ap pr oachto en vir on men tal su stainabil ityThi s gui de lin e will lo okat eachof the boxesin Figure 1 eatestatten tionwill be given to (a)strat egyimplementati on,an d (b)therelevantmanagement accoun tin g to ols andtechniquesthatcanbeusedto assistinin te gratingenviro nmentalfactor s into , it is importantth at management accountants beco meinvolvedfromthest art. Byidentif yi ngandund erstandin g the ke y drivers, managementaccountants wi ll gain invaluable6 EnvironmentalSustainability:ToolsandTech niquesMonitorandreportonenvironmentalper formanceUnderstandkeydriversforenvironme ntalsustainabilityIntegrateenvironmental sustainabilityintostrategydevelopmentUse toolsandtechniquestoimplementstrategy kn owle dge ab ou t ho w to measure, control , andreportontherel accoun tants ar e in se niorpositionswit hinor ganizati onsandwillbeab le to inf lu en cestrateg ic dir ecti on.

10 Others arein rol eswhere theypr ovideth ebusi ne ssint ell igenceneeded for strat eg ic andoperat e Rol e of theManagement Accoun tantTh e mana gementaccountant srolewill varywiththety peof jobandby organization,but given th e tr aditional sk il ls an d co mpetenciesof a managementaccountant,theyarewel l positionedto takea pivotal rol e in int egratingsustainabili ty wi thi n strategy,an d makingenvironmental sustainability businessasusual. Areasof environmentalsustaina bi lity wherethemana gementaccountantmayge t inv olvedarelis tedbe : Ensurin g co mpliancewi th legisl at ionandregulations,both presentandpr ojected; Und erstandingthepote nti al impactonthebusinessof cu rrentandforthcomingen vironmen tallegislatio n; Consideri ng the financial co st s an d ri sksassociatedwi th aninvestment, product,or pro cessth at will likely causeor incr easeenvironmentaldamage; assessing po ten tialliabil it ie s of pastpracticesthathavecausedenvironmental damage; and Offerin g expe rt isein thefin an ci al evaluationof Environmental li ti gationandse ttle men t op tio develo pment: Ascert ainingthefinanci al risksof exter naldevelopments with regard toen vironmen talsustainabili ty; Ident ifyingoppo rt un it ie s fo r more ef fici en t useof resource s.