Journal of Cleaner Production 14 (2006) 1214e1227www.elsevier.com/locate/jclepro

Pilot project on sustainability management accountingwith the Styrian automobile cluster

Christine Jasch *, Alexander Lavicka

IOW, Institute for Environmental Management and Economics, Rechte Wienzeile 19/10, A 1040 Vienna, AustriaAvailable online 12 October 2005

Abstract

The paper is based on a project with the Styrian automobile cluster in Austria and selected member companies. In six companies, the en-vironmental management costs, as well as further costs for health and safety, risk management and other social issues were assessed. Less tan-gible items and external effects are addressed. Starting with the efforts to assess the financial effects of the sustainability performance indicatorsprovided by the Global Reporting Initiative (GRI) for sustainability reporting, the UN DSD (United Nations Division for Sustainable Develop-ment) method for environmental management accounting (EMA) was enlarged by several other cost categories. This paper describes these andthe experiences from the pilot projects.

The two major cost drivers are the purchase costs of non-product output and the costs related to lost working days because of sick leave andaccidents and the overtime pay to make up for these lost working days. The work of the Environmental Health and Safety (EHS) departmenthelps to reduce these costs. The cost assessment scheme allows one to better understand the relationships between costs for treatment of un-desired effects due to unimplemented protection measures and lost material purchase value in comparison to the prevention costs, which mainlyconsist of the internal management departments and related external consultants.

The assessment of sustainability management costs is of interest for organisations, which already publish a sustainability report and want tomore accurately assess the financial effects of such aspects addressed via EMA. It is also useful for small and medium sized companies, whichuse the assessment as a starting point to shape their (EHS) system. The main benefits are more accurate data and better arguments for investmentappraisal or performance indicators as well as improved consistency of information and management systems that should help them to improvetheir environmental, social and economic performance.� 2005 Elsevier Ltd. All rights reserved.

Keywords: Environmental management accounting; Sustainability management accounting; Sustainability accounting; Environmental costs; Health and safety

costs; External costs; Intangible items; Automobile industry

1. Introduction

Conventionally, sustainable development is described inthree dimensions: social, environment and economic, some-times also called People, Planet and Profit. However, these di-mensions are not separate, but strongly influence each other.For most companies to have an interest in sustainable develop-ment there needs to be an expected financial benefit. But oftenorganisations are not able to precisely tell their environmental

* Corresponding author. Tel.: C43 1 5872189.

E-mail address: info@ioew.at (C. Jasch).

URL: http://www.ioew.at

0959-6526/$ - see front matter � 2005 Elsevier Ltd. All rights reserved.

doi:10.1016/j.jclepro.2005.08.007

or social costs and even less, the benefits and savings fromimproved environmental and social performances.

‘‘In a world where companies are expected to prove theirperformance in sustainability terms accountability and trans-parency have become major prerequisites to enable a co-oper-ative and constructive participation of employees, customers,the financial community and the civil stakeholders.’’ [35].

Does an Environment, Health and Safety (EHS) departmentand a commitment to Corporate Social Responsibility (CSR)really contribute to a company’s bottom line? ‘‘Within manycompanies, EHS teams have reduced costs, avoided unneces-sary investments and achieved other financial gains. However,many of the activities within an EHS organisation are compli-ance driven and are not easily linked to the company’s profit

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objectives. These activities consume investment capital, re-duce operating efficiency and require considerable personneltime. EHS managers must be able to demonstrate their contri-bution to the financial bottom line. Without a well-groundedfinancial message, EHS managers will struggle to obtain man-agement commitment and resources.’’ [28].

Korhonen [26] emphasises the importance of using mone-tary information in the social dimension, e.g. about imagecosts, in order to motivate companies to take social responsi-bility seriously and to act accordingly.

The Triple Bottom Line approach usually lists the three di-mensions individually. The Global Reporting Initiative (GRI)provides indicators for the three dimensions, but also lists‘‘integrated indicators’’ in an attempt to combine the single di-mensions [15]. They, however, do not give instructions on howto do this. GRI differentiates between:

� Systemic indicators, which present the environmental,social and economic performances of the company in rela-tion to the macroeconomic effects, and� Cross cutting indicators that generate a relation between

two sustainability dimensions.

The project with the Styrian automobile cluster wasdesigned to develop and utilise an accounting tool for the en-vironmental and social performance costs, based on the eco-nomic performance taken from the profit and loss accounts.The approach was tested in pilot projects with six companies,all of them are suppliers to the automobile industry. Five ofthem are small and medium sized companies and one companyis large and is listed on the stock exchange. The companieswere interested in the cost information as a starting point toshape their environmental and other management systems, toprovide the foundation for their sustainability reporting andto find options to improve their material efficiency.

The project was funded within the framework of the pro-gramme ‘‘Company of Tomorrow’’ of the Austrian ministryof transport, innovation and technology: the project durationwas 1.1.2003e13.12.2004. The project partners were the AC-styria AutoclusterGmbH, Grambach/Graz, www.acstyria.com,the IOW, Institute for Environmental Management and Eco-nomics, Vienna, www.ioew.at and JOINTS, Institute for Sus-tainable Techniques and Systems of the Joanneum ResearchForschungsGmbH, Graz, www.joanneum.at.

2. What is sustainability management accounting?

Sustainability accounting and reporting can be defined ‘‘asa subset of accounting and reporting that deals with activities,methods and systems to record, analyse and report, firstly,environmentally and socially induced financial impacts andsecondly, ecological and social impacts of a defined economicsystem (e.g. a company, production site, nation, etc.). Thirdly,sustainability accounting and reporting deals with the mea-surement, analysis and communication of interactions and linksbetween social, environmental and economic issues constitut-ing the three dimensions of sustainability.’’ [35].

While sustainability reporting has experienced an impres-sive upswing in recent years, partly due to the Guidelines pub-lished by the Global Reporting Initiative [15], sustainabilityaccounting is still only in a very early stage of development.

The concept of sustainable development requires an integrat-ed assessment of the financial, social and environmental aspects.Sustainability management accounting is a tool that assists or-ganisations in becoming more sustainable by highlighting costs,risks and benefits. It extends traditional financial and cost ac-counting to take account of sustainability impacts at the organisa-tional level. As sustainability is based on a broad stakeholderapproach, also the external effects of the organisation and itsproducts must be considered. The focus is on extending the rangeof monetised information (covering environmental, social andeconomic impacts) on which decisions are made. Managementaccounting brings in emphases pertaining to external effects sothey can be considered in internal decision-making.

Therefore, within the company projects, data of financialand cost accounting were analysed to subtract the environmen-tally related (e.g. material and energy inputs and outputs, costsfor environmental management) and social aspects (e.g. costsof employee’s illness, costs of fluctuation). The third dimen-sion of sustainability, the economic description of the compa-ny’s wealth, was accomplished by rearranging the profitelossstatement into a value-added calculation. In addition, intangi-ble values, risk aspects and external effects were considered.

The model for sustainability accounting of the SIGMA pro-ject [36] is based on a similar concept but in addition distin-guishes between stocks at a particular point in time (like ina balance sheet) and resource flows in a period (like the profitand loss accounts); this underscores the fact that in addition tosustainability accounting being in its infancy, the stock part ofthe model is the least developed.

According to the Sigma project, ‘‘sustainability accountingseeks to explore all three dimensions by:

1. Disaggregating the internal accounts to show costs andbenefits related to economic, social and environmentalperformance; and

2. Extending the accounting boundary to consider the mone-tary value of external economic, social and environmentalimpacts.’’ (Fig. 1).

Fig. 1. Sustainability accounting in three dimensions [36].

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Internal costsEnvironmental costs Social performance

costsValue addedaccounting derivedfrom the profit & lossaccount

External effects

Air

& C

limat

e (E

nerg

y)

Was

te W

ater

Was

te

Soil

& G

roun

d W

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Noi

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Lan

dsca

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Env

iron

men

tal M

anag

.

Hea

lth

Safe

ty

Tra

inin

g &

Edu

catio

n

Soci

ety

Prod

uct R

espo

nsib

ility

Oth

er C

osts

1. Treatment of undesired effects

e.g.: depreciation of end-of-pipe equipment, waste treatment anddisposal costs

e.g.: costs resultingfrom unimplemented protection measures(accidents, sick leave.)

2. Prevention e.g.: R&D for emissionprevention, personnelfor environmentalmanagement, externalconsultants andverification

e.g.: facilities forhealth care, safetytraining, fire protectionrepresentative, cost ofhealth and safetypersonnel

3. Material flows e.g.: purchase value ofnon-product-output

e.g.: life cycle costing,negative effects ofemissions

4. Earnings e.g.: sale of wastematerials, subsidies forenvironmentalprotection measures

e.g.: revenue from recreational facilities for employees,subsidies for employeerelated issues

Formation of valueadded

and

Distribution of valueadded betweenstakeholders

Positive externaleffects, e.g.: valueadded in the region

5. Intangible items e.g.: environmentalquality of the site

e.g.: human capital e.g.: business relations,brand name

6. Risk aspects e.g.: risk of hazardousaccidents

e.g.: accident risks e.g.: operational risks

Fig. 2. General structure for Sustainability Cost Assessment.

The enlargement of the UN DSD EMA methodology intoa sustainability accounting tool was based on similar consider-ations, but it used a slightly different approach in dealing withstocks. They are reflected in the intangible items and relatedrisk aspects, as they are very hard to quantify.

For the development of the columns for the SustainabilityCost Assessment scheme shown in Fig. 2 the UN DSD EMAWorkbook [21] and the Guidelines for Sustainability Reportingdeveloped by the Global Reporting Initiative [15] were taken asa starting point as the companies originally had also planned togo for sustainability reporting. It could be seen from discussionswith companies that the interest for sustainability accounting isclosely related to sustainability reporting and the attempt tointegrate the related requirements with existing information, ac-counting and management systems. A related tool uses sustain-ability balanced scorecards [33,14]. While the GRI Guidelinesfocus on sustainability reporting and performance indicators,the focus of this project was on related sustainability manage-ment costs. The related tool deals with monetised (or potentiallymonetised) information only, which, in the environmentaldimension, is based on a material flow balance.

The general structure for the Sustainability Cost Assess-ment can be seen in Fig. 2. The detailed structure with exam-ples for the different environmental and social cost categoriesis presented in Fig. 3. In the following, the columns and linesof Fig. 2 are explained briefly, while subsequent sections pro-vide more detail on specific cost categories.

The Sustainability Cost Assessment scheme in Fig. 2 clearlydistinguishes between costs internal to the organisation, whichcan be partly taken from the profit and loss accounts and the costcentre reports and other cost categories, which refer to costs thatcannot be taken from the company records, like externalities,intangibles and risk aspects, but which have financial implica-tions as well. The costs assessment scheme does not imply add-ing up the columns and rows in Fig. 2, but rather gives anoverview on the relation between the different cost categories.For each column, a separate cost assessment scheme in excel-format has been provided in the pilot projects. Fig. 3 showsthem for the environmental and social dimensions.

The scheme has been developed to assess total annual envi-ronmental and social costs and earnings of the previous busi-ness year and to record significant intangible items, riskaspects as well as external effects, which have or may, inthe future, have financial impacts as well. On this basis, thecosts and benefits of Environment, Health and Safety depart-ments and Corporate Social Responsibility can be made ex-plicit, especially in comparison with previous or upcomingyears or in relation to a defined base year.

2.1. Internal environmental and social costs

The internal environmental costs are the best developedpart of sustainability accounting. The columns refer to the dif-ferent environmental media affected. In the social dimension

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Environmental dimension Social dimension

1. Treatment of undesiredeffects

Costs resulting fromunimplemented protectionmeasures

Costs resulting fromunimplemented protectionmeasures

1. Depreciation End-of-pipe equipment andproportion of equipmentproducing waste and emissions

Equipment to reduce the healthand safety impact, e.g.: noisereduction equipment

2. Maintenance, operationmaterials and external services

from cost center reports ofequipment defined above

Protective gas, equipment for firedepartment

3. Personnel from cost center reports ofequipment defined above

overtime resulting from sickleave of employees, costs of staffaway sick or injured

4. Taxes, fees, charges for waste disposal and sewage for additional payments forexhausting and/or dirty work

5. Fines, penalties, costs of authority proceedings

for non compliance in theenvironmental dimension

for non compliance in thesocial/ethical dimension

6. Insurances for increased environmental risks for increased safety and otherrisks in the social dimension

7. Recultivation and compensations

Compensations, e.g.: tofishermen; recultivation, clean-upof contaminated sites

Compensations e.g.: damages for pain and suffering

2. Prevention Emission prevention Accident prevention and riskreduction

1. External services for environmental management and certifications

for training and securitymeasures, e.g.: trainers, other consultants and auditors

2. Internal personnel for environmental managementand emission prevention

for personnel working on healthand safety issues; poison andradiation protectionrepresentatives; accidentprevention, e.g.: training, internalaudits, medical examinations, fireprotection representative,company medical officer

3. Research and Development for emission prevention for the reduction of accidents orother risk aspects

4. Equipment for integratedprevention

Proportionate share of integratedpollution prevention equipment,additional costs of “green”electricity

Equipment for health care e.g.:fitness area for employees,ergonometric chairs, safetyequipment, e.g.: for employeeprotective clothing, additionalcosts associated withenvironmentally sound air-conditioning systems

5. Other prevention costs Environmental communicationand publications, donations forenvironmental protection

Social/ethical communicationand publications, donations forsocial initiatives includinginfrastructure outside theoperation site e.g.: schools in theneighbourhood; voluntary socialexpenses, voluntary employeebenefits

Fig. 3. Detailed structure for the environmental and social management costs.

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3. Material Flows Costs of non-product output,valued by purchase price

1. Raw Materials Input x loss-

2. Auxiliary Materials Input x loss-

3. Packaging Materials Input x loss-

4. Operating Materials Essential operating materials by100 , administration is notconsidered

5. Merchandise Not considered (unless there is asignificant loss percentage)

6. Energy Input x loss- for own production, external procurement by 100

7. Water Costs of external procurement and extraction

8. Product Product scrap x production costs

4. Earnings Internal earnings Internal earnings1. Product

2. Other Earnings e.g.: earnings from the sale ofresidual materials or excesscleaning capacity of the wastewater treatment plant,subsidies for equipment investments, insurance benefits for environmental accidents,recourse receivables inconnection with accidents of other firms

e.g.: earnings from recreationalfacilities for employees, contributions to staff canteen,subsidies for employeequalification measures, insurancebenefits for employee accidents,recourse receivables inconnection with accidents of other firms

5. Intangible Values Intangible environmental values Intangible social/ethical values

e.g.: environmental quality at the company site, relations withauthorities and neighbours

e.g.: know-how, human capital,employee motivation,attractiveness as employer,reputation, creativity

6. Risk aspects Environmental risks Social/ethical risks Imputed risks Decontamination risks, accident

risks, risks of legal developments, e.g.: emission trading

Liability risks, risks of legal developments, e.g.: working conditions, Image risks, e.g.involvement in child labour accusation

Fig. 3 (continued).

the columns relate to the most significant cost carriers basedon the GRI social indicators and the costs actually found inthe pilot companies.

In many companies of previous pilot projects the environ-mental department is also responsible for health and safety is-sues. So these two responsibilities were sometimes added ascolumns to the environmental costs assessment already in pre-vious projects. This also makes sense, as some environmentaleffects are closely related to health and safety considerations.

2.2. Costs for treatment of undesired effectsand prevention

The distinction between ‘‘costs for treatment of producedemissions’’ and ‘‘costs for prevention’’ has been very helpful

in structuring the environmental cost categories. So the at-tempt was taken to use the same division between ‘‘treatmentof undesired effects’’ and ‘‘prevention’’ also for the socialdimension.

It has been shown in many pilot projects that while costs inthe category ‘‘treatment’’ don’t add to productivity and aresimply costly, costs in the category ‘‘prevention’’ help to re-duce treatment costs and cost of lost materials, thus improvingeco-efficiency.

The IFAC Guidance document on EMA [18] also drawsthat distinction between ‘‘waste and emission control costs’’and ‘‘prevention and other environmental management costs’’,which, together with R&D projects, helps to reduce the mate-rial costs of non-product output and thus increases eco-effi-ciency. The IFAC cost categories are shown in Fig. 4.

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A problem found during the case studies was that suchwinewin situations are more likely in the environmental di-mension. When the same amount of products can be producedwith less natural resource inputs and less waste and emissionoutput than before, the eco-efficiency has increased and thisis good from an environmental as well as from an ecologicalviewpoint. But, in the social dimensions such winewin situa-tions are harder to find. The companies in the pilot projectswere very sceptical about the positive effect of clearly showingvoluntary benefits to employees and society, as these are thefirst ones to be cut down for saving efforts. The only clearwinewin situation relates to the costs of staff away for sickleave and due to accidents. While it is clear that not allsick-leave can be contributed to company’s internal reasons,it is also accepted that there is a relation between good healthand safety systems, employee motivation and the average daysof staff sick-leave.

2.3. Material flows

With regard to material flows (the 3rd cost category in Fig. 2,which is equivalent to the 2nd cost category in Fig. 4), thenon-productive material input as well as the costs for non-pro-ductive material output (waste and emissions) are considereda cost aspect in the environmental dimension. In addition,they have external effects due to material extraction and wasteand emission impact. The material flows in the social dimen-sion are comparatively minor and were captured in the treat-ment and prevention categories.

2.4. Earnings

The business activity as such not only results in earnings,which may partly come from environmental and social activ-ities, but may also result in positive external effects, such ascreation of jobs in a region with a lot of unemployment or otherstimulation of regional economy, e.g. by preferring regionalsuppliers.

2.5. Value added

Basis for the assessments was the profit and loss accountsand specific cost centre reports. The GRI Guidelines and otherreferences propose to arrange those into a value-added

1. Material Costs of Product Outputs

2. Material Costs of Non-Product Outputs

3. Waste and Emission Control Costs

4. Prevention and other Environmental Management Costs

5. Research and Development Costs

6. Less Tangible Costs

Fig. 4. IFAC cost categories for EMA.

statement. This column is therefore not structured like theother dimensions.

2.6. Intangible items and risk aspects

Until now all recorded data were based on real expenditureor costs and could therefore be extracted (with more or less ef-fort depending on the quality of the operational informationsystems) from the data supplied by the accounting system.But the value of an organisation is influenced and constitutedof more than the book value. During purchase transaction, thisadditional value of intangible assets becomes more concrete.Corporate Social Responsibility and a good environmental,health and safety management system contribute significantlyto these values.

Intangible items comprise e.g. trademarks, market position,reputation, customer relations and satisfaction, and qualifica-tion of employees. All these items, which in combinationmake up the value of an organisation, at the same time maybe regarded as future risks. They are sometimes dealt with un-der the term ‘‘issue management’’. These aspects have beenplaced below the line of the internal costs and have been de-scribed qualitatively.

For companies listed on stock exchange this value gap isvisible. There is a significant difference between the bookvalue of an organisation as reflected in the value of assetsand liabilities in the balance sheet and the equity market valueas determined by demand and supply of their equity on thestock market. This gap reflects the shareholders valuation ofintangible assets not represented in the balance sheet and re-lates to an organisation’s capabilities and competencies basedon its human and social capitals.

An intangible asset is an identifiable non-monetary assetwithout physical substance, which is controlled by an enter-prise and from which future economic benefits are expectedto flow to the enterprise. In acquisition transactions, theseitems form part of good will that exceeds the book value inthe balance sheet and in accordance with IAS 38 [11] maybe recognised as an asset.

Intangible items and/or risks of an enterprise can comprisethe following:

� Environmental dimension: environmental quality at thesite, relations with authorities, contamination risks,planned legal requirements, e.g. CO2 emission trading� Social dimension: special know-how, human capital, em-

ployee motivation, attractive employer, liability risks, dan-gerous working conditions� Economic dimension: business relations, supplier and cus-

tomer structure, market position, brand name

Ideally, all these aspects should be identified and givena value at the end of the business year. However, these meth-ods are in their infancy and the companies in the case studieswere not able to precisely identify these aspects and were farfrom being able to quantify them. But they did provide argu-ments for improved sustainability management. Consequently,

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although they were discussed in depth within the workshops,they are only reported in the tool as a qualitative factor withouta monetised value.

2.7. External effects

The other categories ‘‘beyond the books’’ and ‘‘hard toquantify,’’ cover all negative and positive external effects aris-ing from the organisation’s activities. Externalities are also in-cluded in the Sigma framework [36] and in the GRI economicperformance indictors [15]. The main argument is about theextended stakeholder view when it comes to sustainability.Another argument is that the monetarised external impact ofan organisation should influence its decision-making as wellas point to directions of future requirements, since these neg-ative effects tend to become internalised via legal frameworks,if they are significant. But as sustainability management ac-counting is considered a tool to improve internal decision-making, it is still management accounting, even though itdeals with external effects.

3. The methodology for Environmental ManagementAccounting (EMA)

One problem of environmental accounting is that there aremany divergent definitions and concepts assumed under thisterm. Another problem is that even when specifically focus-sing on environmental management accounting and only onthe company’s internal costs, most of these are not clearly de-fined and thus posted to specified accounts, but are oftensummed up in general overhead.

In recent years, there have been several research and pilotprojects and publications designed to improve the environmentand cost related information systems. (The most comprehen-sive list of literature is provided at www.emawebpage.org byEmaric.) Much of this interest has been catalysed by the UNDivision for Sustainable Development, Working Group on En-vironmental Management Accounting and the books commis-sioned by it [21,31,34].

Experience from pilot projects (e.g. [5,13,23]) shows thatthe environmental manager seldom has access to the actualcost accounting documents of the company and is only awareof a tiny fraction of the aggregated environmental costs. Onthe other hand, the controller does have most of the informa-tion but is unable to separate the environmental part withoutfurther guidance. Also, the two departments tend to have a se-vere communications problem.

Thus, it is necessary to spend some time on definitions andclarifying concepts.

From a macroeconomic perspective, the prices for scarceraw materials, pollution and disposal do not reflect their truevalue and cost to society. Health hazards, repairs of contami-nated sites etc. are environmental costs usually not borne bythe polluter but by the general public [40].

Environmental costs comprise both internal and externalcosts and relate to all costs incurred in relation with environ-mental damage and protection. Environmental protection costs

include costs for prevention, disposal, planning, control, shift-ing actions and damage repair that can occur at companies,governments or people [39].

Environmental Management Accounting only deals withcorporate environmental costs (likewise [18]). External costswhich result from corporate activities but are not internalisedvia regulations and prices are not considered. It is the role ofgovernments to apply political instruments such as eco-taxesand emission control regulations in order to enforce the ‘pol-luter-pays’ principle and thus to integrate external costs intocorporate calculations. The methods to assess these costs canbe summarised under the term Environmental Accounting(EA instead of EMA). They are being dealt with in the sectionon externalities, as they are considered part of sustainabilitymanagement accounting.

EMA represents a combined approach which provides forthe utilisation of data from financial and cost accounting to in-crease material efficiency, reduce environmental impact andrisk and to reduce costs of environmental protection [21].The main areas of application of EMA are internal calcula-tions and decision-making, while Environmental Financial Ac-counting, EFA, deals with issues related to external disclosure.However, the two are closely linked and rely on the same in-formation system.

What then are corporate environmental costs? Costs in-curred to deal with contaminated sites, effluent control tech-nologies and waste disposal are illustrative examples.

Corporate environmental protection expenditure includesall expenditures for measures for environmental protectionof a company or on its behalf to prevent, reduce, control anddocument environmental aspects, impacts and hazards, aswell as disposal, treatment, sanitation and clean-up expendi-tures. The amount of corporate environmental protection ex-penditure is not directly related to the environmentalperformance of a company [39].

For company’s internal calculation of environmental costs,expenditure for environmental protection is only one part ofthe coin. The costs of waste and emissions include muchmore than the respective treatment facilities and disposal fees.

The most important aspect is that the concept of ‘‘Waste’’has double meaning. Waste is a material that has been pur-chased as a raw material and paid for but which has notbeen transformed into a marketable product. Waste is, there-fore, an indicative of production inefficiency. Thus, the costsof wasted materials, capital and labour have to be added to ar-rive at total corporate environmental costs and to have a soundbasis for further calculations and decisions. Waste in this con-text is used as a general term for solid waste, waste water andair emissions, off-spec. products and thus comprises all non-product output materials including water and energy (Fig. 5).

The approach presented in this paper (likewise also in UNDSD, 2001 and [18]) has the underlying assumption that allpurchased materials must, by physical necessity, either leavethe company as a product or as a non-product output (waste,waste water, or emissions), or are stored, which increasesthe stored stock. In calculating the environmental costs, notonly are the disposal costs examined, but also the purchase

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Environmental protection expenditure (emissions treatment and waste prevention)

+ Material flow costs (Costs of unproductive material, capital, and personnel.)

= Total corporate environmental costs

Fig. 5. Total corporate environmental costs.

price of ‘‘wasted’’ materials and the production costs of thewaste and emissions.

EMA encompasses measurement in two dimensions:

� Physical measurement of material and energy input, mate-rial flows, products as well as wastes and emissions;� Monetary measurement of costs, savings and earnings in

relation to business activities with potential environmentaleffects.

It is often difficult to determine the environmental portionof these costs. As with integrated clean technologies that areoften more energy and material efficient, the environmentalportion of health and safety or risk prevention activities canmost often not be exactly defined.

The environmental cost/expenditure categories developed forthe UN DSD manual [21] and applied in several case studies, e.g.in Austria [23], Spain [24] and Costa Rica [22], follow the histor-ic development of awareness for environmental costs. Fig. 6

Environmental media

Environmental cost/expenditure categories A

ir

+

Clim

ate

(E

nerg

y)

Was

te W

ater

Was

te

Soil

+

Gro

und

W

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Noi

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+

Vib

rati

on

Bio

dive

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+

Lan

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Rad

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Oth

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Tot

al

1. Waste and Emission treatment 1.1. Depreciation for related equipment

1.2. Maintenance and operating materialsand services1.3. Related Personnel1.4. Fees, Taxes, Charges 1.5. Fines and penalties 1.6. Insurance for environmental liabilities 1.7. Clean up costs, remediation 2. Prevention and environmentalmanagement2.1. External services for environmental management

2.2. Personnel for general environmentalmanagement activities2.3. Research and Development 2.4. Environmental share of integratedpollution prevention equipment 2.5. Other environmental management costs3. Material Purchase Value of non- product output

3.1. Raw materials

3.2. Packaging

3.3. Auxiliary materials

3.4. Operating materials

3.5. Energy

3.6. Water

4. Processing Costs of non-product output

Environmental Expenditure 5. Environmental Revenues5.1. Subsidies, Awards

5.2. Other earnings

Environmental Revenues

Fig. 6. Corporate environmental cost categories.

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shows the structure of the excel-spreadsheet for the environmen-tal cost assessment. Details on the environmental cost categories,where to find them and how to calculate them can be found onwww.ioew.at/ioew/index.html under Projects, EnvironmentalManagement Accounting, where also the excel-tool for thecost assessment is available for download. This programme auto-matically aggregates the costs and shows the percentage distribu-tion of costs. It is important to always record the method for datacalculation as well as its source (account or cost centre number,statistics of the quality or employee department, etc.) so that it istraceable. For next year’s assessment, this information makeswork simpler and consistent.

� The first environmental cost category comprises conven-tional waste disposal and emission treatment costs includ-ing related equipment, labour and maintenance materials.Insurance and provisions for environmental liabilitiesand clean-up also reflect the spirit of treatment insteadof prevention. The first category corresponds to the con-ventional definition of environmental costs comprisingall treatment, disposal and clean-up costs of existing wasteand emissions. This has also been the focus of disclosuree.g. in environmental reports or to statistical agencies.� The second cost category is termed prevention and envi-

ronmental management and adds the labour costs andexternal services for good housekeeping as well as the‘‘environmental’’ share of integrated cleaner technologiesand green purchase, if significant. Research and environ-mental projects can also be part of pollution prevention.The main focus of the second category is on annualcosts/benefits for prevention of waste and emissions. Inte-grated pollution prevention helps to reduce the costs ofenvironmental protection. However, an inherent problemof integrated technologies and measures is that it is oftendifficult to exactly determine their ‘‘environmental’’ share.

Conventionally, business administration distinguishes threeproduction factors: materials, capital (investments related toannual depreciation and financing cost) and labour. The nexttwo categories consider the costs of wasted materials, capitaland labour due to inefficient production, generating wasteand emissions.

� In the third category, the wasted material purchase value isadded. Non-product output is assessed by a physical mate-rial flow balance. For each material input category, thescrap percentages are calculated or estimated. Wasted ma-terials are evaluated with their material purchase value ormaterials consumed value in case of stock management.Technical process flow balances and material flow costinghelp to assess non-product output more precisely and al-low one to distribute the related costs to the responsiblepolluting cost centre or cost carrier (product).� Lastly, the production costs of non-product output may be

calculated with the respective production cost pro ratacharges, which include labour hours, depreciation of ma-chinery and operating materials and financing costs.

� Environmental revenues derived from sale of wastes orgrants of subsidies are accounted for in a separate category.

Costs that are incurred outside the company and borne bythe general public (external costs) or that are relevant to sup-pliers and consumers (life cycle costs) are not dealt with in en-vironmental management accounting. In the next section onenlarging the assessment to a sustainability management ac-counting scheme, these costs are discussed.

The assignment of environmental costs to the environmentalmedia follows the System of Integrated Environmental andEconomic Accounting (SEEA) of the United Nations. Nationalbureaus of statistics often want the environmental costs to be di-vided according to different environmental media. In case a cat-egory is not relevant, that column can be omitted, as well asothers added (e.g. for health and safety).

4. Social performance costs

It was one of the objectives of this project to calculate thefinancial impact of the social performance indicators in additionto the already well developed environmental performance costs.

The social performance indicators of the GRI Guidelines[15] are structured as:

� Labour practices and decent work (employment, labour/management relations, health and safety, training and ed-ucation, diversity and opportunity)� Human rights (strategy and management, non-discrimina-

tion, freedom of association and collective bargaining,child labour, forced and compulsory labour, disciplinarypractices, security practices, indigenous rights)� Society (community, bribery and corruption, political con-

tributions, competition and pricing)� Product Responsibility (customer health and safety, prod-

ucts and services, advertising, respect for privacy)

Labour practices and decent work comprise the breakdownof the workforce by region and employment type. The onlycost related GRI indicator is ‘‘Employee benefits beyond thoselegally mandated’’. Most companies have voluntary contribu-tions to lunch buffets or voluntary annual staff celebrations.These voluntary benefits were included in the category ‘‘Othercosts’’. We decided not to take the total costs of wages, as theyare already included in the value added accounting column forthe economic performance. Also, mandatory social security orpension funds and dismissal pay reserves are not included butonly the costs resulting from the social commitment of thecompany beyond paying wages and social security.

Health and Safety are two very important cost aspects inAustrian companies. They were separated into two columns,as most of the costs in the social performance category relateto these two aspects.

The category ‘‘Health’’ costs for ‘‘Treatment of undesiredeffects’’ includes the costs for staff away sick, one of themost significant cost aspect. Under ‘‘Prevention’’ the costs

1223C. Jasch, A. Lavicka / Journal of Cleaner Production 14 (2006) 1214e1227

for the company medical officer as well as occupational med-icine and vaccinations against flue and ticks (both quite com-mon in Austria) are recorded. Revenues may come from thecorporate-owned recreational facilities for employees. In Aus-tria, some larger corporations have their own hotels and sportcentres that are available for employees at a very low cost.Also subsidies or insurance payments for labour related eventswould be recorded here.

Safety in the section on ‘‘Treatment’’ includes costs result-ing from unimplemented protection measures, e.g. for staff ab-sences from work due to work accidents, invalidity paymentsand costs for overtime of other staff to make up for the lostworking days. This category proved to be a significant costcategory that can be reduced by increased spending in the pre-vention category. The prevention part contains external serv-ices, e.g. for safety training, which can be performed byexternal consultants, the company medical officer and internalpersonnel costs that result from efforts to increase the safety ofworkers, i.e. the cost of the members of the safety team, safetyrepresentatives, fire protection representatives and dangerousgoods agents. Equipment and clothing that are solely or mainlyused to increase employee safety are also included.

Training and education was also defined as a separate col-umn, as it constitutes a significant social cost factor. However,there are several overlaps to training in specific areas like en-vironment, health and safety.

Human rights as well as Diversity and opportunity do notmake up any significant costs in Austrian SMEs. This is alsotrue for most of the issues addressed in Society and ProductResponsibility.

The column Society mostly consists of donations to non-profit organisations and other voluntary spending. Costs qual-ifying as voluntary social benefits and social sponsoring areintegrated here as well. In the USA, several organisationshave made a commitment of spending 1% of profit before taxesfor donations to non-profit organisations and projects for thecommunity, e.g. AMD, a company in the electronics sector, re-ports in its sustainability report of having spent 6.3 Mio USD,equalling 1% of profit, in the year 2003 [1]. Other organisa-tions go even further. AVON, a corporation dealing with cos-metic products, reports of spending 10% of the profit of 2002or 46 Mio USD for charity [2]. However, suppliers in the au-tomobile sector in Austria face a very severe price pressurewhich conflicts with voluntary initiatives for Corporate SocialResponsibility. Therefore, donations are limited to the localfire brigade and school projects. A more common Austrian ap-proach is to allow staff to participate in emergency activities aspart of their working hours, e.g. clean-up activities after a floodor rescue teams after avalanches.

Product Responsibility has cost aspects mostly related tocustomer health and safety research activities and imple-mented design adjustments.

In the social dimension of sustainability the third cost cate-gory for material flows remains empty since material flows arerecorded mainly for their internal environmental costs related toscrap and for their external environmental and social effects(described later). The internal cost implications resulting

from material flows and relating to social issues (e.g. safetyequipment) were negligible in the case studies and would easilybe covered in the categories ‘‘treatment’’ or ‘‘prevention’’ un-der the other columns of the social dimension.

5. The economic dimension

The economic performance indicators of the GRI Guide-lines [15] are structured as:

� Customers: net sales and geographic breakdown ofmarket;� Suppliers: costs of all goods and services purchased, per-

centage of contracts that were paid in accordance withagreed terms;� Employees: total payroll and benefits;� Providers of capital: distribution to providers of capital,

broken down by interest and dividends, increase/decreasein retained earnings;� Public sector: total taxes, subsidies received, donations to

the community;� Indirect economic impact: major externalities.

To analyse the economic dimension of sustainability ac-counting, the Global Reporting Initiative [15] and the SigmaGuideline on sustainability accounting [36] propose to rear-range the profit and loss accounts into a value-added account-ing format: ‘‘An economic value added statement restates thefinancial flows in the profit and loss accounts to show whichdifferent stakeholder groups benefited from those flows. Itshows the economic value added to different stakeholders bythe organisations activities. Value added statements are an in-tegral part of sustainability accounting as they enable organi-sations to focus on returns to wider stakeholders as well as toshareholders’’ [36].

The data in the economic column of Fig. 2 are not struc-tured into the categories of ‘‘treatment’’ and ‘‘prevention’’,as this distinction doesn’t apply to the profit and loss accountsand to value added statements. A combination of two ways tocalculate value added [16] were performed. These two wayscome from the formation and the distribution sides:

Subtractive method: value added is defined as the differ-ence between outputs and inputs (e.g. revenues minuscost of materials, depreciation, costs of external labour);Additive method: value added is defined as the sum of thedistributed parts of the created wealth (e.g. personnel costsplus interest plus taxes plus retained earnings).

In addition to the cost categories proposed by Haller andStolowy, some more cost categories were defined (e.g. totalof R&D expenditure) that relate to the total sum of the ac-counts taken from the profit and loss accounts and distributedto the environmental and social performance categories.

Fig. 7 shows the structure of the method of value addedaccounting. With the gathered data from the profit and loss

1224 C. Jasch, A. Lavicka / Journal of Cleaner Production 14 (2006) 1214e1227

accounts, the added value can be calculated as well from theformation of value added as from the distribution side.

6. External effects

In the area of external costs the team attempted to monetisethe external effects (externalities) of an organisation or at leastto discuss and record them qualitatively. The Global ReportingInitiative lists ‘‘indirect economic impacts’’ as indicators inthe economic section and asks organisations to ‘‘identify ma-jor externalities associated with the reporting organisation’sproducts and services’’ [15]. However, no additional guidanceis provided and based on a survey of the entries to the Euro-pean Sustainability Reporting Awards 2002 and 2003, it canbe stated that external costs are seldom found in sustainabilityreports.

‘‘An external cost exists when the following two conditionsprevail:

� An activity by one agent causes a loss of welfare to anotheragent.� The loss of welfare is uncompensated.’’ [30].

External effects are by definition not included in the finan-cial accounts, but they do affect the organisation in the light ofstakeholder relations, image and possible future requirements.Full cost accounting refers to the external dimension of an or-ganisation’s impacts on its stakeholders.

Common external effects of production sites relate to wasteand emissions, but may also relate to the products[3,20,40,41]. However, for small suppliers of e.g. carpet tiles,mechanical components, insulating materials, paint shops,pressure die casting, their ‘‘share’’ of the negative impact ofthe whole car or the transport sector [17] in a country is impos-sible to quantify. Those small companies are never the solecontributor to a negative effect, which is typically recordedon a regional system boundary.

Formation of value added Distribution of value added Revenues from sales of products + other earnings + subsidies, awards + financial earnings - Cost of Materials - Cost of Energy- Cost of Water - Cost of Services - Research and development costs

(without personnel costs)- Depreciation - Other expenditure = Value Added Value Added =

Personnel Costs + Interest + Insurance + Penalties+ Taxes+ Dividends+ Retained Earnings

Fig. 7. Structure of value added accounting.

There is an ongoing discussion in environmental and ecolog-ical economics on contingent valuation methods of Willingnessto Pay (WTP) or Willingness to Accept (WTA) (see [7]), bothapproaches are very difficult to apply by single companies.

But, negative external effects from waste and emissions canalso be estimated by calculating the costs of the best possibletreatment with respect to available technology. This approach,using avoidance and restoration values, is also less controver-sial than the WTP and WTA methods, since it is based on ac-tual costs that would be occurred by the organisation in orderto prevent or reduce its external footprint (likewise [36]) andmay become a future requirement.

For waste disposal, we discussed with several Austrian ex-perts and concluded that the Austrian fees for waste disposalactually have successfully internalised all external effects.For wastewater, the investment and operating costs necessaryto regain water quality that can be delivered back into the riverwithout further treatment were assumed to be an appropriatemeasure. For CO2, the estimated trading price for CO2 certif-icates according to the EU Directive on Emission Trading [12]assume abatement costs of 38e773 Euro per ton of CO2

[8,10,19,29]. However, the introduction to the Austrian lawon Emission Trading estimates a price of 10 Euro per ton ofCO2 [4]. For noise inside the production halls, the costs to re-duce the noise level down to a safe level without safety equip-ment for workers can be calculated.

The interesting point about this approach of estimating ex-ternal effects based on investment costs and trading prices isthat these costs are both an important internal (future) cost in-formation and as well as an estimate for external costs, therebylinking the micro and macro perspectives.

Positive external effects may arise from production as welland companies have shown a great interest in having those dis-cussed and reported as well. A company site can have multiplepositive external effects on a region. It can increase the valueadded of the region if it chooses its suppliers in the close vi-cinity and can increase the stability and growth of a regionby providing safe working places. For the Austrian automobilesector, these job creating effects are very valuable, which isalso seen by the subsidies and other benefits granted to thesecompanies.

Positive and negative external effects can arise of the prod-uct and research and development: there are positive effects ifthe product is especially environmentally friendly or promotesthe use of environmentally friendly products but also, if re-search makes the product more safe to use or reduces itslife-cycle environmental impact, e.g. by increasing the recy-clability or by introducing new production processes utilisingrenewable materials. Sometimes, the products themselves re-duce environmental or social impact compared to other ap-plied technology or procedures. Negative effects relate toenvironmental and social impacts of the product or its compo-nents during the life cycle stages of material extraction, trans-port, customer use and final disposal. However, quantificationof these effects is still in its infancy.

The external effects of the companies were not recordedquantitatively since the relevant data were not available in

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any of the firms, but rather they were discussed qualitatively ina brainstorming workshop. The most importantly mentionednegative external effects were noise and emissions from trans-port of raw materials and finished products. A positive externaleffect that was always highlighted was the provision of workplaces in a region with high unemployment.

7. Results, discussion and conclusions

In a one-day workshop, six companies of the automobilecluster participated in providing and evaluating their sustain-ability costs using the above described approach. The maindocuments used were the list of accounts and the cost centrereports. In addition, statistics from the personnel, quality andother departments as well as estimates were used. All compa-nies attended four joint workshops on the concepts behind andprovided their available data beforehand, which were cross-checked and included into an excel file. Consequently theon-site assessment could be reduced to one day, with somedata being delivered later.

The collected data were not publicly disclosed, unless thecompany wants to integrate them in their sustainability re-ports. Some Austrian companies, e.g. Verbund AG and SCALaakirchen [32,38], already provide information on their envi-ronmental costs, sustainability effects and related researchstudies in their sustainability reports. However, as most par-ticipating companies didn’t even have a formalised environ-mental management system, disclosure of a sustainabilityreport was premature.

As the suppliers in the automobile sector face very severeprice pressures, none of the companies had an interest to publiclydisclose voluntary activities for Corporate Social Responsibility.It was even questionable, if it is desired to clearly calculate en-vironmental and social costs for internal purposes, as fears wereraised that the more obvious these costs are, the more likely theywill be reduced. This was heavily debated in the company work-shops and within the research team.

Fig. 8 shows the percentage distribution of the environmen-tal and social costs in the case studies. As explained earlier,there are no material costs in the social column as they are eas-ily included under maintenance. The percentage distribution ofeach column adds up to 100; in addition, the total of the 4 sub-categories is also displayed in bold.

Within the project a manual for the assessment of sustain-ability costs was developed [25], which includes a fictions casestudy of a supplier to the automobile industry with typical pro-cesses. It is based on the experiences of the company projects,but doesn’t disclose their true data. The aggregated percentagedistribution of the environmental and social costs from thiscase study is displayed in Fig. 8.

What can be seen easily is that the two major cost driversare the purchase costs of non-product output and the costs re-lated to lost working days because of sick leave and accidentsand the overtime pay to make up for these lost working days.The work of the EHS department helps to reduce these costs.The cost assessment scheme allows one to better understandthe relationships between costs for treatment of undesired ef-fects due to unimplemented protection measures and lost ma-terial purchase value in comparison to the prevention costs,

Cost categories Environmental costs in Social performance costs in 1. Treatment of undesired effects

10 85

1.1. Depreciation 1.2. Maintenance and operating materials 1.3. Personnel 1.4. Fees, taxes, charges 1.5. Fines and Penalties 1.6. Insurance 1.7. Clean up costs, Remediation 2. Prevention 2.1. External services 2.2. Personnel for generalprevention activities 2.3. Research & Development 2.4. Extra expenditure for integrated prevention 2.5. Other prevention costs 3. Material flow costs 90

4 01 7

1 774 10 00 00 02 150 70 1

0 01 0

0 60

3.1. Raw Materials 403.2. Packaging Materials 33.3. Auxiliary Materials 03.4. Operating Materials 73.5. Processing Costs of NPO 23.6. Energy 353.7. Water 14. Earnings -2 0Balance Costs/Earnings 100 100

Fig. 8. Percent distribution of environmental and social costs in the case studies.

1226 C. Jasch, A. Lavicka / Journal of Cleaner Production 14 (2006) 1214e1227

which mainly consist of the internal management departmentsand related external consultants.

In the environmental cost column, the total purchase costsfor raw materials lost in waste and emissions is 40% andmore than the total energy input (35%). The non-product out-put value of raw materials depends a lot on the industry sectorand is quite high in the automobile sector, while operating ma-terials with 7% of total costs are comparatively low. In total,the material purchase value in waste and emissions accountsfor 90% of all costs. This is clearly an argument for improvedmaterials management and tracing of material flows. The ac-tivities for prevention, which account for only 2%, should befostered in order to achieve savings as well in the treatmentcategory as in the material losses category. There is a clearwinewin situation for environmental management reducingmaterials waste.

It can also be seen from the information in Table 8 that thetreatment of waste and emissions is more expensive than pre-vention. End-of-pipe technologies, including their mainte-nance and personal, account for 6% while integratedtechnologies are only 1% of total costs and it is often difficultto define, which percentage of new production equipment, thatis more efficient and at the same less polluting, should be at-tributed to ‘‘environmental’’.

The costs in the social column basically comprise the costsof the health and safety department (15% including externalservices) plus the calculated loss of working hours due to ac-cidents and sick leave beyond a baseline minimum (77%).There is no obvious winewin situation relating to materialefficiency as in the environmental cost column, but thebenefit of the health and safety department lies in the reductionof lost working hours and in the human and financial coststhereof.

The assessment of sustainability management costs is of in-terest for organisations, which already publish a sustainabilityreport and want to assess the financial effects as well as forsmall and medium sized companies, which use the assessmentas a starting point to shape their Environmental, Health andSafety (EHS) system. The main benefits are arguments anddata background, e.g. for investment appraisal or performanceindicators as well as improved consistency of information andmanagement systems.

Several questions arose on precisely where to draw theboundary line between normal operating costs and ‘‘sustain-ability’’ costs that go beyond. If all personnel costs are consid-ered part of ‘‘economic’’ costs, then one possibility would beto only include voluntary costs exceeding mandatory expendi-ture for wages, social security, etc. But this raises several otherproblems. One is that if all voluntary expenses for employeesare clearly listed, top management under price pressure mightbe willing to reduce them. In addition, the distinction betweenmandatory and voluntary has not been helpful in the environ-mental category. For internal decision-making, it is clearly rel-evant to have knowledge on all cost aspects, regardless if theyare voluntary or mandatory.

If, on the other hand, we include all personnel costs under‘‘social’’, than the additional information of the tool would not

be significant. We could end up arguing that since sustainabledevelopment implies a harmonised approach including allactivities within a company, actually all expenditures in theprofit and loss accounts are relevant. This is definitely so forthe economic dimension, but our goal was to define a borderline between the economic dimension and the ‘‘other’’ envi-ronmental and social dimensions.

If we take this idea further, the profit and loss accounts, thatis normally split up to different cost centres reflecting the pro-duction steps and administrative departments, would simply beslightly reorganised. And in effect, this was the pragmatic de-cision taken. We took the departments for health and safety,risk management, research and education and added voluntarysocial expenditures and some other issues addressed in theGRI Guidelines.

In effect, this is also the way that environmental manage-ment accounting has been evolving, from seeing the ‘‘environ-ment’’ as something quite separate from production to anintegrated approach for material’s and energy flow manage-ment. Also, technological development has shifted from end-of-pipe technologies to integrated equipment that doesn’tproduce waste and emissions during production. Consequently,in the near future, Corporate Social Responsibility may havebecome so integrated into all operational departments that itmay no longer be necessary to separate sustainability manage-ment accounting from operational management accounting inorder to show its costs, benefits and risks, if not implemented.

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