Journal of Cleaner Production 14 (2006) 1262e1275 www.elsevier.

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Environmental management accounting applications and eco-efciency: case studies from Japan
Roger L. Burritt a,*, Chika Saka b,*
a

School of Business and Information Management, The Australian National University, Canberra, ACT 0200, Australia b School of Business Administration, Kwansei Gakuin University, Japan Received 21 June 2004; accepted 16 August 2005 Available online 12 October 2005

Abstract This paper explores the links between environmental management accounting and measures of eco-efciency in Japanese business. Environmental management accounting is a relatively new environmental management tool initially designed to trace and track environmental costs and physical environmental ows. In the paper, rst, the recent development of environmental management accounting is considered; second, the links between environmental management accounting and eco-efciency measurement are examined. Recent case studies in environmental management accounting from Japan are used as a basis for the analysis. It is concluded from the analysis that the practice of linking eco-efciency measurement with environmental management accounting information is underutilised, diverse and in need of further promotion if EMA is to help Japanese business move production processes and consumption of its products towards sustainability. 2005 Elsevier Ltd. All rights reserved.
Keywords: Environmental management accounting; Eco-efciency; Ecological-efciency

1. Introduction Environmental management accounting (EMA) is a relatively new environmental management tool initially designed to trace and track environmental costs and physical environmental ows. This paper explores the links between environmental management accounting and measures of eco-efciency in a number of Japanese companies. In Section 2, the recent development of environmental management accounting is considered. Links between environmental management accounting and eco-efciency measurement are examined in Section 3. Section 4 outlines recent case studies in environmental management accounting from Japan, while it is concluded in Section 5 that the practice of linking eco-efciency measurement with environmental management accounting information is underutilised, diverse and in need of further promotion if
* Corresponding authors. The Australian National University, Canberra, ACT 0200, Australia. Fax: C612 61 25 4310. E-mail addresses: roger.burritt@anu.edu.au (R.L. Burritt), saka.chika@ anu.edu.au (C. Saka). 0959-6526/$ - see front matter 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.jclepro.2005.08.012

EMA is to help Japanese business move production processes and consumption of its products towards sustainability.

2. Development of environmental management accounting In the last few years there has been movement towards the development of a comprehensive framework of environmental management accounting to reect the following:  A focus on internal as well as external users of environmental accounting information [1];  An increasing number of attempts to dene environmental management accounting [1e3] (see Table 1 for some representative denitions);  Identication of the need for monetary and non-monetary information about the environmental impacts of and on organizations to be gathered and tracked by management [3e7]; and

R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275 Table 1 What is environmental management accounting? Source Graff et al. (Tellus Institute) [2] Denition

1263

International Federation of Accountants (IFAC) [3]

UN DSD EMA Initiative http://www.un.org/esa/sustdev/ estema1.htm accessed on 19 December 2002 Schaltegger and Burritt [1]

Environmental management accounting is the way that businesses account for the material use and environmental costs of their business. Materials accounting is a means of tracking material ows through a facility in order to characterize inputs and outputs for purposes of evaluating both resource efciency and environmental improvement opportunities. Environmental cost accounting is how environmental costs.are identied and allocated to the material ows or other physical aspects of a rms operations. [Environmental management accounting is.] the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices. While this may include reporting and auditing in some companies, environmental management accounting typically involves life-cycle costing, full cost accounting, benets assessment, and strategic planning for environmental management. Environmental management accounting serves as a mechanism to identify and measure the full spectrum of environmental costs of current production processes and the economic benets of pollution prevention or cleaner processes, and to integrate these costs and benets into day-to-day business decision-making. .environmental management accounting is dened in a narrower sense to include only the environmentally induced nancial aspects of accounting that help managers to make decisions and be accountable for the outcome of their decisions. The generation, analysis and use of nancial and non-nancial information in order to optimise corporate environmental and economic performance and to achieve sustainable business.

Bennett and James [4]

 Emphasis on a pragmatic approach to environmental accounting for decision-making by different types of managers throughout the organization [7]. The pragmatic approach recognizes: the multiple, interrelated internal management stakeholders responsible for environmental impacts of and on organizations; the need to consider long and short run information needs; exible reporting that should address routine and ad hoc information demands; integration of past, contemporary and future orientations in decision making for environmental impacts; and environmental return and risk relationships for business [8]. A set of 16 possible focal points of attention for a comprehensive environmental management accounting is presented in Table 2. The monetary tools, termed MEMA (Monetary Environmental Management Accounting), are presented in boxes numbered 1e8; the second set of tools, termed PEMA (Physical Environmental Management Accounting), is presented in boxes 9e16. Qualitative information is also provided by EMA tools, but this is not specically considered in the framework shown in Table 2. This MEMA and PEMA framework differs from the framework for conventional management accounting. A fundamental environmental criticism of conventional management accounting is that it largely ignores separate identication, classication, measurement and reporting of environmental information, especially environmental costs, when providing relevant information to management for decision making, planning and control purposes. Given the prior tendency of corporations not to highlight their environmental costs various studies have tried to answer the following questions: 1. What are environmental costs [6]? 2. Which classes of environmental costs are potentially important to business [4]?

3. Are environmental costs signicant for particular organizations [9]? In the process of providing answers to these questions environmental costs have been classied in several different ways. Five classications seem to have received particular attention based on: 1. Analysis of conventional cost accounting methods and measurement [1,10] e job and process; direct and indirect; historical and standard; xed and variable; ordinary and extraordinary; 2. Extending the classication of costs [11] e to include conventional, indirect hidden, less tangible, contingent; and societal costs (negative externalities); 3. Quality costs and the environment [12] e analysis of prevention, assessment (appraisal), control (internal failure) and external failure environmental costs; 4. Life cycle and activity costs [13]: life cycle e research and development, design, production, etc.; activity based e unit, batch, product sustaining and facility level costs based on a wider set of cost drivers than conventional management accounting recognizes; and 5. Target audience [1,7] e internal (managers and employees); external (shareholders, tax agencies, environment agencies, suppliers, creditors, general public, local communities, NGOs, etc.). Various reasons have been given as to why more managers are becoming interested in environmental management accounting information [12,14e17]:  Environmental regulations impose requirements on companies and information needs to be recorded in order to demonstrate compliance;

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Table 2 Proposed comprehensive framework of environmental management accounting [7] Environmental management accounting (EMA) Monetary environmental management accounting (MEMA) Short term focus Past Oriented Routinely generated information 1. Environmental cost accounting (e.g. variable costing, absorption costing, and activity based costing) Long term focus 2. Environmentally induced capital expenditure and revenues Physical environmental management accounting (PEMA) Short term focus 9. Material and energy ow accounting (short term impacts on the environment e product, site, division and company levels 11. Ex post assessment of short term environmental impacts (e.g. of a site or product) Long term focus 10. Environmental (or natural) capital impact accounting

Ad hoc information

3. Ex post assessment of relevant environmental costing decisions

4. Environmental life cycle (and target) costing Post investment assessment of individual projects

12. Life cycle inventories

Post investment assessment of physical environment appraisal 13. Physical environmental budgeting (ows and stocks) (e.g. material and energy ow activity based budgeting) 14. Long term physical environmental planning

Future Oriented

Routinely generated information

5. Monetary environmental operational budgeting (ows)

6. Environmental long term nancial planning

Ad hoc information

Monetary environmental capital budgeting (stocks) 7. Relevant environmental costing (e.g. special orders, product mix with capacity constraint)

8. Monetary environmental project investment appraisal Environmental life cycle budgeting and target pricing

15. Relevant environment impacts (e.g. given short run constraints on activities)

16. Physical environmental investment appraisal

Life cycle analysis of specic project

 There is an increase in voluntary acceptance (self regulation) by managers of the importance of managing business environmental impacts and information needs to be recorded as part of the responsibility accounting process;  Promotion of environmental management accounting is being undertaken by international, national and local government bodies and some educational institutions. These bodies need to identify best practice cases as a basis for increasing the take-up of environmental management accounting;  Environmental management accounting tools are increasingly available to help in the management process, thereby reducing cost and technological barriers to the introduction of EMA systems, as well as promoting the benets owing from EMA; and  Eco-efciency improvement is being adopted by a growing number of businesses as a logical driver for management and a way of enhancing strategies that promote, maintain or repair social legitimacy. The paper now turns to the latter reason, eco-efciency improvement, to encourage the adoption of EMA by business. 3. EMA and eco-efciency Schaltegger and Burritt [1] point out that in practice, the term eco-efciency has been given a range of different

meanings (see, e.g. [18e22]) and, as a result, has little precision. Therefore, it is very important to clarify the dimensions of eco-efciency being discussed as these have a direct bearing on the type of EMA information that a comprehensive system needs to provide. In general, efciency measures the relation between outputs from and inputs to a process. The higher the output for a given input, or the lower the input for a given output, the more efcient is an activity, product, or business. As the purpose of economic behaviour is to manage scarce resources in the best possible manner, emphasis is placed on the need for managers to seek efcient outcomes. Efciency is a multi-dimensional concept, because the units in which input and output are measured can vary. If inputs and outputs are measured in nancial terms, efciency is commonly referred to as protability or nancial efciency. Typical measures of protability include: contribution margin percentage, return on sales, economic value added and return to equity on assets employed. Economic efciency indicates whether, and for how long, social activities can be sustained in economic terms. Accounting and nance staff provide expert advice about the calculation of nancial efciency. If inputs and outputs are measured in technical terms, emphasis is usually placed on physical measures such as kilograms. Technical efciency is also called productivity. Measures of productivity include: output per hour and output

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per employee. The difference between the best possible efciency ratio and the efciency ratio actually achieved is described as X-efciency. The concept of X-efciency is useful because it suggests that in practice organizations do not appear to be cost minimizers (using the latest technology); rather they are more inclined to imitate their rivals in various policies and to follow industry norms and targets. To the extent that this occurs these organizations are technically inefcient. Xefciency measures the extent of this technical inefciency. Efciency, because it is expressed as a ratio between a measure of output and a measure of input, is not bound to a nancial or technical dimension: different dimensions can be combined by calculating cross-efciency gures such as shareholder value created per employee. As efciency, in general, is the ratio between output and input, ecological efciency can be interpreted as the relationship between a measure of output and a measure of environmental impact [20]: Output Environmental impact added

Ecological efficiencyZ

Environmental impact added is a measure of all environmental inuences that are assessed according to their relative environmental impact [23]. Two kinds of ecological efciency measures can be distinguished: ecological product efciency and ecological function efciency. Ecologically efcient management of a company is characterized by a high ratio between products sold, or functions accomplished, and the associated environmental impact added. Ecological product efciency is a measure of the ratio between provision of a unit of product and the environmental impact created [1,23] over the whole, or over a part, of the products life cycle. Company managers tend to illustrate environmental improvements by communicating their total product efciency or a part thereof (e.g. the number of cars produced per unit of energy consumed). Product efciency can be improved by implementing pollution prevention techniques or by introducing end-of-pipe devices, reduced use of inputs per unit or through substitution of resources. Although, in principle, improvement of product efciency is desirable, some products will never be as ecologically efcient as others in providing a certain service. For example, a car will always be less ecologically efcient than a bicycle. The second formula for ecological efciency, ecological function efciency, takes a broader view, by measuring how much environmental impact is associated with the provision of a specic function in each period of time [1,23]. A function could, for instance, be dened as the painting of one square metre of sheet metal or the transport of a person over a certain distance. The alternative that causes the least environmental impact in fullling the specic function has the best ecological function efciency. Ecological function efciency is, therefore, dened as the ratio between provision of a function and the associated environmental impact added.

Ecological function efciency can be improved by substituting products that have a low product efciency with highly efcient products (e.g. a bicycle instead of a car), by reducing the amount used to full the function (e.g. carpools lead to a decreased demand for cars), by prolonging the life span of products (e.g. longer corrosion guarantees on cars), and by improving product efciency. Environmental interest groups often prefer to measure the environmental record of a product according to its overall function efciency (e.g. the ecological function efciency of a car in transporting a person over a specic distance compared with the efciency of a bicycle, or public transport). Both measures of ecological efciency are useful, and their adequacy depends on the purpose of the investigation. The two ecological efciency ratios can be applied at different levels of aggregation, such as a unit of product, a strategic business unit, or total sales of a rm. In this context it is important to consider the total output and the absolute environmental impact: a large number of ecologically efcient products can be more harmful than a small amount of ecologically inefcient items. The cross-efciency between the economic and the ecological dimension e economic-ecological efciency e is the ratio between the change in value and change in environmental impact added. Economic-ecological efciency is often referred to as eco-efciency [1,20] Monetary Value Added Environmental impact added

Eco-efficiencyZ

Any measure of eco-efciency requires nancial information, for calculating the numerator, and physical information about the environment, for calculating the denominator. Accounting and nance staffs provide key nancial information about the numerator in eco-efciency calculations and link this with physical information. They rely on physical information provided by natural scientists. Hence, for eco-efciency measures to be calculated, and to add corporate value, it is essential for them to integrate conventional accounting and nancial management with natural science (physical) measures such as provided by ecological accounting [1]. Fig. 1 provides a set of possible, plausible indicators of eco-efciency. They reect different levels of aggregation, with lower levels of aggregation shown to the right of the diagram. Eco-efciency measures that are focussed on the activities that are of interest to the specic level of management can be related to a benchmark or standard as a basis for assessing effectiveness and improvement. For example, top management are concerned about the regular assessment of annual performance of the business and may examine income/environmental impact added; site management regularly assess the site they are responsible for and would consider return on capital employed/environmental impact added; project managers assess capital investment projects in terms of net present value/net present environmental impact added, etc.

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Purpose: improvement of ... Economic performance figures (numerator) Possible links to eco-efficiency indicators Environmental performance figures (denominator)

Overall corporate eco-efficiency - Income - Shareholder value - ... 1 5 6

General eco-efficiency indicators - Net revenue - ... 7 2

Specific eco-efficiency indicators Output Input - Sales revenue of product X - ... - Labor costs - ...

- Environmental impact added - NPEIA - ...

- Greenhouse warmth contribution - ...

- CO2 emissions - ...

- Consumption of oil - ...

Source: [1] Examples of absolute figures, NPEIA = net present environmental impact added, arrows show possible links for deriving eco-efficiency indicators, the width of the arrows suggesting the extent of the plausibility that the given combination will produce a useful indicator.

Fig. 1. Systematic collection of eco-efciency information.

The focus on business efciency is subject to criticism. Neither conventional management accounting nor environmental management accounting are solely concerned with notions of efciency, because other important issues such as inter-generational equity, social justice and effectiveness are also of concern. Ongoing debate exists in economics between those who argue that the social and environmental responsibility of business is to increase prots in an efcient way [24] and supporters of direct corporate social and environmental responsibility [25,26]. However, even critical thinkers such as Tinker and Gray [27] grudgingly admit that corporate environmental accounting and reporting has been a success story: Environmental reporting was probably a mistake by business e arriving unexpectedly and driven by engineers it sneaked out under the corporate PR radar and, indeed, it looked, initially innocuous. Companies soon realised that they had set a ratchet for themselves because it rapidly became apparent what a good environmental report would look like and, although there was real substance to the initial environmental reports, they were some distance from the ideal [27]. Environmental reporting has partly been a success because eco-efciency improvement has a resonance with both environmental groups and businesses. It has been an important driver of corporate interest in environmental management accounting in the search for information about actions that will benet the environment, the monetary bottom line and, implicitly, the businesss social legitimacy [1,16]. Hence, it is assumed that engagement of management in moves towards eco-efciency have provided an important foundation for the collection of environmental information by business and the ratcheting of business towards better environmental performance. Bearing this focus on eco-efciency in mind, a number of cases in environmental management accounting have been developed. The context in Japan is of particular interest as a new provisional standard and guideline for environmental management accounting and environmental reports have recently been

introduced. One recommendation is that eco-efciency measures should be calculated and reported [28].1

4. Cases in environmental management accounting e the example of Japan At the outset, it should be recognized that case studies offer a low possibility of repetition and only a narrow and limited base for generalization [29]. However, they can provide rich descriptions, explorations and explanations of the phenomena being studied, and are of particular use where little prior study has been undertaken. Although the focus here is on Japan, a growing number of case studies have become available in environmental management accounting throughout the world. Burritt [30] reviews recent cases explored at EMA related conferences, workshops, expert group meetings, and literature e see representative cases in Table 3. The broad range of countries, large number of industry groupings and engagement with large and smaller organizations are all apparent from the studies. In this paper some recent studies in Japan are examined and comments made in relation to environmental management accounting and eco-efciency. A number of projects and standards have been introduced in Japan over the last ve years, as shown in Table 4. The MOE released the Guidelines for Environmental Performance Indicators for Business e Fiscal Year 2002 version e a revised version of the Guidelines for Environmental
1 The Japanese MOE guideline [28] states Business related indicators, such as the value of production, and sales amount (sales turnover) of products/ services, are essential information as basic data to calculate the ratio between provision of a unit of environmental burden and the monetary value of product/service (eco-efciency), the ratio between provision of a unit of product/ service and the environmental burden (ecological product efciency) and so on. It is desirable to disclose these business related indicators which are generally accepted within the industry.

R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275 Table 3 Representative case studies in environmental management accounting Source Graff et al. [2] Number of EMA cases presented  39 Cases Sector/Industry/Name (if available)

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Bennett and James. The Green Bottom Line [4] e various authors

    

USA Canada Switzerland USA UK

ICAA, EA, VicEPA, Sydney, October 2002a

 4 Australian

UN DSD EMA, Lund, Sweden, December 2002b

       

12 Austrian 1 Zimbabwe 1 South Africa 5 Costa Rica 1 Romania 1 Hungary 1 Slovakia 2 South Korea

UN DSD EMA, Bristol, UK, February [6] EMAN Europe, Bristol, UK, February 2002 Gago [31] EMAN Asia Pacic, Kobe, Japan, September 2001 Ditz et al. Green Ledgers [9]

    

1 Canada 3 Slovakia 11 Austria 14 UK 11 Spain

 3 Korea  1 Philippines  9 USA

Kokubu and Nakajima [32]/IMU

a b

 6 Japan

 Private/Chemicals; metal nishing, fabrication; printing; electronics; paper; electrical utilities, others/24 capital investments; 9 product/process costing; 6 strategic planning  Private/medical products and technologies (Cost-benet analysis)/Baxter International  Public sector/Ontario Hydro  Private/Electric utility (Full cost accounting), machinery and engineering (Identication of environmental costs)/Sultzer Hydro  Private/(Xerox Ltd/Packaging use by document company (Product life cycle costing)  Private/waste disposal in agrochemicals division (Conventional tracking and allocation)/Xeneca  Private/Education/Methodist Ladies College, Perth  Private/Plastic Injection/Cormack Manufacturing  Private/Internal services to divisions/AMP Services  Private/Wool manufacturing e carbonising/Michell Group  Private/Banking, Brewery, Energy, Pulp and Paper, Galvanising, Skiing, Water Treatment  Private/Particle and breboard/Zimboard Mutare  Private/Mining, e 4 sectors  Private/Poultry, Labels, PVC products, coffee mill, pasta/Pipasa, Etipres, Resintech, Coopronarango, Roma Prince  Public sector/Water authority  Private/Chemicals/Nitrokemia  Private/Cardboard production  Private/Steel, health care/POSCO, Yuhan-Kimberley  Private/Pulp and paper mill/Mackenzie paper Division, Abitibi-Consolidated Corporation  Private/Pulp and paper; railway carriage repair; cardboard manufacturer  Private/Pilot projects  Private/Survey  Private/Wood boards, bricks, wood pulp, oil rening/Co-generation of energy supply in unnamed companies  Private/steel, electronics, chemicals/POSCO, Samsung, LG Chemicals  Private/conglomerate/Lopez Group  Private/9 companies in-depth (includes pollution prevention in four small companies). General Comment: .the casework presented here avoids an explicit accounting of social costs.  Private/Various/Material ow costing in: Nitto Denko, Canon, Tanabe Seiyaku, Takiron, Nippon Paint, Shionogi

Available at the Department of Environment and Heritage web site http://www.deh.gov.au/industry/nance/publications/project.html. Available by contacting the United Nations Expert Working Group through http://www.un.org/esa/sustdev/sdissues/technology/estema1.htm.

Performance Indicators for Business e Fiscal Year 2000 version. This Environmental Performance Indicators Guideline is interlinked with the Environmental Accounting Guideline and Environmental Reporting Guideline also issued by MOE. The Japan Environmental Management Association for Industry [JEMAI] conducted EMA research between 1999 and 2002, supported by the Ministry of Economy, Trade, and Industry [METI]. The result of this research was published as the Environmental Management Accounting Tools Workbook in 2002. After completing this project, JEMAI established the Environmental Accounting Research Center in May 2003. This centre provides general information to help companies promote environmental accounting. In the context of these developments, the following Japanese case studies are considered (see also Table 5 for their positioning in the comprehensive framework):  cost analysis e material ow cost accounting e Tanabe Seiyaku;

 environmental performance indicators for business e Nippon Oil, Ricoh, Canon Schweiz, and Hitachi; and  environmental performance of the product e Hitachi, Fujitsu. 4.1. Site management e material ow cost accounting (Table 2, Boxes 1, 8, 9) 4.1.1. Tanabe Seiyaku Tanabe introduced material ow cost accounting into the pharmaceutical production processes at its Onoda Plant in scal year 2001 as part of the METI Environmental Management Accounting Project in Japan. By using material ow cost accounting, Tanabe was able to identify the waste processing costs and processes with large raw material losses. In scal year 2002, Tanabe moved ahead with a number of improvements, such as the installation of chlorinated solvent adsorption and collection equipment and changes to the on-site incineration of waste liquids.

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Table 4 Recent environmental accounting development in Japan Date 1999e2001 May 2000 Feb. 2001 Feb. 2001 Mar. 2002 Jun. 2002 Apr. 2003 May 2003 Dec. 2003 Dec. 2003 Mar. 2004 Project Environmental Management Accounting Project (by METI) Developing Environmental Accounting Systems: year 2000 report (by MOE) Environmental Performance Indicators for BusinesseFiscal Year 2000 (by MOE) Environmental Reporting Guideline: 2000 version (by MOE) Environmental Accounting Guideline: 2002 version (by MOE) Environmental Management Accounting Tools Workbook (by METI) Guidelines for Environmental Performance Indicators for BusinesseFiscal Year 2002 (by MOE) Environmental Accounting Research Center (by JEMAI) Environmental Report Preparation Standard e Exposure Draft (by MOE) Environmental Reporting Guideline: 2003 version e Exposure Draft (by MOE) Environmental Reporting Guideline: 2003 version (by MOE)

Comment: The developments at Tanabe Seiyaku provide a classical winewin situation for the site management. Focus is on the ex post development of an environmental management accounting data system that will provide relevant monetary and physical eco-efciency information, rather than on the adoption of regular targeted or future orientated information. The importance of consolidated data for a total picture of material ow costs is highlighted. Also, the monetary advantages from investment in chlorinated solvent adsorption and collection equipment have been made apparent. 4.2. Top management e performance of the business 4.2.1. Nippon Oil (Table 2, Boxes 9 and 12) The Nippon Oil Group implemented environmental accounting as a general tool for information disclosure and business management to ascertain the efciency and effectiveness of its environmental management. In scal year 2002, the Group expanded the scope of its environmental management accounting to include its 16 member companies. In line with this move, the Group began using value-chain-based environmental accounting to show the activities and environmental impact of all group activities. Nippon Oil has implemented an integrated evaluation of its environmental impact in order to make a comprehensive evaluation of its multifaceted environmental activities. An integrated view of environmental impact is used to evaluate the major processes through the oil product life cycle, from exploration and development, to rening, transport, and consumption. Nippon Oil uses the life cycle impact assessment method based on the endpoint modeling (LIME) method developed by the Research Center for Life Cycle Assessment, National Institute of Advanced Industrial Science and Technology (AIST) in cooperation with the LCA project (by the Ministry of Economy, Trade, and Industry [METI], the New

METI Z Ministry of Economy, Trade, and Industry, Japan; MOE Z Ministry of Environment, Japan; JEMAI Z Japan Environmental Management Association for Industry.

As a result of the introduction of material ow cost accounting, the cost savings from environmental conservation measures reached 60 million yen per year and chloroform emissions will be drastically reduced. Tanabe uses this method as an effective tool to help make decisions about measures that increase corporate income and reduce environmental burden imposed by the corporation. In scal year 2003, Tanabe integrated material ow cost accounting into its SAP R/3 system and expanded material ow cost accounting to all of its factories. This integration facilitates the completeness and accuracy of data. It also makes an optimum allocation of resources and promotion of environmental conservation activities clear within the organization [33,34].
Table 5 Recent Japanese case studies in Environmental Management Accounting

Environmental management accounting (EMA) Monetary environmental management accounting (MEMA) Short term focus Past Oriented Routinely generated information 1. Tanabe Seiyaku Ricoh Fujitsu Hitachi Long term focus 2. Environmentally induced capital expenditure and revenues Physical environmental management accounting (PEMA) Short term focus 9. Tanabe Seiyaku Nippon Oil Ricoh Canon Schweiz Hitachi Fujitsu 11. Fujitsu 13. Canon Schweiz Hitachi Long term focus 10. Environmental (or natural) capital impact accounting

Ad hoc information Future Oriented Routinely generated information

3. Fujitsu 5. Monetary environmental operational budgeting (ows) Monetary environmental capital budgeting (stocks) 7. Relevant environmental costing (e.g. special orders, product mix with capacity constraint)

4. Hitachi 6. Environmental long term nancial planning

12. Nippon Oil 14. Hitachi

Ad hoc information

8. Tanabe Seiyaku

15. Hitachi

16. Hitachi

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Energy and Industrial Technology Development Organization [NEDO], and the Japan Environmental Management Association for Industry [JEMAI]). As shown in Fig. 2, Chart 1, the environmental impact from petroleum businesses has been steadily declining each year, with the exception of 2002. The greatest environmental impact comes at the product consumption stage, and in order to reduce this, more energy is needed at the rening stage. Nippon Oil is working to improve the quality of the product at the rening stage, and also is striving to suppress any increase in the environmental impacts from rening (see Fig. 2, Chart 2). Nippon Oil analyzed the relationship between the total amount of these environmental impact factors and production, and evaluated the comprehensive environmental efciency of petroleum operations as follows: Environmental Efficiency Z Production Volume Total Environmental Impact Factors

Comment: In this case the close connection between life cycle analysis and PEMA information is established. Across the total life cycle, since 1996, environmental efciency, based on the above measure, has been improving. However, monetary impacts of environmental efciency and, hence, eco-efciency, are not explored. At this stage the potential for an eco-efciency measure is only implicit in these calculations. The LIME approach aims to bring organizations towards life cycle costing and eco-efciency measurement, but this remains to be developed. Finally, consolidation of information is, once again, an issue that needs to be resolved for complete data to be presented at the organizational level for all 16 companies. 4.2.2. Ricoh (Table 2, Boxes 1 and 9) Ricoh developed PEMA environmental management indicators to evaluate the level of its sustainable management and facilitate further improvement. Their indicators are based on the following two factors: (1) Economic efciency of Environmental Conservation Activities. This factor shows whether an environmental conservation activity is conducted in an economically rational way (i.e. in a way that leads to net monetary returns).

As shown in Fig. 2, Chart 3, with 1996 set as the base year for an index beginning at 100, environmental efciency has improved throughout the eight-year period (see Fig. 2) [35].

Chart 1 Total environmental impact Chart 2 Total environmental impact (Drilling + transport + 7 refineries + (7 refineries only) consumption)
(%)
100
Product consumption Refinery Product transport Crude oil drilling

(%)
Co2 SOx NOx Soot and dust

120 100 80

80

60 60 40 40 20 20 0 96 97 98 99 00 01 02 96 97 98 99 00 01 02
* Nippon Oil measures and manages CO , SOx, NOx, and soot and dust, as well as COD, benzene, toluene, xylene, and other wastes. 2 However, these are not shown in Chart 2 as each of these substances is only found in relatively minute amounts. Source: Nippon Oil (2003), Sustainability Report 2003, p.20.

Chart 3 Environmental efficiency (Group-wide)

(%)
110

108.7%

105

100 0

96

97

98

99

00

01

02

Fig. 2. Nippon Oil: environmental impact and eco-efciency [35].

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Economic Benefits Environmental Conservation Costs Economic BenefitsCSocial Cost Reduction Environmental Conservation Costs (2) Environmental Efciency of Business Activities. This factor shows whether any income is made when a company conducts business activities (environmental impact/social costs2). Value Added Business Activities Total Environmental Impact Physical or Monetary Amount Based on these two factors, Ricoh calculates the following four indicators (see Fig. 3):  Ratio of eco-prot (REP) Z Total economic benet/total environmental conservation cost  Ratio of eco-effect (REE) Z Environmental effect (total economic benet C total amount of social cost reduction)/total environmental conservation cost  Eco-index Z Gross prot (thousands of yen)/total environmental impact amount  Ratio of prot to social cost (RPS) Z Gross prot/total social cost For the calculation of social costs, the environmental impact is converted into a monetary value by using the life-cycle impact assessment method. This is based on Environmental Priority Strategies in product design (EPS) Indicator Version 2000, which is an impact assessment method expressed in monetary terms. The reference gure used is V108/t-CO2 (tonnes of carbon dioxide) (U11,945/t-CO2). This gure is almost equal to the Ricohs reference amount (U16,000/t-CO2), which is calculated from investments to reduce CO2. Ricohs environmental accounting information is used by top management as a tool to measure eco-efciency e the economic efciency of environmental conservation activities and environmental efciency of business activities of the company as a whole [36]. Comment: Calculation of economic efciency and ecological efciency in Ricoh precede the calculation of eco-efciency via the Eco-Index. The period to period trend in eco-efciency in the reported gures is transparent for the organization as a whole. However, eco-efciency projections are not revealed. 4.2.3. Canon Schweiz (Table 2, Boxes 9 and 13) Canon is a large Japanese manufacturer of a wide range of products used in the home, ofces and industry, including business machines, conventional and digital cameras, lenses, digital video camcorders, semiconductor production
Calculation of social costs. In Ricoh, environmental impact is calculated in terms of monetary value. The monetary value of environmental impact is termed social costs (the costs of negative externalities).
2

equipment, television broadcasting lenses and medical equipment, employing over 100,000 people worldwide. Its Swiss subsidiary, Canon Schweiz, is one of the rst Japanese related companies to use the Dutch Eco-Indicator 993 to identify the environmental burden related to sales, product maintenance and other aspects of its operations. This is a quantitative, integrated method for expressing the companys environmental burden throughout the Group. Canon Schweiz uses this information to evaluate environmental activities and to set targets for improvement (see Fig. 4) [37]. However, at this point the parent company, Canon, has not yet adopted this integrated method. Comment: Canon Schweiz has developed a routinely generated, short-term eco-balance measure and target system for assessing environmental burdens of its products and operations. 4.2.4. Hitachi (Table 2, Boxes 1, 9 and 13) Hitachi introduced the GREEN 21 factor in order to measure continual improvements and activity progress levels based on specic environmental activity evaluation standards. The factor replaced GREEN 21 Version 2 Sustainability Progress Indicator (SPI) in 2002 with the establishment of their new Environmental Vision e the Sustainability Compass. The distinguishing feature of GREEN 21 Version 2 is that its indicators are based on the Sustainability Compass: Eco-mind & Management, Nature-friendly Products and Eco-factories, Worldwide Stakeholder Collaboration, and Sustainable Business Models. The activity period specied for GREEN 21 Version 2 is scal 2002e2005. Hitachi has standardized the items for evaluation and the activity period for both domestic and overseas companies in accordance with the newly revised evaluation standards. The evaluation standards for GREEN 21 Version 2 are divided into 53 performance indicators spread over eight different categories, with each performance indicator graded on a scale from 0 to 5 (negative evaluations are also possible). Level 2 is awarded for achieving the previous years activity levels, Level 4 is awarded for achieving the targets set out in their Environmental Action Plan (scal year 2005), and Level 5 for implementing activities that exceed these targets. Finally, a coefcient is applied to the evaluation level awarded for each indicator. The full scale for each category is 100 Green Points, with a possible total score of 800 Green Points. The result for scal year 2002 evaluated using this system was 377 Green Points (see Fig. 5). In October 2002, Hitachi added environmental activity indicators to their performance evaluation standards, enabling GREEN 21 Version 2 to be used in performance evaluations. Hitachis performance evaluation standards provide an impartial evaluation of management results, and were established to measure the improvement of management rules and
At the request of the Netherlands Ministry of Housing, Spatial Planning, and the Environment, a team of environmental and LCA experts from the Netherlands and Switzerland was assembled to devise a system for measuring environmental impact. This team, working from 1997 to 1999, developed the LCA weighting method known as Eco-Indicator 99.
3

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Fiscal 2000 Ratio of eco profit Ratio of eco effect Eco index Ratio of profit to social cost Gross profit (100 millions of yen) 1.27 1.61 538.8 40.9 6,133

Fiscal 2001 1.21 1.95 1,204.1 100.8 6,999

Fiscal 2002 1.58 1.81 1,423.7 108.9 7,453

Fig. 3. Ricoh Group: changes in gross prot and environmental management indicators [36].

regulations and the degree to which organizational revitalization has been achieved. Performance evaluation indicators are a combination of both countable and non-countable items, including protability, growth, and capital. Hitachi added environmental activities to the non-countable indicators to better assess social value. Based on this system, Hitachi conducts equitable performance evaluations for each of its business groups, and uses the results as an incentive to improve protability and social value by the groups [38]. Comment: The scheme is similar to the Eco-compass. It uses benchmarked gures from the companys action plan and a weighted scale to derive its green point rating. Furthermore, group performance is linked to the monetary information reported, a slowly emerging aspect of the use of eco-efciency measures. 4.3. Environmental performance indicator for products e application of Environmental Efciency and Factors indicators 4.3.1. Hitachi (Table 2, Boxes 4, 13e16) Hitachi introduced Environmental Efciency and Factors indicators to increase the efciency of energy and resources used in the functions of its products. Environmental Efciency indicates the value of a product achieved through reductions in environmental impact and resource usage, and is evaluated by testing the function and life span of a product. To help in evaluating the value of its products, Hitachi have developed two efciency indicator items: the Prevention of Global Warming Efciency indicator item, which

measures the volume of greenhouse gas emissions throughout the life cycle of a product and the resulting environmental impact and Resource Efciency indicators, which measure the volume of resources discarded as waste as a percentage of the new resources used to manufacture a product. Factors measures the degree of improvement in the environmental efciency of a product based on a set of bases established using the leading product for 1990, and provides an assessment of a products prevention of global warming and resource factors (see Fig. 6) [38]. Comment: Hitachi here uses PEMA information for assessing physical functional efciencies of its products. Target PEMA information is used in product development decisions. 4.4. Performance management for product 4.4.1. Fujitsu (Table 2, Boxes 1, 3, 9 and 11) Fujitsu introduced the Eco-efciency Factor to evaluate both environmental burdens imposed and changes in service performance. Service value is applied to the numerator while environmental burdens are applied to the denominator. Fujitsu measures the relative improvement in new products to past products as follows: Eco-efficiency Factor Z Service New product=Old product Environmental Burdens New product=Old product

Fig. 4. Canon Schweiz: eco-balance [37].

In scal year 2002, Fujitsu expanded its Eco-efciency factor application to mobile phones and scanners. In the case of scanners, two types of scanners, -4110C and -4120C, were selected. -4110C was rst introduced to the market in spring 1999 and -4120C was introduced in spring 2002. To quantify the value of the numerator, Service, the scanning function was chosen because scanners only have one denitive function, which is scanning. In order to dene the product function, three types of performance are selected: the optical, media processing, and data processing performance. For these three items, several sub-criteria are selected. Optical performance consists of two sub-criteria e basic resolution and readout speed. Finally, the ratio between the new and old products functions is computed. The gure for Service represented by comparing the scanning function of the new and old products is 2.47. To quantify the environmental burdens, CO2 emissions over the entire product life cycle were selected because CO2

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An example of the Hitachi Green Points evaluation:

Category 4 Eco-products (Manufactured) evaluates the following: implementation ratio of product assessment, achievement rate of eco-products, achievement rate for the non-lead solder implementation plan, achievement status for the RoHS proposal, planning and achievement status for green procurement and purchasing, green supplier rate, and the reduction of environmental impact during transportation. Category 6 Eco-factories (Resource Recycling) evaluates waste disposal and chemical substance management at operation sites. The indicator waste disposal includes: the volume of waste generated, plan for reduction and implementation status for the volume of waste for final disposal, promotion of zero emissions, recycling status for waste discharged from independent sites, and extensive implementationof correct disposal methods. The indicator chemical substance management includes: a structure for investigating new chemical substances before they are used, an achievement rate for target values related to the reduction of substances, and a structure for managing stock and its application.

Fig. 5. Hitachi: green points evaluation [38].

emissions are considered to be a proxy for energy consumption. Life cycle inventory analysis was conducted with functional units being based on the use of the scanners over a ve-year period. The product life was divided into ve stages: Material and parts input, Assembly, Transportation, Use and End of life. The results of inventory analysis undertaken for total CO2 emissions across the ve stages, indicated that CO2 emission of -4120C were 16% higher when compared with -4110C e a factor of 1.16. Based on the CO2 emission ratio and value of the service ratio, the eco-efciency factor is 2.13. (2.47/1.16) (see Fig. 7). In the scal year 2001, Fujitsu also calculated a laptop computers Eco-efciency factor.

Comparison of a laptop manufactured in 2001 with one manufactured in 1998, indicated an Eco-efciency factor of 7.8, which means Eco-efciency improved by 7.8 times during the three-year period [39,40]. Comment: The ex post assessment of eco-efciency is used in both a regular and ad hoc (product by product) way by Fujitsu to assess short run economic and environmental impacts. Given this range of introductory case studies in the context of eco-efciency information used by Japanese companies it is possible to identify Boxes in the comprehensive EMA matrix that appear more regularly than others. Also, it is evident that examples of some situations are not evident in the sample of cases examined. The development of best practice

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Fig. 6. Hitachi: Environmental Efciency and Factors indicators [38].

environmental management accounting and reporting in an eco-efciency context would require further exploration of situations where EMA is used in Japan, so that all the Boxes in Table 5 could be completed. The tools in Boxes 2, 5e7 and 10 remain to be engaged.

5. Conclusion EMA is an emerging area of interest to the corporate sector. Eco-efciency is a measure that brings together monetary and

physical information about the environmental performance of companies, and changes in performance over time. In Japan a provisional standard and guideline state that eco-efciency information is an essential indicator and should be developed by an EMA system and produced in corporate environmental reports. As there is no generally accepted format as a basis for analysis and comparison of business or product eco-efciency in Japan, at this point leading companies have developed their own ecological-efciency and eco-efciency indicators to evaluate their business segments, subsidiaries, processes and

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R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275 [5] ECOMAC. Synreport: eco-management accounting as a tool of environmental management (the ECOMAC project). EIM Small Business Research and Consultancy, http://www.ukceed.org/ecomac.htm; 1996 [accessed 27.04.04]. [6] UN DSD. Environmental management accounting procedures and principles. New York: Department of Social and Economic Affairs, United Nations Division for Sustainable Development; 2001. [7] Burritt RL, Hahn T, Schaltegger S. Towards a comprehensive framework for environmental management accounting e links between business actors and EMA tools. Australian Accounting Review 2002;12(2):39e50. [8] Burritt RL. Environmental risk management and environmental management accounting e developing linkages. In: Pall Rikhardsson, Martin Bennett, Stefan Schaltegger, Jan Jaap Bouma, editors. Implementing environmental management accounting: status and challenges, EMAN book, in press. [9] Ditz D, Ranganathan J, Banks RD. Green ledgers: case studies in corporate environmental accounting. Washington, DC: World Resources Institute; 1995. [10] Horngren C, Datar SM, Foster G. Cost accounting: a managerial emphasis. 11th ed. Upper Saddle River, NJ: Pearson Education; 2003. [11] USEPA. An introduction to environmental accounting as a business tool: key concepts and terms. Washington, DC: Ofce of Pollution Prevention and Toxics, United States Environmental Protection Agency; 1995. [12] Ansari S, Bell J, Klammer T, Lawrence C. Management accounting. A strategic focus: measuring and managing environmental costs. McGrawHill; 1997. [13] Kreuze JG, Newell GE. ABC and life cycle costing for environmental expenditures. Management Accounting 1994;February:38e42. [14] Burritt RL. Challenges for environmental management accounting. In: Pall Rikhardsson, Martin Bennett, Stefan Schaltegger, Jan Jaap Bouma, editors. Implementing environmental management accounting: status and challenges. Kluwer Academic Publishers, Boston/Dordrecht/London, in press. [15] Gray RH, Bebbington J. Accounting for the environment. 2nd ed. London: Sage Publications; 2001. [16] Burritt RL, Schaltegger S. Eco-efciency in corporate budgeting. Environmental Management and Health 2001;12(2 & 3):158e74. [17] ODonovan G. Environmental disclosures in the annual report: extending the applicability and predictive power of legitimacy theory. Accounting, Auditing and Accountability Journal 2002;15(3):344e71. [18] De Simone LD, Popoff F. Eco-efciency, the business link to sustainable development. Cambridge: MIT-Press; 1997. [19] OECD. Eco-efciency, organisation for economic cooperation and development. Paris: OECD; 1997. [20] Schaltegger S, Sturm A. Environmentally oriented decisions in compa nies [Okologieorientierte Entscheidungen in Unternehmen] [in German]. 2nd ed. Bern/Stuttgart: Haupt; 1992. [21] WBCSD. Achieving eco-efciency in business, Report of the World Business Council for Sustainable Development. March 14e15, Second Antwerp Eco-efciency Workshop. Conches: WBCSD; 1995. [22] UNCTAD. A manual for the preparers and users of eco-efciency indicators, version 1.1, UNCTAD/ITE/IPC/2003/7. United Nations Conference on Trade and Development, New York/Geneva; 2004. [23] Schaltegger S, Muller K, Hindrichsen H. Corporate environmental accounting. London: John Wiley; 1996. [24] Friedman M. The social responsibility of business is to increase prots. The New York Times Magazine 1970;September:13. [25] Dyllick T, Hockerts K. Beyond the business case for corporate sustainability. Business Strategy and the Environment 2002;11:130e41. [26] Welford R. Hijacking environmentalism. Corporate responses to sustainable development. London: Earthscan; 1997. [27] Tinker T, Gray R. Beyond a critique of pure reason. Accounting, Auditing and Accountability Journal 2003;16(5):727e61. [28] MOE. Environmental reporting guideline, 2003 version. Japan: Ministry of Environment; 2004. [29] Yin R. Case study research: design and methods. 2nd ed. Beverly Hills, CA: Sage Publishing; 1994.

Example: Application of environmental efficiency factor to scanners

The environmental efficiency factor of product B, launched in spring 2002, increased 2.1 times compared with that of product A, launched in spring 1999. (Both models are compact A4 two-sided color document scanners weighing under 4 kg.) 3.0

Transitions in values when A = 1 assumed

2.5 2.1

2.5

2.0

1.5 1.2 1.0 Factor Service 0.5 Environmental burden

0.0

Fig. 7. Fujitsu: eco-efciency factors for scanners [39].

products. The government (METI) has introduced initiatives to develop and promote EMA and has now made free EMA tool software available. Tanabe Seiyaku, Ricoh and Canon were all members of METI project. The examples examined, taken from corporate environmental reports, relate to what may be considered leading companies that are developing and promoting EMA in Japan. It is concluded from the analysis in this brief survey of EMA cases in Japan that the practice of linking eco-efciency measurement with environmental management accounting information is incomplete, and eco-efciency information is underutilised. Practices are diverse and there appears to be a need for further promotion of EMA and the concept of eco-efciency if it is to help business move production processes and consumption of its products comprehensively towards sustainability.

References
[1] Schaltegger S, Burritt RL. Contemporary environmental accounting e issues, concepts and practice. Shefeld, UK: Greenleaf Publishing; 2000. [2] Graff RG, Reiskin ED, WhiteBidwell ALK. Snapshots of environmental cost accounting. A report to US EPA environmental accounting project. Boston, USA: Tellus Institute; 1998. [3] IFAC. Environmental management in organizations. The role of management accounting, nancial and management accounting committee [Study #6]. New York: International Federation of Accountants; 1998. [4] Bennett M, James P, editors. The Green Bottom Line: current practice and future trends in environmental management accounting. Shefeld: Greenleaf Publishing; 1998.

R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275 [30] Burritt RL. Environmental management accounting: roadblocks on the way to the green and pleasant land. Business Strategy and the Environment 2004;13(1):13e32. [31] Gago S. Management information for ecologically-oriented decisionmaking e a case study of the introduction of co-generation in eleven Spanish companies. Accounting Forum 2002;26(2):191e218. [32] Kokubu K, Nakajima M. The position of material ow cost accounting in environmental management accounting [in Japanese]. Kaikei 2003; 164(2):123e36. [33] Tanabe Seiyaku environmental conservation activity. Available from: http://www.tanabe.co.jp/english/corporateinfo/environment.html; 2003 [accessed 22.04.04].

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