Journal of Sustainability and Green Business

Green accounting – a proposition for EA/ER conceptual

implementation methodology
Heba Y. M. Abdel-Rahim
Sadat Academy for Managerial Sciences, Assiut, Egypt.
University of Florida,

Yousef M. Abdel-Rahim
King Saud University, Saudi Arabia
Assiut University, Egypt

Abstract:

Many countries have their own policies for the implementation of environmental
reporting. However, no country has regulations in place requiring companies to issue a company-
wide, stand-alone report on environmental performance that can affect zonal, regional and global
communities. This article explores the concepts of environmental accounting and the possibility
of broadening the applicability of the environmental reporting concept to be utilized by
governments to make businesses more responsible for their externalities. The first part discusses
the importance of environmental accounting as part of the accounting education, overviews the
past and the current regulatory and mandatory status of environmental accounting and its
relationship to different professions. The second part proposes a mandatory environmental filing
system and explores its potential characteristics and benefits. The ultimate purpose of the filing
system is to follow the whole life cycle of each major resource and to measure the effect of
businesses on its hosting society.

Keywords: Environmental Accounting (EA), Environmental/Sustainability Reporting (ER),

Resource Sharing, Waste and Material Reporting, Environmental Filing.

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Introduction

The environmental accounting and reporting (EA/ER) is a proposed discipline that deals
with the consideration, and ultimately the inclusion into the customarily accounting procedures,
general and specific issues related to environmental and social impacts, regulations and
restrictions. Safe, environmentally sound, and economically viable energy production and supply
policies should be essential part of any accounting and management issues. The start of this
proposed consideration and inclusion of EA/ER should be in college syllabi in the form of
collateral reading assignments, case studies and public and scientific student awareness in
intermediate and advanced accounting courses in order to explore current state and future issues
of environmental accounting and reporting, e.g.: Peng (2009). .
Although greater attention is slowly paid to environmental issues in accounting education
in many high-ranked universities, yet the general impression about the implementation and
application of the EA/ER in real life is lagged far behind. This lag stems from two main causes:
(1) lack of or incomplete understanding of the environmental and social impacts of EA/ER and
(2) the shortage of necessary accounting and auditing tools and procedures to implement the
EA/ER in real applications (Liu (2009)) . As regards to the real implementation, lack of the
adaptation of EA/ER stems from three dominant reasons: (1) the absence of clear-cut regulations
and tools to implement the EA/ER; (2) the dispersed responsibilities of implementing and
imposing the EA/ER among legislatures, accounting standard setters, professional organizations,
and governmental accounting, environmental and social agencies and (3) the lack of experienced
corporations’ personnel to describe fully and forthrightly the environmental activities in either
corporations’ annual reports or in stand-alone environmental disclosures. Besides, there are no
standardized formats for the presentation of environmental information, either in stand-alone
reports or as components of annual reports (Liu (2009)) .
In regards to accounting profession, there are paramount 4 reasons for the lack of EA/ER
adaptation: (1) the profession has failed to maximize its potential for leadership; (2) the sufficient
expertise to participate in environmental partnerships remains undeveloped; (3) the attestation to
environmental reports is still not regarded solely as an accountant’s function and (4) the official
standards with respect to most EA/ER issues and/or verification engagements continue to be
lacking (Diaconu (2009)). .
Stevenson’s survey (2002) indicated that accounting educators feel that their willingness
to teach environmentalism is impeded due to students’ lack of awareness of environmental issues
especially in their early studies. In the 1980s, the literature focused on reporting issues that were
specifically concerned with Health, Safety, and Environmental (HSE) reporting. Elkington
(1998) wrote that Triple Bottom Line (TBL) was based on measured economic prosperity,
environmental quality, and social justice. Currently, very few countries worldwide have any
substantial EA/ER requirements. Furthermore, up-to-date, the different and diverse regulations
and restrictions are neither well-defined nor accepted in a global or at least regional sense, and
hence there are no standardized formats for the presentation of environmental information, either
in stand-alone reports or as components of annual reports.
To bridge the gap between the educational aspects of EA/ER and its real application, the
following steps are proposed: (1) The formation of EA/ER agencies or societies to be in charge
of: (a) studying and reviewing the huge scientific and case studies in available open and
documented literature on EA/ER; (b) unifying common global or regional EA/ER aspects and

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terminologies; (c) designing standardized formats and templates for EA/ER; (d) setting starting
points and directions for the educators, governmental, environmental, social and managerial
personnel for adapting the EA/ER. (2) To establish necessary legislature for implementing and
assessing the EA/ER in corporations reports. (3) To define and stipulate the recognition and
evaluation of liabilities for environmental remediation. (4) To enhance taxation policies for the
inclusion of EA/ER incentives. The abovementioned points show the importance of the EA/ER
and that its implementation is becoming a growing issue in many countries, as explained in the
coming section.

1. Present Status of EA/ER

2.1. EA/ER Implementation Awareness:

Many countries have their own policies for the implementation of EA/ER: One method
for holding businesses responsible for their behavior is to require them to report on their actions.
The level and breadth of business reporting on environmental matters have increased
dramatically over the past 20 years or so as a result of governmental regulations, accounting
standard setting, and voluntary reporting. Today, external reporting on environmental
performance occurs primarily through Pollution Release and Transfer Registers (PRTR), as
components of traditional financial reports or in stand-alone, corporate environmental reports
(Chertow and Lombardi (2005)) .
The need for corporate reporting of its environmental as well as financial performance
has some practical potential in providing a greater degree of visibility to its environmental
activities and consequences and casting light on what is often invisible to both governmental as
well as concerned social groups. It is also important to recognize that visibility is not the only
possible consequence of corporate reporting in this area, but rather its future prospects for
sustainability and development. Indeed, it is possible that such reporting can either spare or even
reduce what is known as negative effects and liability consequences about a company and its
environmental activities. Also, companies are interested in the possibilities for environmental
reporting to increase their legitimacy and spread in the wider world (e.g.: Chertow and Lombardi
(2005)) .

2.2. Stand-Alone EA/ER Implementation:

Currently, there is not any country that has official regulations in place requiring
companies to issue a company-wide, stand-alone report on their environmental performance that
can affect zonal, regional and global communities. In legislation introduced in 1989 in Sweden,
all operations sites that require special permits due to the presence of environmental hazards
must submit an annual environmental report to the authorities. Since 1996, companies in
Denmark with significant environmental impact have been required to publish a ‘‘green
account’’, detailing significant consumption of energy, water, and raw materials. The
Netherlands, in 1999, began requiring that companies with substantial environmental impacts
produce environmental reports for both the government and public on identified operating sites.
The contents of the government report, which are verified by governmental authorities, are
specified to include information on emissions, soil pollution, soil clean up, and the company’s
environmental policy, CRISP (2003). The number of companies which voluntarily issue stand-

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alone reports that include environmental performance information have been increasing as has
the diversity of the types of reports issued. Many reporting companies prepare a HSE report;
however, in recent years, companies are also focusing on social issues. A survey conducted by
Maasland KPMG (2002) analyzed the level of reporting health, safety, social, and/or
environmental issues by the top 250 companies in the Global Fortune 500 (GFT 250) and the top
100 companies from 19 countries. This survey has showed that most companies have prepared
an HSE report.

2.3. EC Mandated EA/ER Annual Reports:

Information included in traditional annual financial reports is mandated by many national

governments, accounting standard-setting bodies, and stock exchange regulatory agencies. In the
realm of environmental disclosure, intervention by governmental or profession regulators is
necessary since, critical scholars (e.g., Gray and Milne, 2004) argue that voluntary ER will just
not work. Second, the most pressing ‘‘accounting issue’’ related to EA was the disclosure of
potential liabilities associated with environmental clean ups.
Currently, a company that is subject to the Annual Accounts Act (AAA) is required to
include in its directors’ report, disclosures on the environmental impact of the company’s
operations as well as the use and disposal of its products. Additionally, firms are to report those
measures in place to prevent or reduce their negative environmental impact, as well as their
energy and raw materials usage. In May 2001, the EC published a recommendation encouraging
member states to promote increased levels of issues of recognition and measurement of
environmental liabilities, assets, expenses, and contingent liabilities to form an integral part of a
company’s policies and its environmental protection improvements, resource consumption, and
emissions. Further, beginning in 2004, companies had to disclose certain non-financial
information including information related to environmental matters so that annual report users
may gain an understanding of the company’s development, performance, or position in its
industry (e.g.: Hibbit and Collison, 2004; PwC, 2004). The statement applies to all companies
whose financial position and results are impacted by environmental issues (PwC, 2004). In May
2005, the UK Accounting Standards Board (ASB) issued Reporting Standard 1: Operating and
Financial Review (OFR). The standard requires the preparation by company management of an
OFR as part of its annual report and accounts beginning with fiscal years ending on or after April
1, 2005. The standard requires the inclusion of information about environmental matters where
appropriate. The implementation guide accompanying the standard acknowledges that the
appropriate level of disclosure on environmental matters is industry-specific, but suggests that,
minimally, all companies face issues associated with water and energy use, waste, and climate
change (ASB UK, 2005). The Modernization Directive 2003/51/EC mandate that by 2005 all EU
member states require listed companies to prepare their financial reports in accordance with
international accounting standards. Australia also has recently passed legislation related to
mandatory environmental reporting within annual reports. In summary, the level of mandatory
environmental disclosures in traditional annual reports has increased dramatically in the past ten
years.

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2.4. EA/ER in US:

In the US, disclosure requirements focus primarily on the impact of environmental issues
and their effects on the financial results and position of the company, while regulations in many
European countries and those mandated by the EU require disclosure on resource consumption
and environmental policy in addition to the financial disclosures. Staff Accounting Bulletin
(SAB) #92, issued by the Securities and Exchange Commission (SEC) in 1993, and Statement of
Position (SOP) 96-1, issued by the American Institute of Certified Accountants (AICPA) in
1996, specifically addresses the financial reporting issues associated with superfund cleanup.
These directives resulted from large disparities in the timing of the recognition of liabilities for
environmental remediation and the presentation of these liabilities in financial reports
(AICPA/CICA, 2002; SEC, 2003). Item 103 mandates that companies disclose either pending
proceedings or those known to be contemplated by governmental authorities related to
environmental issues. A group, including environmental organizations, socially responsible
investors and analysts, public interest, community groups, and over 60 companies (including 13
Fortune 500 firms) have endorsed the Coalition for Environmentally Responsible Economics
(CERES (2002) Principles) specially for having a ten-point code of conduct on environmentally
responsible behavior. Companies endorsing these principles have accepted to submit an annual
report that adheres to the CERES Report Form including the detailing of their progress toward
the environmental goals embodied in the CERES Principles (CERES, 2002). To receive Eco-
Management and Audit Scheme (EMAS) registration, an organization must conduct an
environmental review, establish an effective environmental management system (EMS), carry
out an environmental audit, and prepare a statement of environmental performance outlining its
progress on previously established objectives.

2.5. EA and ISO:

In 1987, the International Organization for Standardization (IOS) issued ISO 9000, a
standard primarily concerned with quality management. ISO 14000 is primarily concerned with
environmental management, with ISO 14001 specifically addressing environment management
systems.

2. Standards for EA/ER

3.1. Global EA/ER Concern:

Some in the environmental arena suggest that mandatory reporting requirements at this
stage in the development of EA/ER may be premature (Burritt, 2002; Nyquist, 2003). If EA/ER
is voluntary and companies are permitted to select what they report, some companies may report
only the ‘‘good news’’, while firms that present the good with the bad news will be
disadvantaged. Further, without standards, verification of EA/ER is problematic. The initial
establishment of financial accounting standards began at a time when most business activities did
not cross national boundaries. Thus, it was natural that accounting standards were highly
country-specific. As a result, international financial accounting standards are being developed,
albeit slowly, and, to some degree, are being accepted worldwide. Burritt and Welch (1997),
citing Gray et. al (1993) indicating the ‘‘awesome indifference’’ of financial markets to

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environmental issues. Meanwhile, Thomas (2001) finds excess positive stock market returns for
firms upon the adoption of an environmental policy and significantly negative returns for
companies upon the announcement of their prosecution by environmental agencies. Meyer
(2000) confirms that such environmentally-abiding companies are not alone in their forward
thinking in that environmental responsibility pays dividends in the recruitment process. Perhaps
most importantly, an honest environmental program identifies an ethical corporation (Epstein
1996).

3.2. Role of Profession in EA/ER:

Gray and Milne (2004) have characterized current EA/ER as virtually meaningless. For
the auditor, the vision is an understanding of environmental management controls, processes and
systems, which will enable him to provide a true verification of environmental accounts. In three
significant ways, the profession has failed to maximize its potential for leadership: (a) sufficient
expertise to participate in environmental partnerships remains undeveloped; (b) the attestation to
environmental reports is still not regarded solely as an accountant’s function and (c) official
standards with respect to most EA/ER issues and/or verification engagements continue to be
lacking (Beets and Souther, 1999).
Engineering firms are more directly involved than public accountants in many processes
related to ER. The Modernization Directive of the EU and the OFR standard in the UK mandate
environmental disclosures in annual reports. These annual reports are required to be subjected to
attestation by public accountants. As more standard-setting worldwide bodies require the
inclusion of environmental performance information in annual reports, public accountants will
need to develop the necessary expertise to audit these disclosures. In recent years, major public
accounting firms have advertised themselves as ‘‘all-purpose business advisors’’. The recent
expansion of EA/ER requirements abroad will force global accounting firms to expand
operations in this area. An effort to increase public accounting’s share of the EA/ER business
would be immeasurably enhanced if external verification becomes required as it is with financial
statements. Wallage (2000) makes a strong case in support of the potential for large financial
accounting firms to develop the expertise needed for environmental assurance. The evidence
gathering techniques necessary for EA/ER assurance should parallel accounting’s auditing
methodology. Although accounting practitioners are guided by strict independence rules, yet
public accountants have developed expertise in the processes of assurance and always have the
backing of well-developed and influential professional organizations. However, external
validation of an environmental report, without defining standards, would create an independence
dilemma.

3.3. Managerial Accountancy and EA/ER:

Epstein (1996) and Milne (1996) have written extensively about the negative impact on
decision making and product costing when managers fail to take into account environmental
costs. To be sure, these sectors are potentially the worst environmental polluters, but the
development of environmental codes across international boundaries is reflective of strong
managerial associations. While most cost- accounting textbooks do not even address
environmental issues, Hansen and Mowen (2003) have constructed a model for inducing action.
They suggest the preparation of a report in which costs are presented in four categories: (1)

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environmental prevention costs (those aimed at preventing pollution and waste); (2)
environmental detection costs (those associated with determining compliance with regulations);
(3) environmental internal failure costs (those incurred in preventing pollution and waste from
being discharged into the environment) and (4) environmental external failure costs (those
incurred in cleaning the environment if pollutants are released). The costs classified above are
then transferred to what might be called an environmental income statement where they are
compared to the estimated annual benefits of expanded environmental action of eco-efficiency
(EE). This EE is one further piece of ammunition available to management accountants trying to
provoke a greater proactively on environmental issues. Krut and Moretz (2000), likewise urging
a joint-venturing approach, cited British Petroleum as an example of one company that retains
both a major public accounting firm for attestation and a consulting firm to solicit feedback on its
environmental performance. Internal accountants, working in concert with environmental
engineers, will be schooled in the methodologies required for environmental accountability and
the statistical techniques needed to measure compliance with ER regulations. The ‘‘balanced
score card’’, that include the above-mentioned 4 types of environmental costs, will come to
incorporate measures of environmental responsibility.

4. EA/ER Conceptual Implementation Methodology

4.1. EA/ER and Sustainable Development:

Most governments are concerned with their ability to maintain sustainable development
(which is usually defined as the development that meets the needs of the present generation
without compromising the ability of future generations meeting their own needs). Given that
some researchers argued that many of the implicit and explicit assumptions that underlie the
current economic model are invalid when judged against observed social and ecological reality
(cf. Rees 1988; Daly and Cobb 1989; Pierce and Turner 1990 and Worster 1993) and that many
of the accounting conventions for measuring economic growth have reflected and created
perverse incentives that increase the pace of environmental degradation. Besides, governments
have to establish an integrated comprehensive reporting requirement for newly established
business that includes all the aspects of its nonfinancial performance and effects of its
externalities.
There are a large number of environmental, social and economic indicators being
developed to assist with sustainability assessment (see, for example, CRISP, 2003; Deelstra and
Boyd, 1998; Mega & Pedersen, 1998; Warhurst, 2002 and Wong, 1995). Generally however,
these indicators are usually used in isolation to analyze the performance of projects, companies,
sectors and countries as they relate to one of the three dimensions of sustainability (i.e.:
environmental, social and economic). No robust model that has integrated all three dimensions
into a single framework currently exists. (Xing et al. (2009)). The Global Reporting Initiative’s
(GRI) have improved the reporting and that the sustainability reporting guidelines’ updates
guidance has become the basis for reporting sustainability performance by organizations
worldwide. While the GRI framework has, over the years, become much more detailed regarding
the performance indicators that companies are urged to measure and monitor, yet the issue here
is that the GRI framework is not an officially mandated, and so it will not help governments to
determine the whole effects of the outcomes of the manufacturing businesses.

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4.2. Proposed Mandatory Environmental Filing System:

Environmental accounts usually rely on a standardized framework for reporting

environmental and resource losses, and in most instances, they have linkages to traditional
economic indicators through the social accounting matrix (Gilbert 1990). When environmental
and resource losses are monetarized and subtracted from the traditional measure of economic
output—that is, the Gross Domestic Product (GDP) for a given area such as a nation, state, or
regional economy—environmental accounts give governments and decision-makers an enhanced
understanding of the true costs of economic growth, many of which are misrepresented and
underestimated in traditional economic accounts (Bartelmus 1996).
What is proposed in the present paper is an accounting based environmental filing system
to be used by governments to make businesses accountable for their perceived externalities from
the point of establishment and as long as they continue their operation. Proposed characteristics
of the mandatory environmental filing system are given below. In what follows, the word
“company” will mean any industrial, agricultural, residential, commercial, .… etc. companies,
institutions or establishments, agencies, … etc..:

A) Contents of Environmental Filing:

1. All companies, other than small, present to the affiliated governmental agency an
integrated environmental filing that reasonably reflects its detailed activity within a
reasonable time-span (i.e.: 5 years, 10 years, …) in order to have official approval for
their initiation, establishment and later commencement of operations. In that respect,
justification for the establishment of such company in proposed locality is evaluated in
regards to present and future local and regional developments in economical, social and
environmental levels.
2. The filing shows company usage of: raw/non-raw materials, water and energy in regards
to: types, quantities, continuous/intermittent rates, local/regional/import availabilities,
present/possible/generated/recycled resources, current/possible/future needs and
expansions.
3. The filing shows all solid, liquid and gaseous wastes in regards to: types, quantities, rates,
physical/chemical compositions, health implication, dumping/recycling methods,
short/long term demographic changes …etc.
4. The filing shows company’s actions/counteractions to meet presumed
economic/social/environmental/sustainable development guidelines set forth by
concerned entities (government, society, environmental agencies and
local/regional/global concerned groups).

B) Method of Filing:

1. Entries of each category of filing are substantiated by descriptive analysis, measurable

units and monetary values depending on each item in the file.
2. Both minimum and maximum limits for each entry are highlighted based on
local/regional/global standards and on similar acceptable legitimate activities around the
world.
3. Subsequent annual filling should be added the original baseline for follow-up purposes.

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C) Approval of Filing:

1. Upon submission, affiliated governmental agencies, composed of specialists in each

major aspect of the filing, thoroughly review filling contents and discuss with company’s
entities other economic/social/environmental available/better/possible alternatives and
options.
2. Alternatives and options might include possible usage of alternative sources of the inputs,
further processing of waste and byproducts and possible arrangements with other
businesses to utilize the byproducts and wastes.
3. Affiliated governmental agencies set rules, regulations and possible liabilities for the
externalities on the society based on the pre-established limits.
4. Affiliated governmental agencies issue approval of the filling as official documents for
the government/company agreement.
5. This filing will be the baseline for any subsequent annual reports for such companies.

D) Objectives of Filing:

1. Filing should allow decision makers to analyze the environmental, social and economic
costs and benefits in monetary and quantitative terms at different stages in the life cycle
of the production process of each business unit.
2. The filing will depict the framework suggested by GRI guidelines.
3. Affiliated government agencies will have pre-established outlines of acceptable
sector/zone/region ranges of each externality based on the nature/size/extent of the
company and the past experience of best practices.
4. The affiliated agencies will specify the form and amount of penalty to be imposed upon
exceeding the pre-established externality limits.
5. The business will be required to fulfill what has been stated in the original filing and to
file annual feedback each year for follow up, control and any necessary
economics/social/environmental future remedial actions.
6. The filing will compile quantitative information for many different industrial businesses
and will allow the government to create a network of industries with the possibility of
byproduct and resource sharing among businesses across the entire country.

4.3. Assumptions:

While the applicability of the proposed filing requirement could be considered irrational
as business operations vary widely based on the sector and the zone of operation, and because of
the expected high costs associated with annually preparing such filing, yet utilizing the following
assumptions could improve the applicability and acceptance of the proposal:
a) First, each government will classify the required environmental filings based on different
levels in the geographic hierarchy (e.g., states, metropolitan areas, cities, census tracts) (Steel
and Holt 1996), and within each level, will classify businesses by sector and size. Then, the
government will indicate the acceptable level of externality for each sector and size. See Table
(1) below.

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b) Second, realistic considerations should be adopted for specific boundaries of the unit of
analysis because they may influence variation in environmental costs in these units. This is
called the ‘‘zoning effect.’’ Even at the same scale, observed spatial patterns might be a function
of the zonal boundaries chosen for analysis, rather than of the underlying spatial pattern.
c) Third, the cost accounting system with its focus on inputs, conversion factors and outputs
is a ready source of quantity based data. These inputs, such as energy, raw materials, feed and
additives, as well as the outputs in terms of product and by-products are often expressed in
quantity terms such as megawatt hours, gigajoules, liters, tones and cubic meters. For example,
megawatt hours of electricity are converted to tones of carbon dioxide using accepted conversion
factors. (Fernandez, 2008).
d) Forth, we assume that the overall cost of preparing the proposed filing will decrease
overtime because once businesses start to capture this data more efficiently; they will realize that
they can function like 'traditional' performance management system. In that, it gives company
officials current information they can actually use to make decisions about emissions, energy
usage, and other critical business matters. Not only that, but also they can also have an interest in
using reporting to facilitate the construction of a new and different image of the company (Leibs,
2007).
We believe that this filing will have noticeable potential to give a greater degree of
visibility to businesses environmental activities and consequences, and will allow governments
to cast light on what is often invisible. Some of the implementations that further illustrate how
the proposed filing could be applied and the importance of its application in four main aspects of
environmental reporting: material, waste, energy, and gas emissions are listed below.

Table (1) Environmental classification effects of low, medium and high intensity sectors and
their acceptable levels of externalities.
Low Intensity Medium Intensity High Intensity
ALE(%)* ALE(%) ALE(%)
Sector Sector Sector
S1** S2 S3 S1 S2 S3 S1 S2 S3
General Financial Personal Goods Electricity
Media Beverages Industrial Metals
Telecommunications Household Goods Food Producers
Insurance Tobacco Oil and Gas
Banks Aerospace & Defense Mining
Pharmaceuticals & Industrial
Residential
Biotechnology Transportation
Educational Food & Drug Retailers Support Services
Healthcare Equipment &
Recreational Construction Works
Services
General Retailers Chemicals
Software & Computer
General Industrials
Services
Travel & Leisure
*ALE: Acceptable level of Externalities which will be based on different factors including the zone in which the company is established, the
availability of resources and the size of the business ($ capital investment)
**S1, S2, S3: The size of the business as a dollar amount of capital investment or equity. For example: S1: business less that $50 million
investment, S2: business from $50 million to $100 million dollar, and S3: business above $100 millions.
Note: This chart is based on the Environmental Reporting: Trends in FTSE 100 Sustainability Reports © Spada Limited 2008

4.4. Material, Waste, and Land EA/ER:

Some resources are available in finite supply and are irreplaceable. Through the local
reuse of secondary materials, industries can lessen demand for virgin production, save energy in
manufacturing, and avoid long transport distances. In almost all cases, the processing of

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secondary materials requires less energy and results in less pollution than production of
equivalent quantities of virgin material (Eckelman and Chertow, (2009)). In general, using
secondary materials for production has fewer life cycle environmental impacts than using
primary (or virgin) materials because the former are already partially refined and so have
embedded much of the needed material and energy. Chertow and Lombardi (2005) conducted an
economic and environmental analysis of an industrial cluster in Guayama, Puerto Rico, including
a coal-fired power plant, a wastewater treatment plant, and a petrochemical refinery. They found
that resource sharing saved the system four million gallons per day of fresh water and led to
significant reductions in gas emissions. Another example would be the substitution of virgin
paper by recycled mixed paper also which have resulted in large environmental overall benefits
overall. Virgin paper requires roughly 8 GJ/ton more primary energy than recycled paper and
produces approximately three times as much SO2 but twice as much NOx.
Agricultural land and water falls into the finite supply category. Once converted from
agricultural to urban or industrial uses, it is unlikely that such lands will produce food again. A
study estimating the value of agriculture land losses in San Diego between 1990 and 1995 using
an average price estimate for agricultural output and discount rates in the range 0 to 5 percent has
found that the present value of the losses ranged from 0.18 percent to 1.8 percent of the total
economy (Jerrett et. al (2003)). For example, the gradual depletion of groundwater supplies due
to overuse by multiple users eventually results in water shortages and the need to seek more
expensive supplies. Table (2) is a sample form that lists the materials used in business operation
in both a monetary and quantitative terms, the amount of waste from each material, the
percentage and amount of reuse and recycle, and the possibility of substituting the material with
a byproduct from another business. This table represents a base chart that can be used by
governmental agency to allow business to identify the byproducts of their operations and to
assess their ability to substitute for it. The sharing of material, energy, and water resources
among proximate firms, known as industrial symbiosis, has been touted as a way to reduce the
environmental impacts of industry.
Up to now, there is no country wide reliable estimate of generation or disposal made by
each major industry. The present proposed filing will compile quantitative information for
different industrial symbiosis that can create a network of industries and byproduct sharing
across the entire country. Governments will be able to maintain residual waste database to
record, monitor and analyze both the generators of waste as well as the destination type for that
waste. Using this analysis instead of the total generation of all usable residual waste, the
statewide potential environmental benefits can roughly increase to about four times as large as
those currently enjoyed,

Table (2) Example lists of materials required for business operations, their waste, reuse and the
possibility of using substitutes.
Primary Waste/byproduct Reuse/Recycle Secondary Material
$ Unit $ Unit
Material* Unit % Destination** Unit % Substitute***
Sand Coal-derived bottom ash
Lime Coal-derived fly ash
Gypsum FGD residue
Sand Other ash
Sand Foundry sand
Cement Slag
Refractory
Refractory material
material

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Virgin steel Ferrous scrap and dust

Virgin
Nonferrous scrap and dust
nonferrous
Water/wastewater
Compost
treatment sludge
Animal feed Food waste and sludge
Fuel/ engine oil Oil/oily sludge
Sand Generic sludge
Hydrochloric Lime-stabilized spent
acid pickle liquor
Ethylene glycol Machine coolants
Coal/ mulch Wood wastes
Mixed paper Paper products
Textiles Textile waste
Glass Glass cullet
Mixed plastic Plastic waste
Asphalt Asphalt
Sand Ceramic waste
Steel drums Containers
Sand Baghouse dust
Drywall Used drywall
Metal catalysts Spent catalysts
Sand Debris and sediment
Lead Nonhazardous batteries
*Primary Material: Are the materials in raw form without any processing. It also called virgin materials.
**Destination: There are 8 disposal destination types as follows: surface impoundment, incineration, landfill, on-site storage, treatment,
underground injection, on-site and off-site wastewater treatment.
***Secondary Material: Are byproduct materials of other businesses that can be used as an efficient substitute of the virgin material.
Note: This table is based on Eckelman and Chertow (2009).

4.5. Energy-Based EA/ER:

It is of crucial importance for businesses to report on their usage of different sources of

energy in a regular basis. It is stated in the report on energy resources announced by the World
Energy Council in 2001 that "there are sufficient resources in every region of the world that
would satisfy the growing energy demand even in the 21st century; however, there are no new
special technologies that would markedly reduce the part of organic (fossil) fuel in the general
energy balance in the nearest future" (World Energy Council, 2001). Energy is also the only
commodity that cannot even in theory be recovered and reused.
Due to the unique position of energy among the other industrial commodities and the
growing price of energy resources and expensive infrastructure, researchers argued that energy
influences the speed of economic growth of countries. Economic development is directly related
with energy infrastructure adapted to industrial development possibilities and with the supply of
energy resources. Many scholars suggested as early as 1922 that the price of a commodity should
reflect the energy used directly or indirectly to produce it.
Engineers usually differentiate between the different types of energy based on the exergy
content of each type. The concept of exergy can be simply stated as follows: Certain types of
energy (e.g.: electricity, mechanical, wind, hydraulic, .. etc.) are considered of high grade and
have high exergy value because they can do direct mechanical work and motion, while other
types of energy (e.g.: thermal, chemical, solar, nuclear, .. etc.) are considered low grade because
they can’t do direct mechanical work or motion and hence they have low exergy value. Based on
this definition, two equal amounts of different energy types should be priced differently based on
their exergy values.

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The side effect of the current activities of energy production, transmission and
distribution however, is the rapid use of nonrenewable resources resulting in a negative impact
on the surrounding environment. An abundant supply of, mostly non-renewable, energy and an
increased output per energy unit are the driving force of our present industrial society. Although
not really lost in physical terms, energy is degraded to the extent that no more useful work can be
extracted from it. Even with the technical improvements in the production system, the energy
gains achieved through improved production efficiency are counterbalanced by the increase in
volume and complexity of the production system.
EA/E/R filing of the energy aspects should consider the conventional/nonconventional
energy resources (i.e.: fossil resources (oil, coal, natural gas); biological resources (agricultural
products and residues biogas, forest products, livestock and aquatic products); generated
resources (electricity, nuclear) and renewable resources (solar, hydraulic, wind).
Local/regional/global availability, production and consumption rates and quantities of each
energy type and expected future needs should be clearly stated. The following two tables present
filing guidelines to be adopted in energy filing. The first table includes space to report values of
exergy of each energy type.

Table (3). Filing guidelines of energy types and quantities usage by the company.
Quantity of energy Exergy
Total
Resources Energy type Available Extracted Stored Imported Exported value*
Q $ Q $ Q $ Q $ Q $ Q $ Q $
Coal
Oil
Fossil
Petroleum product
Natural gas
Biogas
Biological
Agricultural residues
Electricity
Generated
Nuclear
Hydraulic
Renewable Wind
Solar
Total
Q = quantities of energy type (MJ, Barrel, Tons, …) and $ = cash value of energy amount.
* Exergy value to differentiate between high , medium and low grades of different types of energy.

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Table (4). Energy usage by each activity.

Activity

Exergy value
Iron & steel

Nonferrous
Energy

Nonmetals

Chemicals

Transport
Resources
type

Farming
Textile

metals
Paper
Wood

Food

Total
Q $ Q $ Q $ Q $ Q $ Q $ Q $ Q $ Q $ Q $ Q $ Q $
Coal
Oil
Fossil
Petroleum
product
Natural
gas
Biogas
Biological Agricultura
l residues
Electricity
Generated
Nuclear
Hydraulic
Renewable Wind
Solar
Total

4.6. Pollution Based EA/ER:

It is clear that climate change challenges companies with financial, social and
environmental risks from litigation and/or regulation of greenhouse gases (GHG). According to a
released report by Ceres and Calvert Standard & Poor’s S&P 500 the 500 largest US publicly
traded companies are doing a poor job of disclosing climate change risks to their investors,
Warhurst, (2002). . Lubber, president of Ceres, said that all companies should disclose their risks
using the three most common disclosure mechanisms: US Securities and Exchange Commission
(SEC) filings, the CDP, and sustainability reports using GRI Guidelines. A study Produced by
the Association of Chartered Certified Accountants (ACCA) and the FTSE Group of 42 UK
companies recognized as leaders in environmental reporting indicates that even the “good guys”
have considerable room for improvement when it comes to coverage of climate change issues
(e.g.: Chertow and Lombardi (2005)) . All companies should provide stakeholders with more
analysis and disclosure on climate risks and their strategies for managing or mitigating those
risks. The proposed filing of an annual comprehensive environmental report will make
companies more transparent and accountable with regard to their gas emissions and will improve
their adapted strategies to reduce gas emissions and pollution over time.

5. Limitations to present research and suggestions for future researches

The authors would like to point out certain limitations of the research and welcome
comments and criticism. It is hoped that the study will spur follow up research and an open
discussion of the issues. The research proposal was limited firstly by the lack of hypothetical
comprehensive example to visualize the feasibility of the application. As a result, there is a

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consequent need to develop models in order to further investigate the rationality of the stated
characteristics and assumptions. The research also didn’t investigate the extent of applicability of
the proposed filing system, the way governments will control and audit the submitted filings, the
expected costs for new businesses to adhere to such regulation, and whether the perceived
benefits from the regulation will exceed the expected business costs of filing. It is fully
acknowledged that this is only one way of looking at mandatory environmental reporting, and
would recommend that further research be undertaken using different views, with hypothetical
application within and across industries and professional sectors.

Appendix A. Acronyms

AAA Annual Accounts Act.

ACCA Association of Charted Certified Accountants.
AICPA American Institute of Certified Public Accountants.
ALE Acceptable Level of Externalities.
ASB Accounting Standards Board.
CERES Coalition for Environmentally Responsible Economies.
CICA Canadian Institute of Chartered Accountants.
EA Environmental Accounting.
EC European Commission.
EE Eco-Efficiency.
EMAS Eco-Management and Audit Scheme.
EMS Environmental Management System.
EPA Environmental Protection Agency.
ER Environmental Reporting.
EU European Union.
FASB Financial Accounting Standards Board.
FTSE Financial Times Stock Exchange
GDP Gross Domestic Product.
GFT Global Fortune.
GHG Greenhouse Gas.
GRI Global Reporting Initiative.
HSE Health, Safety, and Environmental.
ICAEW Institute of Chartered Accountants in England and Wales.
ISO International Organization for Standardization.
OECD Organization for Economic Co-operation and Development.
OFR Operating and Financial Review.
PRP Potentially Responsible Party.
PRTR Pollution Release and Transfer Register.
PwC Pricewaterhouse Cooperation.
SAB Staff Accounting Bulletin.
SEC Securities and Exchange Commission.
SOP Statement of Position.
TBL Triple Bottom Line.
TRI Toxic Release Inventory.
UK United Kingdom.

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