Journal of Cleaner Production 14 (2006) 1228e1236 www.elsevier.

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Environmental management accounting as a reexive modernization strategy in cleaner production

Abstract Understanding the material purchase value of wastes and emissions and related processing costs is the essential contribution of an Environmental Management Accounting methodology proposed by a United Nations expert working group organised through the Division for Sustainable Development (UNDSD). Tracing costs and benets according to this UNDSD methodology, considered as a reexive modernization strategy in this article, sheds new light on cleaner production initiatives for corporate sustainability. Information on the rst category of costs, waste and emission treatment, is generally the most accurate. Information on the second category, prevention and environmental management costs, is more difcult to determine because this category overlaps with, or is confused with, the rst category of costs. Data for the two novel and innovative cost categories of the material purchase value of waste and emissions and related processing costs are even harder to obtain. Frequently, the costs are either hidden in overhead accounts or are not recorded because they are not required in conventional accounting systems. The outcome is that companies, even though they may profess otherwise, have very little knowledge about their full environmental costs, cost saving opportunities, or how best to achieve cleaner production initiatives to promote corporate sustainability. A more systematic application of the UNDSD EMA methodology would provide a better record of costs and act as a catalyst in promoting cleaner production processes. This application inevitably requires reexive institutions including reexive corporations, that is, corporations with the capacity to examine the side effects of their operations as modernization rebounds upon them. 2005 Elsevier Ltd. All rights reserved.
Keywords: Environmental management accounting; Cleaner production; Corporate sustainability; Reexive modernization; Reexive corporations

1. Introduction In 2001, Environment Australia, EPA Victoria, and the Institute of Chartered Accountants of Australia, funded a study to explore the introduction of environmental management accounting (EMA) at four different enterprises across Australia: Methodist Ladies College, Perth (education); Cormack Manufacturing Pty Ltd, Sydney (plastics manufacturing); Services at AMP (the provision of ofce services e AMP, Australia-wide); and GH Michell & Sons Pty Ltd, Adelaide

(wool processing). On the basis of the ndings, a report was prepared by Deegan [1] in which he stated that: The available evidence shows that the majority of managers within organisations have very little knowledge about the environmental costs associated with conducting their operations (although some accountants and other managers might not believe this to be the case) and this lack of information is, in large part, due to deciencies in the accounting systems. It is clear that many cost saving opportunities are being lost because of the lack of information about environmental costs. This conclusion supports ndings reported in the United Nations Division for Sustainable Developments [2] guideline document Environmental Management Accounting: Principles

* Tel.: C61 2 9385 6998; fax: C61 9663 1015. E-mail address: [email protected] 0959-6526/$ - see front matter 2005 Elsevier Ltd. All rights reserved. doi:10.1016/j.jclepro.2005.08.008

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and Practices as well as specic case studies from the US and Europe.1 It also conrms a more important nding: companies are not using an internationally agreed upon approach to the identication and allocation of environmental costs. This means that other environmental costs at the Methodist Ladies College, Cormack Manufacturing, AMP, and GH Michell & Sons have yet to be discovered. The costs are either unrecorded or hidden in overhead accounts. Research on EMA is based on the view that wastes and emissions (non-product output) that leave a company, often creating an externality elsewhere in the economy, represent inefcient service delivery and operations. The only thing that should leave an enterprise is a product or service for sale. Unless waste can be sold as a feedstock to another industry it represents a cost to the company of an inefcient production process, one that is likely to become increasingly expensive as regulatory pressures rise. What this indicates is that there is a poorly coordinated effort at collecting information on the full range of environmental costs because the conventional estimates of waste disposal costs and emission licences are less than the costs of elimination. The point about inefciency is critical. It means that a company pays three times for non-product output (that is, its wastes and emissions) [2]. 1. The company pays the cost of purchasing raw materials (say, for example, fuel, water, and chemicals), a proportion of which ends up as wastes and emissions; 2. The company pays for the operational use of raw materials through labour and infrastructure investment costs, a proportion of which ends up as wastes and emissions; and 3. The company also pays for the disposal of the costs of wasted materials purchased or for the licences which permit emissions of a proportion of the material purchase costs of wasted materials. The costs of off-spec products that have to be reprocessed or treated as solid or liquid wastes or sold at lower prices than obtainable from selling rst quality products adds an additional level of complexity.2 In aggregate, the range of costs means that the Materials Purchase Value (MPV) of waste materials is a major environmental cost, accounting for 40e90% of total environmental costs in certain sectors as reported by Christine Jasch from company surveys in Austria and Germany [2]. Additional

See, for example, studies available at the Environmental Management Accounting Research and Information Center (EMARIC accessed 24 January 2005 at http://www.emawebsite.org/about_ema.htm). 2 In response to a referees question about production that does not meet specications, the costs of producing off-spec products are also vastly underestimated and require more attention in EMA. Although in some industries the off-spec materials can be reprocessed, costs would nevertheless include reprocessing time, energy, employee time and perhaps new chemical additives. In other industrial sectors, the materials are not readily recyclable within the facility and must either be sold at a much lower cost than top quality products or buried or burned.

studies are required to clarify which sectors have the lower and higher percentages. Given this situation, the purpose of this paper is to report on a recognised practical problem concerning the lack of information about environmental costs that has implications for cleaner production as well as the transition towards corporate sustainability. Cleaner production is a management strategy to reduce resource use, waste and pollution. It is a preventative strategy to minimize the impact of production and products on the environment [3]. As noted by the United Nations Environment Program (UNEP), It is a broad term that encompasses what some countries/institutions call eco-efciency, waste minimization, pollution prevention, or green productivity, but it also includes something extra [4]. Its proper implementation depends on an understanding of environmental costs in organisations and overcoming the broader challenges and barriers that conventional accounting represents to new accounting initiatives. In the following account, a link between EMA and cleaner production is proposed at the level of strategy development. While there is debate about the meaning of the terms ecological modernization and reexive modernization [5e7], the two terms refer to theories of social change. At a general level, one can argue that EMA is a modernization strategy in cleaner production given the claim that modern society possesses a capability to carry through an institutional reexivity and to build a capacity in society enabling it to handle its ecological crisis [8]. The term institutional reexivity is intended to convey both self-reection and self-confrontation [6]. In the following account, ecological modernization may be a minor response if reform initiatives are considered only in terms of eco-efciency and other weaker forms of sustainability practice. This stream is particularly evident in the view that environmental problems represent one crisis rather than an array of crises: an unduly optimistic and nave view about the ability of simple solutions such as eco-efciency to deliver sustainability outcomes is counter-productive. The second and more potent stream of modernization advanced herein as reexive modernization, is the view that reexivity represents a response to the turbulence brought on by an array of crises and increases in the relevant uncertainty of the causal texture of the organizational environment. In this view, the interaction between the corporation and its environment challenges the adaptive capacity of the corporation to address sustainability issues. This view is intended to complement and extend the complexity and multiple character of the causal interconnections of dynamic organizational environments identied as turbulent elds by Emery and Trist [9].

2. Environmental management accounting: principles and practices The guideline document Environmental Management Accounting: Principles and Practices was proposed in 2001 by The Expert Working Group on Environmental Management Accounting e a group created by the United Nations Division

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for Sustainable Development [2]. This guideline (hereinafter noted as the UNDSD EMA methodology) has become the Exposure Draft of the International Guidelines on Environmental Management Accounting (EMA) released by the International Federation of Accountants (IFAC) in November 2004 for comments. This new document provides the following answer to the important question Why EMA? [10]. First of all, various stakeholders, such as business customers, investors, local communities and government are applying pressure on organisations to continually improve on and report environmental performance. Second, as a result of this stakeholder pressure, environment-related costs, earnings and benets are on the rise and becoming a more important part of the organisational decision making. And nally, there is increasing recognition that conventional MA practices often do not provide sufcient, and sufciently accurate, information for environmental management and environment-related cost management. As a result, many organisations signicantly underestimate both the costs and benets of sound environmental management. The difculty of accounting for costs and benets is the topic of much debate and innovation in EMA and related topics such as Total Cost Assessment, Life Cycle Assessment, and Environmental Cost Accounting [2,11e16]. On the one hand, three categories of costs are already well established in the EMA literature. These include the assessment of total annual expenditure on waste and emission control costs, prevention and other environmental management costs, and research and development. On the other hand, two novel and innovative categories of costs have been identied by the UNDSDs Expert Working Group on Environmental Management Accounting: Principles and Practices. These costs are the material purchase value of non-product output and the processing costs of non-product output. More simply put, the two costs are the material purchase value of wastes and emissions (i.e., non-product output) and the processing costs of wastes and emissions (i.e., non-product output). Jasch [14] states that the sum of all these costs (all the above categories) often provides a frightening picture of total annual costs of inefciency. Given the signicance of a frightening picture to operational managers, there is a need to discover the extent of these inefciencies through novel practical applications of EMA. The lack of original research on Categories 4 and 5, that is, the material purchase value of wastes and emissions and related processing costs, needs to be addressed through case study analysis. In this regard, while technological xes may yet transform industries, companies cannot rely on new technologies alone as a source of competitive advantage. There is also a compelling need to promote cleaner production through new management techniques. Companies need breakthrough environmental management accounting to address the vexing question of how to ensure that their industries transition to an environmentally sustainable footing. EMA provides a company with more accurate information to increase its efciency in pollution prevention, environmental supply chain management, environmentally preferable purchasing, and

environmental management systems [15]. On this point, the EMA methodology is an original, albeit largely unexplored technique. It provides a unique approach to accounting for environmental costs through a systematic and rigorous method that genuinely sheds new light on the costs of production processes, products and activities from an environmental perspective. It is essential to note, however, that beyond conventionally accounted for environmental costs, only a handful of pilot studies address the material purchase value of wastes and emissions (i.e., non-product output) and related processing costs [14,17]. Gale [17], for example, has applied the UNDSD methodology at an Abitibi-Consolidated Inc. pulp and paper mill in Canada. The results of this study showed that conventional accounting costs underestimated natural resource and environmental costs by about half. Although the barriers to integrating the material purchase value of wastes and emissions and its processing costs into corporate decision making, which really means incorporating environmental strategies into nancial issues, were not explored, it is essential to consider specic barriers to such integration within corporations. This includes the barriers identied by the World Resources Institute that risk is not an explicit variable in most valuation models, that the many diverse sources of small earnings improvements do not attract attention, and that the quantication of competitive advantage is difcult to calculate (see details in Reed [18]). 3. EMA methodology The UNDSD EMA methodology consists of four categories of environmental expenditures (costs) and one category of environmental revenue (earnings). In addition, the EMA framework consists of checklists of costs or other performance measures for eight environmental media. The EMA process is to calculate and report on costs or other metrics for each of the four cost categories according to these eight environmental media as set out in Table 1. If no part of the operation or maintenance involves a medium such as radiation, for example, it is dropped from the analysis. A detailed method of researching costs (or revenues) for each of these categories is provided in the UNDSD report [2]. Special attention is given to avoid double counting errors. The conceptual approach to EMA is thus well designed and developed. What remains is the testing of the methodology through case study analysis and the resolution of the variability in cost allocation methods by the establishment of agreed conventions. 3.1. Category 1: waste and emission treatment costs This category covers many traditionally identied environmental costs e the so-called end-of-the-pipe solutions that have dominated environmental issues for many years and with which lawyers, environmental managers and accountants are already familiar given the costs of regulatory compliance or non-compliance. Some companies are already addressing

R. Gale / Journal of Cleaner Production 14 (2006) 1228e1236 Table 1 Overview of the environmental cost scheme in EMA Environmental media Environmental cost/expenditure categories 1. Waste and emission treatment 2. Prevention and environmental management 3. Material purchase value of non-product output 4. Processing costs of non-product output P Environmental expenditure 5. Environmental revenues

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Air/ Wastewater Waste Soil/ground Noise/ Biodiversity/ Radiation Other environmental Total climate water vibration landscape costs

these costs in detailed tables on their websites or through annual Sustainability Reports (see, for example, Canon [19,20], Fuji Xerox [21,22]). In a radical departure from the end-ofthe-pipe approach, Fuji Xerox now has several zero emission factories [21,22]. Such a business development requires detailed knowledge of environmental management costs. A key starting point promoted by the US Environmental Protection Agency (EPA), is to implement a full cost accounting (FCA) approach where FCA is the allocation of all direct and indirect costs to a product or product line [23]. Case experience reported by the US EPA [24], for example, shows that the reaccounting of costs under appropriate service categories rather than in general overhead costs at the Public Works Department of Columbia, Missouri, are consistently higher. The full costs of recycling, composting, residential collection, commercial collection, roll-off collection, university collection and landll were 29%, 17%, 28%, 22%, 19%, 53% and 124% higher, respectively, than previously calculated [24]. There are also published studies of spending on pollution control costs at Canon, Pitney Bowes, and Texas Instruments [24]. More recently, Canon [20] has been following the Japanese Ministry of the Environments environmental accounting guidelines [25]. The guidelines consist of cost categories for the following considerations: business area; upstream/downstream; administration; R&D; social activity; remediation; and other costs. Canon identied 17.1 billion yen of environmental costs in 2003 and 23 billion yen in environmental savings [20]. The 5.9 billion yen differential is evidence of both a positive nancial effect and a positive environmental effect. On balance, while a few progressive companies provide EMA data, most avoid the topic and indeed may not be well informed about current trends in the EMA literature. It is difcult to see how even the most well-meaning companies can progress towards sustainability without detailed cost information structured according to an internationally agreed framework. With regard to waste and emission treatment costs (Category 1), the UNDSD is proposing that the identication and allocation of costs include the following seven items, the details of which are provided in its report [2]: 1. 2. 3. 4. Depreciation of related equipment; Maintenance and operating materials and services; Related personnel; Fees, taxes and charges;

5. Fines and penalties; 6. Insurance for environmental liabilities; 7. Provision for clean up costs and remediation. In his study of an Abitibi-Consolidated Inc. owned paper mill in British Columbia, Canada, Gale [17] reported, in part, on some of these costs as well as costs for other categories in the UNDSD EMA framework. He discovered that the most difcult item in this category was insurance for environmental liabilities, which clearly warrants further investigation.

3.2. Category 2: prevention and environmental management This category of costs covers the prevention of environmental impacts and the management of corporate environment programs. These costs include operator inspections, maintenance of alarm systems, operator training, process changes, follow up actions from incident reports, follow up from environmental audit teams, development and implementation of operating procedures, and preventative monitoring and analysis. Information that is not readily available can be derived from further research with the application of time sheet studies. Costs may also include conservation and biodiversity values. Activities that degrade or contravene biodiversity and other conservation values indicate inadequate prevention and natural resource management and hence poor management practice. Although appearing as a plausibly independent category of costs, prevention and environmental management costs are often distorted because they are combined with waste and emission treatment costs (Category 1). For example, a report on the 400-bed US Dartmouth-Hitchcock Medical Center showed that all waste disposal costs are allocated to the functional area of Environment, Health and Safety rather than allocated to the departments that produced the wastes [26]. Responsibility for the safe and proper disposal of medical and hazardous waste was deliberately assigned to E,H&S to ensure that waste generating departments did not dispose waste improperly in order to reduce costs [26]. Environmental management responsibilities thus often conict with nancial management responsibilities at the operational level if the functional areas are not aware of their wastes and emissions costs.

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In contrast, Fuji Xeroxs prevention and environmental management costs, although not detailed, are broken down into the following cost and investment categories [21]: pollution prevention costs (292 and 36 million yen, respectively); global management costs (208 and 68 million yen, respectively); research and development (3622 and 72 million yen, respectively); and upstream/downstream (9445 and 79 million yen, respectively). Canon sets out its own gures for the same year for the following considerations [19]: pollution prevention costs (3540 million and 2740 million yen, respectively); global environmental protection costs (740 and 2940 million yen, respectively); management activities costs (2650 and 300 million yen, respectively); research and development (230 and 20 million yen, respectively); and upstream/downstream (3 million yen (no investment)). It is clear from these gures that in the absence of standard metrics (including a metric for a production unit or a service delivered), little, if any, efciency performance information can be reliably inferred. Although Category 1 and 2 costs are intended to force organisations to segregate costs typically hidden in overhead accounts, the broad array of costs and differing interpretations of which costs are properly included, and where, means that there is little consistency among companies in reporting information in either of these two cost categories.

amount that is actually needed to meet the desired production requirements [27].3 Another example of the material purchase value of wastes and emissions is evident in Xeroxs approach to the packaging used to ship products to customers. At one point, the company used 23 different pallet and pack sizes as reported by Rogers and Kristof [28]. The recognition that the purchase of this packing represented auxiliary materials not associated with the core business led to the conclusion that cost savings could be achieved if the number of packaging containers could be reduced. The result was that Xerox reduced the number of container types to just two adjustable and reusable sizes with packaging costs of US$12.08 less per shipping unit than previously and overall savings estimated to be US$1.2 million [28]. 3.4. Category 4: processing costs of wastes and emissions (non-product output) The material purchase value of wastes and emissions has just been explained. To this material purchase value must now be added the costs of processing wastes and emissions. Processing refers to the wasted labour and capital costs involved in inefcient production. An Australian case study of GH Michell & Sons provides instructive experience in this area [1]. Michell generates over Aus$500 million in annual sales from 30 to 35 million kilograms of annual wool production at various factories across Australia. Lower quality wool at Michell is subject to a wool carbonising process to remove dirt, vegetable matter and water soluble salts. The various inputs in the cleaning process are water, detergent, acid, sodium, bicarbonate, hydrogen peroxide, energy, labour and machinery use. The by-products are wool grease, sludge (vegetable matter with 45% water content), wastewater and damaged bres (broken ends). The study discovered that the sale of dirtier wools was being subsidised by cleaner wools. Since the price wool traders pay for wool depends on processing costs, the decision to purchase and process certain shipments of wool is critical to the nancial bottom line. The dirtier wools needed to bear more of the processing costs. However, none of the costs were related to the quantity of wool recovered from each processed bale of wool. On this basis, Deegan [1] was able to state that if these costs are recalculated to reect recovery rates then projected margins will probably change, with consequent implications for trading decisions. Another example comes from a study of the printing company Bovince Limited in England [29]. Bovince produces large format advertising posters for display boards and bus shelters. The benets from improved production, that is, greater
3 The second differential refers to the coating thickness on the parts. To meet the minimum coating thickness on critical surfaces, a much thicker coating deposit may be required on other surfaces. The reverse situation also applies such that some surfaces can have thinner coatings than the minimum required for critical surfaces. There has been considerable improvement in coating deposit distribution in recent years through better process chemistry, equipment, racking and technique. Where these improvements have taken place, there may be a substantial reduction in the differential noted in the EPA example.

3.3. Category 3: material purchase value of wastes and emissions (i.e., non-product output) The calculation of the material purchase value of wastes and emissions represents both a conceptual and a practical challenge and in this regard is an important research issue. At the conceptual level, issues related to the efciency of production processes are critical. The idea that inputs to a commercial product either leave as environmentally responsible products or as inefcient waste is a critical conceptual aid to challenge conventional ideas about the acceptability of the products for sale and the level of inefciency to be permitted. At the practical level, however, there are difculties in collecting information. Detailed research is required on the following items: raw materials; packaging; auxiliary materials (part of a product that isneither a main component nor obvious to the consumer); operating materials (materials essential to the operations but not part of the product itself); energy; water; and other waste. Research on this category of costs is sporadic. A general lack of segregation makes it difcult to identify and allocate these costs. If they are captured at all, they are located in other categories. One US EPA [24] study of the material purchase value of wastes and emissions in the electroplating industry is instructive. The EPA study uncovered wasted material costs in electroplating operations (coating materials, process chemistry, addition agents, cleaners and water). The results of the study indicated that hidden costs in terms of materials waste can be traced to two sources e a differential between the amount of coating materials purchased and the amount of metal that actually goes out on parts, and another differential between the amount of metal that goes out on parts and the

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efciency would lead to the production of fewer defective screens, thus reducing the processing costs of non-product outputs such as labour time on manufacturing spoiled products. It would also reduce waste treatment and disposal costs (Category 1 costs). 3.5. Category 5: environmental revenues Actual earnings from recycled materials, sharing energy produced on site to an external grid, or sharing an on-site sewage treatment plant with a local community, can be included in this category. Actual income in terms of subsidies and awards should also be included here. With regard to recycling, products with the highest recycling rates include paper, cardboard, bottles, toner cartridges, xylene and NiCd batteries. Although one might expect companies to report revenues from recycling, it appears to be an untracked category. Embarrassingly low revenues may account for much of the silence on this matter. For example, Tellus [30] reports that improvements in recycling at one facility produced revenues of $500 from mixed paper and $62 from plastic and glass recycling. Compared to the total cost savings of $23,859 for the project, the revenue represents just 2.4% of the total savings, most of which was from reduced waste handling costs (Category 1 costs). This result may suggest that recycling generally leads to cost savings rather than the generation of revenues. While costs savings may appear to be the same as revenues in the sense that a penny saved is a penny earned, the focus of the environmental revenue category is on actual external sources of income, a eld of inquiry that includes industrial ecology. An excellent example of environmental revenues is the sale of waste by-products. For example, Deegan [1] reported that the wool carbonising of low quality wool at Michell led to a number of unavoidable by-products such as wool grease and broken ends. Michell could treat these by-products as waste and pay for their disposal or they could treat them as assets and sell them as products. Wool grease sells for about AUS$2 per kilogram and has many uses. Broken ends are sold as a lower grade wool product for various processes and products. 4. EMA as a reexive modernization strategy in cleaner production The nancial performance of a company is judged according to accounting and auditing practices for which there are professional experts and international standards. It is not a difcult step to imagine social and environmental performance judged in an analogous way. EMA, however, has not caught industrys attention, and the efforts of professional accounting bodies are largely at the margin. Elsewhere, EMA has not been actively promoted by advocates of other environment and sustainability-related tools or frameworks such as The Natural Step, the Ecological Footprint, Eco-efciency, Factor 10; ISO 14001, and EMAS. It is thus incumbent on EMA practitioners to communicate more effectively with advocates of these tools and frameworks to ensure that EMA is included

in discussions of strategic sustainable development and corporate sustainability [31]. EMA needs to be linked more systematically with cleaner production, industrial ecology and greening of industry initiatives as well as to prescriptive and analytical aspects of modernization [5,8,39]. Draft international EMA guidelines represent a critical development and communications initiative [10]. A key communications point is that EMA research provides original insights into the costs hidden by conventional accounting. Hidden costs represent lost opportunities for cost savings on the one hand and hamper innovations regarding product offerings on the other. Decision makers using the EMA technique have a superior analytical framework for identifying cost savings and for considering a fuller range of costs in manufacturing processes, product redesign or new product offerings. The success or failure of its application leads to at least three possible outcomes: (1) EMA has pioneering significance as a modernization strategy in cleaner production by yielding better cost and benet gures on which decisions can be made; and (2) EMA has a long-term capacity to promote the transition towards corporate sustainability through institutional reexivity; or (3) EMA fails to take root and calls into question ideas of modernization in the solution to environmental and sustainability problems. The rst outcome, the pioneering signicance of EMA in modernization, is about how the technique of EMA provides a superior set of cost and benet gures about business performance (including gures on physical ows not discussed here). EMA is a tool of pioneering signicance because it brings environmental managers and accountants together to identify a fuller range of costs, benets and opportunities, particularly in resource and manufacturing industries. It provides these decision makers with more accurate costing on which to base operational decisions, including decisions about capital investment and the benets and costs of new technology. Efforts at identifying the environmental costs of cleaner production in corporations have typically been piecemeal. The signicance of EMA is that through its application a business can discover hidden costs and savings by implementing the EMA categories as a whole rather than through a piecemeal approach. EMA is signicant because it addresses the vexing problem of discovering, categorising and pricing environmental costs in organisations [2,10,12,17,32e37]. Understanding the material purchase value of wastes and emissions and related processing costs helps companies create new visions about what can be achieved in terms of process, products and services. EMA thus promotes positive change within cleaner production initiatives: it leads to strategies of structural reform rather than supercial change in company operations. It is important to restate that waste treatment does not fall under the denition of cleaner production because it does not prevent the creation of waste [38]. Companies locked into waste treatment solutions are also locked into environmental costs that they cannot imagine reducing. Environmental impacts and costs need to be integrated into corporate performance evaluation as a starting point in the understanding of sound environmental technologies and what

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cleaner production processes might involve, even if not imminent at the company. The second outcome e the long-term potential of EMA to promote corporate sustainability e is about industry transformation. Transformation refers to institutional reexivity which can be dened as the modernization of modern society, that is, re-modernization, made necessary by the side effects of modernity [6,39]. The transition towards corporate sustainability requires a reexive corporation, one which is capable of examining the side effects of its operations as modernization rebounds upon itself. An EMA system is pivotal to the elimination of corporate environmental side effects and, hence, the transition from unsustainable to sustainable production. Whereas EMA addresses the environmental performance aspects of such a transition in part, social accounting for workplace issues could be applied to address the social performance aspects of corporate sustainability [40], a consideration beyond the scope of this paper. EMA contributes to corporate sustainability by acting as a catalyst for performance-based environmental management accounting and reporting systems. Occasionally, a management technique emerges that fundamentally affects the way in which organisations operate. The European Unions Eco-Management and Audit Scheme along with the ISO 14000 series of environmental standards and guidelines, for all their weaknesses, have improved the performance of many enterprises (though this by no means necessarily makes them sustainable). An important point to note is that organisations without a performance-based EMS and performance-based reporting system are unable to provide evidence of performance improvements thus making any claims about performance suspect. Gale and Gullett [41], for example, have reported on the failure of an Australian Commonwealth organisation to implement an EMS and to support its performance claims with evidence. In this regard, the development of the Global Reporting Initiatives Sustainability Reporting Guidelines [42] is considered to be an increasingly important pressure on public and private sector organisations to adopt a reporting standard. Reporting, to be effective, requires a suite of environmental and other performance measures, and ultimately one would expect the development of internal EMA systems. The evidence about reporting, however, shows that boards of directors fail to identify how environmental and social issues pose both risks and opportunities at the enterprise level [43]. As Burritt [16] states with regard to the Australian experience, three specic issues are important to further progress in environmental accounting and reporting: sustainable development; education, training and communication; and environmental accounting. On this latter point, Schaltegger, Burritt and coworkers make the case that the central purpose of environmental accounting is to enhance corporate sustainability and ecoefciency [12,16,44e46]. At the operational level, EMA has the potential to be an extraordinarily transformative approach to eco-efciency and eco-effectiveness, particularly when combined with an EMS and a sustainability report. Given the broad issue of accounting and corporate sustainability, Wilmshurst

and Frost [47] note that accountants can play a greater role in a companys environmental management system. Deegan [48] states that social and environmental disclosures have a favourable legitimising effect for a corporation, and Cagno et al. [49] believe that the environmental management of production processes is a strategic issue for a companys longer term competitiveness (i.e., not just a compliance issue). These views underpin, in part, transitional initiatives towards corporate sustainability; initiatives that are likely to become increasingly important as governments around the world seek a range of economic instruments and green budget reforms, including those summarized by Gale and Barg [50], to provide the impetus for organizational change. The third possible outcome is that corporations do not have the capacity for reexivity envisioned in modernization strategies and fail to adopt EMA and other tools and strategies for cleaner production. This outcome is agged as an issue of corporate power in which business cultures of environmental denial and corporate self-justication override pressing environmental and sustainability concerns. There is nothing inevitable about sustainability: it would be nave to think oth erwise. The emergence of the reexive corporation is a work in progress.

5. Conclusions Polluting companies pay three times for non-product output, that is, wastes and emissions. First, the company pays the cost of purchasing raw materials (say, for example, fuel, water, and chemicals), a proportion of which ends up as wastes and emissions. Second, the company pays for the operational use of raw materials through labour and infrastructure investment costs, a proportion of which ends up as wastes and emissions. Finally, the company also pays for the disposal costs of the wasted materials purchased or for the licences, which permit emissions of a proportion of the material purchase costs. These costs can be categorised according to a UNDSD EMA methodology. For the purposes of this journal article, the methodology can be considered as a reexive ecological modernization strategy to help understand the acceptance or rejection of EMA by corporations. Although there is a shortage of high quality published environmental cost information from various industry sources, an analysis of case information provides evidence to support the argument that the UNDSD categories provide environmental managers and accountants with a clearer picture of costs on a line item basis that far exceeds what is available from conventional accounting; a point already veried by Jasch [14] and Gale [17]. The absence of a plethora of systematic EMA studies suggests that the most important interim strategy to promote EMA is the publication of detailed information on the different UNDSDs cost (and revenue) categories. This will create knowledge about the environmental costs of business operations as well as the need to provide a systematic and holistic EMA framework essential to both the promotion of cleaner production and corporate sustainability. This application inevitably

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requires reexive institutions including reexive corporations; that is, corporations with the capacity to examine the side effects of their operations as modernization rebounds upon them.

Acknowledgements I am very grateful to Dr. Roger Burritt, Australian National University, for his comments on an earlier version of this paper. Two anonymous reviewers also provided instructive comments. I am, of course, responsible for any errors or shortcomings.

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