United States
Environmental Protection
Agency
Office of Pollution Prevention "EPA742-R-94-002
and Toxics -, May 1994
Washington, DC 20460
Workshop Proceedings:
Accounting and Capital Budgeting
for Environmental Costs Workshop
(December 5 - 7, 1993)
AICPA
American
Institute of
Certified
Public
Accountants
The Business Roundtable
The Association for Tola! Cost Management
International
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Basic Assumption:
"Environmental Protection and
Economic Well-Being Are
Inter-Dependent."
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DISCLAIMER
The contents of this document do not necessarily represent the positions of the sponsoring
organizations or the Focus Group that planned the Workshop. While there was great deal of
agreement about issues and actions, neither the Proceedings nor the Stakeholders' Action Agenda
represents a consensus of the Workshop attendees or the working groups that developed the
individual Action Agendas.
The Workshop was designed to elicit a diverse set of views from participants. The issues,
actions and Agenda produced at the Workshop are the product of this diversity. The ideas and
recommendations contained herein are not meant to be exhaustive. Rather they should be
viewed as a representative list of important needs and recommended actions that readers can
adopt, adapt, and implement as they see fit.
This Workshop began a dialogue, it was not the end of one.
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Ill
WORKSHOP PROCEEDINGS - TABLE OF CONTENTS
Page
DISCLAIMER ii
ACKNOWLEDGEMENTS v
PREFACE vi
EXECUTIVE SUMMARY vii
I. THE WORKSHOP M
I.I Background 1-1
1.2 History of Workshop 1-2
1.3 Project Vision and Objectives . .' 1-3
1.4 Participants/Workshop Composition 1-4
Exhibits: Stakeholder Diagrams
1.5 Organization of the Workshop 1-6
Exhibit: Final Workshop Agenda
1.6 Materials Provided to Participants 1-10
Exhibit: List of Advance Materials Provided to Workshop Participants
Exhibits: Customers and Suppliers of Major Stakeholders
1.7 Issues in Management Accounting and Capital Budgeting for Environmental Costs . 1-16
Issue Paper: Managers' Motivations 1-23
Issue Paper: Treatment of Environmental Costs as Overhead 1-25
Issue Paper: Communication and Organizational Issues 1-28
Issue Paper: Uncertainty in Environmental Decision-making 1-30
Issue Paper: Key Technical Issues for Capital Budgeting 1-32
Issue Paper: Cultural or Attitudinal Issues 1-35
Issue Paper: Management Support 1-37
1.8 Key Management Accounting and Capital Budgeting Definitions 1-39
II. THE PRESENTATIONS IM
La. Basics of Managerial Accounting — Professor Rebecca Todd (New York Univ.) II-2
b. Basics of Capital Budgeting — Allen White (Tellus Inst.) 11-13
c. Basics of Pollution Prevention — Dr. Ed Quick (Hoechst Celanese Corp.) .. . 11-41
2.a. Case Study 1: Ciba-Geigy — G.J. Muhlebach 11-53
b. Case Study 2: Ontario Hydro — Corinne Boone 11-69
c. Case Study 3: Hyde Tools — Doug DeVries 11-97
3. Keynote Address — Richard Barth (CEO, Ciba-Geigy Corp.) II-115
Attachment: Presenter Bios 11-131
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IV
WORKSHOP PROCEEDINGS - TABLE OF CONTENTS
(continued)
Page
III. STAKEHOLDER ACTION AGENDAS III-l
How to Use This Chapter III-l
III.l Development of Agendas III-2
IH.2 Summary of The Issues and Related Actions III-3
III.3 Summary of Action Agendas III-10
III.4 Additional Items Raised in Follow-Up Plenary Session Ill-13
m.5 Next Steps 111-15
Attachment A: Stakeholder Action Agendas
How to Use Attachment A A-l
Business Action Agendas A-2
1. Business Financial Staff A-2
2. Business Accounting Staff A-3
3. Business Environmental Safety and Health Staff A-4
4. Business Operations Staff A-6
5. Accounting Association Action Agenda A-7
6. Small Business Action Agenda A-12
7. Non-Accounting Professional Associations Action Agenda A-14
8. Management Consultants Action Agenda A-20
9. Academia Action Agenda A-22
10. Government Action Agenda A-26
Attachment B: Table of Acronyms B-l
APPENDICES
I. Workshop Attendees
II. Evaluation Summary
III. Workshop Attendees' Bulletin Board
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ACKNOWLEDGEMENTS
The co-sponsors of the Workshop would like to extend their appreciation to
the Focus Group that planned this Workshop. Their diligence, expertise, and
willingness to work through difficult issues made the Workshop a success. Additional
thanks go to all the attendees who can take pride in their participation. You have
contributed to a brighter environmental and economic future for all of us.
This document was prepared by ICF Incorporated under EPA contract
number 68-W2-0008. ICF's Project Manager Paul Bailey appreciates the comments
submitted by the many people who reviewed earlier drafts of this material. Other
members of the ICF project team include Keith Bowers, Margo Brown,
Michelle Hocketstaller, Rob Lederer, and Ted Wilson.
EPA's Project Manager was:
Martin A. Spitzer, J.D., Ph.D.
Pollution Prevention Division (7409)
Office of Pollution Prevention and Toxics
U.S. Environmental Protection Agency
401 M Strfeet, S.W.
Washington, D.C. 20460
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VI
PREFACE
This document constitutes the results of an intensive two-day Workshop on management
accounting and capital budgeting for environmental costs. The Workshop brought together
experts from across the country to share their opinions and perspectives. The material presented
here was distributed to all Workshop participants for their review and was revised to reflect their
comments. Chapter III of this document has also been reprinted with minor modifications as a
stand-alone EPA document Stakeholders' Action Agenda: A Report of the Workshop on
Accounting and Capital Budgeting for Environmental Costs (May 1994) EPA #742-R-94-003.
As a facilitator, EPA is committed to helping stakeholders implement this Action Agenda
and share information. If you and your organization would like to participate in implementing
one or more recommendations in the Agenda, undertake any other activities to promote improved
accounting and capital budgeting, or inform colleagues about available resources and publications,
EPA will be pleased to communicate this information. The Agency is also interested in exploring
cooperative efforts to implement the Agenda. Whether you represent a company, academia,
government, an advocacy group, a professional or trade organization, or any other organization,
all of the Workshop co-sponsors and attendees encourage you to get involved.
If you are currently implementing or plan to implement any facet of the Action Agenda,
please complete EPA's revised Accounting Network membership form. The Agency will be using
the Network forms for tracking commitments to implement the Action Agenda and collecting
resource information. Additional Network forms may be obtained from EPA's Pollution
Prevention Information Clearinghouse (PPIC). Contact the PPIC at (202) 260-1023 or write:
PPIC
U.S. EPA Headquarters Library
401 M Street, S.W. (3404)
Washington, D.C. 20460
(202) 260-0178
If you are interested in discussing cooperative efforts to implement the Agenda, please
contact Dr. Martin A. Spitzer or Holly Elwood in EPA's Office of Pollution Prevention and
Toxics at:
U.S. Environmental Protection Agency
Pollution Prevention Division (7409)
401 M Street, S.W.
Washington, D.C. 20460
(202) 260-4164
For information about EPA's Design for the Environment, Management Accounting and
Capital Budgeting for Environmental Costs Program, to join EPA's environmental accounting
Network, or to learn about available resources on management accounting and capital budgeting
for environmental costs, please contact PPIC at the above address.
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Vll
EXECUTIVE SUMMARY
This document describes the Proceedings of an intensive two-day Workshop on
management accounting and capital budgeting for environmental costs. The Workshop brought
together experts from across the country to share their opinions and perspectives on key issues
and recommended actions.
Background
The U.S. Environmental Protection Agency has initiated a Design for the Environment
(DfE) program that works closely with private sector partners to promote the incorporation of
environmental considerations, including pollution prevention, at the front end of product, process,
and decision systems design. The DfE program includes cooperative efforts with stakeholders on
several "infrastructure" projects aimed at changing general business practices. The goal of these
efforts is to effect voluntary changes in management systems and organizational decision making
that will facilitate investment in and expanded use of waste minimization and pollution prevention
practices and technologies.
As part of this DfE program, EPA is working on the Management Accounting and Capital
Budgeting for Environmental Costs project. Management accounting is the collecting of
information primarily for internal decision-making; this information directs management attention,
supports decisions, and motivates staff and management behavior. The project is aimed at
encouraging business to modify management accounting systems to fully and explicitly account for
environmental costs and to incorporate that information into a variety of business decisions,
including capital budgeting practices. Doing so, many experts agree, will highlight the advantages
of investments in cleaner, pollution prevention practices over end-of-pipe technologies. In the
long run, improvements in management systems will promote more accurate costing and pricing of
products and processes with emphasis on'environmental cost/benefits, will create performance and
compensation incentives that reflect environmental goals, and will result in less waste, increased
profitability, enhanced competitiveness for U.S. businesses, and, ultimately-, improved protection of
public health and the environment.
EPA's role is as a facilitator and supporter for outside experts who are willing and
capable of addressing these important issues. The focus of the Agency's cooperative effort is to
mobilize the expertise of the accounting, business, academic, research, environmental
communities, and government to integrate more explicitly environmental costs into managerial
accounting and capital budgeting practices.
History of Workshop
To help build momentum, in early 1993 EPA convened a Focus Group of sixteen experts
from diverse fields which established the vision and objective of the Management Accounting and
Capital Budgeting for Environmental Costs project, as follows:
Project Vision:
"To encourage and motivate businesses to understand the full
spectrum of environmental costs and integrate these costs in
decision making"
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Project Objective: "To facilitate understanding and integration of environmental
costs through the development and use of improved cost
accounting and capital budgeting."
Based on its project vision and objective, and the need for promoting an interdisciplinary
dialogue on the issues, the Focus Group planned a National Workshop of experts in management
accounting and capital budgeting. The Workshop had six co-sponsors:
• U.S. Chamber of Commerce
• The Business Roundtable
• American Institute of Certified Public Accountants
• Institute of Management Accountants
• AACE International (Association for Total Cost Management)
• U.S. Environmental Protection Agency.
The Focus Group developed the following objectives for the Workshop:
• Stimulate ongoing dialogue,
• Identify and discuss key issues and needs, and
• Develop "Stakeholders' Action Agenda" for improving accounting and capital
budgeting
The Workshop was held in Dallas, Texas in December, 1993. The Workshop focused on
managerial accounting, not on financial accounting and public reporting issues. Attendees were
all actively engaged in managerial accounting and capital budgeting. To meet its objectives, the
Workshop used a combination of plenary sessions and intensive small working group sessions,
each with up to 10 participants from across a wide spectrum of disciplines, including the business
community (accounting, finance, environment, operations), the accounting community, consultants,
professional trade organizations, universities and government.
Stakeholder Action Agendas
After general discussion of issues and needs on the first full day of the Workshop,
participants reconvened in 10 working groups on the second day of the Workshop to develop
action agendas for ten major stakeholder groups:
(1) Business Financial Staff
(2) Business Accounting Staffs
(3) Business Environmental Health and Safety Staffs
(4) Business Operations Staffs
(5) Accounting Associations.
(6) Small Businesses
(7) Non-Accounting Professional Associations
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IX
(8) Management Consultants
(9) Education and Research Community
(10) Government Agencies
This numbering scheme is used to identify stakeholder agendas in Attachment A.
The issues discussed in the Workshop and addressed in the action agendas can be grouped
into four major themes:
(1) Terms, concepts, and roles
(2) Management incentives
(3) Education, guidance and outreach
(4) Analytic tools, methods, and systems
Each of these issue areas is discussed in turn.
(1)
Definition of terms, concepts, and roles.
Terms and Concepts. Because the concept of environmental accounting is new and
unfamiliar to many, an important issue in the near term is to clarify what the concept means and
what are the goals for its implementation. Participants recommended a number of the actions to
clarify the concept of incorporating environmental costs into managerial accounting and capital
budgeting. In addition to differences of opinion about what costs ought to be considered by firms,
there is also confusion about what people mean when they use terms such as life cycle costing,
life cycle assessment, total cost accounting, full cost accounting, total cost assessment, and so on.
Workshop participants expressed in several ways the perceived need for clarification of
terms and concepts. Among the recommended actions are:
• identifying a common body of knowledge and terms,
• sharing knowledge and experience,
• using cross-functional teams, including rotation of personnel, to develop common
terms and concepts,
• holding workshops and conferences,
• increasing communications, and
• promoting, sponsoring, and conducting research.
Roles- Because incorporating environmental costs into management accounting and
capital budgeting is a relatively new approach and because many parties must be part of the
solution, many participants saw a need to clarify the roles of key players. Definition of roles
appears to be as important an issue as clarification of terms and concepts. The accounting
associations action agenda highlights the issue of defining their roles, including such recommended
actions as reviewing accounting codes of ethics to incorporate environmental concerns. The
government role was an important topic of discussion, with many participants endorsing the
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catalytic and facilitation roles that federal and state government agencies can play, while
expressing reservations about government regulation and standard-setting.
(2)
Management incentives.
A second major theme of the recommended actions relates to internal and external
incentives for action. This ranges from the need for greater attention to the topic, to identifying
and creating reasons for addressing it (both internal and external to businesses), to the necessary
conditions for progress.
Internal Incentives. Recommended internal incentives for business include tying the
consideration of environmental costs to existing decisions on product mix, outsourcing, capital
investments, performance evaluation, promotion/compensation, product costing, and quality
assurance. Doing so could involve incorporating environmental goals into business unit objectives,
creating specific rewards for achieving such goals, and incorporating environmental concerns into
everyone's job description, from top management to line workers.
Participants recognized that simply recommending such actions will not necessarily make
them happen. Organizational and management commitment are keys to success. For example,
participants made frequent calls for increased management commitment, cross-functional teams,
and champions to "overcome inertia."
Demonstrating the added-value of knowing environmental costs is noted in several action
agendas as a key activity for securing management commitment and aligning incentives. Showing
successes -- defined largely as cost savings -- appears in most of the action agendas as a
recommended activity.
External Incentives. Workshop participants identified a variety of potential external
incentives, many of which can promote pollution prevention as well as environmental accounting.
These include:
• Market-based environmental solutions such as pollution credits and
emissions trading that require sound environmental cost information,
• Standardized environmental reporting of, for example, environmental cost
information,
• "Safe Harbors" for disclosure of environmental liability estimates,
• Loans, investment tax credits, depreciation policies that could enhance the
returns from environmental projects,
• Awards/recognition,
• Pollution prevention planning regulations with environmental accounting
components, and
• Voluntary programs (e.g., Green Lights, 33/50, WasteWi$e, Design for the
Environment).
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XI
The external incentives were viewed as important motivators for action. Business
stakeholders tended to distinguish between positive external incentives and negative external
incentives.
(3)
Education, outreach, and guidance.
A third major theme in the agendas for action is the development and dissemination of
information through a variety of communications, outreach, and technical assistance channels.
While incentives provide the motivation, information provides the know how. Case studies,
success stories, clearinghouses, conferences, newsletters, bulletin boards, guidebooks, and training
materials appear repeatedly in the action agendas. Workshop participants also viewed
information dissemination as key to establishing incentives, such as top management commitment.
Specific actions recommended in the action agendas include the following:
• Develop and deliver university and continuing professional education
curricula,
• Disseminate success stories,
• Sponsor workshops to develop common environmental accounting
language,
• Distribute training/technical assistance materials for small business,
• Develop topical conferences on accounting methodologies,
• Use association newsletters and magazines as media,
• Publicize electronic bulletin boards,
• Include management assistance in state pollution prevention Technical
Assistance Programs,
• Conduct case studies and benchmarking to identify "Best Practices," and
• Publicize primers on pollution prevention.
(4) Analytic tools, methods, and systems.
This fourth theme of the action,agendas focuses on developing and disseminating needed
tools, methods, and systems. Examples include developing analytic tools and methods (e.g.,
models) to estimate societal costs (externalities) and methodologies for estimating long-term
environmental liabilities (non-externalities), creating flow charts of materials and activities that
help identify waste reduction opportunities and serve as foundations for costing information,
researching the relationship between pollution prevention and employee morale/productivity, and
integrating environmental elements into existing management and accounting systems and capital
budgeting processes.
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Final Plenary Session
The presentation of the action agendas by the individual working groups stimulated much
discussion in the final plenary session of the Workshop. The specific points raised in the plenary
session often underscored issues and actions included in the agendas. For example, participants
reiterated the needs for:
• Corporate managers to change their philosophy to bring "green accounting"
to mainstream corporate America,
• The private sector to take the initiative to make it happen, and
• Stakeholders to use a larger vision to motivate action.
It is important to emphasize that the action agendas represent the opinions of individual
Workshop participants and not necessarily a consensus of opinion of each working group, the
entire Workshop, or the co-sponsors.
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1-1
I. THE WORKSHOP
I.I Background
The challenge ahead for securing sustainable development and long-term environmental
protection is to develop the link between economic development (including improved
competitiveness of U.S. industry) and protection of the environment. One of the ways to
accomplish this is to integrate environmental considerations into traditional business functions,
including financial functions such as accounting, capital budgeting, risk management, lending, and
finance.
The U.S. Environmental Protection Agency has initiated a Design for the Environment
(DfE) program that works closely with private sector partners to promote the incorporation of
environmental considerations, including pollution prevention, at the front end of product, process,
and decision systems design. The DfE program includes cooperative efforts with stakeholders on
several "infrastructure" projects aimed at changing general business practices. The goal of these
efforts is to effect voluntary changes in management systems and organizational decision making
that will facilitate investment in and expanded use of waste minimization and pollution prevention
practices and technologies. By helping to translate waste minimization and pollution prevention
into meaningful terms for professional groups, the DfE program contributes to building the
institutional structure to support both waste minimization and pollution prevention.
As part of this DfE program, EPA is working on the Management Accounting and Capital
Budgeting for Environmental Costs project. Management accounting is the collecting of
information primarily for internal decision-making; these systems direct management attention,
support decisions, and motivate staff and management behavior. The basic assumption of the
Management Accounting and Capital Budgeting for Environmental Costs project is that
environmental protection and economic well being are inter-dependent. The project aims to
encourage business to modify management accounting systems to fully and explicitly account for
environmental costs and to incorporate that information into capital budgeting practices. Doing
so, many experts agree, will highlight the advantages of investments in cleaner, pollution
prevention practices over end-of-pipe technologies. In the long run, improvements in
management systems will promote more accurate costing and pricing of products and processes
with emphasis on environmental cost/benefits, will create performance and compensation formulas
.that reflect environmental goals, and will result in less waste, increased profitability, enhanced
competitiveness for U.S. businesses, and, ultimately, improved protection of public health and the
environment.
Since EPA neither regulates accounting and capital budgeting practices, nor has the
expertise to address them directly, the Agency is acting as a facilitator and supporter for outside
experts who are willing and capable of addressing these important issues. This cooperative effort
mobilizes the expertise of the accounting, business, academic, research, environmental
communities, and government to integrate more explicitly environmental costs into managerial
accounting and capital budgeting practices.
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1.2 History of Workshop
To help build momentum, in 1993 EPA convened a Focus Group of experts in a diverse
group of fields to establish the vision and objective of the Management Accounting and Capital
Budgeting for Environmental Costs project, through a series of meetings and teleconferences. In
addition, the Focus Group worked to reach a consensus on the opportunities presented to
businesses by rapidly growing environmental costs and increasing public demand for cleaner
products. Specifically, the group determined that the environmental problems we face present
many opportunities for businesses to improve their decisions by better identifying and
understanding the environmental costs of their operations. The group agreed on the following
assumptions:
Cost accounting and capital budgeting processes can be
improved to more fully incorporate environmental costs.
Better information can help managers evaluate the full
spectrum of choices and the costs and benefits of business
actions that prevent pollution.
Because much work is currently underway to improve
accounting and capital budgeting, there is an unprecedented
opportunity to gather this expertise to stimulate an
interdisciplinary dialogue.
Source: Accounting and Capital Budgeting for Environmental Costs Focus Group,
October, 1993.
The Focus Group was comprised of the following individuals and the organizations they
represented:
Philip Ameen
Mary Bernhard
Daryl Ditz
William S. Garcia
Terri L. Goldberg
John Hudson
Robert Hummer
Gary Hunt
Dorothy Kellogg
Institute of Management Accountants and General Electric
Corporation
U.S. Chamber of Commerce
World Resources Institute
American Institute of Certified Public Accountants and Union
Carbide
Northeast Waste Management Officials Association
American Institute of Certified Public Accountants
American Institute of Plant Engineers and Building Technologies,
Inc.
National Roundtable of State Pollution Prevention Programs and
N.C. Pollution Prevention Program
Chemical Manufacturers Association
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Dick MacLean
John Morrow
Randy Price
Frank Pucciano
Richard Selg
Christopher Stinson
Rebecca Todd
Arizona Public Service
American Institute of Certified Public Accountants
The Business Roundtable and DuPont
Institute of Industrial Engineers and Georgia Power
AACE International and Westinghouse Savannah River
University of Texas at Austin
New York University
1.3 Project Vision and Objectives
In the course of its deliberations, the Focus Group developed a common vision for the
project and defined an objective, as follows:
Project Vision: "To encourage and motivate businesses to understand the full
spectrum of environmental costs and integrate these costs in
decision making."
Project Objective: "To facilitate understanding and integration of environmental
costs through the development and use of improved cost
accounting and capital budgeting."
Based on its project vision and objective, and the need for promoting an interdisciplinary
dialogue on the 1Ssues, the Focus Group planned a National Workshop of experts in
environmental management accounting and capital budgeting. The Workshop had six co-
sponsors:
• U.S. Chamber of Commerce
• The Business Roundtable
• American Institute of Certified Public Accountants
• Institute of Management Accountants
• AACE International (Association for Total Cost Management)
• U.S. Environmental Protection Agency.
i
The Workshop was held in Dallas, Texas in December, 1993. The Focus Group
developed the following objectives for the Workshop:
• Stimulate ongoing dialogue
• Identify and discuss key issues and needs
Develop "Stakeholders'Action Agenda" for improving accounting and
capital budgeting
The primary audience of the Workshop were members of the accounting and business
communities who are actively engaged in managerial accounting and capital budgeting for
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1-4
environmental costs. The Workshop did not focus on financial accounting and public reporting
issues.
Although the focus of the Workshop was on managerial cost accounting and capital
budgeting, participants fully recognized that these functions are interdependent components of
the overall business decisionmaking system of a firm. For example, internal managerial
accounting affects and is affected by other environmental issues that must be addressed in the
areas of financial accounting, internal and external reporting, disclosure, accountability to
stakeholders, and the progressive internalization of external environmental impact costs.
Moreover, management accounting and capital budgeting must interact with efforts to promote
total cost assessment, life cycle analysis, design for environment, total quality management,
resource recovery, and so on. These approaches, appropriately applied, are increasingly important
in environmental management for clean-up, control, remediation, pollution prevention, waste
minimization and resource conservation.
1.4 Participants/Workshop Composition
Workshop participants were recruited from the major stakeholder groups including
industry, the accounting community, government, management consultants, and universities.
Exhibit 1-1 illustrates these major stakeholder groups and Exhibit 1-2 shows the major industry
stakeholder groups.
Flyers about the Workshop were distributed to more than 400 financial and environmental
professionals interested and active in accounting and capital budgeting issues; news of the
Workshop was distributed by other channels as well. The Focus Group decided to keep
attendance at the Workshop below 100 participants to ensure that the group could achieve its
objective of having meaningful dialogue and developing an Action Agenda. Most participants
were drawn from the accounting and business communities but there was ample representation of
other stakeholders also. Within the business community, for example, participants covered the
cross section of accounting, financial, environmental, and operations staffs. Appendix I lists the
workshop attendees.
The exhibits illustrate some of the groups of people and two-way communication that can
be helpful in improving accounting and capital budgeting for environmental costs. Their purpose
is to show the major "stakeholder" groups - those people whose involvement is key to improving
accounting and capital budgeting -- and the groups with whom they should interact, termed their
"customers and suppliers." The diagrams are intended to be normative in the sense that they
illustrate who ought to be involved, not who is currently involved. The diagrams were provided to
Workshop attendees to stimulate thinking abou| how to involve others in problem-solving.
• Overview of Major Stakeholders: Exhibit 1-1 is an overview of selected
stakeholders (Industry, the Accounting Community, Government,
Management Consultants, and Universities) and the flows of
communication that can be helpful in improving accounting and capital
budgeting for environmental costs. Every stakeholder in this diagram has
lines of dialogue between it and every other stakeholder. Each stakeholder
has reason to dialogue with all others, though the level of dialogue (a lot
or a little) may vary.
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• Industry Stakeholders: Exhibit 1-2 shows a selection of stakeholders
(Operations Staff, Environmental Staff, R & D Staff, Accounting Staff,
Financial Staff, and Marketing/Sales Staffs) pertaining to the Industry
sector. It illustrates flows of communication among the within-Industry
staffs that can be helpful in improving accounting and capital budgeting for
environmental costs.
1.5 Organization of the Workshop
The Workshop was an intensive 2 days designed to allow participants to:
• Get to know one another and share experiences and expertise
• Identify and explore key issues and needs
• Select priorities and talk about ways to address them
• Develop a "Stakeholders' Action Agenda"
The Workshop used a combination of plenary sessions and intensive small working group
sessions, each with about 10 participants from across a wide spectrum of disciplines, including the
business community (accounting, finance, environment, operations), the accounting community,
consultants, professional trade organizations, universities and government.
The approach of the Workshop was based on the idea that a diversity of views would
produce the strongest recommendations, Using that premise, the Workshop was designed to
create an environment where "stakeholders" and their "customers and suppliers" could join
together to develop a "mini action agenda" for an assigned stakeholder group. The Workshop
also fostered contact and interaction among the working groups to link priorities and
recommendations, discuss overlapping issues, and identify committees or groups who could
sponsor and carry out future activities to implement the Stakeholders' Action Agenda.
The Workshop commenced with registration on Sunday, December 5, 1993 and an
informal evening opportunity for participants to meet one another. Monday morning, December
6, included a variety of presentations about the Workshop's history and objectives, basic concepts
of managerial accounting, capital budgeting, and pollution prevention; and success stories
presented by business representatives. Following the luncheon keynote speaker Richard Earth,
the President, Chairman, and CEO of Ciba-Gigy, the ten working groups were assembled to
discuss and prioritize key issues, steps needed to address them, and best practices. The results of
the afternoon sessions were presented to the full Workshop in the evening.
The working groups reconvened on Tuesday morning; each was asked to develop an
"action agenda" for a key stakeholder group, identifying important issues for the stakeholder
group, steps to address the issues, and who else should be involved in implementing each action
item. Groups were allowed and encouraged to interact to link priorities and recommendations.
In the afternoon, the results of the morning sessions were presented by each group to the entire
Workshop. In addition to discussion, workshop participants were invited to raise missing issues,
voice concerns, and suggest next steps. Exhibit 1-3 displays the detailed agenda for the workshop.
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EXHIBIT 1-3: FINAL AGENDA
ACCOUNTING AND CAPITAL BUDGETING FOR
ENVIRONMENTAL COSTS WORKSHOP
December 5-7, 1993
SUNDAY. DECEMBER 5
5:OO - 8:OO p.m.
7:OO- 10:00 p.m.
Registration open
Reception (hors d'oeuvres and cash bar)
MONDAY. DECEMBER 6
7:OO - 8:00 a.m.
7:00 - 8:00 a.m.
8:00 - 8:20 a.m.
8:20 - 8:40 a.m.
8:40 - 8:45 a.m.
8:45 - 8:55 a.m.
8:55 - 9:20 a.m.
9:20 - 9:45 a.m.
9:45 - 9:55 a.m.
9:55- 10:20 a.m.
10:20- 11:35 a.m.
11:35- 12:00 Noon
12:00-1:15 p.m.
1:15- 1:30 p.m.
Breakfast Buffet
Registration open
Introductions, Overview and Expectations
* Martin A. Spitzer
Director, EPA's Accounting and Capital Budgeting Project
U.S. Environmental Protection Agency
^ John Warren
Workshop Facilitator
EPA Keynote Speaker
* Mark A. Greenwood
Director, Office of Pollution Prevention & Toxics
U.S. Environmental Protection Agency
Preview of Morning Session (John Warren - Workshop Facilitator)
Presentation of Focus Group Process to Plan Workshop
(Randy Price, The Business Roundtable, Manager, Environmental Affairs,
DuPont Company)
Basics of Managerial Accounting
(Rebecca Todd, Professor, New York University)
Basics of Capital Budgeting
(Allen White, Director, Risk Analysis Group, Tellus Institute)
Basics of Pollution Prevention
(Dr. Ed E. Quick, Manager, Environmental Health & Safety, Hoechst Celanese Corp.)
Break
Success Stories Presented by Business Representatives
* Case Study I
(Ciba-Geigy Corporation - George Muhlebach, Director, Environmental Affairs)
• Case Study II
(Ontario Hydro - Corinne Boone, Economist, Energy Serv. & Environ. Group)
* Case Study III
" (Hyde Tools - Doug DeVries, Environmental Manager)
Plenary: Questions & Answers and Implications of Case Studies
Luncheon Keynote Speaker - "Meeting the Challenge"
• Richard Barth
President, Chairman and CEO
Ciba-Geigy Corporation
Overview of Working Group Plans and Activities
4 Process & Expected Outputs (John Warren - Workshop Facilitator)
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1-9
EXHIBIT 1-3: FINAL AGENDA (continued)
MONDAY. DECEMBER 6 4 (continued)
1:30-4:30 p.m.
4:30 - 6:00 p.m.
6:00 - 7:30 p.m.
7:30 - 9:30 p.m.
9:30- 10:30p,m.
Working Group Meetings {Facilitated groups of 10-12 each)
4 Members introduce themselves and discuss their backgrounds
* Discuss key issues and identify the ones they believe are most important
* OUTPUT - A list of key issues, steps needed to address them, 'and best
practices
Free Time
Dinner
Plenary Session
4 Working Groups Report
4 Discussion during remaining time
4 Preview of Day 2
Optional Social Hour (Cash Bar)
TUESDAY. DECEMBER 7 4
7:00 - 8:00 a.m.
8:00- 8:10 a.m.
8:10-12:00 a.m.
12:00- 1:15 p.m.
1:15-3:00 p.m.
3:00- 3:15 p.m.
3:15 - 4:00 p.m.
4:00 - 4:50 p.m.
4:50 - 5:00 p.m.
Breakfast Buffet
Plenary - Brief Overview of Morning Session (John Warren - Workshop Facilitator)
Working Groups Reconvene
* Each Group will develop a "mini action agenda" for a key Stakeholder group,
identifying key issues for the Stakeholder group, steps to be taken to address
them, and who should be involved in addressing them.
(Groups will be allowed and encouraged to interact with other working groups
to link priorities and recommendations).
Working Group Assignments:
(T) Business Accounting
(2) Business Finance
Business Operations
Business Environmental Health and Safety
Small Business
Accounting Professional Societies
Other Professional Societies (Engineering, etc.)
Management Consultants
Academic Research and Curriculum Development
Federal, State and Local Government
13)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Lunch
Plenary Session
4 Working Groups Report their "Mini Action Agendas" (10 minutes each)
• Questions and Answers
Break"
Plenary Session Continued
4 Identify missing issues or ideas not mentioned by any group
4 Begin discussion of some key overlapping issues to begin integration
Plenary Session Continued
4 Identify committees or groups to sponsor actions
4 Encourage preliminary sign-up for committees, including those who wish to
chair or co-chair various efforts
4 Sign up forms will be distributed
Closing
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1.6 Materials Provided to Participants
EPA provided Workshop participants with advance materials contained in a notebook
supplemented with materials available at the Workshop, such as speaker biographies and
abstracts. Exhibit 1-4 lists materials included in the notebook. That material is largely
incorporated in these proceedings. For example, the information provided in Tab A of the
notebook has already been presented in this chapter.
Attendees received two additional items that require further elaboration: the
Customer/Supplier Maps and the Issue Papers.
Customer/Supplier Maps. Attendees were provided with diagrams that illustrated the
importance of each stakeholder group collaborating with other stakeholder groups. The detailed
customer/supplier maps on the following pages use the same basic format: Each diagram focuses
on a stakeholder category, located in a box in the center of the page. The box is in a large circle.
The large circle represents the stakeholder's firm or organization. There are smaller circles inside
and outside of the large circle. The smaller circles represent other stakeholders and
customers/suppliers. Circles located within the large circle show stakeholders and customers/
suppliers within the firm or organization. Circles located outside of the large circle show
stakeholders or customers/suppliers outside of the firm or organization.
Each designated customer/supplier is a group that the stakeholder probably should be
having dialogue with in order to improve accounting and capital budgeting for environmental
costs. Some customer/supplier groups may not apply to all organizations. Also, an organization
may find that other customer/supplier groups that do apply to it are not present in the diagram.
Arrows link the stakeholder and customer/supplier groups, indicating that they may benefit
from dialogue, and that dialogue flows both ways. The level of dialogue (a lot or a little) may
vary for different stakeholder and customer/supplier groups.
• Industrial Customers/Suppliers: Exhibits 1-5 through 1-8 focus on four of
the six groups identified as industry stakeholders in Exhibit 1-2 and their
within-firm and outside-the-firm customers/suppliers. The four stakeholder
groups are Accounting Staff (Exhibit 1-5), Environmental Staff (Exhibit I-
6), Operations Staff (Exhibit 1-7), and Financial Staff (Exhibit 1-8).
Note: Each industry sector and individual firms have different
organizations and divisions of labor. For instance, Operations Staff may be
composed of various other staffs, including Operations, Shipping,
Maintenance, Quality Assurance/Quality Control, Production, Waste
Handling, and so on. Alternatively, each of these staffs may be organized
separately from each other. Regardless, the various Operations-type staffs
should probably have dialogue with each other to foster improved
accounting and capital budgeting for environmental costs.
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EXHIBIT 1-4:
LIST OF ADVANCE MATERIALS PROVIDED TO WORKSHOP PARTICIPANTS
Opportunity Statement
Vision Statement
Focus Group Members
Workshop Objectives
Interim Final Agenda
Stakeholders and Customers/Suppliers Maps
• Introduction
• Overview of Major Stakeholders
• Overview of Industry Stakeholders
• Industry Accounting Staff Customers/Suppliers
• Industry Operations Staff Customers/Suppliers
• Industry Environmental Staff Customers/Suppliers
• Industry Financial Staff Customers/Suppliers
• Accounting Associations Customers/Suppliers
• Engineering Associations Customers/Suppliers
• Management Consultants Customers/Suppliers
• Government Agencies Customers/Suppliers
Issues Papers
• Categorization of Issues (Overview)
• Managers' Motivations
• Treatment of Environmental Costs as Overhead
• Communication and Organization
• Uncertainty
• Technical Issues
• Cultural and Attitudinal Issues
• Management Support
Speakers Biographies and Presentation Outlines
Key Definitions
Tab
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• Association Customers/Suppliers: Exhibit 1-9 focuses on Accounting
Associations (such as the Institute of Management Accounting (IMA) and
the American Institute of Certified Public Accountants (AICPA)) and their
within- and outside-the-association customers/suppliers. Exhibit 1-10
focuses on Engineering Associations (such as AIChE and AIPE) and their within-
and outside-the-association customers/suppliers.
• Consultants (Management, Engineering, and Others) Customers/
Suppliers: Exhibit 1-11 focuses on consulting firms and their within- and
outside-the-firm customers/suppliers. Consulting firms may include
management, engineering, environmental, auditing, information technology,
and accounting practices.
• Government Customers/Suppliers: Exhibit 1-12 presents the
customers/suppliers of federal government agency stakeholders.
Issues Papers. The workshop materials also included a discussion of the types of issues
relevant to management accounting and capital budgeting for environmental costs as well as seven
individual issue papers intended to stimulate thinking and discussion. These materials follow.
1.7 Issues in Management Accounting and Capital Budgeting for Environmental
Costs
Management accounting systems provide cost information for use in: 1) directing
management attention, 2) supporting decision-making, and 3) motivating behavior. Capital
budgeting is the analysis and decision process by which firms determine how to invest their limited
resources/dollars. A number of issues may arise in improving management accounting and capital
budgeting practices to more fully account for environmental costs and incorporating the
information in business decisions. This section contains:
1) a list of some of those issues grouped into categories for consideration
during development of the Action Agenda, the output of the Workshop;
and
2) a description of seven (7) relatively broad issues chosen to reflect a range
of issues, including both "soft" areas (e.g., communication) and "hard"
technical or methodological issues.
The list of issues is by no means complete; it was not meant to be. Workshop participants
developed their own lists of issues and needs, which formed the basis for the Action Agendas.
Similarly, this description of each selected issue is not exhaustive, but rather a brief overview
touching on some aspects of the issue. The issue papers are provided as a starting point,
particularly for those not intimately familiar with accounting, capital budgeting, or some of the
other concerns that were discussed at the Workshop. This information served as background for
workshop participants and was meant to stimulate thinking about the issues. It was hoped that
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the issue papers enriched the participants' perspectives and encouraged discussion during the
Workshop and afterwards.
The issues are sorted into categories designed to focus discussion toward elements of the
Action Agenda, which was the ultimate output of the Workshop.
Category 1; Education and Training
• People could benefit from education in methods for fair, unbiased assessment of
environmental expenditures.
• Different professions have different vocabularies for dealing with environmental
issues.
• Engineers and researchers may benefit from training in how to identify and
develop pollution prevention technologies, and how to evaluate the financial
aspects of these technologies.
Category 2; Technical Methods and Tools
• It would be helpful to have a generally accepted methodology for estimating future
environmental liabilities.
• Financial reporting does not require that environmental costs be linked with
specific products, and this often carries over into the managerial accounting
system, where many environmental costs may be treated as overhead. There may
be a need for use of a different or separate management accounting system (for
example activity-based costing, or ABC).
• Training in how to modify methods of applying net present value analysis to better
handle environmental costs and benefits may be needed.
^
Category 3; Information and Communication
• Plant personnel need to jknow what kind of information they can draw from
existing information systems.
• Accounting systems, engineering evaluations, and investment analysis may be
separate functions and thus there may be lack of communication and exchange of
information across departments.
• Advocates of pollution prevention can be more successful if they learn to articulate
the benefits.
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• Production managers may not even be aware of many of the environmental costs
of their products.
Category 4: Publicity
• There is a widespread belief that environmental expenditures are inherently losing
propositions.
• There is a lack of understanding of the need for a change in methods of handling
opportunities for pollution prevention.
• There is little awareness of public incentive programs for pollution prevention.
Category 5; Management
• Managers' incentive systems may not reward them, and may in fact be a
disincentive, for evaluating the full environmental costs of their products.
• Environmental professionals often work outside the management decision-making
process.
• Accounting innovations that aid understanding of pollution prevention
opportunities may need to be encouraged and supported.
• Top managers themselves may be unaware of the range and size of environmental
expenditures and the opportunities for prevention.
Category 6; Organization
• Pollution prevention could make greater progress if the organization were
structured to link efforts among accounting, management, environmental, and
production personnel on this issue.
• Environmental affairs departments are often centralized and somewhat separated
from other functions.
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MANAGERS' MOTIVATIONS
Statement of the Issue
Managers' motivations may not be consistent with a goal of encouraging businesses to
understand the full spectrum of environmental costs and integrate these costs in decision-making.
Managers may have little incentive to uncover the "full" environmental costs of products and
processes, may not be motivated to look at options beyond minimal compliance with
environmental standards, and may not be encouraged to innovate.
Background
It is widely recognized that an effective environmental program requires senior
management support. And many case studies document that a creative response, such as
pollution prevention, to environmental requirements needs a "hero" or "champion" who is
committed to overcoming the inertia of the status quo. At the same time, American business is
going through an unprecedented down-sizing, particularly in the ranks of middle management who
are viewed as generating costs but little value added for the corporation. American managers are
criticized for being short-sighted and insufficiently attuned to the needs for profitability and
competitiveness.
Description
A recurring issue in any discussion of integrating environmental considerations into
traditional business functions is that managers have little incentive to uncover hidden or obscure
environmental costs of a product or process. Managers' responsibilities are fundamentally to meet'
or exceed numerical targets of profitability and/or market share. These over-riding benchmarks,
against which managers' compensation is measured, set the priorities. By leaving environmental
costs in overhead or indirect accounts, managers may be better able to show enhanced
performance.
A related issue is that managers' motivations tend to focus on the short-term, with limited,
if any, consideration of longer-run results. This short-term focus may bias decision-making against
environmental projects which may have longer payback periods than other investments.
Managers have other reasons for not wanting to uncover the environmental costs of a
product or process. Because environmental costs are viewed as problems, there is a natural
inclination to sweep them under the carpet. Furthermore, managers may fear that an unbiased
assessment of a product's costs could lead to closure of a product line or production center, with
resulting job losses. Most mangers want to avoid such situations.
Managers also rarely receive any credit or reward for doing more than the minimum
necessary for environmental compliance. Technological or accounting innovation is not rewarded
because "the system" in many companies discourages innovation. Cookbook regulatory
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1-24
compliance carries little downside risk; pollution prevention programs, which are likely to be less
proven and therefore considered more risky, are unlikely to be viewed positively and may require
more internal review and approvals.
Discussion
Realigning managers' motivations is on the agenda of all companies that are restructuring
or "reinventing" themselves to meet the competitive challenges of the 1990s. Managers' incentives
are being revised and their motivations subject to increasing scrutiny.
External to the corporation, government agencies such as the EPA and SEC, as well as
bodies such as FASB, are increasingly pushing businesses to recognize environmental and other
(e.g., unfunded pension, health benefits) liabilities. This trend might help overcome managers'
reluctance to uncover or recognize environmental costs; it also means that companies who
evaluate environmental costs may find themselves not so competitively disadvantaged.
As companies face environmental costs, they may find that (1) their liabilities are not so
large as they feared and (2) they have creative ways of reducing environmental costs while
increasing competitiveness. The act of confronting environmental costs can significantly reduce
managers' fears of the unknown.
And if managers are rewarded for identifying product lines or processes that are
unprofitable due to hidden environmental costs, they will be encouraged to serve the long-term '
interests of their companies, shareholders, and customers.
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TREATMENT OF ENVIRONMENTAL COSTS AS OVERHEAD
Statement of the Issue
Many environmental costs that pollution prevention can affect are treated as overhead in
managerial accounting systems (which provide cost information to decision makers in businesses).
This treatment reduces the economic benefits apparent to decision makers who might consider
pollution prevention measures.
Background; What is Overhead?
"Overhead" is any cost that, in a given accounting system, is not wholly attributed to the
manufacture of a single product.
Each cost that is overhead is treated in either of two ways: ""
• attributed to two or more products by allocating it, or
• left in the business' pool of costs that are not attributed to any of its products.
Overhead treated in the first way is often called "manufacturing overhead." Typical
examples include disposal costs, maintenance, waste treatment, safety equipment, and supplies. It
becomes part of the product cost for each of the products to which it has been allocated. Product
cost is what the accounting system considers the firm has incurred to make the product and to
place it into inventory ready to be sold.
Overhead treated in the second way is often called "technical, sales, and general
administrative," or "TSGA" costs. Typical examples include research and development; staff
departments such as human resources, law, and environmental affairs; and marketing. It is part of
the business' period cost. Period cost is what the accounting system considers to be part of
operating the business itself, rather than part of making products.
Background; Why are Environmental Costs Treated as Overhead?
Managerial accounting systems treat some environmental costs as overhead partly because
such systems have traditionally reflected the structure of financial reporting systems. Therefore,
in order to understand the issue better, it is necessary first to look at the requirements for
financial reporting.
Financial reporting systems exist to provide information to stockholders, taxing authorities,
securities regulators, and the public. Because these audiences are interested only in the "bottom
line" and have little interest in knowing environmental costs (or, for that matter, other costs)
linked to specific products, the standards (Generally Accepted Accounting Principles, or GAAP;
standards of the Financial Accounting Standards Board, or FASB; and the regulations of the
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Securities and Exchange Commission, or SEC, and the Internal Revenue Service, or IRS) for such
reporting do not require it. In fact, the standards often require just the opposite: that costs not
directly measurable and assignable to specific products or processes on a cause-and-effect basis be
lumped together as overhead.
Hence the financial reporting system treats a large amount of cost as overhead, and so
does the managerial accounting system to the extent it parallels the financial reporting system.
The proportion of cost treated as overhead has grown over the years - it used to be that labor
and material were the primary costs, but today labor may be significantly less than years ago, while
a large percentage of a firm's costs may be overhead.
The carryover from financial reporting systems cannot explain completely why
environmental costs are so often treated as overhead in managerial accounting systems. After all,
a business can generate and report to its own decision makers almost any information it desires.
An additional issue is that the value of knowing the "full" environmental costs or linking
environmental costs more directly to products or processes in reporting to decision makers is
often not perceived by the designers of the managerial accounting system to be as high as the cost
of the additional information processing necessary to do so. However, that perception may be
based on an incomplete understanding of the range and size of costs that decision makers could
reduce through environmental measures such as process changes or source reduction.
Description
When environmental costs are treated as overhead, decision makers can fail in two
different ways to recognize that they can reduce these costs:
(1) managers may be unable to recognize certain costs as environmental costs, and
(2) they may not believe that recognized environmental costs are reducible through
their decisions.
The first situation occurs often with the environmental costs that are not allocated to
processes or products, that is, with those in TSGA. A manager may see only the total TSGA cost
with no disaggregation, or may not even be reported a TSGA cost at all.. In either case, it is
impossible for the decision maker to identify through such reports many costs that are in fact
environmental, such as regulations and compliance monitoring, reporting and record-keeping
requirements, training, and litigation.
The second type of situation occurs often with the environmental costs that are allocated
to products or processes, that is, with.those in manufacturing overhead. Although managers can
see that the costs are environmental, they are aware that the costs reported for their product lines
have simply been allocated through an arithmetic formula such as pro-rating cost among product
lines according to their water usage. This awareness can lead to two scenarios.
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In the first scenario, the decision makers believe that, even if they were successful in
reducing the product line's dependence on the environmental service (such as waste disposal or
waste treatment) associated with that cost, the arithmetic formula might be difficult to change or
won't fully recognize their savings. As a result decision makers may believe that the reported
costs for which they are responsible will not reflect the entire benefit, and consequently they
forgo the efforts and instead concentrate on cost reductions that carry greater recognition in the
accounting system for their operation.
In the second scenario, decision makers believe that the actual total costs to the business
will not change even if they are successful in reducing dependence on .the environmental service
and being fully recognized for the success. This happens when the managers believe (perhaps
correctly) that the environmental service is of an "all-or-nothing" nature, that is, that the business
will continue to have to pay the full cost of the service as long as even one product line continues
to use it. In this case, managers would probably not undertake pollution prevention unless they
work jointly in a way that is not directly encouraged by the reports they independently receive.
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COMMUNICATION AND ORGANIZATIONAL ISSUES
Statement of the Issue
Full awareness of the benefits of pollution prevention, and effective action to achieve the
benefits, depends on good communication among different functions in a business. However, the
organizational structures of many businesses discourage such communication.
Description
Most large businesses operate through organizational structures that were established
largely before the impact of business on the environment was known, and before the need for
environmental protection was recognized. These structures do not, therefore, provide easy
avenues for communication on environmental issues.
Two or more departments that need to interact may be separated by distance. Production
managers and engineers may be in a plant in one state, research and development personnel may
be in another, and environmental staff in yet a third. Regardless of how accessible people may be
by phone or fax, communications tend to be more frequent and broader in scope among people at
a single location. Moreover, communication among a group of people working at a common site
tends to be facilitated by the common vocabulary of the site. This is important in the
environmental field, where terms vary among the disciplines.
The way that the activity and personnel of a business are divided into functions may
discourage the needed communication. People generally engage in more frequent and easier
interactions with people in their own functions or departments. If all the environmental experts
are in a separate department and under separate supervision from production, accounting, and
research and development departments, the communication needed for pollution prevention is
less likely to occur.
Perceptions that people in other functions are at a different level in the organization also
may inhibit interaction. If production managers perceive research and development or
environmental personnel to have higher status than themselves (or vice versa), they will tend to
communicate in a more guarded manner.
Another issue is that people simply may not realize how sharing of information with other
departments could reveal opportunities for environmental benefits. Those who develop reporting
and communication procedures (outside the managerial accounting system) may lack awareness of
information transfer needs.
People often feel that they are just too busy to communicate across departments. This
could be caused by there being too few people to devote proper attention to the issue, too low a
priority assigned to the issue, or both. Perhaps those who decide head count and hiring plans,
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and those who set departments' priorities do not themselves recognize or truly believe that
environmental protection, particularly pollution prevention, offers economic benefits.
Discussion
There are many examples of cross-functional communications that can help businesses to
recognize and capture savings through pollution prevention.
One example is transferring information from .the environmental staff to production
managers regarding possible future environmental regulations. When production managers realize
that a pollutant generated in their plant might become more heavily regulated, they will be more
likely to think about equipment or process changes that reduce the generation of that pollutant.
Production managers will also be more likely to initiate analyses of pollution prevention
benefits if they have discussed with accounting department personnel how accounting reports can
be used to estimate environmental costs. Production managers may also be more confident in
presenting pollution prevention projects if they understand the internal review process for capital
approval.
Also, research and development personnel working on new production processes will focus
attention on source reduction only to the extent they understand its benefits. Achieving this
understanding is difficult without input from production managers and environmental staff.
Likewise, environmental staff will focus more attention on helping to identify pollution
prevention technology if they know the true scale of the environmental costs, and which processes
are going to be considered for upgrading or replacement in the future. Accountants, production
managers, and engineers need to communicate this information.
A final example is that engineers and production managers associated with current
operations should receive full information about the lagging environmental costs of past
operations. Fuller awareness of the scale of these costs can encourage them to be vigilant for
opportunities to reduce the costs and the associated environmental impacts.
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UNCERTAINTY IN ENVIRONMENTAL DECISION-MAKING
Statement of the Issue
Decisions involving environmental expenditures may be perceived to entail more
uncertainty than other types of business decisions. In particular, uncertainty about future
environmental liabilities and compliance needs makes it difficult to assess some of the potential
benefits of environmental expenditures. Not only are legal requirements in flux, but society's
perceptions about environmental risks change. In addition, lacking a generally accepted method
to estimate future liabilities that could be avoided or reduced as a result of environmental
investments, managers may find cost-benefit analyses too speculative.
Background
All business decisions involve uncertainties: will demand continue for product X? How
will competitors' actions affect margins? Market shares? What will be the cost of capital in five
years? Ten years? How will accounting and financial reporting requirements change? How will
new technologies affect business? Most significant business decisions are made in the context of
many uncertainties.
Decisions about environmental and pollution prevention projects generally involve the
types of uncertainties encountered in other types of capital investment, R&D, and production
decisions. For example, a key factor in any product or process redesign is whether the new
product or process will work well -- what will be the impact on quality or productivity of using a
less toxic input? A different cleaning agent? Similarly, economic uncertainties about the future
prices of raw materials and the costs of waste disposal are germane to all decisions affecting
products and processes, including pollution prevention decisions.
A special aspect of the issue is noteworthy because of the associated uncertainties. Unlike
most environmental expenditures, which are undertaken solely to comply with government
regulations or orders, pollution prevention expenses are also incurred to reduce or avoid future
liabilities, including future environmental regulations. Because future environmental liabilities can
appear speculative, managers may conclude that preventive actions cannot be justified. Certainly
few managers in 1970 could have anticipated the past twenty years of environmental law-making
by Congress, regulatory agencies, and the courts.
Discussion
The additional uncertainties faced in environmental decision-making have been raised by
some professionals as an issue in improving corporate decision-making. Because of changing laws,
unpredictable societal perceptions of risk, and lack of generally accepted tools for estimating
future liabilities, it may be difficult to incorporate environmental liabilities into company decision-
making. On the other hand, at this point in time, future environmental liabilities may be easier to
predict than they were in 1970, at least with no more uncertainty than the other factors businesses
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must estimate. Today, for example, we are much better equipped to assess the potential risks of
alternate sites for chemical storage, waste disposal, and product processes; we better understand
the relative risks posed by many chemicals in commerce; we can better estimate the potential for
human and environmental exposure and the attendant costs of monitoring, remediation, and
compensation; and the regulatory agenda is much better defined.
An issue is whether future compliance needs can be predicted with any certainty. And if
so, how? Tracking environmental rule-making has become a full-time job, because of the
enormous volume of federal and state rules. It can be difficult to assess current compliance
needs, given the complexity of regulations, let alone crystal ball future standards. Nevertheless,
given the time frame of many corporate decisions (e.g., ten year projections), it is now feasible to
project with some certainty future regulatory standards. The legislative and regulatory process
typically consumes several years, giving analysts a five-to-ten year advance notice of forthcoming
compliance needs. For example, after years of debate, the Clean Air Act Amendments were
enacted in 1990; however, by the time most federal and state requirements will be effective, 5-10
(or more) years will have passed. It has taken nearly ten years for the RCRA hazardous waste
Land Disposal Restrictions program to be fully implemented from the 1984 enactment of the
Hazardous and Solid Waste Amendments (HSWA), which were foreshadowed by the California
program. By assessing what is in the regulatory pipeline, what is on the agenda, and prevailing
trends, we can develop reasonable expectations of future compliance requirements.
Other uncertainties plague attempts to predict future "third-party liabilities" for property
damage and personal injury, and future claims for damages to natural resources. Legal standards
of causation and burden of proof are currently inconsistent and subject to change through judicial
fiat or legislative enactments. Theories of liability and measures of damages proliferate. Looming
in the background is the prospect of CERCLA liability for natural resource damages — a
provision not widely employed to date and subject to political judgments of when and how to
apply it. The potential costs of natural resource damages claims could be staggeringly high, or
inconsequential if not applied. This context makes future environmental liabilities very difficult to
assess.
Are future environmental liabilities (e.g., third-party property and personal injury, natural
resource damages) so uncertain as to render their avoidance through pollution prevention too
speculative? Assessing current liabilities is not an exercise in great precision, but it is conducted
now whenever property is purchased by a sophisticated buyer, and whenever insurers underwrite
coverage, as well as for other purposes. Formal tools and informed judgments support such
liability assessments, largely based on the experience and scientific/engineering/legal developments
of the past twenty years. Drivers of liability, much like drivers of regulatory standards, evolve
relatively slowly, allowing projections to be made over time periods of interest to business
decision-makers. On the other hand, there is no generally accepted documented method of
estimating future liabilities for most situations.
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KEY TECHNICAL ISSUES FOR CAPITAL BUDGETING
Statement of the Issue
Calculating the net present values (NPVs) or internal rates of return (IRRs) of proposed
investment projects is a common way of quantitatively determining their attractiveness and of
comparing projects to establish priorities in capital budgeting. However, the techniques are
sometimes not used, and when they are used, they are often used in ways that fail to recognize
the economic benefits of pollution prevention projects.
Background; How Does the Technique Work?
The first step in calculating the NPV of a proposed investment project is to forecast the
amounts (dollars) and timing (years) of the cash flows that will result from it. A flow of cash out
of the business (such as the up-front payments for equipment and installation) are considered
negative cash flows, and flows into the business (such as revenues or reductions in labor costs) are
considered positive cash flows.
The result of the first step is a schedule of cash flows—normally a large negative cash flow
at time zero, followed by a series of smaller positive cash flows through some number of years.
Normally some "time horizon" such as ten years is set, beyond which no more cash flows are
considered. At the end of the time horizon, some residual value (a positive cash flow) is normally
assigned to represent the value to the business of the remaining assets of the project (for
example, salvage values).
The second step is to discount the cash flows to the present time and sum them. The
discounting is done by applying a discount rate (also called hurdle rate or cost of capital) that has
been selected by the business to approximate the cost at which it can obtain capital1. If, for
instance, the selected rate is ten percent, a cash flow occurring one year after the investment is
divided by 1.1, the one occurring two years after the investment is divided by l.l2, one occurring
o
three years after is divided by 1.1 ,
result is the NPV.
and so on. All the discounted cash flows are summed, and the
If the NPV is negative, then the project would not normally be pursued unless there were
some qualitative factors overriding pure economic considerations. If there are several projects
with positive NPVs but insufficient capital to invest in all of them, then, on purely economic
grounds, the projects with the highest NPVs would be chosen.
1 Some companies use a discount rate that has been selected to approximate the opportunity cost of
their capital-that is, the return they believe they could achieve by diverting the capital to investments
other than the one being evaluated. Discount rates selected this way are higher than rates selected to
approximate the cost of capital.
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1-33
A variation of the above technique is used for calculating the internal rate of return
(IRR). The IRR of a given project is the discount rate that, when applied to the project's cash
flows, results in an NPV of zero. Using this indicator, projects with IRRs below the business'
selected discount rate would not be undertaken. Given several projects with IRRs above the
discount rate, those with the higher IRRs would be preferable.
Description
There are at least six potential issues in considering environmental costs and projects with
the NPV and IRR techniques:
1) Uncertainties may not be well handled. Normally, only the cash flows that
are considered quite likely would be included in the evaluation. It may be
difficult to assess the probability of the cost consequences of pollution,
particularly costs in the future.
2) The discount rate may discriminate against projects with environmental
benefits. Given that the techniques often eliminate these projects from
consideration at an early stage, should a lower discount rate be used so
that environmental projects can "stay in the running" until qualitative
considerations can be applied?
3) Pollution prevention projects may not begin to accumulate significant
benefits for several years. Therefore, the techniques will not fully reflect
the value of the benefits when short time horizons are used.
4) The techniques may be carried out by personnel using engineering tools
that don't benefit from all the information on environmental costs,
including information available from accounting personnel. The tools may
fail to recognize the positive cash flow resulting from reduction in costs
from the environmental affairs department, for instance, because the
engineers' spreadsheets! focus primarily on direct and reasonably estimated
costs, and may have only one line item to cover all of technical, sales, and
general administrative costs (TSGA), or they may not include the costs of
the environmental affairs department at all.
5) The techniques are only as good as the information they're based on.
Even the best information from the accounting system may fail to reflect
many positive cash flows resulting from pollution prevention. If
environmental costs are not tracked and accounted for, for example, their
reduction would not be recognized as a positive cash flow in the analysis.
Future environmental liabilities, if not quantified, are not factored in
either.
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1-34
6) It is difficult to adequately reflect cash flows that lie in the distant future,
such as environmental liabilities (for example, remediation costs).
Environmental liabilities for a project's pollution may become apparent
only many years beyond the time horizon used to evaluate the project.
-------
1-35
CULTURAL OR ATTITUDINAL ISSUES
Statement of the Issue
For cost accounting and capital;budgeting processes to more fully incorporate
environmental costs changes may be required in corporate culture and professional attitudes.
Currently, a number of views combine to limit the creativity with which businesses approach
environmental expenditures, including pollution prevention opportunities.
Background
Only in the past twenty years has American industry needed to devote attention and
resources to environmental protection, and only in the past ten years has business faced
significant costs due to environmental concerns. Although corporate cultures and organizations
vary, in general the environmental function is a fairly recent addition to business. Until
environmental sensitivity becomes fully institutionalized in businesses, there is bound to be a
period of adjustment in corporate culture and professional attitudes. The perception that
businesses' self-interest and environmental protection are mutually compatible goals is not yet
widespread. This situation raises issues for companies' efforts to improve their decision-making
for environmental costs.
Description
Environmental expenditures are often viewed by businesses as just another cost item
negatively affecting profitability and competitiveness. Businesses strive to serve their customers
and shareholders by spending no more than necessary to satisfy environmental regulations. At
best, environmental expenses are viewed as a necessary cost of doing business. The benefits or
potential cost savings due to environmental investments are often not considered.
Another attitude is the view that companies should make only the minimum essential
investment to comply with regulations: there are only downsides to more creative approaches. If
a business controls pollution more than current regulations require, it runs the risk that the
standards will be "ratcheted up" and made mandatory, for itself or its industry. Deviating from the
regulatory "cookbook" is also more expensive, entailing more negotiations with regulators, more
explanations and approvals, and more lawyers.
Consideration of pollution prevention opportunities -- as opposed to end-of-pipe
treatment - is similarly viewed as more of an internal hassle because of the need to work with the
operations staff, R&D, Quality Control, utilities, engineering, and other units. All these parties
must work together to analyze the multiple complex interrelationships among materials inputs,
production processes, products, and pollution. Absent a corporate culture truly supportive of
cross-departmental teamwork, the task of getting these units to work together can be daunting.
-------
1-36
Lastly, there is an assumption that pollution prevention projects are inherently complex
technologically, meaning that innovations are likely to be more difficult to implement.
Together, these attitudes and assumptions can create and support a reactive culture of
minimal 'cookbook compliance with environmental standards.
Discussion
Although these cultural and attitudinal issues are undeniably real and must be
acknowledged, many companies and individuals have begun to view environmental expenditures
differently. By recognizing the importance of environmental quality and a sustainable
environment, managers can view environmental and business goals as mutually compatible. Once
the legitimacy of environmental protection is accepted, the issue becomes how can business best
do its part? How can business best serve its customers and shareholders while respecting the
environment?
This approach can lead to a different attitude in contrast to those described above:
• Rather than view environmental costs as inherently losing propositions with
negative returns, environmental costs can be seen as investments that can
generate returns
• Rather than assume that there are only costs to making more than the
minimum investment to comply with regulations, some managers are
exploring the potential benefits and weighing them against the costs
• See the need for cross-departmental teamwork as a means for finding the
best approach and fully exploring the alternatives for achieving
environmental protection, with their attendant costs and benefits
• Acknowledge that some pollution prevention techniques may be less
technologically complex than some end-of-pipe treatment works
Together, these different attitudes and views can create and support a proactive culture of
innovative cost-effective compliance with environmental standards while satisfying customer and
shareholder needs.
-------
1-37
MANAGEMENT SUPPORT
Statement of the Issue
Without management support, it can be difficult to better identify and understand the
environmental costs of business operations and integrate these costs in decision-making.
Description
It is widely recognized that, for many reasons, management support is essential to a
successful corporate environmental program. Firms that are leaders in this area have senior
managers who have made a corporate commitment to the importance of environmental issues.
Conversely, without management support, environmental demands may be responded to
antagonistically, or, at best, in a reactive, minimalist fashion. Thus, management support is a
necessary, though not sufficient, condition for success.
Companies frequently publicize their environmental credo in a policy or statement of
principles; this can foster an atmosphere where self-motivated champions set forth to explore
more creative alternatives (e.g., pollution prevention) to environmental compliance. More
energizing is the issuance of a management directive regarding pollution prevention and the
environment. Such a directive can challenge personnel to exercise their creativity and work
together in identifying opportunities to improve firm competitiveness and environmental quality.
A related concern is the perceived failure of company management to focus on rising
environmental costs and to structure internal procedures so that those costs do not remain
hidden. For example, keeping environmental costs in overhead accounts does not provide
managers with incentives or information to reduce those costs. For some companies, centralizing
or decentralizing decision-making on environmental expenditures can produce suboptimal
decisions. Capital budgeting procedures may interfere with reaching better decisions; for example,
high hurdle rates or short time-frames for analysis may bias decision-making against environmental
investments. Similarly, set budgets for end-of-pipe controls may not motivate broader thinking
about materials substitution and process changes that could produce better results.
To assess the full range of alternatives to reducing or controlling environmental costs,
management needs to provide support in the form of resources and tools. This is an issue noted
by many managers themselves. Resources might include some time of accounting staff to collect
and process information or set up an improved accounting system (e.g., activity-based accounting),
scheduling a series of cross-departmental problem-solving sessions, some outside consulting
assistance, or staff training. Tools can range from "how to" guides, to resource compilations, to
software packages.
To ensure better decision-making, executives might ask their managers to develop more
complete and better information about environmental costs. To achieve consistency and accuracy,
guidance on allocation of overhead and indirect costs across product lines and estimation of
-------
1-38
future liabilities may be desirable. Management might then require the company to examine
these costs for innovative ways to save money and contribute to a cleaner environment. Because
this will be a new way of approaching environmental needs for many companies, management
support is essential.
-------
1-39
1.8 Key Management Accounting and Capital Budgeting Definitions
(The text below is revised from a paper titled, "Accounting and Capital Budgeting for
Pollution Prevention," presented at the 1993 Engineering Foundation Conference "Pollution
Prevention - Making It Pay!")
Clarification of terms is the first step in facilitating a dialogue on issues. As in other areas
of pollution prevention, not everyone agrees on the definition of terms or the appropriate use of
terms. For this reason some of the generally recognized terms and some of the different uses of
terms are presented below. The goals is to cut through some of the rhetoric to ensure that
everyone clearly understands the conceptual issues.
A. Accounting
As a general matter, all firms, big or small, collect information to direct management
attention, inform decisions, evaluate performance, and prepare necessary financial reports or tax
returns. Firms also report data publicly to stockholders, the Securities and Exchange Commission
(SEC), banks, etc. The two terms commonly used to refer to these activities are "managerial
accounting" and "financial accounting."
Managerial Accounting
(Northeast Waste Management Officials Association/Massachusetts
Office of Technical Assistance (NEWMOA/MAOTA) Curriculum,
1992; White and Becker, 1992 New Solutions; and Todd, July, 1992)
• The process of collecting, preparing, and analyzing information principally
for internal decision making.
• Information is used for directing management attention, informing
decisions, and rewards and compensation
• In practice, all firms collect some information, but its structure and use
varies from company to company. Typically, such systems collect
information on the cost of materials and labor, as well as other costs such
as overhead, employee benefits, etc.
Financial Accounting (NEWMOA/MAOTA Curriculum, 1992; White and Becker, 1992 New
Solutions; and Todd, July, 1992)
• The process of preparing financial reports relative to an enterprise as a
whole for external parties (e.g., stockholders, creditors, bankers, and
government).
• Unlike managerial accounting, there are strict rules governing what
information is to be collected and how it is to be reported. Generally
Accepted Accounting Procedures (GAAP) govern. These ground rules
-------
1-40
are set by Financial Accounting Standards Board (FASB) and the
(Securities and Exchange Commission (SEC). The IRS also sets
requirements for tax reporting
• Firms report publicly only a subset of the information they collect for
internal decision making.
Activity-Based Costing (ABC)
• "Traditional cost-accounting techniques allocate costs to projects based on
attributes of a single unit" (e.g., number of direct labor hours required to
manufacture a unit, purchase cost of merchandise resold, or number of
days). "In contrast, ABC systems focus on activities required to produce
each product or provide each service based on each product's or service's
consumption of the activities." (Statement on Management Accounting,
Statement Number 4T, September 30, 1993, Practices and Techniques:
Implementing Activity Based Costing).
• "ABC [is a product costing system] that allocates [costs typically allocated
to] overhead in proportion to the activities associated with a product or
product family." (T. Gunn, 21st Century Manufacturing 1992:104-105)
• "[T]he real value of this costing methodology is that it promotes
understanding of the total business process associated with each product
and of the company's buildup of value added in that product." (Gunn,
1992:105)
• It is a tool to "identify and reduce resource consumption by increasing
efficiency (productivity) and effectiveness (T. Gunn, 1992:107).
• Todd, July, 1992:12-13 calls this ABC approach an "Environmentally
'Enlightened' Cost Accounting System."
Several terms have emerged to describe the process of more accurate environmental
accounting.
Full Cost Accounting
• A method of "managerial cost accounting" that allocates environmental
costs (direct and indirect) to a product, product line, process, service, or
activity. Cost items can be divided into direct and indirect costs.
(NEWMOA/MAOTA Curriculum, 1992; White and Becker, 1992 New
Solutions; and Todd, July, 1992)
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1-41
Full cost accounting can help managers decide on product costing and
pricing, inventory valuation, profitability, and other decisions. It is not by
definition limited to environmental costs, although, the term has taken on
increasing significance for environmental professionals
(NEWMOA/MAOTA Curriculum, 1992; White and Becker, 1992 New
Solutions; and Todd, July, 1992)
Different Uses of the Term. Not everyone uses the term "full cost
accounting" the same way. Some include only a firm's private costs (i.e.,
those costs that affect the firm's bottom line) (NEWMOA/MAOTA and
White and Becker) while others (MacLean, 1989) include the full range of
external costs throughout the life cycle of the product, from raw material
extraction to product disposal, some of which do not show up directly or
even indirectly in the firms "bottom line" (see definition of life cycle costing
below). Complicating matters, FCA has a specific meaning to accountants
who do GAAP reporting. It refers to full accounting for historical costs.
Total Cost Accounting
A hybrid term sometimes used as a synonym for either of the definitions
given to "full cost accounting, or as a synonym for "Total Cost Assessment"
(see below the definition of Total Cost Assessment under the Capital
Budgeting section).
Full-Cost Pricing
• A less-used term again used as a synonym for full cost accounting or life
cycle costing including social costs and externalities (see e.g., Washington
Post 11/29/92, page, HI.)
Total Cost Assessment
• Long-term- comprehensive financial analysis of the full range of internal
(i.e., private) costs and savings of an investment (White and Becker).
Costing and Financial Analysis of Pollution Prevention Projects
• "[i]nvolves the collection bf costs from the corporate cost accounting
system, the application of a financial tool, and analysis of the quantitative
.and qualitative aspects of the project." (NEWMOA/MAOTA).
Life Cycle Assessment (LCA)
• LCA is a holistic tool used to identify the environmental consequences of a
product, process, or activity through its entire life cycle and to identify
-------
1-42
opportunities for achieving environmental improvements. (Society for
Environmental Toxicology and Chemistry)
Life Cvcle Costing
A method "in which all (both private and social or internal and external)
costs are identified with a product, [process, or activity] throughout its
lifetime, from raw material acquisition to disposal of final waste materials
(Northeast Waste Management Officials Association/ Mass., Office of
Technical Assistance (NEWMOA/MAOTA); Research Triangle Institute.)
When possible, social costs are quantified; when not possible, they may be
addressed qualitatively.
Other Terms
A number of other methods and terms have emerged since the late 1980s to conduct this
sort of analysis - "Benefits Analysis," Financial Analysis of Waste Management Alternatives,"
"Economic Feasibility."
NOTE: See also the Business Roundtable paper "Environmental Cost
Accounting: Key Definitions and Terms"
-------
II-l
II. THE PRESENTATIONS
The Accounting and Capital Budgeting for Environmental Costs Workshop included
several presentations designed to provide a common basis for communication among workshop
participants with different backgrounds. These presentations covered:
• Basics of Managerial Accounting, by Professor Rebecca Todd of New York
University
• Basics of Capital Budgeting, by Allen White of the Tellus Institute, and
• Basics of Pollution Prevention, by Dr. Ed E. Quick, Manager,
Environmental Health & Safety, Hoechst Celanese Corp.
Each of these presentations appears in this Chapter in the order listed above.
Following these presentations, three case studies were shared with the Workshop that
described how three different companies are addressing environmental costs:
• Case Study 1: Ciba-Geigy Corporation, by George Muhlebach, Director,
Environmental Affairs
• Case Study II: Ontario Hydro, by Corinne Boone, Economist, Energy
Services and Environmental Group, and
• Case Study III: Hyde Tools, by Doug DeVries, Environmental Manager
Each of the case studies is compiled in this chapter in the above order. The materials
contained in this chapter are the written materials or overhead slides used by the presenters. The
materials have not been edited for reproduction in the Proceedings.
Available biographies for the presenters comprise Attachment A to this chapter.
-------
II-2
BASICS OF MANAGERIAL ACCOUNTING
Professor Rebecca Todd (10 pp.)
New York University
December 6, 1993
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BASICS OF CAPITAL BUDGETING (26 pp.)
Allen White
Tellus Institute
December 6, 1993
-------
11-14
CAPITAL BUDGETING FOR POLLUTION PREVENTION
Allen L. White
Tellus Institute
Capital budgeting (CB) is an essential business activity, regardless of the scale, product
line, market position, and cost-sensitivity of the firm
The larger the firm, more formalized, routinized the process; smaller the firm, more ad
hoc, episodic
CB decisions are driven by multiple, quantitative and qualitative criteria: e.g., financial
performance, market opportunities, flexibility/adaptability
Owing to certain attributes - pollution prevention (P2) investments face numerous
obstacles to (1) entering and (2) succeeding in the CB process
These attributes include: "Loser" reputation from association with traditional compliance
projects; management systems wedded to traditional compliance/"must do" culture; subtle,
indirect, and long-term cost and revenue streams; contingent and less tangible benefits;
tendency to decouple savings resulting from P2 investments from processes and products
These attributes make rigorous, imaginative, and aggressive cost accounting essential to
ensuring a level playing field
This must occur along four dimensions: cost inventory, cost allocation, time horizon,
financial indicators
Frequently, firms are reluctant to change CB methods owing to: possible revelation of
unprofitable or inappropriately priced product lines; altering methods is costly and faces
substantial inertia; belief that waste management costs are too small to make a real
difference
Ultimately, cost accounts are only good as the physical accounts upon which they are built;
improved physical accounting frequently viewed as costly and "risky" for some managers
No single "best" model exists for improving the CB process to ensure unbiased
consideration of P2 investments, but attributes of an improved model are identifiable:
based on sound physical accounts; strategically useful; flexible enough to handle
technological changes; capable of expressing results in the language/metrics used by
decision-makers
Setting the framework requires leadership by the management accountant; implementing
the system is the job of environmental, production, purchasing, marketing, R&D, and
other functional areas
Participation, incentives, and appropriate "protective" measures are the surest route to
moving the accounting system in the right direction
-------
11-15
For years, the [Du Pont Beaumont, Texas] facility had been spewing out a
staggering 110 million pounds of waste annually. Du Pont engineers argued
that reduction of the pollution would be too expensive—But when they took
a second look last year, they found just the opposite was true. By adjusting
the production process to use less of one raw material, they were able to
slash the plant's waste by two-thirds. Yields went up and costs went down.
The savings: $1 million a year.
"When I heard about it, I just said: Thaf s amazing," says Edgar Woolard, Du
Font's chairman and chief executive officer.
i
Wall Street Journal
June 11,1991
********************
I.B.M—is replacing chlorofluorocarbons with, of all things, [soapy] water."
New York Times
May 15, 1991.
********************
Essentially, Turner [a Hughes Aircraft Corporator! production engineer]
figured out a way to make CFCs irrelevant by using a mixture of—believe it
or not—lemon juice and water. Not only was this citric acid concoction
envrionmentally friendly, it boosted productivity and was less expensive, too.
Boston Globe
July 26, 1992
-------
n-i6
BARRIERS TO POLLUTION PREVENTION
TECHNOLOGICAL
REGULATORY
PROJECT
VIABILITY
ORGANIZATIONAL
ECONOMIC
-------
11-17
OUR PRINCIPAL HYPOTHESES:
POLLUTION PREVENTION INVESTMENTS FAIL TO
SUCCESSFULLY COMPETE BECAUSE OF BIASES
CONTAINED IN CONVENTIONAL FINANCIAL ANALYSIS
METHODS
IF METHODS ARE CHANGED, LIKELIHOOD OF
INVESTMENTS WOULD INCREASE
SUCH BIASES OPERATE DIFFERENTLY, DEPENDING ON
THE NATURE OF THE MANUFACTURING PROCESS AND
PREVENTION PROJECT
-------
n-is
WHAT IS AN "ENVIRONMENTAL" PROJECT?
THE STIGMA PROBLEM IN CAPITAL BUDGETING
MARKET EXPANSION PROJECT
• PROFIT-ADDING PROJECTS
PROFIT-SUSTAINING PROJECTS
-------
11-19
VULNERABILITIES OF
POLLUTION PREVENTION PROJECTS
DURING CAPITAL BUDGETING
RIGOROUS ANALYSIS REQUIRES RIGOROUS "PHYSICAL
ACCOUNTS
SECOND ORDER, INDIRECT COSTS
CONTINGENT COSTS
LONGER TIME HORIZONS
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Division Solvent Use
Omitted Solvent Uses:
[1] Solvent recovered in the building
[2] Non-batch solvent usage (clean vessels between batches &
campaigns; purge solvent lines)
[3] Deviations from normal solvent procedures
-------
11-24
ELEMENTS OF TCA
COST INVENTORY
• COST ALLOCATION
• TIME HORIZON
PROFITABILITY INDICATORS
-------
n-25
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n-26
COSTS/SAVINGS OFTEN NEGLECTED IN PP PROJECT EVALUATION
Operation of pollution control equipment
Waste handling, storage, hauling, disposal
Environmental insurance (based on materials use)
Tracking
Notification
Reporting
Monitoring
Testing
Record keeping
Planning/modelling studies
Training
Inspections
Manifesting
Labeling
Preparedness equipment and maintenance
Medical surveillance
Special waste taxes
Revenue from sale of recovered product
-------
11-27
LESS TANGIBLE BENEFITS OF PP
MARKET CREATION FOR NEW "GREEN" PRODUCTS
ENLARGED MARKET SHARE FOR EXISTING PRODUCTS TIED TO
CORPORATE IMAGE
REDUCED EMPLOYEE ABSENTEEISM, IMPROVED UNION RELATIONS
REDUCED COSTS TO HANDLE CITIZEN, COMMUNITY GRIEVANCES
AND LEGAL PROCEEDINGS
-------
11-28
ADDITIONAL LESS TANGIBLE COSTS
MARKETABLE POLLUTION PERMITS
ENHANCED EMPLOYEE PRODUCTIVITY
AVOIDANCE OF FUTURE AIR QUALITY REGULATIONS
DIVERSION OF WASTES FROM BIFS
-------
11-29
LIST OF POTENTIAL COSTS
CAPITAL COSTS
P2FINANCE U»t
Additional Items/Examples
Purchased Equipment
Equipment,
Delivery
Sales tax
Price for Initial Spare Parts
Process Equipment
Monitoring Equipment
Preparedness/Protective Equipment
Safety Equipment
Storage & Materials Handling Equipment
Laboratory/Analytical Equipment
Insurance
Materials
Piping
Electrical
Instruments
Structural
Insulation
Utility Connections and New Utility Systems
Electricity
Steam
Water
Sewerage
Refrigeration
Fuel
Plant Air
Inert Gas
Site Preparation
Demolition and Clearing
Old Equipment/Rubbish Disposal
Construction/Installation
In-house
Contractor
Vendor
Engineering/Contractor
In-house Planning
In-house Engineering
Procurement
Contractor/Consultant
Start-up/Training
In-house
Vendor/Contractor
Trials/Manufacturing Variances
Training
Contingency
Building Construction Materials
Painting Materials
Ducting Materials
General Plumbing
Cooling Water
Process Water
Gas Connection
Oil Connection
Walkways, roads, and fencing
Grading, Landscaping
Labor
Supervision
Taxes
Insurance
Equipment Rental
Design
Drafting
Accounting
Supervision
A-1
-------
H-30
LIST OF POTENTIAL COSTS
CAPITAL COSTS
P2FINANCE Ust
Permitting
Faes
In-house
Contractor/Consultant
Initial Charge for Catalysts and Chemicals
Working Capital
Raw Materials
Materials and Supplies
Product Inventory
Salvage Value
Additional Items/Examples
Labor
Sucervision
Environmental Impact Studies
A-:
-------
11-31
LIST OF POTENTIAL COSTS
OPERATING COSTS
P2FINANCE List
Direct Materials
Waste Management (Materials & Labor)
Pre-Treatment
On-site Handling
Storage
Treatment
Hauling
Insurance
Disposal
Utilities
Electricity
Steam
Water
Sewerage
Direct Labor
Other
Additional Items/Examples
Raw Materials
Catalysts and Solvents
Wasted Raw Materials Costs
Transport
Storage
Water (Cooling or Process)
Refrigeration
Fuel (Gas or Oil)
Plant Air and Inert Gas
Operating Labor/Supervision
Manufacturing Clerical Labor
Inspection (QA/QC)
Worker Productivity Changes
Miscellaneous Indirect Labor
Maintenance (Materials & Labor)
Medical Surveillance
Regulatory Compliance (Materials & Labor)
Manifesting
Reporting
Monitoring
Testing
Labeling
Permitting
Training
Insurance
Revenues
Sale of Product
Marketable By-products
Future Liability
Re-permitting
Rignt-to-Know Training
Recardkeeping
Inspectton
Ciosure/Postdosure Care
Generator Fees/Taxes
Manufacturing Throughput Change
Change in Sales from:
Market Share
Corporate Image
Fines/Penalties
Personal Injury
Real Property Damage
Natural Resource Damage
A-3
-------
11-32
COST INVENTORY:
COMPANY VS. TCA (cont)
PAPER COATING COMPANY: SOLVENT/HEAVY-METAL TO
AQUEOUS/HEAVY METAL-FREE COATING CONVERSION
OPERATING COSTS
DIRECT COSTS:
RAW MATERIALS/SUPPLIES
WASTE DISPOSAL
LABOR
REVENUES - GENERAL
REVENUES - BY-PRODUCTS
OTHER
-TRANSPORTATION
INDIRECT COSTS:
WASTE MANAGEMENT
HAULING
STORAGE
HANDLING
WASTE-END FEES/TAXES
HAULING INSURANCE
UTTLTnES
ENERGY
WATER
SEWERAGE (POTW)
POLLUTION CONTROL/SOLVENT
RECOVERY
REGULATORY COMPLIANCE
COMPLIANCE
FUTURE LIABILITY
COMPANY
P
P
X
TCA
X
X
X
X
X
X
X
X
X
X
X
X
X = Cost(s) Included
P = Cost(s) Partially Included
-------
11-33
X - Cost(s) Included
P =. Cost(s) Partially Included
OPERATING COSTS
Direct Costs:*
Raw Materials/Supplies
Labor
Revenues - General
Revenues - By-products
COMPANY
P
X
TCA
X
X
Indirect Costs:*
Waste Management:
Disposal
Hauling
Insurance
Storage
Handling
Waste-end Fees/Taxes
Utilities:
Energy
Water
Sewerage (POTW)
Regulatory Compliance
Insurance
Future Liability ;
P
X
X
X
X
-------
11-34
ACTIVITIES EXPENSES
FACIUTY-
SUSTAiNING
ACTIVITIES
PLANT MANAGEMENT
BUILDING AND GROUNDS
HEATING AND LIGHTING
PRODUCT-
SUSTAINING
ACTIVITIES
PROCESS ENGINEERING
PRODUCT SPECIFICATIONS
ENGINEERING CHANGE NOTICES
PRODUCT ENHANCEMENT
BATCH-
LEVEL
ACTIVITIES
SETUPS
MATERIAL MOVEMENTS
PURCHASE ORDERS
INSPECTION
UNIT-
LEVEL
ACTIVITIES
DIRECT LABOR
MATERIALS
MACHINE COSTS
ENERGY
-------
11-35
NON-PROPORTIONALITY (NON-LINEARITY) MAY RESULT IN
DIFFERENCES AMONG PRODUCTS IN THE FORM OF PER UNIT:
SETUP HOURS
NUMBER OF SETUPS
MATERIAL HANDLING HOURS
NUMBER OF TIMES HANDLED
ORDERING HOURS
NUMBER OF TIMES ORDERED
PART NUMBER ADMINSTRATION HOURS
NUMBER OF PART NUMBERS MAINTAINED
...IF DIFFERENCE EXIST, THEN SIMPLE PER UNIT COSTING MAY
DISTORT ACTUAL REAL PRODUCT COSTS.
...WHERE PRODUCT OR PROCESS LINES DEMONSTRATE LARGE
DIFFERENCES IN WASTE GENERATION, HANDLING,
ADMINISTRATION AND OTHER MANAGEMENT COSTS MAY
CONTRIBUTE TO THIS DISTORTION
-------
11-36
Exhibit G
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11-37
WHITE WATER/FIBER REUSE PROJECT
PROFITABILITY ANALYSIS
Company Analysis
51,469
S 351
Total Capital Costs
Annual Savings (BIT)*
Financial Indicators
Net Present Value - Years 1-5 (S 476)
Net Present Value - Years 1-10 S 48
Net Present Value - Years 1-15 $ 360
Internal Rate of Return - Years 1-5 1%
Internal Rate of Return - Years 1-10 17%
Internal Rate of Return - Years 1-15 21%
TCA
$1,469
S 911
Simple Payback (years)
4.2
S 784
52,074
-$2,852
37%
46%
48%
1.6
Annual operating cash flow before interest and taxes
-------
11-38
WHO CONTRIBUTES TO EFFECTIVE MANAGERIAL ACCOUNTING?
MANY ACTORS.
COMPTROLLER/FINANCIAL OFFICERS
PRODUCTION/OPERATIONS
PURCHASING/PROCUREMENT
MATERIALS MANAGEMENT
ENVIRONMENTAL MANAGERS
R&D
-------
11-39
AND-.
SUCCESS OF TCA IS AS MUCH AN ORGANIZATIONAL ISSUE AS
AN ANALYTICAL ONE
• TCA SHOULD BE CUSTOMIZED TO FIRM'S NEEDS-NO ONE
APPROACH IS RIGHT FOR ALL
TCA EMPOWERS MANAGERS WITH HARD NUMBERS TO
SUPPORT SOUND INTUITION
-------
11-40
FUTURE DIRECTIONS
CONTINUOUS IMPROVEMENT OF TCA METHODOLOGY-
ESPECIALLY ESTIMATION OF LIABILITY AND LESS
TANGIBLE BENEFITS
SECTORAL CASE STUDIES
GUIDANCE MANUAL-COMPANION TO "ENVIRONMENTAL
SELF-ASSESSMENT PROGRAM*
EMERGING STANDARDS AND PRACTICES
INTERNATIONALLY
-------
11-41
BASICS OF POLLUTION PREVENTION (12 pp.)
Dr. Ed E. Quick
Hoechst Celanese Corp
December 6, 1993
-------
11-42
POLLUTION PREVENTION
The Business Integration Challenge
Dr. Ed Quick
Hoechst Celanese Corporation
One of the greatest opportunities and challenges corporate America faces today is in the
area of pollution prevention. At present there exist multiple driving forces which have been
brought by local communities, internal company initiatives and governmental agencies to eliminate
sources of environmental release. The perception exists that these "constraints" are putting
unreasonable financial pressure on business. By using basic principles of pollution prevention the
challenge can be met through strategic application 'of a technical hierarchy that prioritizes
reduction activities:
1.
2.
Source Reduction
Recycle/Reuse
Closed Loop
Co-product Marketing
3.
4.
Energy Recovery
Waste Treatment
5. Waste Disposal
6. Waste Release
As businesses look to the future in a changing environmental arena, enhancements can be
discerned by coupling a prioritized release reduction hierarchy with critical "keys to success" in
pollution prevention:
— Unwavering Executive Management Commitment to Pollution Prevention
— Dedication of Technical Resources Towards Options Development
— Persistent Pursuit of Product Recovery, Source Elimination Opportunities
— Strategic Integration of Pollution Prevention Into Business Plans
-------
11-43
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CASE STUDY I: CIBA-GEIGY (15 pp.)
G.J. Muhlebach
December 6, 1993
-------
11-54
CASE STUDY I
Controlling Environmental Costs
G.J. Muhlebach
Ciba-Geigy Corporation
Environmental costs are real, they are large and they impact all aspects of a corporation.
However, they can be influenced, measured and controlled.
Environmental responsibility must have top management's commitment and must be part
of everyone's job.
The best control method is source reduction, often called pollution prevention. Source
reduction must be addressed at the product research and development stage. Training and
awareness in the R&D function is a key. Source reduction is difficult and time consuming but it
is rewarding, both financially and in public perception.
Waste treatment and disposal costs should not be treated as part of overhead. These
costs are as much part of the product cost as the raw material, labor and equipment costs, etc. It
is as important and necessary to measure and account for environmental costs as part of the
product costs as it is to measure and account for the more traditional cost blocks. If cost
accounting breaks the environmental costs down to the product level, they will be attributed to
the right product and show the need for improvement and source control.
Direct environmental costs can be controlled by accurately measuring the various
wastestreams at the source. This allows accounting of the actual environmental costs as part of
the product's production cost which in turn leads to the identification of cost reduction
opportunities. Transparency and fast feedback of measured factors used for cost accounting allow
cost control on the production floor. Production personnel must have accurate cost information
available in enough detail and in a form which is understandable and meaningful to them. Proper
accounting of environmental costs is not an end in itself, it is a tool which helps in waste
minimization and cost control.
Environmental accounting is an opportunity which helps us measure and document
improvements in our environmental performance. It is an important step towards a better future.
-------
11-55
CONTROLLING OF
ENVIRONMENTAL COSTS
G. J. MUHLEBACH
CIBA-GEIGY CORPORATION
ARDSLEY, NY
PRESENTED TO:
ACCOUNTING AND CAPITAL BUDGETING
FOR ENVIRONMENTAL COSTS WORKSHOP
U.S. Chamber of Commerce
The Business Roundtable
Institute of Management Accountants
American Institute of Certified Public Accountants
AACE International (Association for Total Cost Management)
U.S. Environmental Protection Agency
DALLAS, TX
DECEMBER 6, 1993
-------
n-56
Good Morning, Ladies and Gentlemen:
Environmental costs are a significant part of doing business. However, these costs
are not just happening, as too many people too simplistically think. These costs
can be measured and controlled. Assigning them to the operations which cause
them, is the first step towards control.
Controlling costs is on everybody's mind; it's needed but it has to be well planned.
Today, I want to talk to you on how environmental issues are impacting Ciba from
the corporate offices, to research and development, to the production floor.
First, however, I would like to tell you a little about Ciba. We are the U.S.
subsidiary of Ciba-Geigy Ltd., a Swiss chemical and pharmaceutical company.
We develop, produce, and market a wide variety of specialty chemicals.
Pharmaceuticals for treatment of cardiovascular diseases, hypertension, epilepsy
and depression; agricultural chemicals for plant protection; dyes for textiles;
chemicals for paper; additives for plastics and coatings; pigments for paints and
plastics; resins and composites for aerospace and many other uses.
-------
n-s?
Our core business is specialty chemicals, which often means that we make small
volume products for specific customer applications with strict quality
specifications. Thus, most of our plants have batch operations. We handle large
amounts of different raw materials used in many different products, and thus
generate many different wastes which need to be costed and properly accounted
for.
A few years ago, Ciba adopted and developed its Vision, which includes all the
dimensions of its business. This Vision says that we will focus our activities on
three identified goals: financial growth, social responsibility, and environmental
responsibility.
Through our business activities, we wish to make a worthwhile contribution to the
solution of global issues and the progress of mankind. Turning scientific
discoveries into viable products for people to enhance our quality of life will
always be a primary Ciba objective.
This includes a commitment to evaluate the benefits and risks of our activities and
-------
n-ss
products. We must approach our business objectives in a way that is not only
financially rewarding but is also acceptable and responsible to society and to the
environment.
Ciba is committed to protecting the environment at every location where we do
business. We are determined to work with our costumers to help them to use our
products in an environmentally responsible way. In our own operations, we will
constantly strive to reduce waste at its source and use natural resources efficiently.
Our overall goal is to affect the environment as little as possible as a result of our
production processes.
Environmental responsibility is an integral part of our Vision. The costs for
environmental protection are also an integral part of business and are an accepted
part of doing business. In this presentation, I am not addressing intangibles such
as trust, image and community relations with our close neighbors and with all our
stakeholders, knowing full well how important they are.
A major part of business management is controlling and reducing costs. We all
know, especially hi the environmental area, that, in addition to the obvious direct
-------
11-59
costs, there are significant hidden costs which often people are not aware of.
These may involve environmental charges or problems in the raw materials we
buy, the energy we use, or the disposal of our customers' products which contain
our intermediates.
A relatively new approach for getting a handle on the hidden environmental issues
is "Life Cycle Assessment." I will not get into this area since it is clearly a topic
on its own.
I only want to touch on one aspect of life cycle assessment - that's environmental
remediation. I don't think that there is any large company which has been in
business for some time, and especially not a chemical company, that is not
involved in some environmental remediation activities - whether it is under
Superfund, RCRA, or other statutes.
In the context of cost accounting, remediation costs can be looked at as the
deferred cost of actions that were taken in the past. Wastes do not go away. If
they are not handled properly, whether on purpose or because technology was not
available at a given time, they stay around and need to be treated later. That
-------
n-60
means the costs do not go away either, they are simply deferred.
I know of a case where 20 years ago we saved between a nickel and a dime per
pound by choosing the cheaper of two disposal alternatives. Today, we are
remediating these wastes for over $200 per pound. A deferred cost? Yes.
Economical? Hardly!!
The well known slogan of the Quality process, "Do it right the first time," applies
here as well as anywhere.
Our environmental performance, mainly manifested and publicized in the
documented and reported emissions from our facilities under the SARA Right-To-
Know provisions, are monitored closely by us, by environmental groups and by
the public. Therefore, our environmental performance has a strong influence on
the public perception and image of our company. As mentioned before, it is very
difficult to measure" this cost and it will differ greatly from one organization to
another.
-------
n-6i
This logically leads us to a basic approach - the waste control concept. It's called
the waste hierarchy. First, it says we want to avoid or minimi^ waste by using
new methods of synthesis, state-of-the-art process technology and facilities.
Second, we want to utilize waste products in other production processes, including
the recycling of raw materials and solvents. Third, we want to use ecologically
sound waste disposal methods and avoid processes which create waste disposal
problems. Fourth, we will use land disposal only as a last resort.
The waste hierarchy shows that waste avoidance or reduction are the most
important and foremost tools in controlling environmental costs. Waste is a very
expensive proposition. To generate waste, we use up raw materials, process them
to make a product which cannot be sold, but must be isolated, handled, treated and
disposed of.
I remember very well when I worked in the production area, a process was given
to us by the process development laboratories. The process had an excessive
amount of waste, not only in volume but also in character. We refused to
introduce this process into the production program, and low and behold, after a
while our process development staff came up with a process which greatly reduced
-------
n-62
not only the volume but also improved the character of the waste to be treated and
disposed of.
A second example: In one of our plants, we are using large amounts of lime to
neutralize waste acid. In addition to the acids which form a soluble calcium salt,
we are also absorbing large amounts of carbon dioxide and producing calcium
carbonate. For years, we disposed of this material as waste which took up
valuable landfill space and cost us large sums of money. Based on the suggestion
of one of our chemists who is an avid gardener, we started to look at using the
calcium carbonate as a soil additive. After a long and sometimes arduous process,
working together with the agricultural department of the state and the local farm
extension, we came up with a new product with a long set of specifications. Tuls
product was developed through extensive experimentation in laboratories and
greenhouses and later on experimental fields. It is now distributed through the
agricultural extension service to local farmers. The farmers, who were used to
buying lime to sweeten the soil, like the calcium carbonate we produce in the
plant. After all, it is exactly the same thing and they get it for free, while we save
large land disposal costs. A true win-win situation.
-------
11-63
These examples point to important aspects of waste reduction and environmental
cost control: They always have to be based on an accurate material balance and
measurement of all the raw materials, solvents and auxiliary chemicals on the input
side versus the product, all recycled materials and wastes on the output side.
Waste reduction and environmental cost control have to be addressed early in the
game; this has to start at the research and development stage. The best waste
control occurs in the laboratory on processes that have not yet reached the
production facilities. It demonstrates the flawed approach of many of our
legislators who would like to see mandated waste reduction quotas. It is relatively
easy to introduce a poor process which has plenty of room for improvement. The
results are large opportunities for waste reductions which look good in government
statistics, but they reflect poor production management. The trick is to improve
processes before they make it to the production floor. This is real pollution
prevention, but it will never show up in any statistic.
It means that research and development personnel need to be trained in the
requirements of waste minimization and cost control so that they have a solid
understanding of what the company's overall environmental goals are. This
-------
n-64
approach allows to holistically address up-stream waste reduction opportunities.
It is the preferred, but often very time consuming approach, normally measured
in years. In one concrete example, it took us over ten years to arrive at a viable
new process which cuts wastes by 80% for organics, 85% for inorganics and 75%
for water usage. Before we developed the final process, several promising
approaches to reduce waste had to be abandoned because we found that they
created unacceptable health or safety issues. Government regulations and controls
often do not give us the necessary time for real waste reduction at the source
through process improvements. This then necessarily leads to expensive "end-of-
pipe" treatments which address one medium at the time. Pollution prevention is
an ongoing process...it never ends.
In the meantime, however, waste is still being generated in current production
operations. It needs to be handled, treated and disposed of. The costs for these
activities must be accounted for and controlled. I would like to repeat here that
environmental costs are a necessary part of doing business and that, just like any
other cost of doing business, it makes good management sense to control and
minimise these costs. I understand that some companies still carry waste treatment
and disposal costs as a part of overhead. This is a mistake. These costs are as
-------
n-65
much part of the product cost as the raw material, labor and equipment costs, etc.
It is as important and necessary to measure and account for environmental costs
as part of the product costs as it is to measure and account for the more traditional
cost blocks. If cost accounting breaks the environmental costs down to the product
level, they will be attributed to the right product and show the need for
improvement and source control.
The keys to any cost control are a thorough knowledge of the chemical processes,
an accurate material balance, measurement and fast feedback to the production
floor. If the distribution of costs is based on measurement, it is accepted as fair.
It can then be charged to the actual product which causes the cost to be incurred.
Accurate cost information cannot be the privilege of a chosen few. Production
personnel must have this information available in enough detail and in a form that
is understandable and meaningful to them. Proper accounting of environmental
costs is not an end in itself, it is a tool which helps in waste minimization and cost
control.
Feedback has to be fast because many cost improvements can be achieved by
-------
n-66
paying close attention to details, e.g. turning off unneeded utilities, repairing
leaking valves, etc. The faster the feedback, the better production teams can
correlate the resulting costs to their daily actions, and the better they will find
ways to control and minimise them. This will allow them to control their
operations and environmental costs. Thus, the control of environmental costs can
be measured vs. a standard. This measurement, in turn, becomes part of the
teams' performance on which their incentives can be based.
The factors which are used to distribute and control environmental costs must be
carefully chosen. The parameters used for solid waste are relatively easy to
assign, at least most of the time. Actual charges are normally based on weight or
volume, tons, or loads, etc. for treatment or disposal. These costs can be directly
charged to the production unit and the specific processes.
For aqueous wastestreams and for air emissions, we can select from a variety of
parameters. We need to remember that, whichever one we use, it will get special
attention and will be the focus of reduction efforts. The local situation will
determine the right factors. If operating costs are to be controlled, then an
evaluation needs to be done to determine which technical factors cause the bulk of
-------
11-67
the out-of-pocket costs.
An existing installation, whether it is a POTW (Publicly Owned Treatment Works)
or an on-site waste treatment facility, may be performing at or above its
engineering design. Using the critical factor as a base to distribute costs may
result hi unexpected reductions, possibly eliminating the need for a capital
expansion.
A word of caution: the use of more than two or three parameters to allocate costs
makes the program too difficult to administer and too difficult for the user to
understand. It may appear fairer to the creator of the system, but it soon becomes
counterproductive.
To summarize, environmental performance impacts all aspects of any corporation
today. It starts at the top with a mission statement, it affects our company's
image, how the public and customers see us and it must be reflected hi all aspects
of doing business.
-------
n-68
If we want our companies to remain strong into the next century, we will have to
learn to produce profitably in harmony with society and the environment.
Environmental protection has to be made and accepted as an important part of
everyone's job in your operation and mine.
Environmental accounting covers more than just dollars and cents. It includes the
impact of our actions on our company's image and its public perception. It
includes direct costs, which must be controlled, and it deals with costs avoided by
waste minimization. Environmental accounting is an opportunity which helps
measure and document the improvements in our environmental performance. It
is an important step towards a better future.
-------
n-69
CASE STUDY II: Ontario-Hydro (25 pp.)
Corinne Boone
December 6, 1993
-------
n-7o
FULL COST ACCOUNTING FOR
DECISION-MAKING IN ONTARIO HYDRO
Prepared by:
David Dent, Team Leader, Financial Evaluations
and
Corinne Boone, Economist, Energy Services & Environment (Presenter)
Preliminary Presentation Outline
1. INTRODUCTION AND CONTEXT
»• Ontario Hydro: Public Utility - Crown Corporation
- Size: (23,000 MW winter peak)
- 140 TWh energy generated and received
- Revenue - 1992 = $7.8 billion
General Mix:
Hydro-electric - 27%, Fossil-fired - 20%, Nuclear - 50%, Non-utility generation
purchases - 2%, Purchases from other utilities - 1%.
Serve 311 Municipal electric utilities, 108 large industrial customers, 940,500
rural retail customers.
New chairman, M Strong of Rio Conference
Major challenges: rate pressure, non-utility generation, financial deterioration in
recent years, declining load since 1990, 10,000 regular and non-regular
employees gone in one year
Recent restructuring to make more competitive, more customer oriented,
investigation of privatization options
>• Background to Task Force on Sustainable Energy Development
- Purpose and relation to restructuring
- Full Cost Accounting Working Group: Components, experiences, etc.
- Recommendations and Status of report vis-a-vis Board approval
- Implementation of Full Cost Accounting recommendations
2. FULL COST ACCOUNTING IN THE NEW HYDRO
> New Corporate Goal - recently approved
> Full Cost Accounting
- what we mean by the term and its relationship to sustainable development.
- the relationship of our definition to others?
-------
11-71
•• Full Cost Accounting and the Financial Management Planning and Control
framework
- objective-reduce business risk, help achieve objectives
- three key components:
- capital budgeting and financial evaluation
~ accounting and financial reporting
— business planning, budgeting and reporting
3. FULL COST ACCOUNTING: CONCEPTS AND NEXT STEPS
>• Capital Budgeting and Financial Evaluation: Recommended Multi-Criteria
Framework where Full Cost Evaluations will be prepared along with cash flow
analysis to and from Ontario Hydro. Full Cost Evaluations look at the total
resource cost and benefits internal and external.
- Discussion of next steps
•> Accounting and Financial Statements: Aim is to prepare two sets of Financial
Statement: traditional and one which incorporates external costs
- Discussion of next steps
> Business Planning - relates to capital budgeting and financial evaluation but at
strategic decision making level
- Discussion of next steps
4. THE MONETIZATION OF EXTERNALITIES
> Definitions/concepts/overview of approaches/overview of experience in electricity
sector
*• Approach used by Ontario Hydro
•• Where we are today: Status of monetization efforts at Ontario Hydro
•• Issues we have faced
* Next Steps: Initiation of extensive externalities research program - related back
to Full Cost Accounting Working Group report recommendations.
5.
CONCLUSIONS
Discussion of what we learned re: Full Cost Accounting
Major challenges of implementation
- business risks and opportunities
- communication and culture change
- incorporation of external costs (acceptance, uncertainty, etc.)
Questions and Feedback
-------
n-72
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11-97
CASE STUDY III: HYDE TOOLS (17 pp.)
Doug DeVries
December 6, 1993
-------
11-98
POLLUTION PREVENTION IN
A HAND TOOL MANUFACTURING
PLANT
Douglas DeVries
Environmental Manager
Hyde Manufacturing Company
54 Eastford Road
Southbridge, MA 01550-1875
508-764-4344
The greatest pollution prevention device in the world is an active human mind. Active minds
working together have made this firm what it is today, a 118 year old learning organization.
Mr. I. P. Hyde started making knives for the shoe industry about a mile from where our plant is
located. He made knives for three days a week and peddled them two days a week. Mr. Hyde,
a good Yankee business man, believed in using up, using over and making do. His one man
shop could not afford to waste any resources.
Hyde Manufacturing Company is now a 305 member team doing about 30 processes to produce
the finest putty knives, surface preparation tools and machine blades in the world. We face daily
tilings Mr. Hyde could not have dreamed of such as; competing in a global marketplace,
developing more new products per month than he did in a life time, OSHA, ADA, recycling
programs, environmental programs and state and federal regulations that affect every aspect of
our businesses and lives. Hyde has returned to the fundamentals of using up, using over, making
do, not accepting or expecting waste from any of our manufacturing processes.
Hyde's environmental goal is zero discharge of hazardous material to all media (air, land, water)
and production of the smallest amount of waste possible for this type operation. We will not
introduce any new chemical hazard into our plants. These were goals established four years
ago, after attending a meeting sponsored by the Massachusetts Department of Environmental
Management's Office of Technical Assistance. During this meeting we met employees of the
Robbins Company in Attleboro Massachusetts. They told their story of zero discharge, and
what it had done for their company. Hyde became a member of the Blackstone Project, and
began our journey of applying the principles of Total Quality Management to our environmental
efforts.
How have we done?
Environmental program expenses for the last three years have exceeded $ 100,000.00. Savings
or cost avoidance from environmental programs has exceeded $ 200,000.00.
-------
11-99
The use of ozone depleting chemicals, long a mainstay of the metal working industry for
cleaning, ended in late 1991, all equipment and chemicals were removed in early 1992, well
ahead of all government required deadlines.
Water purchases have been reduced 82% from 27,000,000 gallons to 5,000,000 gallons per year
with a savings of $ 29, 0000.00 and a reduction in sewer charges of $ 43,000.60.
New filtration and fluid handling methods have reduced discharge of grinding coolants form
40,000 gallons per year to 0 gallons during the last four years.
Waste paper recycling has reduced the material sent to the town landfill about 135 tons per year.
The use of clay absorbents stopped, they are replaced by com cob grits, a biodegradable
renewable resource with a high btu value which when disposed of can go to a resource recovery
facility.
We installed air cooled air compressors to reduce water consumption, and supply supplement
plant heat in the winter.
Dunnage for out going shipments has been changed from new newspaper to paper peanuts.
These peanuts are 100% post consumer recycled paper. Pallets for out bound shipments are
molded waste wood. Purchasing of these recycled products shows our commitment to recycling
by becoming a consumer of recycled materials.
Part of the TQEM process sharing information with other businesses and the public. Hydes
journey into TQEM might not have begun, had the OTA not provided a format for the free
exchange of information on pollution prevention, and if Robbins had not shared their success
story. Mr. Bradley and Mr. Clark of Robbins Co. should be congratulated for their pioneering
spirit.
We hope that each person that hears the stories of Robbins and Hyde set out to prove the old
adage mat the student will out do the teacher.
Hyde is taking care of the environment and taking care of our business. It is good business to be
environmentally sound, it is the only way to be in business. The foundations laid down by Mr.
Hyde allowed us to succeed for the last 118 years, and now we are rebuilding those foundations
to ensure the next 118 years of company growth.
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11-100
HYDE MANUFACTURING CO., INC,
SOUTHBRIDGE, MA 01550-1875
FOUNDED BY IP. HYDE 1875
1 MILE FROM PRESENT PLANT
FIRST PLANT ON THIS SITE 1916
PRESENT PLANT 1973
IP. MADE PRODUCT 3 DAYS/WEEK
DELIVERED 2 DAYS/WEEK
KNOWN FOR HIGH QULAITY, LOW WASTE
USE UP, USE OVER, MAKE DO, WEAR OUT
-------
11-101
HYDE MANUFACTURING CO., INC,
SOUTHBRIDGE, MA 01550-1875
ENVIRONMENTAL & MISSION STATEMENTS
TQM &TQEM 1989
"WE WILL APPLY OUR BELIEF IN RESPECTING
AND PROTECTING THE ENVIRONMENT TO ALL
PHASES OF THE BUSINESS PROCESS."
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11-102
HYDE MANUFACTURING CO., INC,
SOUTHBRIDGE, MA 01550-1875
NO HYDE FAMILY IN THE BUSINESS
PRESENT OURSHIP FOR THREE GENERATIONS
FOURTH GENERATION IN THE BUSINESS NOW
FIFTH GENERATION GROWING UP IN TOWN
RESPECTED COMMUNITY MEMBERS
LONG TERM OVERVIEW OF BUSINESS
NO DISTANT STOCK HOLDERS
-------
11-103
HYDE MANUFACTURING CO., INC.
SOUTHBRIDGE, MA 01550-1875
YANKEE INGENUITY
TO THE WORLD A YANKEE IS FROM USA
IN USA YANKEE IS FROM THE NORTH
FROM THE NORTH A YANKE IS FROM NEW ENGLAND
IN NEW ENGLAND A YANKEE IS FROM VERMONT
IN VERMONT YANKEE IS THE FELLOW THAT
EATS PIE FOR BREAKFAST
-------
11-104
HYDE MANUFACTURING CO., INC.
SOUTHBRIDGE, MA 01550-1875
ENVIRONMENTAL PROGRAMS RETURN US TO
USE UP
USE OVER
MAKE DO
WEAR OUT
AND ADDS
ANY WASTE FROM THIS OPERATION
IS UNACCEPTABLE
-------
11-105
HYDE MANUFACTURING CO., INC,
SOUTHBRIDGE, MA 01550-1875
1990 ESTABLISHED ENVIRONMENTAL GOAL OF:
ZERO DISCHARGE TO ALL MEDIA OF ANY
HAZARDOUS MATERIAL
ESTABLISHED ENVIRONMENTAL COST SYSTEM
ACTIVITY BASED COSTING
FULL LIFE CYCLE COSTING
ENVIRONMENTAL ENTERPRISE
-------
11-106
HYDE MANUFACTURING CO.,
SOUTHBRIDGE, MA 01550-1875
WHAT HAVE WE ACCOMPLISHED IN 3 YEARS
PROJECTS HAVE COST $125,000
PROJECTS HAVE MADE $361,000
SOME PROJECTS WERE:
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11-107
HYDE MANUFACTURING CO., INC,
ENVIRONMENTAL PROJECT REPORT
QUENCH OIL RECYCLING
INVESTMENT $10,000
SAVINGS $ 3,500/YEAR
HAZWASTE DISPOSAL
AVOIDENCE $66,400/YEAR
-------
11-108
HYDE MANUFACTURING CO., INC,
ENVIRONMENTAL PROJECT REPORT
REPLACE KEROSENE CLEANER
INVESTMENT $20,000
SAVINGS $ 13,000/YEAR
HAZWASTE DISPOSAL
AVOIDENCE $ 7,000/YEAR
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11-109
HYDE MANUFACTURING CO., INC.
ENVIRONMENTAL PROJECT REPORT
RECYCLE PLASTIC HANDLES
INVESTMENTS NONE
SAVINGS $ 10,000/YEAR
HAZWASTE DISPOSAL
AVOIDENCE $ NONE
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11-110
HYDE MANUFACTURING CO., INC,
ENVIRONMENTAL PROJECT REPORT
RECYCLE WHITE PAPER
INVESTMENT $ NONE
SAVINGS $ 960/YEAR
HAZWASTE DISPOSAL
AVOIDENCE $ NONE
INCOME $ 270
-------
11-111
HYDE MANUFACTURING CO., INC.
ENVIRONMENTAL PROJECT REPORT
STRIP HEAT TREATING
WATER USE REDUCTION
INVESTMENT $10,000
WATER COST SAVINGS $ 4500/YEAR
SEWER COST SAVINGS $ 6500/YEAR
GALLONS OF WATER SAVED 3,360,000
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11-112
HYDE MANUFACTURING CO., INC,
ENVIRONMENTAL PROJECT REPORT
ELEMINATE USE OF TCA
INVESTMENT $ NONE
PURCHASE SAVINGS $ 14,000
HAZWASTE DISPOSAL
AVIODENCE $ 14,000
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11-113
HYDE MANUFACTURING CO., INC,
ENVIRONMENTAL PROJECT REPORT
RELIGHT PLANT
INVESTMENT $ 92,000
MA ELECTRIC REBATE $ 48,000
ELECTRIC ENERGY COST
REDUCTION $ 48,000/YEAR
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11-114
HYDE MANUFACTURING CO., INC.
SOUTHBRIDGE, MA 01550-1875
DOING THE RIGHT THING
FOR BUSINESS
FOR THE ENVIRONMENT
MAKING HYDE MORE EFFECTIVE
BUSINESS AND THE ENVIRONMENT
MAKE GOOD SENSE
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LUNCHEON KEYNOTE SPEAKER — "MEETING THE CHALLENGE" (14 pp.)
Richard Barth
President, Chairman, & CEO
Ciba-Geigy Corporation
December 6, 1993
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RICHARD BARTH — CIBA-GEIGY CORPORATION
"ACCOUNTING AND CAPITAL BUDGETING FOR ENVIRONMENTAL COSTS"
DALLAS. TEXAS — DECEMBER 6. 1993
Thank you, Mark, for your introduction and kind words. I'm
very pleased to be with all of you today and to take part in this
important workshop.
I would like to commend you and Marty Spitzer of the EPA for
organizing this two-day program and for spearheading the agency's
efforts in a critical area related to pollution prevention. I also
would like to commend the other sponsoring organizations — the
Business Roundtable, the U.S. Chamber of Commerce, the American
Institute of CPA's, the Institute of Management Accountants and
AACE International — for their participation and support.
With today's workshop we all are taking a major step forward
in discussing and wrestling with an emerging business issue — the
need for improved accounting and capital budgeting for
environmental costs. While the EPA can take a leadership position
by facilitating discussions and dialogue on this issue, in the end
it's up to us in the business and financial community to transfer
such discussion* into our everyday planning and accounting
practice*.
I plan to discuss three major topics with you today.
First, the importance of improving environmental accounting
and capital budgeting practices.
Second, how my company — ciba — has been approaching these
two areas.
And third, the effects of a potentially new IRS tax position
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on environmental remediation expenditures, and the need for
Superfund reform in order to better control long-term environmental
cleanup costs.
JLi Importance of Environmental Accounting and Capital Budgeting
As we all know, the costs of environmental protection are
skyrocketing today in the United States and in many parts of the
world. The EPA certainly understands that trend and wants to work
with the private sector in addressing it. Today's workshop is a
clear indication of the agency's willingness and interest.
We in the chemical industry appreciate the agency's new
pollution prevention initiatives and its movement away from the
traditional "command and control** approach to environmental
protection. More and more today, companies such as Ciba are taking
an integrated approach to determining environmental costs by
seeking to balance their environmental and financial
responsibilities.
Improved environmental accounting and capital budgeting
practices will enable many companies to better measure their
environmental performance and expenditure levels. Such practices
also will provide greater financial incentives for pollution
prevention and waste minimization efforts.
To gain a better understanding of managerial cost accounting
systems, Daryl Ditz of the World Resources Institute has been
carrying out a landmark project with a small sample of Fortune 100
companies. Ciba is pleased to be taking part in the WRl's study,
along with Amoco Oil, Digital Equipment, S.C. Johnson, Dow
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Chemical, DuPont and 3M. Rebecca Todd and A jay Maindiratta,
professors of accounting at New York University's business school,
have provided valuable consulting expertise to this project.
The WRI study traces a variety of environmental costs
throughout an organization and shows how they are communicated to
management. He look forward to receiving the WRI's report in the
spring of 1994 and to gaining further knowledge and insights from
it.
From the WRI report and other future studies, we hope to learn
how to more effectively integrate environmental expenditures into
our overall research and development, manufacturing, distribution
and waste disposal costs. That is to say, we seek to better define
and quantify the total environmental costs of our operations and
products ~ from "cradle to grave."
In the long run, getting a better handle on full environmental
costs also will create greater internal incentives to fu^h^r
reduce waste and encourage even more pollution prevention efforts.
Years ago the consumer benefited from less expensive chemical-
based products because environmental costs were much lower for the
manufacturer. Unfortunately, industry today cannot fully pass
along the costs of environmental remediation related to its past
manufacturing practices. I will have more to say more about
Superfund and some needed changes in a few minutes.
II. Environmental Cost Accounting and capital Budgeting At Ciba
I would now like to describe how we approach environmental
cost accounting and capital budgeting at Ciba U.S. We have annual
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sales of about $4.5 billion in 12 businesses — led by
Pharmaceuticals, crop protection chemicals, and a wide range of
industrial specialities for the automotive, aerospace, textile,
electronic and other industries. We employ more than 15,000 people
and have manufacturing facilities across the U.S. — from New York
to California.
As George Muhlebach mentioned this morning, a few years ago
Ciba developed a "Vision 2000", which will guide our worldwide
business into the next century. Consistent with the concept of
sustainable development, Ciba's "Vision" seeks to balance our
economic, social and environmental responsibilities, in order to
ensure our prosperity today, tomorrow and beyond the year 2000.
In 1992 at Ciba U.S., the Corporate Governance Committee of
the Board of Directors initiated a project to establish baseline
expectations and procedures to be applied throughout the company in
the health, safety and environmental areas.
with the full cooperation and participation of our divisions,
corporate departments and plants, we developed an updated
"Corporate Health, Safety and Environmental Policies and Procedures
Manual," which has been distributed throughout Ciba U.S. All of
our employees are required to take HS&E training classes based on
those new policies. Through that training program, they have
become more aware of their individual HS&E responsibilities and how
they all can potentially affect the company's bottom-line.
In addition to our internal policies and procedures, Ciba is
actively working with various outside organizations toward shaping
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a more environmentally responsive industry. For example, ciba and
several hundred other business, government and non-government
organizations have adopted the Environmental Principles for
Sustainable Growth. The principles were developed by the
International Chamber of Commerce in cooperation with the United
Nations.
In the U.S. and many other countries, Ciba has signed on to
Responsible Care — the chemical industry's initiative to improve
its performance in health, safety and environmental quality.
At Ciba U.S., our major manufacturing sites have been the most
active in implementing Responsible Care, which is not surprising
because the first four Codes of Management Practice deal largely
with chemical manufacturing issues. Our Additives Division also
has developed an outstanding program called AddCare, in which they
have extended their Responsible Care dialogue to their customers,
suppliers and communities. The division places special emphasis on
the concept of product stewardship.
One of the greatest challenges of Responsible Care is to
restore public confidence in the chemical industry by producing
visible, tangible results. When it comes to results, I am proud
that Ciba continues to be a leader.
Ciba has demonstrated a continued decline in emissions because
pollution prevention, or source reduction, is our top environmental
priority. From 1988 to 1992, Ciba U.S. reduced its SARA Title III
emissions by 50 percent through a broad range of technical and
waste minimization improvements.
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Ciba also was one of the first companies to sign on to the
EPA's voluntary Industrial Toxics Project, commonly known as the
"33/50" program. He exceeded the agency's initial milestone of
reducing the emissions of certain high-volume chemicals by 33
percent by 1992, and we are now working toward the second target —
a 50 percent reduction by 1995.
These and other environmental advancements led Fortune
magazine last July to name Ciba as one of the 10 "most improved"
U.S. companies from an environmental performance standpoint.
We strongly support the EPA's voluntary environmental
initiatives, such as "33/50" and the "Green Lights" energy
conservation program. Such approaches make very good sense from
economic and environmental perspectives, and are directly related
to the spirit and direction of today's workshop.
In the past few years, Ciba has focused on developing better
management information systems for tracking its environmental
activities, performance and expenditures. In 1990 we introduced a
worldwide annual reporting system called SEEP ~ short for Safety,
Energy and Environmental Protection.
The worldwide SEEP report includes extensive quantitative data
on safety, energy usage and environmental protection? a compilation
of safety and environmental protection costs; and individual cases
of significant safety, environmental and energy improvements or
failures. All major Ciba production sites must compile annual SEEP
returns, and the number of sites reporting has risen from 64 in
1990 to 82 in 1992.
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SEEP has become an important management tool, enabling us to
measure safety, energy conservation and environmental performance
at the corporate level as well as the local level. Consequently,
priorities can be established and site-specific targets can be set
and progress measured. More important, the SEEP report helps us
track the environmental return from capital investments.
In recent years at ciba U.S., .we have spent about $150 million
annually on environmental expenditures in three main areas. They
are: about $50 million per year on environmental capital
investments at our plants, about $50 million per year on
environmental remediation, and about $50 million per year on
ongoing environmental operating expenditures, especially at our
plants.
At Ciba U.S., capital investment proposals for environmental
projects usually originate at the division or plant level, and then
are submitted for corporate review. We use several key criteria
for evaluating these proposals, such as how they will help ciba
meet permit compliance requirements, achieve waste minimization
goals, conserve energy usage, reach resource recovery/recycling
targets, and ultimately, what the financial payback is from such
investments.
As a general rule, there is a very decent payback, especially
when the alternative of not making such an investment is evaluated.
The earlier Ciba makes such investments, the more competitive the
company is, because those of our competitors who pursue no action,
have higher operating costs. The SEEP report helps us make those
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investment decisions because it tells us how many resources we are
putting into new environmental, safety and energy systems, and what
those systems are costing us from year to year.
The SEEP report and many other aspects of our environmental
activities are described in ciba's first worldwide Environmental
Report, issued last September. Our report contains extensive
quantitative data, distinguishing it from many other corporate
environmental reports which contain a lot of text and pictures.
Copies are available at this workshop, or afterwards, through
George Muhlebach.
I'd now like to briefly share two examples of ciba
environmental investments and how they have paid off for us.
Optical brighteners for the detergent and paper industries are
important products of Ciba's Chemicals Division. Unfortunately,
for each pound of optical brightener produced, over two pounds each
of sulfuric acid and iron sludge were generated. That meant h£-/:p.^
to treat and dispose of 15-20 million pounds of suifuric acid and
iron sludge each year.
A team of Swiss and American scientists developed a new
manufacturing process for a key intermediate, which entirely
eliminated sulfuric acid and iron sludge wastes, and raised product
yield above 95 percent. That dramctic improvement helped make ciba
the lowest-cost manufacturer of that product in the U.S. and
enabled us to compete effectively in domestic and export markets.
The second example comes from our site in Toms River, New
Jersey, which achieved a 97 percent reduction in waste water
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through a project called SWEAT — Standardization Without Effluent
at Toms River. Its success was recognized by the National
Environmental Awards Council, which represents 28 leading
environmental organizations.
Using high-tech reverse osmosis, ultra-filtration and a high-
pressure water cleaning process, SWEAT recycles 99 percent of the
water used to clean dye-mixing vessels for the Textile Products
Division, and recaptures more than 200 pounds of dye each day. The
SWEAT project required a $6 million investment, which will pay for
itself in just a few years.
In addition to their obvious environmental and social
benefits, both projects generate long-term environmental savings
and help give Ciba a competitive advantage.
I'd like to emphasize that environmental accounting is an
important issue to Ciba, as evidenced by the establishment of an
accounting policy by our Executive Committee a few years ago. This
policy has its basis in promulgated Generally Accepted Accounting
Principles (GAAP), in particular, Financial Accounting standard
Number 5 ("Accounting for Contingencies"), Concepts of Probability
and Estiaability. Ronald DeMarchis, a member of our corporate
accounting staff, is participating in this two-day workshop and
will be available to discuss this accounting issue at more length
with you.
We started establishing provision for environmental
remediations in 1986. We have spent about $300 million on
remediations since then, and we continue to make such provision in
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accordance with this accounting standard. By addressing these
liability issues early, we have been able to establish reserves,
over time, which enable us to carry these costs on an annual basis,
which does not distort our ongoing financial performance.
III. IRS Tax Deductibility Issue and Superfund Reform
Before closing, I would like to touch on two current issues
related to accounting and capital budgeting for environmental
costs. I raise them because both have potentially far-reaching
effects on the environmental expenditures of Ciba and many other
companies.
The first issue deals with tax deductibility of environmental
cleanup costs. Two Technical Advice Memoranda (TAM's), recently
issued by the Internal Revenue Service, have focused attention on
the tax treatment of expenditures related to asbestos and
environmental cleanups. In both cases, the IRS denied current tax
deductions for such costs, and made the taxpayers involved
capitalize and depreciate the costs over a future period of time,
and, in the case of land remediation, no depreciation is allowed by
this position.
Fortunately, the position taken in these two TAM's is not the
IRS's last word on the subject. The IRS has agreed to reexamine
the issue regarding environmental cleanups. However, even though
these TAM's are only applicable to the two cases in question, they
indicate the IRS' possible direction . . . and that's an ominous
sign for the future.
Environmental remediation costs are not to b@ capitalized.
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Remediation involves a wide variety of expenditures directed to
restoring the real property to its original condition. A Superfund
mandated remediation represents a determination, from an economic
standpoint, that the condition of an asset has been impaired and,
therefore, its value reduced.
The costs incurred in reaching that determination and the
costs incurred in implementing a mandated corrective action, cannot
return the asset to a value which exceeds its historic cost. Such
property was generally not written down to reflect the amount of
the environmental damage, and if such action were contemplated, I
daresay such property would have negative value. In effect, that's
what our environmental provisions are evidencing.
Prior law supports tax deductions for environmental
remediation work. For example, the Tax Court has ruled that costs
incurred by pit mining companies to restore the land to its
previous condition were deductible as business expenses, on the
rationale that the assets involved were not improved above their
original, i.e. historical, value. We believe the same principles
should be applied to environmental cleanups under Superfund or the
Resource Conservation and Recovery Act (RCRA).
Furthermore, elimination of deductions for environmental
restoration projects would be bad public policy because it would
discourage settlements, delay cleanups and adversely affect
thousands of companies, banks and insurance companies — both large
and small. To date, these parties have spent more than $20 billion
on environmental remediation under Superfund alone.
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The second issue has to do with reforming Superfund
itself* Ciba believes that changes in the law are necessary to
make Superfund more environmentally responsible and economically
realistic. We support cost-effective cleanups that are protective
of human health and the environment, and therefore advocate changes
in four key areas.
First, we believe that improvements should be made in the
process for determining remedy selection and cleanup standards.
Remediation should mitigate real, direct risks posed to health and
the environment — and not imagined risks.
The draconian nature of remediation requirements which flow
from such inappropriate risk characterizations has put industry and
its insurance carriers at each other's throat. The joint and
several liability standard, which I will cover in a minute, keeps
us there by multiplying an already exaggerated financial exposure.
The total litigation costs involved are staggering.
The present and future land use of a site also should be
evaluated when selecting a cleanup remedy.
The importance of risk assessments should be addressed very
early in the Superfund process. Even though risk assessments are
an uncertain science, they should be the coapass directing the
engineering solutions implemented at Superfund sites across the
country. [
Second, we support the elimination of the overlap between
Superfund and the Resource Convervation and Recovery Act (RCRA).
Third, we believe a system should be designed to more
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equitably distribute cleanup liability. The current joint and
several liability system should be changed so that each party pays
its "fair share" of the cleanup costs, not potentially the entire
amount.
Frequently, only a handful of Potentially Responsible Parties
(PRP's) are identified for cleanup, even though many more have sent
waste to a particular site. It's unfair that the identified PRP's
then have to seek out other responsible parties for their portion
of the cleanup costs, or have to pay a disproportionate share of
the total cleanup in instances where such other parties have
disappeared.
The common law principle of joint and several liability
applies to tort-feasors. Ciba, and many other responsible
companies, were not tort-f easors when they engaged in waste
disposal practices which, at the time, were government permitted
and, in many cases, state-of-the art. Thus, we should not sho-lior
responsibility for paying the cleanup of another's waste.
And fourth, we advocate the establishment of a cooperative,
decision-making partnership which includes the community, relevant
agencies and PRP's.
In its present fora, Superfund often leads to the use of
misdirected resources. Each year of delay for reform costs Ciba
and other companies millions of dollars. I am concerned that
addressing this issue will be delayed into the 1995 legislative
year and that we will continue to misdirect remediation resources
because of the inappropriateness of the legislation.
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I would like to emphasize that my comments should not be
interpreted as a criticism of the EPA, since the-Superfund statute
does not give the agency sufficient discretion and latitude.
Moreover, Ciba has had good experience in working with the various
EPA regions on specific Superfund sites.
Conclusion
In conclusion, we all recognize the need to improve and
develop new approaches to accounting and capital investments for
t
environmental costs. This workshop provides an excellent
opportunity to discuss those issues . . . and to then move ahead
with a "stakeholders action agenda.1*
By working together in this public and private sector
partnership — with members of the EPA, academia, industry and the
financial community — I'm confident that we will be successful in
reaching new solutions to environmental accounting and investment
issues.
I would be happy to answer any questions you may have. Thank
you very much.
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ATTACHMENT A
Biographies of Speakers:
• Richard Earth
• Dr. Ed Quick
• Dr. Allen White
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ACCOUNTING AND CAPITAL BUDGETING FOR ENVIRONMENTAL COSTS
Speaker Biographical Information
Richard Barth
Richard Barth has served as president and chief executive officer of Ciba-Geigy
Corporation since 1986, and as chairman of the board since 1990. He is also chairman of the
corporate Finance, Compensation and Governance committees.
In 1993, Mr. Barth was appointed by President Bill Clinton to serve on the President's
Council on Sustainable Development, which was established to reassert this country's commitment
to global environmental leadership.
Mr. Barth began his career in 1957 as an associate with the New York law firm of Burke
and Burke. In 1965, he joined the former Ciba Corporation as legal assistant to the executive
vice president, serving in that capacity until 1968, when he was named secretary and general
counsel. Following the merger of Ciba and Geigy, Mr. Barth became general counsel of the
corporation. In 1974, he was named corporate secretary and, in 1975, he became a member of
the board of directors. In 1979, his responsibilities were further broadened to include serving as
chief financial officer and chairman of the board's Finance Committee. Mr. Barth also was a
senior vice president of the corporation from 1980 until 1986.
Mr. Barth serves on the boards of numerous organizations. He is a member of the board
of The Bank of New York; Bowater, Inc.; the Chemical Manufacturers Association; the
Committee for Economic Development, and the Swiss-American Chamber of Commerce. Mr.
Barth has been a regular member of The Conference Board since 1988.
He earned a B.A. degree from Wesleyan University in 1952, and a LL.B. degree from
Columbia Law School in 1955. Mr. Barth was admitted to the New York Bar in 1958 and the
New Jersey Bar in 1966.
Ciba-Geigy Corporation (Ciba), headquartered in Ardsley, New York, is a wholly-owned
subsidiary of Ciba-Geigy Limited of Basel, Switzerland. Ciba is a leading developer and
manufacturer of healthcare and agricultural products, and specialty chemicals for industry. Ciba is
committed to sustainable development by balancing its social, economic and environmental
responsibilities, in keeping with its "Vision 2000."
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ACCOUNTING AND CAPITAL BUDGETING FOR ENVIRONMENTAL COSTS
Speaker Biographical Information
Dr. Ed Quick
Manager, Environmental, Health & Safety
Hoechst Celanese Corporation, Bishop Facility
1974
1979
B.S., Chemistry, Lebanon Valley College
Ph.D., Physical Chemistry, Iowa State University
BACKGROUND
Employed by Hoechst Celanese Corporation
• Over 5 years experience in the development and piloting of new chemical and
polymer processes
• Greater than 6 years experience in managing production operations of:
Polyacetal Engineering Resin
Polyols
• Currently responsible for management of environmental, health and safety affairs
at the Hoechst Celanese Corporation's Bishop, Texas Facility
Over 1,100 employees
Clean Industries 2000 site in the Clean Texas 2000 program
• Inclusive in responsibilities are:
Assuring strategic environmental management
Initiation of pro-active in-facility and community environmental programs
— Development of an effective and minimum cost pollution prevention
process
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ACCOUNTING AND CAPITAL BUDGETING FOR ENVIRONMENTAL COSTS
Speaker Biographical Information
Allen L. White, Ph.D.
Dr. White is Director of the Risk Analysis Group at the Tellus Institute in Boston.
Tellus, founded in 1976, is an international, non-profit environmental economics and policy
research organization comprising 50 scientists, economists, engineers, and policy analysts.
Dr. White's current work focuses in four areas: pollution prevention economics, corporate
environmental performance indicators, lifecycle analysis, and siting hazardous facilities. In 1990-
1991, he managed projects for the U.S. EPA and the New Jersey Department of Environmental
Protection and Energy concerned with Total Cost Assessment (TCA), an alternative approach to
evaluating the profitability of corporate pollution prevention investments. He has lectured widely
on managerial cost accounting and capital budgeting for pollution prevention in the U.S. and
Europe.
In other recent projects, Dr. White has analyzed the organizational and performance
aspects of environmental management at affiliates of three U.S. multinationals operating in
Thailand and India; assessed the effectiveness of the pollution tracking system of a high
technology U.S. multinational; and assisted in the development of a standardized corporate
environmental performance report form in conjunction with a partnership of environmental
organizations and U.S. firms. He currently is principal investigator of an EPA project which will
survey 150 firms to determine current and best capital budgeting practices in relation to pollution
prevention investments.
Dr. White has advised state agencies across the U.S. on waste management, pollution
prevention, and environmental regulation, and consulted with the United Nations, the U.S.
Agency for International Development, and the Organization for Economic Cooperation and
Development (OECD).
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III. Stakeholders' Action Agenda
How to Use This Chapter
This chapter summarizes and presents the Stakeholders' Action Agenda that resulted from
the intensive two-day Workshop on management accounting and capital budgeting for
environmental costs. The opinions and'perspectives of experts from across the country form the
basis of the agendas. The chapter has also been reprinted with minor modifications as a stand-
alone EPA document Stakeholders' Action Agenda: A Report of the Workshop on Accounting
and Capital Budgeting for Environmental Costs (May 1994) EPA #742-R-94-003.
This chapter is organized to help readers easily find topics of greatest interest For
example:
Readers interested in a summary of the issues and actions in the agendas
should turn to Section III.2.
Readers interested in specific recommendations for stakeholders should see
the summary of the Action Agendas in Section III.3 and the Agendas for
each stakeholder group in Attachment A.
By organizing the chapter in this way, individuals and organizations interested in taking an
active role can turn to their stakeholder agendas for direction and inspiration; they will also find
there the issues and actions that other stakeholders see as relevant for them All issues and
actions are numbered according to which stakeholder group raised them, as explained in
Attachment A. For readers desiring a more concise distillation of the results of the Workshop
organized by issue areas, Section III.2 presents such a summary.
Overall, this chapter is organized as follows:
• Description of the process used to develop the
Stakeholders' Action Agenda
• Summary of the issues and related actions raised in
the Workshop, presented in terms of four major
themes
• Summary of the 10 individual stakeholder action
agendas that make up the overall Agenda, together
with related commentary provided by the working
groups responsible for developing each one
• Items raised in the concluding plenary session of
the Workshop
• Next steps including an invitation to attendees and
all other interested parties to make commitments
Section III.l.
Section III.2.
Section III.3.
Section III.4.
Section III.5.
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III-2
and offers to help implement the Action Agenda
and related activities
Stakeholders' Action Agenda
Table of acronyms
Attachment A.
Attachment B.
It is important to emphasize that the action agendas represent the opinions of Workshop
participants and not necessarily consensus of opinion. In addition, the agendas do not necessarily
represent either the positions of the six co-sponsors or the consensus of the Focus Group that
guided this endeavor. Based on the comments received from participants, all of whom were
provided a draft of this chapter to review, their opinions from the Workshop have been accurately
and fairly presented. In addition, because commenters were split concerning the options for
presenting the Action Agendas, this chapter presents them both by issue and by stakeholder
group.
III.l Development of Agendas
After general discussion of issues and needs on the first full day of the Workshop,
Workshop participants reconvened in 10 working groups on the second day of the Workshop to
develop action agendas for ten major stakeholder groups:
(1) Business Financial Staff
(2) Business Accounting Staffs
(3) Business Environmental Health and Safety Staffs
(4) Business Operations Staffs
(5) Accounting Associations
(6) Small Businesses
(7) Non-Accounting Professional Associations
(8) Management Consultants
(9) Education and Research Community
(10) Government Agencies
This numbering scheme is used to identify stakeholder Agendas in Attachment A,
Each working group had several members from the stakeholder group that was the focus
of its agenda. For example, the working group that developed the industry accountants action
agenda included industry accountants, and the group developing the government action agenda
included government officials. To ensure breadth of vision, however, each working group also
included participants drawn from other stakeholder groups. The groups were encouraged to
consider the "customers" and "suppliers" of the stakeholder group that was its focus. The working
groups were not limited to developing action agendas only for their assigned stakeholder groups
but were free to address priority issues and necessary actions for all stakeholders.
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Note, any recommendation by a working group member was included in the agendas.
Therefore, the resulting action agendas do not necessarily represent the consensus of each
working group, the entire; Workshop, or the co-sponsors.
Working group members presented the agendas to the Workshop as a whole during the
follow-up plenary session. After each proposed agenda was presented to the Workshop as a
whole, discussion ensued. The follow-up plenary session allowed participants to point out "gaps"
or issues missing from the proposed stakeholder agendas and to express any concerns. Because
the agendas included many consistent and mutually-supportive recommendations, workshop
participants as a whole appeared comfortable with the general tenor of the agendas. However,
some of the recommendations elicited expressions of concern. For example, 2 out of the 9
government stakeholder agenda action items, those that recommended national pollution
prevention planning requirements and green taxes, stimulated significant unease and expressions
of concern by many participants. On the whole, there was far more agreement than
disagreement.
The following section summarizes the issues and actions in terms of cross-cutting themes
addressed in the action agendas. Section III.3 summarizes each stakeholder agenda in the order
listed above and adds relevant commentary prepared by each working group.
III.2 Summary of The Issues and Related Actions
The first day of the Workshop, participants formed 10 working groups to explore key
issues and needs related to accounting and capital budgeting for environmental costs. These
issues and needs were revisited in Day 2's development of action agendas and were discussed in
plenary sessions on both days. Commenters on the draft Action Agenda suggested that a
summary of the issues and needs be included in the Proceedings. This summary is intended to
respond to those suggestions.
The issues discussed in the Workshop and addressed in the action agendas can be grouped
into four major themes:
(1) Terms, concepts, and roles
(2) Management incentives
(3) Education, guidance and outreach
(4) Analytic tools, methods, and systems ;
t
Each of these issue areas is discussed in turn; for a summary organized by stakeholder group, see
Section III.3.
(1) Definition of terms, concepts, and roles.
Terms and ;Concepts
Because the concept of environmental accounting is new and unfamiliar to many, an
important issue in the near term is to clarify what the concept means and what are the goals for
its implementation. Participants recommended a number of the actions to clarify the concept of
incorporating environmental costs into managerial accounting and capital budgeting. To foster
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greater consideration of environmental costs in business decisions, participants recommended that
answers be developed to such questions as: "What exactly does environmental accounting mean?
What is its scope? What is the problem? Is there a clearly defined public policy? What is the
linkage to pollution prevention and waste minimization? Are we asking the right questions?"
• For example, a recurring issue was how to define environmental costs: Is it
an "environmental cost" when a company spends money to improve a
process if there are any resulting environmental benefits, no matter how
incidental? Costs and cost-savings related to end-of-pipe environmental
controls are much easier to classify and determine than costs or cost
savings of many pollution prevention actions, which may be integral parts
of the production process itself. Similarly, relevant "indirect" and hidden
"environmental" costs may be difficult to identify and estimate.
• Another example relates to both terms and concepts. Pollution can create
costs for which the company is responsible — these are termed private
costs. Pollution can also create costs for which the company is not
responsible -- these are often termed social costs or externalities. Do
stakeholders understand this distinction? How should the two types of
costs be handled?
In addition to differences of opinion about what costs ought to be considered by firms,
there is also confusion about what people mean when they use terms such as life cycle costing,
life cycle assessment, total cost accounting, full cost accounting, total cost assessment, and so on.
Some participants define life cycle assessment (LCA) as focusing only on those impacts caused by
activities within business borders, from acquisition of raw materials to disposal of a product or
decommissioning of a system. Other participants see LCA as a broader tool concerned with
environmental impacts further upstream and downstream from the business itself, including
environmental damages caused by raw material extraction, transportation, processing, and so on.
Workshop participants expressed in several ways the perceived need for clarification of
terms and concepts. Among the recommended actions are:
• identifying a common body of knowledge,
• sharing knowledge and experience,
• using cross-functional teams, including rotation of personnel, to develop common
terms and concepts,
• holding workshops and conferences,
• increasing communications, and
• promoting, sponsoring, and conducting research.
Even where terms and concepts are assumed to be clearly defined, the Workshop
discussions themselves offered constant evidence of the cross-disciplinary nature of the issue and
the need to promote understanding of key terms and concepts across disciplines.
• For example, many of the engineers in the non-accounting professional
associations working group emphasized the need for this group to develop
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III-5
a better understanding of accounting concepts, methods, and metrics. The
management consultants' action agenda includes several recommendations
to address the need for a common body of knowledge including common
environmental accounting language.
Roles
Because incorporating environmental costs into management accounting and capital
budgeting is a relatively new approach and because many parties must be part of the solution,
many participants saw a need to clarify the roles of key players. Who should take the lead in
companies? What should associations do? How can management consultants help? What is
government's role? Definition of roles appears to be as important an issue as clarification of
terms and concepts.
With respect to roles, participants from the business sector focused on the importance of
cross-functional teamwork and communication. The environmental accounting issue was
recognized as transcending individual professional or functional expertise. The accounting
associations action agenda highlights the issue of defining their roles, including such recommended
actions as reviewing accounting codes of ethics to incorporate environmental concerns. Further,
the action agenda for accounting associations recommended that they identify opportunities for
improvement in tax and environmental pplicy to encourage pollution prevention. Similarly, the
action agenda for non-accbunting professional associations and societies included in its four major
issues the need to define environmental accounting objectives and roles for professional
associations. Recommended actions include the development of agendas for environmental
accounting activities at state and local levels as well as inventorying association activities relating
to environmental issues in accounting.
The academic community, on the other hand, saw two major roles for itself: research and
curriculum development. They saw no need to clarify their roles further.
The government role was also an important topic of discussion, with many participants
endorsing the catalytic and facilitation roles that federal and state government agencies can play,
while expressing reservations about government regulation and standard-setting. The government
stakeholder action agenda highlights another role government can play: it can serve as a model
for how to apply environmental accounting principles to its own operations. The government
working group recommended, for example, creating a standard for environmental cost accounting
for large government contractors. :
(2)
Management incentives. '
A second major theme of the.recommended actions relates to internal and external
incentives for action. This ranges from the need for greater attention to the topic, to identifying
and creating reasons for addressing it (both internal and external to businesses), to the necessary
conditions for progress. !
Internal Incentives :
Recommended internal incentives for business include tying the consideration of
environmental costs to existing decisions on product mix, outsourcing, capital investments,
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m-6
performance evaluation, promotion/compensation, product costing, and quality assurance. Doing
so could involve incorporating environmental goals into business unit objectives, creating specific
rewards for achieving such goals, and incorporating environmental concerns into everyone's job
description, from top management to line workers.
Participants recognized that simply recommending such actions will not necessarily make
them happen. Organizational and management commitment are keys to success. For example,
participants made frequent calls for increased management commitment, cross-functional teams,
and champions to "overcome inertia."
The business stakeholders' groups, comprised largely of company accounting, financial,
environmental health and safety, and operations personnel, emphasized the importance of internal
organizational incentives. They recommended actions to create incentives for middle and upper
management as well as incentives applicable to all employees. Cross functional communication
and teamwork were viewed as both issues and actions for implementing organizational incentives.
Other stakeholder groups recognized this issue as well. Representatives of accounting
associations envisioned a role for their organizations in transforming prevailing mindsets from cost
avoidance to revenue enhancement. Participants drawn from non-accounting professional
associations and societies recommended a variety of actions that could promote organizational
commitment to accounting and capital budgeting for environmental costs. For example, they
recommended conducting benchmark studies of "best in class" companies that include
environmental costs in their accounting and budgeting activities.
Demonstrating the added-value of knowing environmental costs is noted in several action
agendas as a key activity for securing management commitment and aligning incentives. Showing
successes — defined largely as cost savings — appears in most of the action agendas as a
recommended activity. The non-accounting professional associations action agenda, for example,
recommends development of a "world class" briefing on the issues and benefits of accounting for
environmental costs and suggests that the EPA Administrator communicate with industry
associations to promote organizational commitment.
External Incentives
Workshop participants identified a variety of potential external incentives, many of which
can promote pollution prevention as well as environmental accounting. These include:
• Market-based environmental solutions such as pollution credits and
emissions trading that require sound environmental cost information,
• Standardized environmental reporting of, for example, environmental cost
information,
• "Safe Harbors" for disclosure of environmental liability estimates,
• Loans, investment tax credits, depreciation policies that could enhance the
returns from environmental projects,
• Awards/recognition,
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III-7
• Pollution prevention planning regulations with environmental accounting
components, and
Voluntary programs (e.g., Green Lights, 33/50, WasteWi$e, Design for the
Environment).
The external incentives were viewed as important motivators for action. Business
stakeholders tended to distinguish between positive external incentives and negative external
incentives. Positive external incentives include market-based systems of pollution control and
establishing level playing fields (e.g., reporting standards, Safe Harbors). The small business
action agenda identifies several positive external incentives needed to encourage companies to
remain in compliance or go beyond compliance. These include:
• loans,
• investment tax credits,
• depreciation policies,
• lender liability limits,
• consumer and community involvement, and
• recognition and publicity.
To address lack of incentives, the government action agenda recommends both positive incentives,
such as partnerships and technical assistance programs, and negative incentives, such as taxes and
regulations. Workshop participants reached no consensus about the latter suggestions.
(3) Education, outreach, and guidance.
A third major theme in the agendas for action is the development and dissemination of
information through a variety of communications, outreach, and technical assistance channels.
While incentives provide the motivation, information provides the know how. Case studies,
success stories, clearinghouses, conferences, newsletters, bulletin boards, guidebooks, and training
materials appear repeatedly in the action agendas. Workshop participants also viewed
information dissemination as key to establishing incentives, such as top management commitment.
Stakeholder groups such as academia as well as trade and professional associations
recommended that they can serve as major conduits for sharing information and as centers for
developing case studies, guidance, and tools. Management consultants likewise saw themselves
playing a significant role in education and technology transfer. The government's role in
developing and continuing to support state technical and management assistance programs was
seen as important in improving outreach.
Specific actions recommended in the action agendas include the following:
• Develop and deliver university and continuing professional education
curricula, !
« Disseminate success stories,
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III-8
• Sponsor workshops to develop common environmental accounting
language,
• Distribute training/technical assistance materials for small business,
• Develop topical conferences on accounting methodologies,
• Use association newsletters and magazines as media,
• Publicize electronic bulletin boards,
• Include management assistance in state pollution prevention Technical
Assistance Programs,
• Conduct case studies and benchmarking to identify "Best Practices," and
• Publicize primers on pollution prevention.
Information dissemination needs can be grouped by intended audience. For example, to
secure top management commitment in the business sector, participants recommended
demonstrating the added-value of knowing environmental costs, showing successes, and developing
a "world-class" briefing on the issues and benefits of accounting for environmental costs. The
small business sector was identified as having a special need for guidance and technical assistance,
including easy-to-read compendia of environmental regulations and user-friendly summaries of
forthcoming regulations.
(4)
Analytic tools, methods, and systems.
Participants saw the lack of necessary tools, methods, and systems as a fundamental issue.
As noted above, there is a pressing need to disseminate information that can help motivate and
provide know-how to account for environmental costs. However, there is an equally important
need to develop (or modify existing) and disseminate analytic tools, methods, and systems. This
fourth theme of the action agendas focuses on developing needed tools, methods, and systems.
Examples include developing analytic tools and methods (e.g., models) for any of the following:
• estimating societal costs (externalities),
• estimating long-term environmental liabilities (non-externalities),
• creating flow charts of materials and activities that help identify waste
reduction opportunities and serve as foundations for costing information,
• researching the relationship between pollution prevention and employee
morale/productivity, and
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III-9
• integrating environmental elements into existing management and
accounting systems and capital budgeting processes.
Although this theme produced fewer action items compared to the three areas already
discussed, recommended actions fall into the following four categories:
Systems
Participants saw a need for both information systems and what-might-be-termed
implementation systems to incorporate environmental cost information into business decisions. A
first suggested step was to determine information goals (e.g., toxics use reduction goals,
profitability goals); then information system capabilities can be designed to support decisions and
related to performance incentives. At 'the same time, participants identified a need to develop
cross-disciplinary systems for performing organized reviews of materials flows and wastes,
identifying cost drivers, exploring alternatives, setting targets, and tracking results. This can
require the development of methods and metrics for measuring pollution prevention
accomplishments and linking those results to information about costs and cost savings.
; i
Liabilities
How to incorporate and recognize environmental liabilities in current operations and
future decisions (apart from public reporting of liabilities) was an issue identified in different
action agendas and plenary discussion. The business financial action agenda describes the need as
how to incorporate long-term liability into profitability analysis of product lines and acquisitions.
The business accounting group viewed liabilities as one of a group of "nonquantifiables" that they
recommend for attention. Difficulties in distinguishing between liabilities due to past problems
and liabilities arising in the future, and how to relate each to current decisions, pose issues
recommended for further exploration.
Life Cycle Assessment and Costing.
A number of Workshop participants expressed interest in modifying existing life cycle
assessment (LCA) methodologies to address environmental costs(life cycle costing, or LCC).
Because as noted earlier, the term LCA sometimes refers to private costs and sometimes
encompasses externalities (social costs), this recommendation seems to cover both approaches.
Note, however, that the Workshop was intended to focus on private environmental costs of
products and processes, not the full upstream and downstream externalities associated with
business activity.
Externalities (Social Costs)
Although the Workshop was not intended to deal with externalities, the issue came up
repeatedly, both in the action agendas and discussions. A number of participants viewed
incorporating externalities as an important issue and recommended such actions as developing
models to estimate societal costs and their probabilities. Other participants did not see this issue
as germane or felt that such models were not feasible.
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111-10
IH.3 Summary of Action Agendas
Attachment A presents the action agendas developed by the 10 stakeholder groups in the
order noted earlier. The agendas cover a broad range of issues from many perspectives and
recommend a variety of next steps. The agendas include all of the issues and actions identified by
the stakeholder working groups. This does not mean that every individual within each group
necessarily agreed with every item; nor does it mean that the groups exhausted all possible issues
and actions. Rather, the intent was to generate representative lists of important needs and
recommended actions that stakeholders could adopt, adapt, and implement as they see fit.
The exhibits in Attachment A include:
(1) the issues and actions identified by the working group responsible for the
particular stakeholder action agenda, as well as
(2) issues and actions deemed relevant to that stakeholder group by other
working groups.
This section presents a summary of each of the individual stakeholder action agendas. For
a discussion of the cross-cutting issues addressed in the agendas, see Section III.2.
Groups #1-4. Business Action Agendas
The business staff action agenda in Attachment A consolidates agendas developed by
business financial, accounting, environmental health and safety, and operations stakeholders.
Because the four business working groups identified needs common to the groups as well as
unique needs, the four agendas have been consolidated under one heading, but retain the original
integrity of the outputs from the four working groups.
As would be expected from different stakeholders within a business, certain issues, needs,
and actions appear in more than one of the individual business stakeholder agendas:
• Incentives, for both management and employees,
• Cross-functional communications and teamwork,
• Tools for handling long-term liabilities and "externalities,"
• Sharing knowledge and experience,
• Defining information system needs,
• Determining best practices, and
• Clarifying terms and concepts.
Other items were identified in a single agenda; due to time limitations, none of the
agendas should be viewed as exhaustive.
Group #1. Business Financial Staff. The first part of the Business Action Agenda
presents the action agenda for financial staffs in the business community. The working group's
premise was that financial information doesn't drive decisions but is one part of the decision-
making process. The business financial staffs action agenda includes several research needs
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III-ll
relating to analytic tools and models, as well as curricula development. Internal and external
incentives are also prominently featured.
Group #2. Business Accounting Staff. The second part of the Business Action Agenda
shows the action agenda for accounting staffs in the business community. The business
accounting staff working group emphasized the importance of overcoming inertia through
management commitment, incentives, and information dissemination. The group identified a need
to better define terminology (e.g., what are environmental costs) and identify a common body of
knowledge.
Group #3. Business Environmental Health and Safety Staff. The third part of the
Business Action Agenda displays the action agenda for environmental health and safety staffs in
the business community. The environmental health and safety working group noted that,
historically, environmental staffs were developed in response to compliance and/or Superfund
issues, resulting in a narrow orientation. They recommended a broader or different perspective to
focus on pollution prevention and the need to secure top management commitment for pollution
prevention.
Group #4. Business Operations Staff. The last part of the Business Action Agenda
comprises the action agenda for business operations staffs. The agenda focuses on internal
incentives for both management and employees as well as research and evaluation of models and
tools for providing environmental cost information to operations management. This group also
highlighted the need for an organized system to accomplish waste reduction.
Group #5. Accounting Associations
Attachment A includes the action agenda for accounting associations, such as the
following:
• Institute of Management Accountants (IMA),
• American Institute of Certified Public Accountants (AICPA),
• Financial Executives Institute (FEI),
• American Association of Accountants (AAA), and
• foreign counterpart organizations such as:
~ Canadian Institute pf Chartered Accountants (CICA),
~ Chartered Association of Certified Accountants (CACA) (United
Kingdom),
~ Chartered Institute of Management Accountants (CIMA) (United
Kingdom),
~ Institute of Chartered Accountants of England and Wales (ICAEW), and
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111-12
Society of Management Accountants of Canada (SMAC).
In addition to improving incentives and fostering more education and information sharing
through conferences and continuing professional education, this group focused on specific actions
for the accounting community such as incorporating environmental concerns into accounting
codes of ethics and participating in standard-setting.
Group #6. Small Businesses
Attachment A shows the action agenda for the small business community. The working
group looked at small businesses as units that need assistance due to lack of resources. The
working group also took a larger perspective on environmental activities, beyond changes in
accounting systems; it focused on "doing the right thing" for the environment in general. The
recommended actions emphasize education, user-friendly guidance, and incentives. The group
suggested that accounting and financial information should be part of a package of materials or
assistance given to small business. Chambers of Commerce, Small Business Administration (SBA),
Small Business Development Centers, government, and associations were all identified as
potential sources of assistance.
Group #7. Non-Accounting Professional Associations and Societies
Attachment A presents the action agenda for non-accounting professional associations
and societies. This stakeholder group can include such associations as the following:
AACE International (the Association for Total Cost Management),
Air & Waste Management Association (AWMA),
American Academy of Environmental Engineers (AAEE),
American Association of Engineering Societies (AAES),
American Institute of Chemical Engineers (AIChE),
American Institute of Plant Engineers (AIPE),
American Production Inventory Control Society (APICS),
American Society of Heating, Refrigeration, & Air Conditioning Engineers (ASHRAE),
American Society of Mechanical Engineers (ASME),
Institute of Electrical and Electronics Engineers (IEEE),
Institute of Industrial Engineers (HE),
Project Management Association (PMA), and
Society of Logistics Engineers (SOLE)
This working group emphasized better understanding of terms and concepts, education
and information dissemination activities, and focused research into models and systems; it
explicitly identified a need to define objectives and roles for professional associations.
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111-13
Group #8. Management Consultants
Attachment A contains the action agenda for management consultants, whose roles
include the following:
• providing outside expertise to help customers solve problems,
• providing training and education,
• facilitating the free flow of information, and
• pollinating new ideas.
The action agenda stressed the need to clearly define public policy goals (e.g., through a
written mission statement), to develop a common body of knowledge and language, and to foster
education and outreach.
Group #9. Education and Research Community
Attachment A lists the action agenda for the education/research community (termed
"academia"). The working group reported two main goals of education/research:
(1) Finding the truth, training better business managers, asking for better
information, and publishing research results; and
(2) Broader "systems" thinking, and preparing and empowering students to
influence; the pace and degree of corporate change.
This group viewed business, government agencies, and trade associations as sources of
both funding and data; academic research and curriculum development would be conducted by
universities and research institutes.
Group #10. Government Agencies
Attachment A displays the action agenda of government stakeholders such as the EPA,
Department of Commerce, Departments of Energy & Defense, Office of Management & Budget,
the Congress, and state and regional counterpart organizations, notably State and regional
pollution prevention technical assistance programs. The working group defined the challenge as
getting government stakeholders to promote environmental cost accounting, and was based on the
assumption that government can have a positive impact on companies' behavior. The action
agenda emphasized incentives, resources, and outreach. The group also viewed environmental
cost data as a potentially useful input for evaluating the effectiveness of regulations. Many
participants in the Workshop endorsed, the catalytic and facilitation roles that federal and state
government agencies can play.
III.4 Additional Items Raised in Follow-Up Plenary Session
The presentation of the action agendas (see Attachment A) by the individual working
groups stimulated much discussion in the plenary session. The specific points raised in the
plenary session often underscored issues and actions included in the agendas. For example,
participants reiterated the needs for: :
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111-14
• Corporate managers to change their philosophy to bring "green accounting"
to mainstream corporate America,
• The private sector to take the initiative to make it happen, and
• Stakeholders to use a larger vision to motivate action
Participants also discussed several related issues and actions, without reaching overall consensus.
Many of these are described below.
Costs. The plenary session comments addressed the costs of undertaking new accounting
initiatives and the difficulty of optimizing the tradeoff between costs and benefits. Participants
suggested that the newness of this topic makes it difficult to determine if environmental cost
accounting is itself worth its cost. Participants discussed retrospective analysis of implemented
projects as an approach to this issue, including the benefits and difficulties of such post-facto
evaluations. Participants also discussed providing internships to work on these issues.
Data. Not much data for environmental cost benchmarking appears to currently be
available. A number of companies are still endeavoring to identify environmental costs.
Future Liabilities. Workshop participants suggested that future liabilities be estimated and
allocated to current operations, but also remarked that to improve decision-making in companies
requires good management accounting systems, not solely environmental cost accounting systems.
Further, there was some discussion of how to allocate to current operations the costs of future
liabilities.
Life Cycle Costing. Participants recommended that existing life cycle cost models
currently in wide use in the defense sector be evaluated for modification to highlight
environmental costs. Several Workshop participants are actively engaged in life cycle costing and
described relevant projects. In general, these life cycle costing projects focus from materials
acquisition through disposal or decommissioning. They do not usually integrate a broader life
cycle perspective where environmental costs of activities upstream from acquisition are also
included.
Internalizing Externalities and Social Values. An issue raised during the Workshop was
the desirability of expanding the basic internal business scorecard that drives all business decisions
to incorporate environmental effects. Net profit to stockholders may not sufficiently recognize
effects on workers, customers, neighbors, communities, and society.
External Reporting. Participants pointed to public reporting and the Public
Environmental Reporting Initiative (PERI) guidelines as worthy of attention, while acknowledging
that the Workshop was not intended to address financial/environmental reporting issues. External
reporting was described as a powerful tool for highlighting environmental impacts. On the one
hand, it can assure managers that the consequences of their decisions to allow or prevent
pollution will be publicly disclosed and that, in many cases, they will be held responsible by senior
management and colleagues in the company, stockholders, and the public. On the other hand,
public reporting can empower citizen, community, public interest, and environmental groups with
information needed to effectively engage business in addressing pollution.
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Ill-15
Other Stakeholders. Workshop participants also suggested some additional stakeholder
organizations to involve:
• Small Business Development Centers (SBDC), funded by the U.S. Small
Business Administration, were described as an excellent vehicle to
accomplish actions recommended for the small business community. The
Association .of SBDCs (ASBDC) has a national network that could be a
useful way of educating and motivating SBDCs.
• The defense community has developed and used forward-looking cost
models to assess such factors as reliability, support equipment,
maintenance, and so on. Such models could be modified to demonstrate
the life cycle cost of environmental decisions.
Concerns. Finally, several concerns were voiced. Many participants were leery of more
government regulation, believing that to be an impediment to progress. The Financial Accounting
Standards Board (FASB) model, where industry self-regulates, was viewed as preferable to the
government's.involvement in standard-setting for accounting. Other concerns included the view
that accounting systems are not the problem because such systems can be flexible; rather, the
focus should be on management. Concerns were raised about too narrow a definition of
environmental costs, to the exclusion of environmental externalities, and, conversely, whether too
broad a definition is desirable.
Workshop participants were told that they would have an opportunity to review and
comment on the report of the Workshop prior to the publication of proceedings. All participants
were sent a draft version of this Chapter III, and were contacted about comments. Comments
received were compiled and incorporated in this chapter.
III.5 Next Steps
For more than a year, major stakeholder organizations have been working to develop an
Action Agenda that would lead to improved management accounting and capital budgeting for
environmental costs. This Stakeholders' Action Agenda, a compilation of ideas and
recommendations, is the culmination of that effort. It is now time to begin implementing the
many good ideas captured in the Agenda.
Everyone should see in the Agenda specific actions that they can pursue in the near,
medium and long-term time frames. EPA is currently reviewing its options for implementing the
Government Action Agenda and will make its efforts public.
Implementing the Action Agendas
As a facilitator, EPA is committed to helping stakeholders implement this Action Agenda
and share information. If you and your organization would like to participate in implementing
one or more recommendations in the Agenda, undertake any other activities to promote improved
accounting and capital budgeting, or inform colleagues about available resources and publications,
EPA will be pleased to communicate this information. The Agency is also interested in exploring
cooperative efforts to implement the Agenda. Whether you represent a company, academia.
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111-16
government, an- advocacy group, a professional or trade organization, or any other organization,
all of the Workshop co-sponsors and attendees encourage you to get involved.
If you are currently implementing or plan to implement any facet of the Action Agenda,
please complete EPA's revised Accounting Network membership form. The Agency will be using
the Network forms for tracking commitments to implement the Action Agenda and collecting
resource information. Additional Network forms may be obtained from EPA's Pollution
Prevention Information Clearinghouse (PPIC). Contact the PPIC at (202) 260-1023 or write:
PPIC
U.S. EPA Headquarters Library
401 M Street, S.W. (3404)
Washington, D.C. 20460
FAX (202) 260-0178
If you are interested in discussing cooperative efforts to implement the Agenda, please
contact Dr. Martin A. Spitzer or Holly Elwood in EPA's Office of .Pollution Prevention and
Toxics at:
U.S. Environmental Protection Agency
Pollution Prevention Division (7409)
401 M Street, S.W.
Washington, D.C. 20460
(202) 260-4164
For information about EPA's Design for the Environment, Management Accounting and
Capital Budgeting for Environmental Costs Program, to join EPA's environmental accounting
Network, or to learn about available resources on management accounting and capital budgeting
for environmental costs, please contact PPIC at the above address.
-------
ATTACHMENT A
STAKEHOLDERS' ACTION AGENDA
-------
A-l
HOW TO USE ATTACHMENT A
The overall Stakeholders' Action Agenda is comprised of ten mini stakeholder action
agendas. The agendas were developed by ten separate working groups. Attachment A presents
these action agendas. Note that the four business stakeholders agendas have been grouped
together under the heading of Business Action Agendas. The individual agendas appear in the
following order:
1-4. Business Action Agendas
1. Business Financial
2. Business Accounting
3. Business Environmental Safety and Health
4. Business Operations
5. Accounting Associations Action Agenda
6. Small Business Action Agenda
7. Non-Accounting Professional Associations Action Agenda
8, Management Consultants Action Agenda
9. Education and Research Community Action Agenda
10. Government Agencies Action Agenda
The Action Agendas include:
(1) the issues and actions identified by the working group responsible for the
particular stakeholder action agenda, as well as
(2) issues and actions deemed relevant to that stakeholder group by other
working groups.
Each recommendation in the action agendas is numbered according to the stakeholder
group that developed it, in the order it was presented to the plenary session. Where an item has
been appended to a stakeholder agenda by another group, it retains the identifying number of the
originating group. For example, all recommendations developed by the Accounting Associations
work group (Group 5) start with the number "5;" because their/recommendation 5.3.A
(Continuing professional education) applied also to academia (Group 9), it is also appended to
Group 9's action agenda but retains the "5.3.A" identifier. Recommendations by one group for
actions by another highlight that success depends on collaboration and teamwork.
This does not mean that every individual within each group necessarily agreed with every
item; nor does it mean that the groups exhausted all possible issues and actions. Rather, the
intent was to generate representative lists of important needs and recommended actions that
stakeholders could adopt, adapt, and implement. Occasional blank spaces in the agendas,
particularly in recommended time frames, indicate that a working group ran short of time.
-------
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ATTACHMENT B
TABLE OF ACRONYMS
AAA
AACE International
AAES
AAEE
AIChE
AICPA
AIPE
AIPP
APICS
ASBDC
ASHRAE
ASME
AWMA
CACA
CASB
CICA
CIMA
DOC
DoD
DOE
EPA
American Association of Accountants
The Association for Total Cost Management
American Association of Engineering Societies
American Academy of Environmental Engineers
American Institute of Chemical Engineers
American Institute of Certified Public Accountants
American Institute of Plant Engineers
American Institute of Pollution Prevention
American Production Inventory Control Society
Association of Small Business Development Centers
American Society of Heating, Refrigeration, & Air Conditioning
Engineers
American Society of Mechanical Engineers
Air & Waste Management Association
Chartered Association of Certified Accountants
Cost Accounting Standards Board
Canadian Institute of Chartered Accountants
Chartered Institute of Management Accountants
Department of Commerce
Department of Defense
Department of Energy
Environmental Protection Agency
-------
B-2
FEI
ICAEW
IEEE
HE
IMA
IRS
LCA
LCC
MTC
NIST
OMB
PMA
PPIC
SBA
SBDC
SCORE
SEC
SMAC
SOLE
TAP
TCA
ATTACHMENT B (continued)
TABLE OF ACRONYMS
Financial Executives Institute
Institute of Chartered Accountants of England and Wales
Institute of Electrical and Electronics Engineers
Institute of Industrial Engineers
Institute of Management Accountants
Internal Revenue Service
Life Cycle Analysis
Life Cycle Costing
Manufacturing Technology Center
National Institute of Standards and Technology
Office of Management and Budget
Project Management Association
Pollution Prevention Information Clearinghouse
Small Business Administration
Small Business Development Center
Service Corps of Retired Executives
Securities and Exchange Commission
Society of Management Accountants of Canada
Society of Logistics Engineers
Technical Assistance Program (state-run)
Total Cost Assessment or Total Cost Accounting
-------
APPENDIX I: ACTION AGENDA WORKSHOP ATTENDEES
Mr. Paul Amidei
Managing Editor, Newsletters
Harcourt Brace Professional Pub.
525 B Street, Suite 1900
San Diego, CA 92101-4495
(619) 699-6570(0)
(619) 699-6542 (F)
Mr. Michael D. Anderson
Sr. Consultant
Deloitte & Touche
333 Clay Street, Suite 2300
Houston, TX 77002-4196
(713) 756-2374(0)
(713) 756-2006 (F)
Mr. Kenneth L. Aulen
Admin V.P. & Controller
Ashland Oil Company
P.O. Box 391
Ashland, KY 41114
(606) 329-5454 (0)
(606) 329-4950 (F)
Mr. Paul Bailey
Sr. Vice President
ICF Incorporated
9300 Lee Highway
Fairfax, VA 22031
(703) 934-3225 (O)
(703) 934-9740 (F)
Mr. Ken Baker
Professor
Tuck School
Dartmouth College
Hanover, NH 03755
(603) 646-2064 (O)
(603) 646-1308 (F)
Mr. Nandkumar Bakshani, Research
UCLA - Dept. of Chem. Engr.
5531 Boelter Hall
405 Hilgard
Los Angeles, CA 90024
(310) 825-6303 (O)
(310) 206-4107 (F)
Mr. Phil Barnes
Technical Consultant
University of South Carolina
College of Business
Columbia, SC 29208
(803) 777-5118 (O)
(803) 777-4403 (F)
Mr. Richard Barth
Chairman, President & CEO
Ciba-Geigy Corporation
444 Saw Mill River Road
Ardsley, NY 10502
(914)479-2113(0)
Ms. Beth Beloff
Director
University of Houston
4800 Calhoun
College of Business
Houston, TX 77204-6283
(713) 743-4804(0)
(713) 743-4807 (F)
Mr; Thomas R. Blanckaert
Manager, Fin. & Inf. Sys.
General Electric
3135 Easton Turnpike-W1 A1
Fairfield, CT 06431
(203) 373-2313(0)
(203) 373-3342 (F)
Mr. Steven M. Boden
Partner
Deloitte & Touche
1633 Broadway
New York, NY 10019
(212) 492-2732 (O)
(2li2) 489-6944 (F)
Mr. Germain Boer, Prof, of Mgmt.
Owen Graduate School of Mgmt.
Vanderbilt University
401 21st Avenue South
Nashville, TN 37203
(615)322-2059(0)
(615) 343-7177 (F)
Ms. Corinne Boone
Economist, Energy Serv. &
Envir. Grp.
Ontario Hydro
700 University Avenue, C6-C8
Toronto, Ontario, CANADA
M5G 1X6
(416) 506-3823(0)
(416) 506-3409 (F)
Mr. Keith E. Bowers
Project Manager
ICF Incorporated
1850 K Street, N.W.
Suite 1000
Washington, D.C. 20006
(202) 862-1132(0)
(202) 862-1144 (F)
Ms. Mary Brockmiller
Senior Environmental
Coordinator
Amoco Oil Company
200 E. Randolph Drive
(MC-11O3)
Chicago, IL 60601
(312) 856-5879(0)
(312) 616-0529 (F)
Mr. Chris Brown
Business Analyst
Duke Power Company
422 South Church Street
Chariotte, NC 28242-0001
(704) 382-8624 (O)
(704) 382-3300 (F)
Mr. Donald J. Cass
Senior Principal
Cass & Associates
P.O. Box 741069
Los Angeles, CA 90004
(213) 388-1496(0)
(213) 388-1496 (F)
-------
-2-
Appendix I
Mr. James Craig
Branch Chief, Policy Analysis Br.
U.S. Environmental Protection Agency
401 M Street, S.W. ~ (MC-7409)
Washington, D.C. 2046O
(202)260-4168(0)
(202) 260-0178 (F)
Mr. Daryl Ditz
Associate
World Resources Institute
1709 New York Avenue, N.W.
Washington, D.C. 20006
(202) 662-3498 (O)
(202) 638-0036 (F)
Ms. Nicole Darnall, Research Assistant Ms. Melinda Dower
University of Texas at Arlington
Department of Economics
P.O. Box 19479
Arlington, TX 76019
(817) 273-3221 (O)
(817) 273-3145 (F)
Mr. David Davenport
ILS Manager
Texas Instruments, MS 8030
2501 West University
McKinney, TX 75070
(214)952-5216(0)
(214) 952-5222 (F)
Mr. Ron DeMarchis
Manager
Ciba-Geigy Corporation
444 Saw Mill River Road
Ardsley, NY 10502
(914)479-4123(0)
(914) 479-2636 (F)
Mr. Douglas DeVries
Environmental Manager
Hyde Tools
54 Eastford Road
Southbridge, MA 01550
(508) 764-4344 ext. 228 (O)
(508) 765-5250 (F)
Ms. Kathleen D. Dines
Staff Accountant
ALCOA Aluminum Co. of America
1501 Alcoa Building
Pittsburgh, PA 15219
(412) 553-4277(0)
(412) 553-3906 (F)
Senior Policy Analyst
NJ Dept. of Env. Prot. & Energy
401 E. State Street, CN-423
Trenton, NJ 08625
(609) 777-0518(0)
(609) 777-1330 (F)
Mr. James D. Englehardt, Asst. Prof.
University of Miami
Dept. of Civil and Arch. Engrg.
P.O. Box 248294
Coral Gables, FL 33124
(305) 284-5557 (O)
(305) 284-3492 (F)
Mr. Ralph Estes
Professor of Accounting
The American University
1735 "S" Street, N.W.
Washington, D.C. 20009
(202) 265-6449 (O)
(202) 797-0606 (F)
Mr. Frank J. Farfone
Director of Corp. Relations
President's Council on Sus. Dev.
The Dow Chemical Company
2030 Dow Center
Midland, Ml 48674
(517) 636-8201 (O)
(517) 636-0389 (F)
Mr. Nate Fisher
President
Foresight, Inc.
8550 Avenida De Las Ondas
La Jolla, CA 92037
(619)491-2774(0)
(619) 491-2774 (F)
Mr. Robert A. Fisher
Director, Waste Minimization'
ARCO, AP-4135 ARCO
515 South Flower Street
Los Angeles, CA 90071
(213)486-3104(0)
(213) 486-2021 (F)
Mr. Julian Freedman
Director of Research
Institute of Mgmt. Accts.
10 Paragon Drive
Montvale, NJ 07645-1760
(201)573-6212(0)
(201) 573-0639 (F)
Mr. William S. Garcia
Mgr., Acctg. Res. & Practice
Union Carbide Corporation
39 Old Ridgebury Road
Danbury, CT 06817
(203) 794-3411 (O)
(203) 794-4351 (F)
Ms. Terri Goldberg
Pollution Prevention Program
Manager
NEWMOA
129 Portland Street
Boston, MA 02114-2014
(617) 367-8558 (O)
(617) 367-0449 (F)
Mr. Mark Greenwood
Director
Ofc. of Poll. Prev. & Tox.
U.S. EPA
401 M Street, S.W., MC-7401
Washington, D.C. 20460
(202) 260-3810(0)
(202) 260-1764 (F)
Mr. Locke Hassrick
Consultant
Logistics Management Institute
6400 Goldsboro Road
Bethesda, MD 20817
(301)320-7425(0)
(301) 229-2373 (F)
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-3-
Appendix I
Mr. Carl Henn
Member
NJ State Commission on Env. Ed.
1050 George Street, Apt. 8M
New Brunswick, NJ 08901
(908) 766-1020(0)
(908) 766-7523 (F)
Mr. Eric A. Hillenbrand, Principal
A.T. Kearney, Inc.
1200 Bank One Center
600 Superior Avenue E.
Cleveland, OH 44114
(216)479-6939(0)
(216) 781-4078 (F)
Mr. William J. Ihlanfeldt
Assistant Controller
Shell Oil Company
P.O. Box 2463
Houston, TX 77252
(713) 241-3219(0)
(713) 241-7261 (F)
Mr. Al Innes
Associate Director
WRITAR
1313 5th Street S.E., Suite 327
Minneapolis, MN 55414
Mr. Mike Kabjian
Environmental Pert. Improvement
Roy F. Weston, Inc.
1 Weston Way, Building 91N
West Chester, PA 19380-1499
(215) 430-3170 (O)
(21 5) 430-7455 (F)
Ms. Dorothy A. Kellogg
Director, Policy Analysis
Chemical Manufacturing Association
2501 M Street, N.W.
Washington, D.C. 20037
(202)887-1178(0)
(202) 887-1237 (F)
Mr. Thomas Klammer
Regents Professor
University of North Texas
2213 Stonegate
Denton, TX 76205
(817) 565-3099 (O)
(817) 565-3803 (F)
Mr. William N. Lanen
Associate Professor
Sch. ,of Bus. Adm.
University of Michigan
Ann Arbor, Ml 48109-1234
(612) 379-5995 or (612) 698-5267 (O) (313) 763-0487 (O)
(612) 379-5996 (F) ' (313) 763-5688 (F)
Mr. Richard A. Jacobs
Mgr., Environmental Operations
PPG Industries, Inc.
One PPG Place
Pittsburgh, PA 15272
(412)434-2363 (O)
(412) 434-2137 (F)
Mr. Mark N. Joyce
Dir., Env. Inf., EC. & Tech. Staff
U.S. Environmental Protection Agency
401 M Street, S.W. (1601F)
Washington, D.C. 20460
(202) 260-6889 (O)
(202) 260-6882 (F)
Ms. Carol Lawrence
Assistant Professor
University of Missouri
312Middlebush Hall
Columbia, MO 65211
(314) 882-2474(0)
(314) 882-0365 (F)
Mr. Dan Lee
Finance Mgr., Int. Sol. Waste Mgmt.
Weyerhaeuser Company
501 S 336th Street, CCII-102
Federal Way, WA 98003
(206), 924-3616(0)
(206) 924-7395 (F)
Mr. Thomas F. Leonard, Jr.
Manager, Accounting Projects
General Electric Company
3135 Easton Turnpike (W31)
Fairfield, CT 06431
(203) 373-3179 (O)
(203) 373-3162 (F)
Mr. Gregory A. Lorton
Manager
Chem. and Environ. Engrg.
Ogden Env. and Energy Serv.
Co., Inc.
5510 Morehouse Drive
San Diego, CA 92121
(619) 458-9044(0)
(619) 458-0943 (F)
Mr. Richard W. Maclean
Vice President, EHS
Arizona Public Service Co.
P.O. Box 53999, MS 9085
Phoenix, AZ 85072-3999
(602) 250-2916(0)
(602) 250-3002 (F)
Ms. Cindy Mallonee
Supervisor
Arizona Public Service Co.
P.O. Box 53999
Phoenix, AZ 85072-3999
(602) 250-3568 (O)
(602) 250-2023 (F)
Mr. David C. Mitamura
Project Manager
Global Env. Mgmt. Init. (GEMI)
2000 L Street, N.W., Suite 710
Washington, D;C. 20036
(202) 296-7444 (O)
(202) 296-7442 (F)
Mr. Doug Moody, Editor
Nat'l. Pollution Prevention Ctr.
430 E. University Avenue, Dana
Building
University of Michigan
Ann Arbor, Ml 48109-1115
(313) 764-1412(0)
(313) 936-2195 (F)
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-4-
Appendix I
Mr. John F. Morrow
Director, Mgmt. Accounting
American Institute of CPAs
Harborside Financial Center
201 Plaza Three
Jersey City, NJ 07083
(201)938-3011 (0)
(201) 938-3329 (F)
Mr. George Muhlebach
Director, Environmental Affairs
Ciba-Geigy Corporation
444 Saw Mill River Road
Ardsley, NY 10502
(914)479-4163(0)
(914) 479-2332 (F)
Mr. George Nagle
Director, Env. Health & Safety Serv.
Bristol-Myers Squibb
315 Thompson Road (P.O. Box 182)
E. Syracuse, NY 13057
(315)432-9682(0)
(315)432-4761 (F)
Ms. Judith A. Nelson
Special Assistant
U.S. Environmental Protection Agency
Prev., Pest., & Toxic Sub. (TS-788)
401 M Street, S.W.
Washington, D.C. 20460
(202) 260-4177 (O)
(202) 260-1847 (F)
Mr. Fred J. Newton
Deputy Director
Defense Contract Audit Agency
Cameron Station
Alexandria, VA 22304-6178
(703) 274-7281 (O)
(703) 617-7450 (F)
Mr. Dennis Peek
Staff Consultant
Ogden Env. & Energy Serv. Co., Inc.
7301-A Indian School Road, N.E.
Albuquerque, NM 87110
(505)881-9228(0)
(505) 881-9357 (F)
Mr. Matthew Polsky, Research Scientist Mr. William G. Russell
N.J. Dept. of Env. Prot. & Energy
Risk Reduction Unit, Div. of Science
CN402
Trenton, NJ 08625-0402
(609) 777-0319(0)
Mr. R.S. Price
Manager, Env. Stewardship
DuPont Company
Maple Run 2024
P.O. Box 80, 721
Wilmington, DE 19898
(302) 999-4128 (O)
(302) 999-3099 (F)
Mr. Frank Pucciano, Sr. Power Engr.
Georgia Power Company
One Decatur Town Center
150 East Ponce de Leon Ave.
Decatur, GA 30030
(404)371-5711 (O)
(404) 371-5777 (F).
Dr. Ed Quick
Manager, Environmental Health &
Safety
Hoechst Celanese Corp.
P.O. Box 428
Bishop, TX 78343
(512)584-6461 (O)
(512) 584-6168 (F)
Mr. Mark Ralston
Analyst
U.S. Environmental Protection Agency
401 M Street, S.W. (MC-5302W)
Washington, D.C. 20460
(703) 308-8595 (O)
(703) 308-8433 (F)
Mr. Henry F. Rej
Consultant
Arthur D. Little, Inc.
Acorn Park
Cambridge, MA 02140
(617)498-6187(0)
(617) 498-7019 (F)
Director, Environmental Serv.
Coopers & Lybrand
1301 Avenue of the Americas
New York, NY 10019
(212) 259-1688(0)
(212) 259-1301 (F)
Mr. Richard A. Selg, CCE
National Technical Director
AACE International
190 Kestwick Drive West
Martinez, GA 30907
(803) 644-6711 (O)
(803) 644-6923 (F)
Mr. David Shields
Associate Professor
University of Houston
4800 Calhoun
Houston, TX 77204-6283
(713) 743-4831 (O)
(713) 743-4807 (F)
Ms. Linda B. Specht
Assistant Professor
Trinity University
715 Stadium Drive
San Antonio, TX 78212-7200
(210) 736-7348 (O)
(210) 736-8134 (F)
Mr. Martin A. Spitzer
Director
EPA's Acctg. & Cap. Bud. Proj.
U.S. Environmental Protection
Agency
401 M Street, S.W. (MC-7409)
Washington, D.C. 20460
(202) 260-4342 (O)
(202) 260-0178 (F)
Mr. Richard Stevens
President
Intelog Incorporated
7501 U.S. Highway 287 S,
Suite C-3
Arlington, TX 76017
(817) 572-6966(0)
(817) 561-0716 (F)
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-5-
Appendix I
Mr. Chris Stinson
Assistant Professor
University of Texas
Dept. of Acctg., CBA 4M.202
Austin, TX 78712
(512)471-5318(0)
Mr. Michael J. Thibault
Asst. Director, Policy & Plans
Defense Contract Audit Agency
Cameron Station
Alexandria, VA 22304-6178
(703) 274-7323 (O)
(703) 617-7452 (F)
Ms. Rebecca Todd, Professor
New York University
433 Tisch Hall
40 West 4th Street
New York, NY 10012
(212)998-0028(0)
(212) 995-4004 (F)
Mr. Dick Torborg
Financial Advisor
Executive Offices of Environmental
Affairs
100 Cambridge Street, 21st Floor
Office of Technical Assistance
Boston, MA 02202
(617) 727-3260 ext. 641 (0)
(617) 727-3287 (F)
Mr. John L. Warren
Program Director
Env. Mgmt. Sys. Ctr. for Econ. Res.
Research Triangle Institute
Research Triangle Park, NC 27709-
2194
(919) 541-7308(0)
(919) 541-5945 or 6683 (F)
Mr. Michael Whinihan
Senior Economist
General Motors Corporation
3044 West Grand Boulevard
Room 15-255
Detroit, Ml 48202
(313) 556-3878(0)
(313) 974-7165 (F)
Mr. Allen L. White
Director, Risk Anal. Grp.
Tellus Institute
11 Arlington Street
Boston, MA 02116
(617) 266-5400(0)
(617j) 266-8303 (F)
Mr. Ed Williams
Manager, Ind. Poll. Prev.
Texas Nat. Res. Conserv. Comm.
P.O. Box 13087-OPPR
Austin, TX 78711-3087
(512)463-7778(0)
(512) 475-4599 (F)
Mr. Alan Willis, C.A.
Alan Willis & Associates
1889 Truscott Drive
Mississauga, Ont., CANADA
LSJ2A1
(905) 855-8529 (O)
(905) 855-8529 (F)
Mr. John Wysseier
Audit Supervisor
PPG Industries, Inc.
One PPG Place
Pittsburgh, PA 15272
(412)434-3084(0)
(412) 434-4578 (F)
Mr. John Yates
Logistics Project Mgmt.
Loral Vought Systems
3420 Socrates Drive
Grand Prairie, TX 75052-8039
(214) 603-7802 (O)
(214) 603-9013 (F)
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APPENDIX II: EVALUATION SUMMARY
The following information is based upon the receipt of evaluation forms from 46 of the 81
attendees:
Overall Quality
Schedule/Agenda
Content
Plenary Speakers
Breakouts (Monday)
Breakouts (Tuesday)
Materials
Audio Visual
Meeting Rooms
Food
Accommodations
Location
Registration
TOTALS
In future conferences:
Breakouts
Speakers
Question & ^
Informal Networking
TOTALS
[satisfied Poor Fair Good Very CnnH Fvr^i^nt
0
0
0
0
0
0
0
0
1
0
0
2
0
3
wei
•kin
0
1
0
0
2.5
2.5
5
3
4.5
2
1
, 4.5
0
26
• Periods
g
1
1
0
1
2
3
2
3
4
7
4
3
1
32
More
13
12
15
33
75
23
26
30
19
22
26
30.5
30
22
30
32
29.5
21.0
341
Less
4
4
3
_Q
11
2
1
2
3
0
0
1
0
0
0
0
0
1
10
Same
26
27
24
11
88
19
15
14
20
17.5
10.5
6.5
6
13.5
7
6
6
23
164
Not Rated
3
3
4
J.
12
Not Rated
1
2
0
3
2
4
1
4
1
0
3
1
0
22
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APPENDIX IH:
ACTION AGENDA WORKSHOP ATTENDEES' BULLETIN BOARD
At the. end of the Workshop attendees were asked to write down what areas of the Action Agenda
they would be most interested in helping!to implement and what services they could offer to others. The
attendees responses follow.
Michael Anderson
Deloitte & Touche
Houston, TX & S.F., CA
(713) 756-2374
Areas of Involvement
Development of Models to incorporate into the capital allocation process
Incorporate external/societal costs
Different Assumptions about future risk
Govt (methodologies)
Industry
How to incorporate long-term liability
assessment :
reporting ;
"Goal"
To develop an action agenda for the business/finance stakeholder group that will foster improved
accounting and capital budgeting for Environmental Cost/Investment
Defining data requirements
Phil Barnes
use
SBDC
State: South Carolina-Small Business Development Centers
National: Association of Small Business Development Centers. (ASBDC)
I am a member of the SBDC network, listed above, of South Carolina. There are SBDC's located in
each state.
I am currently establishing a Pollution Prevention Program at the SC-SBDC. Since our regional offices
are located at Universities, USC, Clemson, Winthrop, and SC State, we have resources through University
expertise. We also network with other state agencies in order to assist Small Business.
The SBDC has the ability to assist in research development and dissemination of information (training)
of new methods (tools) for Small Business.
Interested in:
1. serving on committees
2. promoting/marketing of TCA/Environmental Accounting methods, etc.
-------
-2-
Appendix III
3. Developing/researching companies/developing case studies
4. Being the Hub for developing TCA network in SC for Small Business
5, Assisting in providing information to the ASBDC for dissemination to their State's SBDC
Network.
Beth Beloff
What I am Willing to Do
Develop the Methodology for Environmental Cost Accounting with our ICEM/University of Houston
team.
Steve Boden
Areas of Involvement - Not All!
1. External reporting of Environmental Performance to Stakeholders
2. Defining inventory or Environmental Costs
3. Income Tax Regulations that impact ajl Environmental Expenditures
4. Development of Incentives for Management - Environmental Leadership Programs
5. Training material for TCA/Improved Mgmt. Acctg.
Germain Boer
What I can do: Provide input on cost reporting and cost analysis systems
What my University can do: Provide research resources. We have an economist who is studying
environmental issues who can work with me on accounting and economic
issues.
Corinne Boona
Ontario Hydro
1. Business Accounting Group
Communications & Teamwork
Non-Quantifiable
Externalities-Have done a significant amount of work in this area
Liabilities
2. Key definitions & terms (development of) we have done some work in this area
3. Appraisal of Costs & Benefits to society
4. Would also like to share information as we at Ontario Hydro continue with our process
of implementing Full Cost Accounting on Decision-making
5. Developing Incentives/Management i.e. How do you build environmental cost issues
into Performance contracts? (we are doing some work in this area as pat of the
Sustainable Development Task Force work)
-------
-3-
Appendix III
Donald J. Cass
* Environmental Cost Analysis
* Consulting
Dan Davenport
ILS Manager
Texas Instruments
Affiliated with Society of Logistics Engineers, North Texas Chapter
Currently developing seminar on Pollution Prevention would like to create dialog with EPA.
Willing to assist in idea of forward-looking cost models. Would like to run follow on article in SOLE
Newsletter.
Kathleen D. Dines
ALCOA, Pittsburgh, PA
(Corporate Office-Staff Accountant)
I am responsible for coordinating the efforts of Accounting (Financial & Cost), Environmental (Radiation
& P2 groups), legal (Superfund/litigation), and our production locations (incurring costs). To ensure our
company's various management has the necessary data to measure our progress in the area - to facilitate
individually & via interaction with focus groups (i.e. P2 team). We've had success in developing formal
processes for remediation/superfund/and management goals. We are in the process of
formalizing/summarizing P2 programs. We benefit in that our management (& CEO) support already exists,
and are working to bridge the gap between their philosophy & the actual efforts which exist on the production
floor.
Our program is good for a big company; smaller companies would need to tailor, of course. I've
learned marvelous things from this workshop-we had a good & lots of interaction. Any "seminar" atmosphere
definitely is improved with interaction. I have a millon ideas & new concepts to take back with me, and would
love to help you in the global efforts if possible.
Melinda Dower
NJ Department of Environmental Protection
Office of Pollution Prevention
What I'm Willing to Do
I can work on regulatory reform efforts. I'm not sure what else I can do—if the group wants to test
some ideas/accounting practices on businesses, we can offer NJ facilities to volunteer. (We work closely with
lots of helpful facilities willing to offer advice)
Ralph Estes
I would like to volunteer to work on setting up a Working Group on Environmental Disclosure.
-------
-6-
Appendix III
John Morrow
American Institute of CPA's
** Communicate/coordinate w/lnternational counterparts
** Participate in std. setting arena (ANSI, ISO)
* * Promote commitment of top mgmt.
cost avoidance vs. revenue enhancements
** Publish success stories etc.
George Nagle
Bristol-Myers Squibb
We would be interested in working on a team (with EPA) to develop a mechanism for sharing case
studies (success stories) from business.
Randy Price
DuPont
The Business Rondtable (BRT)
Once issues are identified I will pursue options at BRT.
Frank Pucciano
1. Institute of Industrial Engineers (HE) & Personal -will work on identifying or developing a "tool
kiffor identifying Pollution/Waste options, cost components of Pollution/Waste & technologies for gathering &
quantifying cost associated with Pollution/Waste.
Henry Rej
Arthur D. Little, Inc.
What I can Do:
Provide at least one input (our approach) to LCA, as part of the common body of
knowledge
Share experiences with companies who have made the link between env. costing and
sustainable competitive advance
Facilitate/Coordinate an informal newsletter to share success stories, methodologies,
problems, concerns, ideas for standards, etc.
General experience and problems we have incurred doing P2 assessments for a
government agency
Willing to participate in future working groups or committees in environmental
accounting-particularly cap budgeting/investment decision methods
Can share training material from the seminar we offer in env. comp. strategy
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-7-
Appendix III
Bill Russell
Coopers & Lybrand
Willing to work on all programs combining both my technical (chemical
engineering/environmental consulting) and financial (MBA. C&L relationship)
capabilities.
Groups: C&L Firm Wide Resources
Institute of Hazardous Materials Management (IHMM)
Env. Audit Roundtable
AlChE
AICPA/EITF
Electric Generators Association
Would like to work on any task force which would be developing models for estimating costs or
standards for reporting costs and environmental information systems.
Added:
International Benchmarking type follow-up Coopers has many international environmental
practices which could be tapped.
David Sheilds
What I'm Willing to Do
(1) Work with any groups in helping to establish and test environmental cost accounting for
decision-making. Prefer private sector work over government, (regulation-oriented work)
(2) Help identify and disseminate academic research on environmental cost accounting
What Associations I'm Involved with Might be Willing to Do
Have discussed the possibility of a special issue of Journal of Accounting on Public Policy (University
of Maryland) on environmental accounting with Steve Loeb, co-editor. I am on their editorial board.
Linda B. Specht
I will volunteer to assist in the preparation of case studies/teaching notes to accompany case studies &
can serve as a liaison to the North American Case Research Association. I am currently track chair of the
Acct/Finance track. These cases would also be appropriate for the small business/strategic management
tracks.
Richard W. Stevens
Intelog, Inc.
Participate in Training Requirements Definition
Participate in Life Cycle Costing Requirements Definition, etc.
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Appendix HI
Mike Thibault
DCAA
Interest
1.
2.
3.
Information Network Analysis (e.g. what info is out there and how can it best be
obtained/retrieved)
Accounting practitioner's round table (who is working the issues, what are the issues, and
how can these issues best be researched/resolved between Govt and Industry)
Coordination among Government Agencies over Policies/regulations and experiences
Rebecca Todd
Internet address: (RTODD@RND.STERN. --NYU.EDU)
Background
1.
2.
3.
1991 — WRI Environmental Management Accounting Project
Objective: Case studies to develop recommendations for managerial accounting
system enhancements to better support managerial decision-making
needs
1978 - Research on Needs-Driven Information System and analysis improvements
Contribution (currently ongoing)
(1) Research and Development of generalized "best practices" revisions to
managerial information systems
(2) Publication of findings in top accounting and finance journals (both practitioner
and academic)
(3) Teaching - seminars for:
- academics
- executives
- engineers
- accountants
- analysts
- etc.
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