*University of Pardubice and ‡Ministry of the Environment, Czech Republic
jaroslava.hyrslova@upce.cz, hajek_miroslav@env.cz
Abstract. Environmental management systems are broadly implemented in enterprises in the Czech Republic. The Eco-Management and Audit Scheme (EMAS) consists in voluntary activity of the enterprise, intended to control the environmental impact of enterprise activities and to provide the relevant information to the general public and other interested parties.
The Czech Republic has included requirements on implementation of environmental management accounting in the framework of EMAS. If an enterprise is attempting to implement EMAS, then an essential part of the system consists in the obligation to establish and maintain procedures for tracing of environmental costs in order to implement environmental management accounting (EMA).
reporting of environmental costs and revenues. The paper includes some of the results acquired from a qualitative study of the state of preparedness of enterprises, registered in the EMAS, to implement EMA.
The paper deals with requirements on EMA implementation in the framework of EMAS as well as
©2005Springer. Printed in the Netherlands.
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P.M. Rikhardsson et al. (eds.), Implementing Environmental Management Accounting, 279-295
1 INTRODUCTION
Industrial enterprises in the Czech Republic are well aware that their approach to- wards environmental protection is one of the important factors in attaining business success and that they must comply with conditions following from the laws in the area of environmental protection. Often, the costs of achieving compliance with these regulations are very high. The environmental performance of a company and environmental costs could significantly affect the economic results of a company and its financial position (Hyrslovỏ and Bửhmovỏ, 2003). The financial consequences of the attitude of the company towards the environment are of interest not only for the company management, but also other stakeholders (investors, creditors, owners, employees, customers, suppliers, competing companies, state bodies, the public, the media and environmental movements and initiatives). These facts lead to the need to employ environmental management accounting and environmental management systems.
Environmental accounting is a significant component of environmental policy in the Czech Republic. It is employed both at the governmental level and at the com- pany management level and is an irreplaceable instrument in enforcing integration of economic aspects into environmental policy (Hájek, 2002). Increased knowledge of its potential and especially use in decision-making processes is important for implementation of individual measures leading to achieving of the targets of environ- mental policy.
The first attempts to employ environmental management accounting (EMA) were made in the Czech Republic at the beginning of the 90's in connection with approving a number of environmental laws, which significantly affected the economics of the business sector and it was necessary to analyse the impacts of these laws. As no uniform national methodology was available, simplified environmental accounting was mostly employed in the individual enterprises, consisting in tracing the main elements of costs related to environmental protection and reflected in the accounting of the enterprise (Czech Environmental Management Centre, 1993). Basically, two approaches, which can be employed separately or jointly, were employed. Depending on the employed methodology, impacts caused by environmental investments were traced or the impact of increased operating costs was assessed (e.g. also including environmental charges). Tracing of operating costs was based methodically on environmental accounting, which concentrated on tracing of all costs (and payments such as the above-mentioned environmental charges) and revenues or savings related to environmental protection.
Attempts to control the environmental impacts of activities appeared in Czech enterprises simultaneously with the first attempts to introduce EMA. The enterprises decrease the detrimental impact on the environment by introducing environmentally- friendly technologies. Preventative approaches are preferred (preventing waste gene- ration) rather than end-of-the-pipe measures (removal of wastes). The viewpoint of
environmental protection is gradually becoming an integral part of decision-making.
Enterprises are aware of the necessity of improving the material and energy exploi- tation. A further approach leading to a decrease in environmental damage consists in environmentally-suitable product innovation and awarding of “Environmentally- Friendly Product” quality labels since 1994. The Czech Republic continues to em- ploy voluntary initiatives and activities in environmental protection to a great degree, especially implementation of environmental management systems (EMS).
2 IMPLEMENTATION OF ENVIRONMENTAL MANAGEMENT SYSTEMS IN THE CZECH REPUBLIC
EMS is finding increasingly extensive applications in the Czech Republic. As of June 2003, 480 organizations had implemented EMS1. (Czech Environmental Institute, 2003).
In 2002, in the framework of work on research and development projects2, an analysis was carried out concerned with the main reasons for introducing EMS in Czech enterprises (Fedorova et al., 2002). The research was carried out by the Uni- versity of Pardubice and the Brno University of Technology through a questionnaire survey and interviews with the managers of selected enterprises. 208 enterprises, which had introduced EMS at the time of the survey, were addressed. 89 companies participated in the survey (43% response). Companies of various sizes in various branches were represented in the test sample.
The companies gave the following main reasons for introducing EMS:
• Permanent interest in protecting the environment (82% of respondents),
• Improved position on the market (74% of respondents),
• Customer requirements (37% of respondents),
• Pressure from laws and standards (31% of respondents) and
• Cost reduction (19% of respondents).
It thus followed from the questionnaire survey that the main reasons why companies decide to introduce EMS include especially permanent interest in protection of the environment and attempts to improve the position of the company in the market. It is thus apparent from the results of the survey that companies are aware of the in- creasing pressure from stakeholders (especially state bodies, the public and business partners) in a responsible approach to the environment, particularly in the sense of a transition from a passive approach (end-of-the-pipe technology) to an active approach (cleaner production)3. Simultaneously, the laws in the area of protection of the environment are gradually becoming stricter. Most enterprises include environ- mental targets in their company strategies.
The survey also encompassed the benefits that the companies expected from implementation of EMS and whether they were realized (see Table 1).
Table 1.Benefits of EMS implementation (Hyrslovỏ and Bửhmovỏ, 2003)
90 per cent of the enterprises expected that the introduction of EMS would lead to comply with the environmental protection laws and an improved system of manage- ment of the enterprise. The survey demonstrated that this expectation was also met.
It was unambiguously confirmed that "improved order" in the company is one of the great benefits of EMS. In the framework of implementation of EMS, activities are identified that have a detrimental impact on the environment, and important environ- mental aspects and environmental impacts of the company activities, products and services are revealed. The greatest attention is focused on ensuring compliance with the valid laws and standards in the area of environmental protection. Environmental policy and environmental objectives are established. Because of the main target of EMS – a continual improvement in the system – an improved environmental per- formance of the enterprise is achieved in accord with the environmental policy of the company. The enterprise is thus also prepared for stricter environmental laws in the future and is capable of rapidly adapting to them.
More than 70 per cent of companies also expect that introduction of EMS will lead to respect for the principles of sustainable development (i.e. sustainable use of natural resources, creation of environmental awareness of all employees), improved supplier-consumer relations (it means better image of company or enterprise, dis- semination of responsible approach to the environment between contractual partners) and an improved position for negotiations with banks, insurance companies and state authorities (it means an increase of credibility for banks and insurance companies and widening of possibilities in an area of public orders and business support). How- ever, these expectations were not met to the same degree as in the previous case.
A significant difference between expected benefits and their fulfilment was seen by enterprises mainly in the area of an increased market share.462 per cent of com- panies expected that the introduction of EMS would be beneficial from the stand-
Benefits of EMS implementation Expectations Fulfilment
Compliance with the environmental protection laws 90% 89%
Better management 90% 90%
Respecting of the principles of sustainable development 81% 73%
Improving of supplier-consumer relations 78% 65%
Better negotiations with banks, insurance companies,
state authorities 74% 63%
Increasing of the market share 62% 40%
Reducing of costs 44% 40%
point of increasing their market share. However, only 40 per cent of companies confirmed that expectations were met.
The enterprises saw also a benefit of environmental management in the area of decreased material and energy consumption, a decrease in further operating costs, savings of fines related to environmental damage, decreased environmental pro- tection payments, maintenance of cooperation with business partners and increased satisfaction and performance of employees.
3 ECO-MANAGEMENT AND AUDIT SCHEME – EMAS
The government of the Czech Republic supports the introduction of EMS in the long term, especially based on the Eco-Management and Audit Scheme (EMAS) pro- gramme, in accordance with the European Union. EMAS is understood to be a volun- tary activity of the enterprise that is intended to improve the environmental perform- ance of the enterprise and provide the relevant information to the public and other stakeholders. Council Regulation (EEC) No. 1836/1993 was approved in the Czech Republic as the EMAS Programme in Resolution of the Government of CR No.
466/1998 of July 1, 1998. Further, the EMAS Programme based on Regulation No.
761/2001 of the European Parliament and of the Council (EMAS II) was updated in Resolution of the Government of CR No. 651 of June 19, 2002 – the Updated EMAS Programme (Ministry of the Environment of the Czech Republic, 2002b).
Basic documents were approved in connection with the Resolution of the Government of the Czech Republic on introduction of EMAS of 1998.
• The Statute of the Council of the EMAS Programme as the body responsible for EMAS in the Czech Republic;
• The Rules of Procedure of the Council of the EMAS Programme as the body responsible for EMAS in the Czech Republic;
• The Statute of the EMAS Agency;
• The National Programme of introduction of the Eco-Management and Audit Scheme (Updated EMAS Programme);
• The Rules for introduction of the Eco-Management and Audit Scheme;
• Methodical instructions for certifying environmental verifiers.
Czech companies can obtain support for introduction of EMAS from three possible sources.
• The "TRH" Programme of support for small and medium-sized enterprises, admi- nistered by the Czech-Moravian Guarantee and Development Bank – is guaran- teed by the Ministry of Industry and Trade. Support corresponding to up to 50 per cent of demonstrated costs can be obtained for obtaining a certificate.
• Support from the State Environmental Fund is provided to partly cover costs con- nected with certification and introduction of EMAS in an amount of up to 60 per cent.
• The Regions may also provide support within their competence. This means of support is currently oriented towards enterprises with up to 50 employees.
The Czech Republic was the first of the candidate countries to introduce a fully func- tional EMAS system. As of June 30, 2003, the register of companies with introduced EMAS contained 480 industrial enterprises and service enterprises, of which nine organizations has registered EMAS (Figure 1).
Figure 1. Trends in the number of companies with ISO 14001 and EMAS in the Czech Republic (Czech Environmental Institute, 2003)
EMAS has not found such broad application in the Czech Republic as environmental management systems based on the ISO 14 001 standard. Nonetheless, the number of enterprises with validated EMAS is the highest of all the countries preparing for accession to EU (Figure 2).
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ISO 14001 EMAS
Figure 2.Number of enterprises with introduced EMAS in the new EU member states (Czech Environmental Institute, 2003)
4 ENVIRONMENTAL MANAGEMENT ACCOUNTING IN THE FRAMEWORK OF EMAS II
The Czech Republic has included requirements on tracing and tracking of economic impacts, caused by the environmental impacts of the enterprise activities, in EMAS II. If an enterprise is attempting to implement EMAS II, then an essential part of the system consists in the obligation to "establish and maintain procedures for monitor- ing of environmental financial flows in order to implement environmental manage- ment accounting" (Updated EMAS Programme).
In connection with this requirement, the Ministry of the Environment prepared the “Environmental Management Accounting Implementation Guideline” (herein- after Guideline), which came into effect on January 1, 2003 (Ministry of the Environ- ment of the Czech Republic, 2002a). The Guideline was created on the basis of the results of the Environmental Management Accounting Working Group, which was established at the Ministry of the Environment in 2000. Representatives of the Minis- try of the Environment, enterprises, universities, the Czech Environmental Institute and other experts concerned with the subject of protection of the environment work in the framework of the working group.
The concept of EMA is based on interconnecting information on material and energy flows (in physical units) with information in monetary units. Emphasis is placed on the importance of knowledge of the material and energy flow values (mate- rial and energy flows are money flows). The EMA system not only provides informa- tion on the material value on entering the enterprise, but is also a source of infor-
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mation on the costs of processing this material in the individual stages of production.
Thus, a gradual increase can be seen in the value of the material that, through work in process and semi-product becomes a finished product intended for the customers.
During this process, material is lost (wasted) or degraded, and non-product outputs can be created. The EMA system provides the users with information, not only on costs expended to produce products intended for customers, but also on the material purchase value of non-product outputs and processing costs of non-product outputs.
It is possible to trace and track activities and places where losses and wastes occur and non-product outputs are created. On the basis of this information, measures can be proposed that lead to an increase in the efficiency of the use of materials and energy, a reduction in the environmental impacts of the activities, products and ser- vices of the enterprise, a reduction in environmental risks and, in the final stage, an improvement in the economic results of the enterprise.
The Guideline facilitates implementation of EMA both at the level of the enter- prise as a whole and at the levels of the individual company processes, divisions, operations, etc. This means that it is fully within the competence of the enterprise to choose the variant that is suited to the management requirements.
The important step for implementation of EMA is preparation of material, water and energy flow balances (Hyrslová, 2003b). This forms a basis for improving the environmental performance of the company (Jasch, 2001). The boundaries for the balance can thus be the entire enterprise, or the individual workplaces, facilities, centres, processes, products, etc. It is useful to select the boundaries for implemen- tation of EMA so that the information obtained can be used to support the decision- making process in the enterprise (i.e. for instance to select plants with significant environmental aspects). Simultaneously, it is useful to also take into consideration the existing system of management accounting, in order to be able to obtain the relevant monetary information. The Guideline enables preparation of material and energy flow balances for only several selected important materials and kinds of energy or for all the material and energy used in the enterprise (in the system). It is always necessary to take into account that the objective of the balancing process is to trace and track how the materials and energy pass through the enterprise (system).
Consequently, in the framework of EMA implementation, it is necessary to analyse the individual activities and processes that proceed in the enterprise (system), to prepare a balances of material and energy flows, to consider waste flows and their impact on the environment and to obtain the waste, waste water and air emission dis- posal (Hyrslová, 2003b). The material and energy flows are then expressed in mone- tary units. Information determined from the balances form a starting point for measures that should lead to an improvement in the economic results of the enter- prise and its environmental performance (Hyrslová, 2003b, Jasch, 2001).
Information on environmental costs is of great importance for determining the economic consequences of company approach to environmental protection (Hyrs-
lová, 2003b). Identification of environmental costs is based on the balance of mate- rial and energy flows.
The Guideline defines environmental costs as follows:
• costs expended for protection of the environment – i.e. costs connected with com- pany measures (activities) intended to decrease and/or compensate for detrimental environmental impacts of the enterprise, and
• costs related to environmental damage.
Environmental costs are further divided into the following categories:
• The first category of environmental costs consists in costs related to management of waste, waste water and air pollution. These include all costs for treatment of the wastes, waste waters and air emissions and costs for disposal.
• The second category of environmental costs consists in costs related to prevention and environmental management.
• The third and fourth categories of environmental costs consist in the costs of wast- ed material (material purchase value of non-product output) and the costs of pro- cessing.
It is apparent from the definition that environmental costs are not conceived only as the costs of protection of the environment, but that a significant component of environment costs are considered to also consist in costs related to non-product out- puts (wastes). Waste is ineffective not only because the enterprise must deal with the waste in a suitable manner (dispose of it), but primarily because each waste has its
“value”. This "value" includes the costs of wasted material (i.e. the purchase value, for which the wasted material was acquired) and the costs of processing this material, which has not become a product for the market but constitutes an “undesirable” out- put. The Guideline is thus based on the concept of environmental costs, which was conceived by a group of experts working in the framework of the UN Division for Sustainable Development (Jasch, 2001). This definition of environmental costs is of great importance for the needs of environmentally-oriented management. It permits separate evaluation of the environmental protection costs, how much the enterprise expends on waste disposal (either through operation of its own environmental facilities or through payments to external companies) and separate reporting of the value of non-product outputs (i.e. what the enterprise loses through the wastes). The utilization of this approach in the framework of the decision-making process in the enterprise assists significantly in accepting measures that are not only friendly to the environment and constitute a very significant step towards sustainability, but also are, in the final analysis, economically advantageous to the enterprise.