Journal of Cleaner Production 14 (2006) 1262e1275www.elsevier.com/locate/jclepro

Environmental management accounting applicationsand eco-efficiency: case studies from Japan

Roger L. Burritt a,*, Chika Saka b,*

a School of Business and Information Management, The Australian National University, Canberra, ACT 0200, Australiab School of Business Administration, Kwansei Gakuin University, Japan

Received 21 June 2004; accepted 16 August 2005

Available online 12 October 2005

Abstract

This paper explores the links between environmental management accounting and measures of eco-efficiency in Japanese business. Environ-mental management accounting is a relatively new environmental management tool initially designed to trace and track environmental costs andphysical environmental flows. In the paper, first, the recent development of environmental management accounting is considered; second, thelinks between environmental management accounting and eco-efficiency measurement are examined. Recent case studies in environmental man-agement accounting from Japan are used as a basis for the analysis. It is concluded from the analysis that the practice of linking eco-efficiencymeasurement with environmental management accounting information is underutilised, diverse and in need of further promotion if EMA is tohelp Japanese business move production processes and consumption of its products towards sustainability.� 2005 Elsevier Ltd. All rights reserved.

Keywords: Environmental management accounting; Eco-efficiency; Ecological-efficiency

1. Introduction

Environmental management accounting (EMA) is a relativelynew environmental management tool initially designed to traceand track environmental costs and physical environmentalflows. This paper explores the links between environmentalmanagement accounting and measures of eco-efficiency ina number of Japanese companies. In Section 2, the recentdevelopment of environmental management accounting is con-sidered. Links between environmental management accountingand eco-efficiency measurement are examined in Section 3.Section 4 outlines recent case studies in environmental man-agement accounting from Japan, while it is concluded in Sec-tion 5 that the practice of linking eco-efficiency measurementwith environmental management accounting information isunderutilised, diverse and in need of further promotion if

* Corresponding authors. The Australian National University, Canberra,

ACT 0200, Australia. Fax: C612 61 25 4310.

E-mail addresses: roger.burritt@anu.edu.au (R.L. Burritt), saka.chika@

anu.edu.au (C. Saka).

0959-6526/$ - see front matter � 2005 Elsevier Ltd. All rights reserved.

doi:10.1016/j.jclepro.2005.08.012

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

2. Development of environmental managementaccounting

In the last few years there has been movement towards thedevelopment of a comprehensive framework of environmentalmanagement accounting to reflect the following:

� A focus on internal as well as external users of environ-mental accounting information [1];� An increasing number of attempts to define environmental

management accounting [1e3] (see Table 1 for some rep-resentative definitions);� Identification of the need for monetary and non-monetary

information about the environmental impacts of and onorganizations to be gathered and tracked by management[3e7]; and

1263R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Table 1

What is environmental management accounting?

Source Definition

Graff et al. (Tellus Institute) [2] Environmental management accounting is the way that businesses account for the material use and

environmental costs of their business. Materials accounting is a means of tracking material flows through

a facility in order to characterize inputs and outputs for purposes of evaluating both resource efficiency and

environmental improvement opportunities.

Environmental cost accounting is how environmental costs.are identified and allocated to the material

flows or other physical aspects of a firm’s operations.

International Federation of

Accountants (IFAC) [3]

[Environmental management accounting is.] the management of environmental and economic performance

through the development and implementation of appropriate environment-related accounting systems and

practices. While this may include reporting and auditing in some companies, environmental management

accounting typically involves life-cycle costing, full cost accounting, benefits assessment, and strategic

planning for environmental management.

UN DSD EMA Initiative

http://www.un.org/esa/sustdev/

estema1.htm accessed on

19 December 2002

Environmental management accounting serves as a mechanism to identify and measure the full spectrum of

environmental costs of current production processes and the economic benefits of pollution prevention or cleaner

processes, and to integrate these costs and benefits into day-to-day business decision-making.

Schaltegger and Burritt [1] .environmental management accounting is defined in a narrower sense to include only the environmentally induced

financial aspects of accounting that help managers to make decisions and be accountable for the outcome of

their decisions.

Bennett and James [4] The generation, analysis and use of financial and non-financial information in order to optimise corporate

environmental and economic performance and to achieve sustainable business.

� Emphasis on a pragmatic approach to environmentalaccounting for decision-making by different types of man-agers throughout the organization [7]. The pragmaticapproach recognizes: the multiple, interrelated internalmanagement stakeholders responsible for environmentalimpacts of and on organizations; the need to considerlong and short run information needs; flexible reportingthat should address routine and ad hoc information de-mands; integration of past, contemporary and future orien-tations in decision making for environmental impacts; andenvironmental return and risk relationships for business [8].

A set of 16 possible focal points of attention for a compre-hensive environmental management accounting is presented inTable 2. The monetary tools, termed MEMA (Monetary Envi-ronmental Management Accounting), are presented in boxesnumbered 1e8; the second set of tools, termed PEMA (Phys-ical Environmental Management Accounting), is presented inboxes 9e16. Qualitative information is also provided by EMAtools, but this is not specifically considered in the frameworkshown in Table 2.

This MEMA and PEMA framework differs from the frame-work for conventional management accounting. A fundamen-tal ‘environmental’ criticism of conventional managementaccounting is that it largely ignores separate identification,classification, measurement and reporting of environmentalinformation, especially environmental costs, when providingrelevant information to management for decision making,planning and control purposes. Given the prior tendency ofcorporations not to highlight their environmental costs variousstudies have tried to answer the following questions:

1. What are environmental costs [6]?2. Which classes of environmental costs are potentially im-

portant to business [4]?

3. Are environmental costs significant for particular organi-zations [9]?

In the process of providing answers to these questions environ-mental costs have been classified in several different ways.Five classifications seem to have received particular attentionbased on:

1. Analysis of conventional cost accounting methods andmeasurement [1,10] e job and process; direct and indirect;historical and standard; fixed and variable; ordinary andextraordinary;

2. Extending the classification of costs [11] e to include con-ventional, indirect hidden, less tangible, contingent; andsocietal costs (negative externalities);

3. Quality costs and the environment [12] e analysis of pre-vention, assessment (appraisal), control (internal failure)and external failure environmental costs;

4. Life cycle and activity costs [13]: life cycle e research anddevelopment, design, production, etc.; activity based eunit, batch, product sustaining and facility level costsbased on a wider set of cost drivers than conventionalmanagement accounting recognizes; and

5. Target audience [1,7] e internal (managers and employ-ees); external (shareholders, tax agencies, environmentagencies, suppliers, creditors, general public, local com-munities, NGOs, etc.).

Various reasons have been given as to why more managersare becoming interested in environmental management ac-counting information [12,14e17]:

� Environmental regulations impose requirements on com-panies and information needs to be recorded in order todemonstrate compliance;

1264 R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Table 2

Proposed comprehensive framework of environmental management accounting [7]

Environmental management accounting (EMA)

Monetary environmental management accounting (MEMA) Physical environmental management accounting (PEMA)

Short term focus Long term focus Short term focus Long term focus

Past

Oriented

Routinely

generated

information

1. Environmental cost

accounting (e.g.

variable costing,

absorption costing,

and activity based costing)

2. Environmentally induced

capital expenditure

and revenues

9. Material and energy

flow accounting

(short term

impacts on the

environment e product,

site, division and

company levels

10. Environmental

(or natural) capital

impact accounting

Ad hoc

information

3. Ex post assessment of

relevant environmental

costing decisions

4. Environmental life

cycle (and target)

costing

11. Ex post assessment

of short term environmental

impacts

(e.g. of a site or product)

12. Life cycle

inventories

Post investment

assessment of individual

projects

Post investment

assessment of physical

environment appraisal

Future

Oriented

Routinely

generated

information

5. Monetary environmental

operational budgeting (flows)

6. Environmental long

term financial planning

13. Physical environmental

budgeting (flows and stocks)

(e.g. material and energy flow

activity based budgeting)

14. Long term physical

environmental

planning

Monetary environmental

capital budgeting (stocks)

Ad hoc

information

7. Relevant environmental

costing (e.g. special orders,

product mix with

capacity constraint)

8. Monetary

environmental project

investment appraisal

15. Relevant environment

impacts (e.g. given short

run constraints on activities)

16. Physical

environmental

investment appraisal

Environmental life cycle

budgeting and target

pricing

Life cycle analysis of

specific project

� There is an increase in voluntary acceptance (self regula-tion) by managers of the importance of managing businessenvironmental impacts and information needs to be re-corded as part of the responsibility accounting process;� Promotion of environmental management accounting is

being undertaken by international, national and local gov-ernment bodies and some educational institutions. Thesebodies need to identify best practice cases as a basis forincreasing the take-up of environmental managementaccounting;� Environmental management accounting tools are increas-

ingly available to help in the management process, therebyreducing cost and technological barriers to the introduc-tion of EMA systems, as well as promoting the benefitsflowing from EMA; and� Eco-efficiency improvement is being adopted by a growing

number of businesses as a logical driver for managementand a way of enhancing strategies that promote, maintainor repair social legitimacy.

The paper now turns to the latter reason, eco-efficiencyimprovement, to encourage the adoption of EMA by business.

3. EMA and eco-efficiency

Schaltegger and Burritt [1] point out that in practice, theterm ‘‘eco-efficiency’’ has been given a range of different

meanings (see, e.g. [18e22]) and, as a result, has little preci-sion. Therefore, it is very important to clarify the dimensionsof eco-efficiency being discussed as these have a direct bear-ing on the type of EMA information that a comprehensivesystem needs to provide.

In general, efficiency measures the relation between outputsfrom and inputs to a process. The higher the output for a giveninput, or the lower the input for a given output, the moreefficient is an activity, product, or business. As the purposeof economic behaviour is to manage scarce resources in thebest possible manner, emphasis is placed on the need formanagers to seek efficient outcomes.

Efficiency is a multi-dimensional concept, because theunits in which input and output are measured can vary. If in-puts and outputs are measured in financial terms, efficiencyis commonly referred to as profitability or financial efficiency.Typical measures of profitability include: contribution mar-gin percentage, return on sales, economic value added andreturn to equity on assets employed. Economic efficiencyindicates whether, and for how long, social activities canbe sustained in economic terms. Accounting and finance staffprovide expert advice about the calculation of financialefficiency.

If inputs and outputs are measured in technical terms,emphasis is usually placed on physical measures such askilograms. Technical efficiency is also called productivity.Measures of productivity include: output per hour and output

1265R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

per employee. The difference between the best possible effi-ciency ratio and the efficiency ratio actually achieved is de-scribed as X-efficiency. The concept of X-efficiency is usefulbecause it suggests that in practice organizations do not appearto be cost minimizers (using the latest technology); rather theyare more inclined to imitate their rivals in various policies andto follow industry norms and targets. To the extent that thisoccurs these organizations are technically inefficient. X-efficiency measures the extent of this technical inefficiency.Efficiency, because it is expressed as a ratio between a measureof output and a measure of input, is not bound to a financial ortechnical dimension: different dimensions can be combined bycalculating cross-efficiency figures such as shareholder valuecreated per employee.

As efficiency, in general, is the ratio between output and in-put, ecological efficiency can be interpreted as the relationshipbetween a measure of output and a measure of environmentalimpact [20]:

Ecological efficiencyZOutput

Environmental impact added

Environmental impact added is a measure of all environ-mental influences that are assessed according to their relativeenvironmental impact [23]. Two kinds of ecological efficiencymeasures can be distinguished: ecological product efficiencyand ecological function efficiency. Ecologically efficient man-agement of a company is characterized by a high ratio betweenproducts sold, or functions accomplished, and the associatedenvironmental impact added.

Ecological product efficiency is a measure of the ratiobetween provision of a unit of product and the environmentalimpact created [1,23] over the whole, or over a part, of theproduct’s life cycle. Company managers tend to illustrateenvironmental improvements by communicating their totalproduct efficiency or a part thereof (e.g. the number of carsproduced per unit of energy consumed). Product efficiencycan be improved by implementing pollution prevention techni-ques or by introducing end-of-pipe devices, reduced use ofinputs per unit or through substitution of resources. Although,in principle, improvement of product efficiency is desirable,some products will never be as ecologically efficient as othersin providing a certain service. For example, a car will alwaysbe less ecologically efficient than a bicycle.

The second formula for ecological efficiency, ecologicalfunction efficiency, takes a broader view, by measuringhow much environmental impact is associated with the pro-vision of a specific function in each period of time [1,23].A function could, for instance, be defined as the paintingof one square metre of sheet metal or the transport of a per-son over a certain distance. The alternative that causes theleast environmental impact in fulfilling the specific functionhas the best ecological function efficiency. Ecological func-tion efficiency is, therefore, defined as the ratio between pro-vision of a function and the associated environmental impactadded.

Ecological function efficiency can be improved bysubstituting products that have a low product efficiency withhighly efficient products (e.g. a bicycle instead of a car), byreducing the amount used to fulfil the function (e.g. carpoolslead to a decreased demand for cars), by prolonging the lifespan of products (e.g. longer corrosion guarantees on cars),and by improving product efficiency.

Environmental interest groups often prefer to measure theenvironmental record of a product according to its overallfunction efficiency (e.g. the ecological function efficiency ofa car in transporting a person over a specific distance com-pared with the efficiency of a bicycle, or public transport).

Both measures of ecological efficiency are useful, and theiradequacy depends on the purpose of the investigation. The twoecological efficiency ratios can be applied at different levels ofaggregation, such as a unit of product, a strategic businessunit, or total sales of a firm. In this context it is important toconsider the total output and the absolute environmental im-pact: a large number of ecologically efficient products canbe more harmful than a small amount of ecologically ineffi-cient items.

The cross-efficiency between the economic and the ecolog-ical dimension e economic-ecological efficiency e is the ratiobetween the change in value and change in environmental im-pact added. Economic-ecological efficiency is often referred toas eco-efficiency [1,20]

Eco-efficiencyZMonetary Value Added

Environmental impact added

Any measure of eco-efficiency requires financial informa-tion, for calculating the numerator, and physical informationabout the environment, for calculating the denominator. Ac-counting and finance staffs provide key financial informationabout the numerator in eco-efficiency calculations and linkthis with physical information. They rely on physical informa-tion provided by natural scientists. Hence, for eco-efficiencymeasures to be calculated, and to add corporate value, it isessential for them to integrate conventional accounting and fi-nancial management with natural science (physical) measuressuch as provided by ecological accounting [1].

Fig. 1 provides a set of possible, plausible indicators ofeco-efficiency. They reflect different levels of aggregation,with lower levels of aggregation shown to the right of thediagram. Eco-efficiency measures that are focussed on theactivities that are of interest to the specific level of manage-ment can be related to a benchmark or standard as a basis forassessing effectiveness and improvement. For example, topmanagement are concerned about the regular assessment ofannual performance of the business and may examineincome/environmental impact added; site managementregularly assess the site they are responsible for and wouldconsider return on capital employed/environmental impactadded; project managers assess capital investment projectsin terms of net present value/net present environmentalimpact added, etc.

1266 R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Purpose:improvement of ...

- Income- Shareholder value- ...

- Environmental impact added- NPEIA- ...

- Greenhouse warmth con- tribution- ...

- Net revenue- ...

- Labor costs- ...

- CO2 emissions

- ...

- Sales revenue of product X - ...

- Consumption of oil- ...

Economicperformancefigures(numerator)

Possible linksto eco-efficiencyindicators

Environmentalperformancefigures(denominator)

Overall corporateeco-efficiency

General eco-effi-ciency indicators Output

Specific eco-efficiency indicators

1 2 45

3

Input

67

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

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

The focus on business efficiency is subject to criticism.Neither conventional management accounting nor environ-mental management accounting are solely concerned withnotions of efficiency, because other important issues such asinter-generational equity, social justice and effectiveness arealso of concern. Ongoing debate exists in economics betweenthose who argue that the social and environmental responsibil-ity of business is to increase profits in an efficient way [24]and supporters of direct corporate social and environmental re-sponsibility [25,26]. However, even critical thinkers such asTinker and Gray [27] grudgingly admit that corporate environ-mental accounting and reporting has been a success story:

Environmental reporting was probably a mistake by business earriving unexpectedly and driven by engineers it sneaked outunder the corporate PR radar and, indeed, it looked, initiallyinnocuous. Companies soon realised that they had set a ratchetfor themselves because it rapidly became apparent whata ‘‘good’’ environmental report would look like and, althoughthere was real substance to the initial environmental reports,they were some distance from the ideal [27].

Environmental reporting has partly been a success becauseeco-efficiency improvement has a resonance with both environ-mental groups and businesses. It has been an important driver ofcorporate interest in environmental management accounting inthe search for information about actions that will benefit the en-vironment, the monetary bottom line and, implicitly, the busi-ness’s social legitimacy [1,16]. Hence, it is assumed thatengagement of management in moves towards eco-efficiencyhave provided an important foundation for the collection ofenvironmental information by business and the ratcheting ofbusiness towards better environmental performance.

Bearing this focus on eco-efficiency in mind, a number ofcases in environmental management accounting have been de-veloped. The context in Japan is of particular interest as a newprovisional standard and guideline for environmental manage-ment accounting and environmental reports have recently been

introduced. One recommendation is that eco-efficiency meas-ures should be calculated and reported [28].1

4. Cases in environmental managementaccounting e the example of Japan

At the outset, it should be recognized that case studies offera low possibility of repetition and only a narrow and limitedbase for generalization [29]. However, they can provide richdescriptions, explorations and explanations of the phenomenabeing studied, and are of particular use where little prior studyhas been undertaken.

Although the focus here is on Japan, a growing number ofcase studies have become available in environmental manage-ment accounting throughout the world. Burritt [30] reviewsrecent cases explored at EMA related conferences, workshops,expert group meetings, and literature e see representativecases in Table 3. The broad range of countries, large numberof industry groupings and engagement with large and smallerorganizations are all apparent from the studies.

In this paper some recent studies in Japan are examined andcomments made in relation to environmental management ac-counting and eco-efficiency. A number of projects and stand-ards have been introduced in Japan over the last five years, asshown in Table 4.

The MOE released the Guidelines for Environmental Per-formance Indicators for Business e Fiscal Year 2002 version ea revised version of the Guidelines for Environmental

1 The Japanese MOE guideline [28] states ‘Business related indicators, such

as the value of production, and sales amount (sales turnover) of products/

services, are essential information as basic data to calculate the ratio between

provision of a unit of environmental burden and the monetary value of pro-

duct/service (eco-efficiency), the ratio between provision of a unit of product/

service and the environmental burden (ecological product efficiency) and so

on. It is desirable to disclose these business related indicators which are gen-

erally accepted within the industry’.

1267R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Table 3

Representative case studies in environmental management accounting

Source Number of EMA

cases presented

Sector/Industry/Name (if available)

Graff et al. [2] � 39 Cases � Private/Chemicals; metal finishing, fabrication; printing; electronics; paper;

electrical utilities, others/24 capital investments; 9 product/process costing;

6 strategic planning

Bennett and James. The Green

Bottom Line [4] e various authors

� USA

� Canada

� Switzerland

� USA

� UK

� Private/medical products and technologies (Cost-benefit analysis)/Baxter International

� Public sector/Ontario Hydro

� Private/Electric utility (Full cost accounting), machinery and engineering

(Identification of environmental costs)/Sultzer Hydro

� Private/(Xerox Ltd/Packaging use by document company (Product life cycle costing)

� Private/waste disposal in agrochemicals division (Conventional tracking and

allocation)/Xeneca

ICAA, EA, VicEPA, Sydney,

October 2002a� 4 Australian � Private/Education/Methodist Ladies College, Perth

� Private/Plastic Injection/Cormack Manufacturing

� Private/Internal services to divisions/AMP Services

� Private/Wool manufacturing e carbonising/Michell Group

UN DSD EMA, Lund, Sweden,

December 2002b� 12 Austrian

� 1 Zimbabwe

� 1 South Africa

� 5 Costa Rica

� 1 Romania

� 1 Hungary

� 1 Slovakia

� 2 South Korea

� Private/Banking, Brewery, Energy, Pulp and Paper, Galvanising, Skiing,

Water Treatment

� Private/Particle and fibreboard/Zimboard Mutare

� Private/Mining, e 4 sectors

� Private/Poultry, Labels, PVC products, coffee mill, pasta/Pipasa, Etipres, Resintech,

Coopronarango, Roma Prince

� Public sector/Water authority

� Private/Chemicals/Nitrokemia

� Private/Cardboard production

� Private/Steel, health care/POSCO, Yuhan-Kimberley

UN DSD EMA, Bristol, UK,

February [6]

� 1 Canada

� 3 Slovakia

� Private/Pulp and paper mill/Mackenzie paper Division, Abitibi-Consolidated Corporation

� Private/Pulp and paper; railway carriage repair; cardboard manufacturer

EMAN Europe, Bristol, UK,

February 2002

� 11 Austria

� 14 UK

� Private/Pilot projects

� Private/Survey

Gago [31] � 11 Spain � Private/Wood boards, bricks, wood pulp, oil refining/Co-generation of energy supply in

unnamed companies

EMAN Asia Pacific, Kobe, Japan,

September 2001

� 3 Korea

� 1 Philippines

� Private/steel, electronics, chemicals/POSCO, Samsung, LG Chemicals

� Private/conglomerate/Lopez Group

Ditz et al. Green Ledgers [9] � 9 USA � Private/9 companies in-depth (includes pollution prevention in four small companies).

General Comment: ‘.the casework presented here avoids an explicit accounting

of social costs.’

Kokubu and Nakajima [32]/IMU � 6 Japan � Private/Various/Material flow costing in: Nitto Denko, Canon, Tanabe Seiyaku, Takiron,

Nippon Paint, Shionogi

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

Performance Indicators for Business e Fiscal Year 2000version. This Environmental Performance Indicators Guidelineis interlinked with the Environmental Accounting Guidelineand Environmental Reporting Guideline also issued by MOE.

The Japan Environmental Management Association forIndustry [JEMAI] conducted EMA research between 1999and 2002, supported by the Ministry of Economy, Trade,and Industry [METI]. The result of this research was publishedas the ‘‘Environmental Management Accounting Tools Work-book’’ in 2002. After completing this project, JEMAI estab-lished the Environmental Accounting Research Center inMay 2003. This centre provides general information to helpcompanies promote environmental accounting.

In the context of these developments, the following Japa-nese case studies are considered (see also Table 5 for theirpositioning in the comprehensive framework):

� cost analysis e material flow cost accounting e TanabeSeiyaku;

� environmental performance indicators for business e Nip-pon Oil, Ricoh, Canon Schweiz, and Hitachi; and� environmental performance of the product e Hitachi,

Fujitsu.

4.1. Site management e material flow cost accounting(Table 2, Boxes 1, 8, 9)

4.1.1. Tanabe SeiyakuTanabe introduced material flow cost accounting into the

pharmaceutical production processes at its Onoda Plant in fis-cal year 2001 as part of the METI Environmental ManagementAccounting Project in Japan. By using material flow cost ac-counting, Tanabe was able to identify the waste processingcosts and processes with large raw material losses. In fiscalyear 2002, Tanabe moved ahead with a number of improve-ments, such as the installation of chlorinated solvent adsorp-tion and collection equipment and changes to the on-siteincineration of waste liquids.

1268 R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

As a result of the introduction of material flow cost ac-counting, the cost savings from environmental conservationmeasures reached 60 million yen per year and chloroformemissions will be drastically reduced. Tanabe uses this methodas an effective tool to help make decisions about measures thatincrease corporate income and reduce environmental burdenimposed by the corporation.

In fiscal year 2003, Tanabe integrated material flow cost ac-counting into its SAP R/3 system and expanded material flowcost accounting to all of its factories. This integration facilitatesthe completeness and accuracy of data. It also makes an opti-mum allocation of resources and promotion of environmentalconservation activities clear within the organization [33,34].

Table 4

Recent environmental accounting development in Japan

Date Project

1999e2001 Environmental Management Accounting Project

(by METI)

May 2000 Developing Environmental Accounting Systems:

year 2000 report (by MOE)

Feb. 2001 Environmental Performance Indicators for BusinesseFiscal

Year 2000 (by MOE)

Feb. 2001 Environmental Reporting Guideline: 2000 version (by MOE)

Mar. 2002 Environmental Accounting Guideline: 2002 version (by MOE)

Jun. 2002 Environmental Management Accounting Tools Workbook

(by METI)

Apr. 2003 Guidelines for Environmental Performance Indicators for

BusinesseFiscal Year 2002 (by MOE)

May 2003 Environmental Accounting Research Center (by JEMAI)

Dec. 2003 Environmental Report Preparation Standard e Exposure

Draft (by MOE)

Dec. 2003 Environmental Reporting Guideline: 2003 version e Exposure

Draft (by MOE)

Mar. 2004 Environmental Reporting Guideline: 2003 version (by MOE)

METI Z Ministry of Economy, Trade, and Industry, Japan; MOE Z Ministry

of Environment, Japan; JEMAI Z Japan Environmental Management Associ-

ation for Industry.

Comment: The developments at Tanabe Seiyaku providea classical winewin situation for the site management. Focusis on the ex post development of an environmental manage-ment accounting data system that will provide relevant mone-tary and physical eco-efficiency information, rather than onthe adoption of regular targeted or future orientated informa-tion. The importance of consolidated data for a total pictureof material flow costs is highlighted. Also, the monetary ad-vantages from investment in chlorinated solvent adsorptionand collection equipment have been made apparent.

4.2. Top management e performance of the business

4.2.1. Nippon Oil (Table 2, Boxes 9 and 12)The Nippon Oil Group implemented environmental ac-

counting as a general tool for information disclosure and busi-ness management to ascertain the efficiency and effectivenessof its environmental management. In fiscal year 2002, theGroup expanded the scope of its environmental managementaccounting to include its 16 member companies. In line withthis move, the Group began using value-chain-based environ-mental accounting to show the activities and environmentalimpact of all group activities.

Nippon Oil has implemented an integrated evaluation of itsenvironmental impact in order to make a comprehensive eval-uation of its multifaceted environmental activities. An inte-grated view of environmental impact is used to evaluate themajor processes through the oil product life cycle, from explo-ration and development, to refining, transport, and consump-tion. Nippon Oil uses the life cycle impact assessmentmethod based on the endpoint modeling (LIME) method de-veloped by the Research Center for Life Cycle Assessment,National Institute of Advanced Industrial Science and Tech-nology (AIST) in cooperation with the LCA project (by theMinistry of Economy, Trade, and Industry [METI], the New

Table 5

Recent Japanese case studies in Environmental Management Accounting

Environmental management accounting (EMA)

Monetary environmental management accounting (MEMA) Physical environmental management accounting (PEMA)

Short term focus Long term focus Short term focus Long term focus

Past Oriented Routinely

generated

information

1. Tanabe Seiyaku 2. Environmentally

induced capital

expenditure and

revenues

9. Tanabe Seiyaku 10. Environmental

(or natural)

capital

impact accounting

Ricoh Nippon Oil

Fujitsu Ricoh

Hitachi Canon Schweiz

Hitachi

Fujitsu

Ad hoc

information

3. Fujitsu 4. Hitachi 11. Fujitsu 12. Nippon Oil

Future Oriented Routinely

generated

information

5. Monetary environmental

operational budgeting (flows)

6. Environmental long

term financial planning

13. Canon Schweiz

Hitachi

14. Hitachi

Monetary environmental

capital budgeting (stocks)

Ad hoc

information

7. Relevant environmental

costing (e.g. special orders,

product mix with capacity

constraint)

8. Tanabe Seiyaku 15. Hitachi 16. Hitachi

1269R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Energy and Industrial Technology Development Organization[NEDO], and the Japan Environmental Management Associa-tion for Industry [JEMAI]).

As shown in Fig. 2, Chart 1, the environmental impact frompetroleum businesses has been steadily declining each year,with the exception of 2002. The greatest environmental impactcomes at the product consumption stage, and in order to re-duce this, more energy is needed at the refining stage. NipponOil is working to improve the quality of the product at the re-fining stage, and also is striving to suppress any increase in theenvironmental impacts from refining (see Fig. 2, Chart 2).

Nippon Oil analyzed the relationship between the totalamount of these environmental impact factors and production,and evaluated the comprehensive environmental efficiency ofpetroleum operations as follows:

Environmental Efficiency

ZProduction Volume

Total Environmental Impact Factors

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

Comment: In this case the close connection between life cy-cle analysis and PEMA information is established. Across thetotal life cycle, since 1996, environmental efficiency, basedon the above measure, has been improving. However, monetaryimpacts of environmental efficiency and, hence, eco-efficiency,are not explored. At this stage the potential for an eco-efficien-cy measure is only implicit in these calculations. The LIME ap-proach aims to bring organizations towards life cycle costingand eco-efficiency measurement, but this remains to be devel-oped. Finally, consolidation of information is, once again, anissue that needs to be resolved for complete data to be pre-sented at the organizational level for all 16 companies.

4.2.2. Ricoh (Table 2, Boxes 1 and 9)Ricoh developed PEMA environmental management indi-

cators to evaluate the level of its sustainable managementand facilitate further improvement. Their indicators are basedon the following two factors:

(1) Economic efficiency of Environmental Conservation Ac-tivities. This factor shows whether an environmental con-servation activity is conducted in an economically rationalway (i.e. in a way that leads to net monetary returns).

Chart 1 Total environmental impact(Drilling + transport + 7 refineries +consumption)

Chart 2 Total environmental impact(7 refineries only)

* Nippon Oil measures and manages CO2, SOx, NOx, and soot and dust, as well as COD, benzene, toluene, xylene, and other wastes. However, these are not shown in Chart 2 as each of these substances is only found in relatively minute amounts.Source: Nippon Oil (2003), Sustainability Report 2003, p.20.

Chart 3 Environmental efficiency (Group-wide)

(%)

120

100

80

60

40

20

0

100

80

60

40

20

0

110

(%)

105

100

0

96 97 98 99 00 01 02 96 97 98 99 00 01 02

96 97 98 99 00 01 02

Product consumptionRefinery

Product transportCrude oil drilling Co2 SOx NOx Soot and dust

(%)

108.7%

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

1270 R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Economic Benefits

Environmental Conservation Costs

Economic BenefitsCSocial Cost Reduction

Environmental Conservation Costs

(2) Environmental Efficiency of Business Activities. This fac-tor shows whether any income is made when a companyconducts business activities (environmental impact/socialcosts2).

Value Added Business Activities

Total Environmental Impact ðPhysical or Monetary AmountÞ

Based on these two factors, Ricoh calculates the followingfour indicators (see Fig. 3):

� Ratio of eco-profit (REP) Z Total economic benefit/totalenvironmental conservation cost� Ratio of eco-effect (REE) Z Environmental effect (total

economic benefit C total amount of social cost reduc-tion)/total environmental conservation cost� Eco-index Z Gross profit (thousands of yen)/total environ-

mental impact amount� Ratio of profit to social cost (RPS) Z Gross profit/total

social cost

For the calculation of social costs, the environmental im-pact is converted into a monetary value by using the life-cycleimpact assessment method. This is based on EnvironmentalPriority Strategies in product design (EPS) Indicator Version2000, which is an impact assessment method expressed inmonetary terms. The reference figure used is V108/t-CO2

(tonnes of carbon dioxide) (U11,945/t-CO2). This figure is al-most equal to the Ricoh’s reference amount (U16,000/t-CO2),which is calculated from investments to reduce CO2.

Ricoh’s environmental accounting information is used bytop management as a tool to measure eco-efficiency e the eco-nomic efficiency of environmental conservation activities andenvironmental efficiency of business activities of the companyas a whole [36].

Comment: Calculation of economic efficiency and ecologi-cal efficiency in Ricoh precede the calculation of eco-efficiencyvia the Eco-Index. The period to period trend in eco-efficiencyin the reported figures is transparent for the organization asa whole. However, eco-efficiency projections are not revealed.

4.2.3. Canon Schweiz (Table 2, Boxes 9 and 13)Canon is a large Japanese manufacturer of a wide range of

products used in the home, offices and industry, includingbusiness machines, conventional and digital cameras, lenses,digital video camcorders, semiconductor production

2 Calculation of social costs. In Ricoh, environmental impact is calculated in

terms of monetary value. The monetary value of environmental impact is

termed ‘‘social costs’’ (the costs of negative externalities).

equipment, television broadcasting lenses and medical equip-ment, employing over 100,000 people worldwide.

Its Swiss subsidiary, Canon Schweiz, is one of the first Jap-anese related companies to use the Dutch Eco-Indicator 993 toidentify the environmental burden related to sales, productmaintenance and other aspects of its operations. This is a quan-titative, integrated method for expressing the company’s envi-ronmental burden throughout the Group. Canon Schweiz usesthis information to evaluate environmental activities and to settargets for improvement (see Fig. 4) [37]. However, at thispoint the parent company, Canon, has not yet adopted thisintegrated method.

Comment: Canon Schweiz has developed a routinely gener-ated, short-term eco-balance measure and target system for as-sessing environmental burdens of its products and operations.

4.2.4. Hitachi (Table 2, Boxes 1, 9 and 13)Hitachi introduced the ‘GREEN 21 factor’ in order to mea-

sure continual improvements and activity progress levelsbased on specific environmental activity evaluation standards.The factor replaced GREEN 21 Version 2 Sustainability Prog-ress Indicator (SPI) in 2002 with the establishment of theirnew Environmental Vision e the Sustainability Compass.The distinguishing feature of GREEN 21 Version 2 is that itsindicators are based on the Sustainability Compass: Eco-mind& Management, Nature-friendly Products and Eco-factories,Worldwide Stakeholder Collaboration, and Sustainable Busi-ness Models. The activity period specified for GREEN 21Version 2 is fiscal 2002e2005. Hitachi has standardized theitems for evaluation and the activity period for both domesticand overseas companies in accordance with the newly revisedevaluation standards.

The evaluation standards for GREEN 21 Version 2 aredivided into 53 performance indicators spread over eightdifferent categories, with each performance indicator gradedon a scale from 0 to 5 (negative evaluations are also possible).Level 2 is awarded for achieving the previous year’s activitylevels, Level 4 is awarded for achieving the targets set outin their Environmental Action Plan (fiscal year 2005), andLevel 5 for implementing activities that exceed these targets.Finally, a coefficient is applied to the evaluation level awardedfor each indicator. The full scale for each category is 100Green Points, with a possible total score of 800 Green Points.The result for fiscal year 2002 evaluated using this system was377 Green Points (see Fig. 5).

In October 2002, Hitachi added environmental activity in-dicators to their performance evaluation standards, enablingGREEN 21 Version 2 to be used in performance evaluations.Hitachi’s performance evaluation standards provide an impar-tial evaluation of management results, and were establishedto measure the improvement of management rules and

3 At the request of the Netherlands’ Ministry of Housing, Spatial Planning,

and the Environment, a team of environmental and LCA experts from the

Netherlands and Switzerland was assembled to devise a system for measuring

environmental impact. This team, working from 1997 to 1999, developed the

LCA weighting method known as Eco-Indicator 99.

1271R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Fiscal 2000 Fiscal 2001 Fiscal 2002

Ratio of eco profit 1.27 1.21 1.58

Ratio of eco effect 1.61 1.95 1.81

Eco index 538.8 1,204.1 1,423.7

Ratio of profit to social cost 40.9 100.8 108.9

Gross profit (100 millions of yen) 6,133 6,999 7,453

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

regulations and the degree to which organizational revitaliza-tion has been achieved. Performance evaluation indicatorsare a combination of both countable and non-countable items,including profitability, growth, and capital. Hitachi added‘‘environmental activities’’ to the non-countable indicators tobetter assess social value. Based on this system, Hitachiconducts equitable performance evaluations for each of itsbusiness groups, and uses the results as an incentive toimprove profitability and social value by the groups [38].

Comment: The scheme is similar to the Eco-compass. Ituses benchmarked figures from the company’s action plan anda weighted scale to derive its green point rating. Furthermore,group performance is linked to the monetary information re-ported, a slowly emerging aspect of the use of eco-efficiencymeasures.

4.3. Environmental performance indicator forproducts e application of ‘‘Environmental Efficiency’’and ‘‘Factors’’ indicators

4.3.1. Hitachi (Table 2, Boxes 4, 13e16)Hitachi introduced ‘‘Environmental Efficiency’’ and

‘‘Factors’’ indicators to increase the efficiency of energy andresources used in the functions of its products. ‘‘Environmen-tal Efficiency’’ indicates the value of a product achievedthrough reductions in environmental impact and resource us-age, and is evaluated by testing the function and life span ofa product. To help in evaluating the value of its products, Hi-tachi have developed two efficiency indicator items: the ‘‘Pre-vention of Global Warming Efficiency’’ indicator item, which

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

measures the volume of greenhouse gas emissions throughoutthe life cycle of a product and the resulting environmental im-pact and ‘‘Resource Efficiency’’ indicators, which measure thevolume of resources discarded as waste as a percentage of thenew resources used to manufacture a product. ‘‘Factors’’measures the degree of improvement in the environmental ef-ficiency of a product based on a set of bases established usingthe leading product for 1990, and provides an assessment ofa product’s prevention of global warming and resource factors(see Fig. 6) [38].

Comment: Hitachi here uses PEMA information for assess-ing physical functional efficiencies of its products. TargetPEMA information is used in product development decisions.

4.4. Performance management for product

4.4.1. Fujitsu (Table 2, Boxes 1, 3, 9 and 11)Fujitsu introduced the Eco-efficiency Factor to evaluate

both environmental burdens imposed and changes in serviceperformance. Service value is applied to the numerator whileenvironmental burdens are applied to the denominator. Fujitsumeasures the relative improvement in new products to pastproducts as follows:

Eco-efficiency Factor

ZService ðNew product=Old productÞ

Environmental Burdens ðNew product=Old productÞ

In fiscal year 2002, Fujitsu expanded its Eco-efficiency fac-tor application to mobile phones and scanners. In the case ofscanners, two types of scanners, fi-4110C and fi-4120C,were selected. fi-4110C was first introduced to the market inspring 1999 and fi-4120C was introduced in spring 2002.

To quantify the value of the numerator, Service, the scan-ning function was chosen because scanners only have one de-finitive function, which is ‘‘scanning’’. In order to define theproduct function, three types of performance are selected:the optical, media processing, and data processing perfor-mance. For these three items, several sub-criteria are selected.Optical performance consists of two sub-criteria e basic reso-lution and readout speed. Finally, the ratio between the newand old products functions is computed. The figure for Servicerepresented by comparing the scanning function of the newand old products is 2.47.

To quantify the environmental burdens, CO2 emissions overthe entire product life cycle were selected because CO2

1272 R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

An example of the Hitachi Green Points evaluation:

Category 4 —Eco-products (Manufactured) — evaluates the following: implementation ratio of product assessment, achievement rate of eco-products, achievement rate for the non-lead solder implementation plan, achievement status for the RoHS proposal, planning and achievement status for green procurement and purchasing, green supplier rate, and the reduction of environmental impact during transportation.

Category 6 “Eco-factories (Resource Recycling) ” evaluates waste disposal and chemical substance management at operation sites. The indicator “waste disposal” includes: the volume of waste generated, plan for reduction and implementation status for the volume of waste for final disposal, promotion of zero emissions, recycling status for waste discharged from independent sites, and extensive implementationof correct disposal methods. The indicator “chemical substance management” includes: a structure for investigating new chemical substances before they are used, an achievement rate for target values related to the reduction of substances, and a structure for managing stock and its application.

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

emissions are considered to be a proxy for energy consump-tion. Life cycle inventory analysis was conducted with func-tional units being based on the use of the scanners overa five-year period. The product life was divided into fivestages: Material and parts input, Assembly, Transportation,Use and End of life. The results of inventory analysis under-taken for total CO2 emissions across the five stages, indicatedthat CO2 emission of fi-4120C were 16% higher when com-pared with fi-4110C e a factor of 1.16. Based on the CO2

emission ratio and value of the service ratio, the eco-efficiencyfactor is 2.13. (2.47/1.16) (see Fig. 7).

In the fiscal year 2001, Fujitsu also calculated a laptopcomputer’s Eco-efficiency factor.

Comparison of a laptop manufactured in 2001 with onemanufactured in 1998, indicated an Eco-efficiency factor of7.8, which means Eco-efficiency improved by 7.8 times duringthe three-year period [39,40].

Comment: The ex post assessment of eco-efficiency is usedin both a regular and ad hoc (product by product) way by Fu-jitsu to assess short run economic and environmental impacts.

Given this range of introductory case studies in the contextof eco-efficiency information used by Japanese companies it ispossible to identify Boxes in the comprehensive EMA matrixthat appear more regularly than others. Also, it is evidentthat examples of some situations are not evident in thesample of cases examined. The development of best practice

1273R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

Fig. 6. Hitachi: ‘‘Environmental Efficiency’’ and ‘‘Factors’’ indicators [38].

environmental management accounting and reporting in aneco-efficiency context would require further exploration of sit-uations where EMA is used in Japan, so that all the Boxes inTable 5 could be completed. The tools in Boxes 2, 5e7 and 10remain to be engaged.

5. Conclusion

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

physical information about the environmental performance ofcompanies, and changes in performance over time. In Japana provisional standard and guideline state that eco-efficiencyinformation is an essential indicator and should be developedby an EMA system and produced in corporate environmentalreports.

As there is no generally accepted format as a basis for anal-ysis and comparison of business or product eco-efficiency inJapan, at this point leading companies have developed theirown ecological-efficiency and eco-efficiency indicators toevaluate their business segments, subsidiaries, processes and

1274 R.L. Burritt, C. Saka / Journal of Cleaner Production 14 (2006) 1262e1275

products. The government (METI) has introduced initiatives todevelop and promote EMA and has now made free EMA toolsoftware available. Tanabe Seiyaku, Ricoh and Canon were allmembers of METI project. The examples examined, takenfrom corporate environmental reports, relate to what may beconsidered leading companies that are developing and promot-ing EMA in Japan.

It is concluded from the analysis in this brief survey ofEMA cases in Japan that the practice of linking eco-efficiencymeasurement with environmental management accountinginformation is incomplete, and eco-efficiency information isunderutilised. Practices are diverse and there appears to bea need for further promotion of EMA and the concept ofeco-efficiency if it is to help business move productionprocesses and consumption of its products comprehensivelytowards sustainability.

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