Carbon Emissions as Environmental Concern - Essay Example

?Answer to Question No Carbon management accounting is the aggregate of ‘the tools, structures, and procedures for managing carbon related information,’ and is a component of sustainability accounting that helps companies make short and long-term decisions concerning environmental concerns such as carbon emissions (Burritt, Schaltegger & Svezdov, 2011, p. 81). The need for CMA emerged when it became incumbent upon business managers that a systematic approach should be employed in including greenhouse gas emission considerations in entrepreneurial decisions (Guenther & Stechemesser, 2011). According to Burritt, et al., (2011), there are four ways by which companies may approach carbon management by: (1) savings generated in the course of emissions trading; (2) saving on energy which is the pay-off for effort invested; (3) labeling the firm’s products as carbon-neutral and thereby gain market advantage; and (4) responding to the increasing demands upon industry to disclose information on the emissions produced by their operations, as well as to significantly reduce these emissions (p. 81). The choice of approach depends upon the nature of the business, its motivations and objectives, and the environment it functions in. As a result, there is no one best way by which organizations may achieve their carbon emission targets. The advantages to the firm in the second to the fourth approaches are self-evident, in that energy savings which reduce emissions reduce costs, and the positive publicity enhances the firm’s standing among its consumers. The first approach has to do with the trading of emissions certificates, wherein businesses whose operations require higher emissions purchase pollution permits from other firms who do not need theirs. In this manner, firms who reduce their emission levels have no need for their emission certificates, and may sell them to other firms and therefore earn revenue. Answer to Question No. 2 The growing demand for compliance with environmental standards such as those contained in the protocol mandates the measurement and reporting of aspects of corporate activities and the associated climate aspects. Monetary carbon accounting (MCA). For MCA, short term routinely generated information includes carbon cost accounting and carbon capital expenditure accounting for the long-term. Future-oriented routinely generated information for MCA refers to monetary carbon operational budgeting for short-term decision-making and carbon long-term financial planning long term decision making. Physical carbon accounting (PCA). For PCA, the past oriented routinely generated information includes carbon flow accounting for short-term decision making and carbon capital impact accounting for long-term decision making. The future-oriented routinely generated information for PCA refers to physical carbon budgeting in the short-term and long-term physical carbon planning for the long term. Both MCA and PCA are essentially interrelated. For instance, past-oriented monetary EMA relies on physical information regarding the flow of materials and energy made available by materials flow accounting approaches. On its own, however, past-oriented information is limited. It helps management discern sources of inefficiencies; thereafter, future-oriented information becomes necessary to forecast the future effects of changes adopted at present (Abdel-Kader, 2011, p. 62). As for short-term information, this is useful where financial data is less volatile. When the data is characterised by high volatility, the long-term focus on carbon-related information becomes more suitable and reliable (Rajapakse & Wang, 2004). Answer to Question No. 3 Various factors influence the volume and type of information that an environmental management accounting (EMA) system provides. Among these are the number, type and functions of managers seeking information from the EMA system and the kind of decisions supported by this information. The structure of the organization and the manner in which its units relate to each other also impacts upon the information demanded. The effective delivery of the appropriate type and volume of information needed by the firm is also dependent upon organizational considerations such as the establishment of a new functional department, the inclusion of carbon accounting information in an integrated management information system, and the creation of a decentralized carbon accounting system best suited to the organization (Burritt, et al., 2011, p. 83). Answer to Question No. 4 The four preconditions that were employed in the exploratory study by Burritt, et al. (2011) in their choice for companies were: (1) the company must demonstrate a strong commitment to sustainability management, and currently pursues robust sustainability programmes; (2) the sample must include a variety of industry sectors, exhibit heterogeneity, and variation in organizational structures; (3) the companies must be in need of a complex structure and accounting system capable of incorporating non-financial information; and (4) the firms must be willing to allocate its resources to actively participate in the research study, in contrast with merely providing historical information. The first and second criteria were employed in pre-selection in order to ascertain the relevance of the results, where the third and fourth were assessed based on negotiations with the pre-selected companies purportedly to maximize the depth of observation through field notes and interviews and expand insight into the company’s data (including carbon) management practices. Answer to Question No. 5 The information was collected by initial interviews, questionnaires, reports and publications, and field notes embodying observations and ideas that researchers obtained in the course of their data gathering. There were 33 one-hour initial interviews with sustainability managers on the flow of carbon-related information in their companies. From this, a semi-structured questionnaire was developed as a guide to cull more profound information regarding the characteristics of the data type generated, the purposes to which the data was applied, and the functions performed in the processing of information. Questions were short and explicit, and ranged from the general to the specific. Answers to these questions were corroborated by triangulation against reports and publications in order to enhance reliability. Finally, information from field notes provided indepth observations made by the researcher during the interviews. The field notes served to supplement information overlooked in the course of the interviews. Answer to Question No. 10 Whilst the increase in the number of departments and professions who gather carbon-related information throughout the organisation would tend to enhance the quality of the analysis at the principal department, the multiplicity of units and personnel who assume the function of data gathering, in addition to their regular tasks, tends to increase transaction costs due to the extra time involved. On the other hand, there also is a tendency for transaction costs to decrease because of the improved coordination between units, the multiple use of the same data collated, and the prevention of the double collection of data. This echoes the principle that increasing information decentralisation and standardisation through multiple sources tends to reduce transaction costs and create opportunities for specialists to improve information content, enjoy scale economies, and enhance learning effects on specific types of information (Gardrey & Gallouj, 2002, p. 67). Answer to Question No. 6 Of the ten companies, four companies focused primarily on the collection of physical carbon-related information, two focused on monetary information, and the remaining four collected both physical and monetary information to equal extent (Table 3) (Burritt et al., 2011, p. 86). Companies which collected principally physical information were those involved in activities regulated by law and which were therefore required to execute a detailed emission report in terms of physical units. For instance, accounting principle 2 employed by the London 2012 Carbon Footprint Study mandated the accounting of direct and indirect emissions, and ‘as far as possible to account for all Kyoto Protocol Greenhouse Gases. Report all results in tonnes of carbon dioxide equivalents or tCO2e.’ (Emphasis supplied) (LOCOG, 2010, p. 11). This is but one example of the requisite to employ specific physical measures. Aside from complying with regulatory requirements, the physical information served as a basis for generating key performance indicators by which the firm’s actual performance may be measured in absolute terms. The physical data also provides the basis from which the monetary information is generated. It was observed that information in monetary units had the greatest use and implication in higher management levels, while managers in the operational and tactical levels have a greater use for the physical measurements of carbon emissions (Burritt, et al., 2011, p. 86). The generation of carbon-related information in monetary terms is important to managers particularly in support of cost control and capital budgeting decisions. Ratnatunga (2008) observed that whether mandatory or voluntary, carbon costs will eventually be reflected in prices, thereby impacting upon the competitiveness of companies and, in a macroeconomic perspective, countries in terms of international trade. Monetary information will not be useful, however, in controlling carbon because it does not relate to the reasons for emissions (Burritt et al.,2011, p.87). Answer to Question No. 7 In the summary of carbon-related information encountered in the sample companies presented in Table 3, the focus of the information (third column) was found to be short-term in six of the ten companies, long-term in only one, and both short-term and long-term in three. Three of the six companies which focused on short-term information relied on ad hoc information rather than routinely generated reports. Taking this into consideration, short-term focused information systems outnumber long-term focused information only three-to-one, and there is an equal number of companies which use the short-term focus as those that use both, insofar as routinely generated information is concerned. It is also noticeable that all those companies which produce climate-change related information for only a few purposes are those which focus on the short term, indicating that the short-term focus may have met highly specific objectives. As to the time period orientation of the data, two companies have only future-oriented information, three have only past orientation, while the remaining five rely on both past and future oriented data. Considering only routinely generated information, only one company is past-oriented, one company is future-oriented, and all five companies which have both orientations rely on routinely generated information. Given the big picture, companies focusing on past and future oriented information are fairly equally distributed, whilst those focusing on short-term information significantly outnumber those focusing on the long-term (Burritt, et al, 2011, p. 88). The Burritt study suggested that companies appear to concentrate on ‘compliance and mandatory reporting’ instead of managing information on ‘uncertain topic(s)’ (i.e., gathering carbon emission information without a specific purpose such as compliance with mandatory regulations) in order to maximize the benefit-to-cost ratio of the firm’s carbon accounting procedure (Cline, 1994; Rogers & Duffy, 2012). Answer to Question No. 8 The ‘serious challenge’ presented by the amounts of information collected pertains to the pressures exerted on the information systems management by: (a) the sheer volume of information that must be processed; (2) the difficulty of establishing an integrated management system with climate related accounting; (3) the trade-off between flexibility and the capabilities of an information system; and (4) the lack of technical solutions that may be viably adopted precludes the routinely organized collection of information, and compromises the data assurance and process efficiency that large volumes of ad hoc data entail (Burritt et al., 2011, p. 89). When an information system already exists in a company, there are parameters, standards and procedures supported by what is presumed to be efficiently appointed hardware and software. The inclusion of carbon-related reporting will necessarily create a disruption, though temporary, in the status quo, and in many cases impede the regular workflow and entail additional costs. Cost and interference considerations will impact upon the size of data storage, flexibility of applications programming, and the degree of integration with existing protocols. User training and adaptability is also a critical challenge that qualifies the success of carbon information accounting integration with the existing information systems; this challenge may be addressed by organising regular workshops among personnel. Likewise necessary will be exposing suppliers to the same workshops, since the carbon-related information which the company shall require as input data must be generated by its suppliers, in the form, format and standard the new information system will require (University of Cambridge, 2009; Lee, 2012). Answer to Question No. 9 There are two settings which the Burritt article distinguishes, with respect to the number of professionals and departments concerned in companies’ information collection practices. The first setting involves the centralisation of the function of carbon-related data gathering to a single department, upon whom the generation of the needed emissions information is incumbent. Since a single department is charged with this function, only a limited number of professionals actually handles the data. They source the needed information from the functional units within the organization, collates and analyses the data and produce the required information; evidently, there are limitations in capabilities and resources in this setting. On the other hand, the second setting involves the devolution of the duties to generate carbon-related information to all those departments which functionally are more intimately related to the activities that produce these data. Thus, whilst there remains one department principally charged with the preparation of the emissions accounting reports, the generation of the carbon-related information is decentralised and distributed over many departments, and is attended to by as many or more professionals as the number of departments – definitely more than if the professionals were limited to the staff in the information department. The advantage of the second setting over the first is that the effort is more equitably distributed throughout the organization and presents less of a strain on the staff and resources of the carbon-related department. The carbon-related team is therefore able to direct more efforts and resources towards the analysis of the data collected and transmitted by the originator-departments (Burritt, et al., 2011). This is consistent with the general theory that the structure of an organisation and the functional distribution of its units tends to affect the patterns of organisational communication and effectiveness of its information management system (McPhee, 1985). References Abdel-Kader, M G 2011 Review of Management Accounting Research. Macmillan Publishers Ltd., Basingstoke, Hampshire Burritt, R L, Schaltegger, S; & Zvezdov, D 2011 ‘Carbon Management Accounting: Explaining Practice in Leading German Companies.’ Australian Accounting Review No. 56, Vol. 21, Issue 1, pp. 80-98 Cline, W.R. 1994 International Economic Policy in the 1990s. Massachusetts Institute of Technology. Gadrey, J & Gallouj, F 2002 Productivity, Innovation and Knowledge in Services: New Economic & Socio-Economic Approaches. Edward Elgar Publishing, Cheltenham, Glos Guenther, E & Stechemesser, K 2011 ‘Carbon Accounting: A Systematic Literature Review’ EMAN-EU 2011 Conference: Accounting for Climate Change – What and How to Measure. The Environmental and Sustainability Management Accounting Network (EMAN-EU) Lee, K-H 2012 ‘Carbon accounting for supply chain management in the automobile industry.’ Journal of Cleaner Production. Vol. 36, pp. 83-93 London Organising Committee of the Olympic Games and Paralympic Games Ltd. (LOCOG) 2010 ‘Carbon footprint study – Methodology and reference footprint,’ London 2012. Retrieved 24 October 2012 from http://www.london2012.com/mm%5CDocument%5CPublications%5CSustainability%5C01%5C24%5C08%5C76%5Ccarbon-footprint-study.pdf McPhee, R D 1985 ‘Chapter 6: Formal Structure and Organizational Communication.’ In R.D. McPhee & P.K. Tompkins (Eds.) Organizational Communication: Traditional Themes and New Directions. Pp. 149-177. Sage Publications, Beverly Hills, CA Rajapakse, J C & Wang, L 2004 Neural Information Processing: Research and Development. Springer-Verlag Berlin Heidelberg Ratnatunga, J 2008 ‘Carbonomics: Strategic Management Issues.’ Journal of Applied Management Accounting Research, Vol. 6, No. 1, pp. 1-10. Rogers, M & Duffy, A 2012 Engineering Project Appraisal, 2nd edition. Wiley-Blackwell, Hoboken, NJ. University of Cambridge 2009 ‘Carbon Management: A Practical Guide for Suppliers.’ Cambridge Programme for Sustainability Leadership. University of Cambridge. Read More