Environmental Management and Decision Making for Business Essay

Environmental performance, as defined by the impending ISO 14031, is the company’s achievement in managing any interaction between the company’s activities, products or services and the environment (ISO 1997). Improvement of environmental performance thus implies that the company has minimised the relative environmental impact of its activities, products or services.

Based on the use of performance measurement in traditional management accounting, environmental performance measures are (Horngren and Sundem 1993): * Attention-directing, as they point to problems and indicate which problems are to be given priority * Used in problem-solving, as they (should) enable environmental managers to choose between possible solutions and evaluate possible outcomes * Used in keeping track of activities and results–i. e, scorecard-keeping The operations of the company include the production processes that generate the physical product or service offered by the company.

In practice, this means performance measurement that focuses on the environmental efficiency and effectiveness of the production processes. The second dimension is the product(s) or service(s) itself. This includes the measurement of environmental aspects of the product itself (in most eco-balance methodologies called the `product balance’ [Kunert AG 1996]) or the product life-cycle (in most product life-cycle assessment methodologies called the `inventory stage’ [SETAC 1992]). The third performance dimension is how environmental issues are addressed by management.

This often includes the results of implementing the environmental policy, the performance of the environmental management system as well as how well the environmental objectives of the company have been reached, including regulatory compliance objectives. The fourth, and perhaps the most difficult area to measure, covers the environmental impact of a company’s operations as well as the use of its products. At a process level, this could be the contribution of the company’s heavy metal emissions to concentrations in the local aquatic environment, as measured by some biological indicators.

From a product perspective, it might include the energy consumption of the product during its lifetime and the resulting contribution to the greenhouse effect. The fifth and final environmental performance dimension is the financial one. As the company is an economic entity, many managers (and stakeholders) see the need for linking environmental performance and financial performance (see, e. g. , Bouma 1996). This includes defining and allocating environmental costs, investments and liabilities.

Environmental performance measurement as part of environmental management accounting is therefore broadly focused and covers both non-financial and financial information. Not many companies consider all of the above dimensions at the same time. However, the benefits of keeping these five areas in mind when designing environmental performance measurement systems are the same as in designing a balanced scorecard in other contexts (Kaplan and Norton 1992). Measuring and reporting performance in only one dimension (such as solely focusing on operations) involves a risk of: * Drawing attention to wrong or insignificant problems Supplying inadequate or misleading information for problem-solving * Keeping score that is useless at best and misleading at worst * Misleading communication with stakeholders As studies show, most companies focus on non-financial information in environmental performance measurement. However, the link to financial measures is fast becoming important as financial stakeholders request information about the links between environmental performance and financial performance