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Working Paper No. 2014/39

Environmental management accounting and environmental management in manufacturing industries in Uganda

Ruth Namakonzi¹ and Eno Inanga² 27 October 2014

© The authors, 2014

¹ P.O. Box 5048, Kampala, Uganda. E-mail: [email protected] ² Corresponding author. Maastricht School of Management, Endepolsdomein 150, 6229 EP Maastricht. Postbus 1209, 6201 BE Maastricht The Netherlands. E-mail: [email protected]

The Maastricht School of Management is a leading provider of management education with worldwide presence. Our mission is to enhance the management capacity of professionals and organizations in and for emerging economies and developing countries with the objective to substantially contribute to the development of these societies. www.msm.nl

The views expressed in this publication are those of the author(s). Publication does not imply endorsement by the School or its sponsors, of any of the views expressed.

ENVIRONMENTAL MANAGEMENT ACCOUNTING AND ENVIRONMENTAL MANAGEMENT IN MANUFACTURING INDUSTRIES IN UGANDA

BY

Ruth Namakonzi P.O Box 5048, Kampala UGANDA e-mail; [email protected]

And

ENO L. INANGA* Maastricht School of Management Endepolsdomein 150, 6229 EP Maastricht Post Bus 1203, 6201 BE Maastricht THE NETHERLANDS E-mail: [email protected]

* Corresponding author

1

ABSTRACT Given the importance of the environment and the attention environmental issues are currently receiving from public and private organisations, it has become crucial for companies, especially in manufacturing industries, to consider the impact of their activities on the environment. This is because the large amount of material, energy and water consumed by these industries constitute a major source of carbon dioxide, waste and effluents emissions. The aim of this study is to find out what actions, if any, manufacturing industries in Uganda are taking to enhance effective environmental management, the extent to which environmental management accounting (EMA) is applied, as well as costs and challenges that these industries face in the process of implementing EMA to achieve effective environmental management.Some of the study findings reveal that manufacturing companies in Uganda are, indeed, taking environmental issues seriously. Some companies are adopting internally developed environmental policies, setting environmental goals and objectives. Some manufacturing firms have encountered challenges in achieving set environment management goals. The greatest of these challenges arer difficulties in defining, separating, identifying, classifying, measuring and controlling environmental protection costs. Others include inaccessibility to environmental management technologies, limitknowledge and training, endemic corruption and inadequate legislation. The study ends with recommendations and suggests areas for further research.

Keywords: Environmental Management Accounting (EMA); Environmental management; Environmental costs and manufacturing industries.

Biographical Notes;

Ruth Namakonzi is currently upgrading her Internal Audit skills in International Criminal Court in The Hague, The Netherlands. Prior to this, she was a Tax Auditor in Uganda Revenue Authority in Uganda. She is also currently finalizing her ACCA studies. She also studied in Maastricht School of Management (MsM) in The Netherlands specializing in Accounting and Finance and holds the MBA degree of that institution. Before her studies in MsM, she also studied for the Bachelor of Commerce degree in Accounting in Makerere University in Uganda.

Eno L. Inanga is Emeritus Professor and former Head of Accounting and Finance in Maastricht School of Management, The Netherlands. Before then, he was Dean of the faculty of the Social Sciences, and later Head of the Department of Economics at the University of Ibadan in Nigeria. He studied Accountancy at the University of Nigeria as a Federal Government Scholar and Accounting and Finance at The London School of Economics and Political Science in the University of London, as a Commonwealth Scholar. He is an Academic Fellow of the Association of International Accountants in the United Kingdom.

7

Section 1: INTRODUCTION 1.1 Issues Environmental issues have become a global concern in the rent decades. Most of the environmental issues and challenges are related to continuous consumption of materials, energy and water by companies, resulting in depletion of these resources. In addition uncontrolled emission of toxic gases, waste and effluents in the water and air by the companies also has adverse effects on the environment. Climate change, global warming, ozone depletion and nitrifications, are some of the well-known consequences of these negative impacts of activities of manufacturing industries on the environment.

Environmental impacts by corporations are now attracting serious concern from the public, governments, businesses, media and other stakeholders. This concern became more alarming when such incidents as the Bhopal chemical leak of 1984, the Exxon Valdez oil spill of 1989, began to attract public attention. Need for changes in environmental legislation and standards began to gain more prominence in public debates. Many environmental pressure groups gradually emerged calling for a more healthy environment. Examples of such pressure groups incclude Green Peace, Friends of the earth who

have advocated for change in how organisations manage their

business activities. Many International organisations like United National Division for Sustainable Development (UNDSD), United Nation Environment Programme (UNEP), United Nations Development Programme (UNDP) and Organisation for Economic Cooperation and Development (OECD) are among International Organisations currently advocating for better and healthier environmental management by promoting more research and initiatives.

Recognising the need for change in how they do their business, management of organisations are now voluntarily accepting to address the impact of their organisations’ activities on the environment. Kevin Clarke and Sharron O’Neill, (2006; 115) stated that ‘The concept of sustainable development has become central to the way environmental issues are examined by both business and governments. Organisations are now

considering sustainability and environmental management issues to the extent of including them in the objectives and goals of the organisations due to economic and non-economic incentives. Some organisations are now adopting Environmental Management Systems (EMS), while the number of those having International Standards Organisation (ISO) certification is increasing worldwide. Most of these certificates have been issued to companies in developed countries and Asia. Developing countries like Uganda have few ISO 14001 or 9001 certifications. For instance, a survey conducted in December, 2008 revealed that out of the world wide 982,832 ISO 9001 certifications; Uganda had 44, compared to Kenya which had 257 and Tanzania which had only 12. The same survey also revealed that out of the 188,815 ISO 14001 certifications, Uganda had only 6, compared to Kenya which had 28 and Tanzania had only 3.(Za.dqs-ul.com visited on 24/06/2011).

1.2 Benefits Some organisations, especially manufacturing industries, are now using Environmental Management Accounting (EMA) to promote environmental management and are reaping the benefits from its use. Decision makers need to understand the monetary and physical value of resources like raw materials, water and energy and the value of waste generated and disposed, the cost of environmental protection like pollution reduction and waste management which can be promoted through EMA. Studies of EMA a recent management accounting tool of EMS have attracted vast attention in the recent years. This is because EMA promotes identification, assessment and allocation of Environmental costs in industries which costs have increased in the recent years. Identifying such costs promotes better decision making and better utilisation of resources. In addition, it gives an incentive to management to save on environmental protection costs such as pollution reduction, fines, waste management, legal fees, monitoring, insurance, and regulatory reporting and consequently improve the environment.

A recent study by Wei Qian, Roger Burritt and Gary Monroe, (2011) recognised the need for more studies in the area of EMA as expressed by many other authors. This

study is intended to discover what manufacturing industries in Uganda are doing to promote effective environmental management and the extent to which EMA is applied in the industries. The motivation for the choice of industry stems from the fact that manufacturing industries consume great amount of resources and are a major source of waste, pollution and other toxic emission which are harmful to the environment. Wendy, Chapple, Richard Harris and Catherine. J. Morrison Paul, (2006) stated that the largest proportion of waste disposed in landfills stems from manufacturing, Fitzpartrick, Doreen D, (1995) adds that of the total material used, only 80-85 percent is used in production and the rest is waste or pollution. As a major consumer of resources and a major source of waste and pollution, manufacturing industries have a major role to play in environmental management and sustainability.

1.3. Problem Statement K. Clarke et al, (2006:115) stated that the ‘Increasing public awareness of environmental impact of organisations and the need for sustainable development has changed the environmental performance expectations of influential stakeholder groups within society’ Environmental cost and performance information is now increasingly being demanded from companies and accountants in particular. On the other hand, businesses are finding difficulties in providing this information because of difficulties related to identification, classification, measuring, allocating, controlling and in managing environmental related issues. Deegan and Gordon 1996 cited in Watchaneeporn Setthasakko (2010:316) also support this view and stated that ‘the amount of environmental information reported by companies remains limited and differs widely in terms of quality’

Conventional management accounting systems can neither fully provide this information nor can they properly deal with the environmental costs. They allocate these costs to overheads thereby making them

hidden

from

management

and

executives.

Consequently, wrong decisions are made due to failure in knowing the extent of these costs which are increasing due to changes in legislation and other factors. This would have a significant impact of the performance of the company as stated that ‘Failure to rely on appropriate accounting information may contribute to ineffective resource

management and a gradual decline in organization performance’ Tuan Zainun Tuan Mat Malcom Smith and Hadrian Djajadikera, (2010:54). ‘Failing to reform management accounting practices to incorporate environmental concerns, makes organizations unaware of the impact on profit and loss accounts and the balance sheet impact of environment-related activities’ Shane Johnson, (2004) If organizations fail to incorporate the environmental concerns, they may miss out identifying better opportunities for cost reduction and for improvement. They may also employ wrong decisions like product pricing mix decision. ‘This leads to a failure to enhance customer value, while increasing the risk profile of investments and other decisions with long-term consequences. If management accounting as a discipline is to contribute to improving the environmental performance of organizations, then it has to change’ Shane Johnson, (2004:2).

1.4 Responses This calls for accountants to adopt and understand better environment management and accounting systems that can aid in identification, classification, allocation and control of environmental costs for better decision making and better environmental management among other benefits. Roger Adams, (2002) affirms that much of the interest surrounding environmental issues has been directed at external reporting and financial accounting and less in EMA which is intended for internal decision making. EMA provided both monetary and physical information which can also be a basis and useful for external reporting. Many researchers including Bouma and Van der Veen, (2002), Burritt, (2004) cited in Qian et al, (2011) called for more research in environmental management accounting because accounting researchers have given little attention to EMA. But awareness of environmental issues is increasing which makes EMA a necessary tool for running business. ‘Globalization has changed external environmental factors in developing countries, which in turn affect the internal operations of organization as well as their management accounting practices’ T. Zainun et al, (2101:54). Many EMA studies that have been written have focused on developed countries and other Asian countries. Few papers have been written on Africa and no study was done on Uganda particularly Uganda’s

industries. Besides having limited research, limited training causes accountants to have limited knowledge in this area.Uganda being a developing country is still facing challenges in developing better environmental management systems due to inaccessibility to environmental technologies, limited enforcement of environmental standards and laws, corruption, limited training, limited funds. Michael G.Faure, (1995:5) states that the population in most of the developing countries have less value to environmental protection. This attitude is however changing as per the, National Environment Management Authority (NEMA) report (2008:1) ‘ the overall picture from the report is that following considerable effort at integrated assessment and reporting on the environment, many Ugandans increasingly understand the link between the environment and human well-being.’

The report also points out that Uganda is highly vulnerable to variability in climate because the economy heavily relies on climate dependent resources. ‘This vulnerability to climate change is likely to increase because of rampart poverty, weak institutional capacity, lack of skills on climate change adaptability, inadequate skills and equipment for disaster management, limited financial resources and an economy which depends entirely on exploitation of its natural resources. NEMA, (2008;2) The recent budget speech, stated that one of the reason for the rising food prices is poor rainfall and drought which have affected food production and supply in the country hence the increasing the prices. Besides climate changes, other problems like land degradation, depletion of natural resources, waste, poor soils, water and air pollution are on the increase. Industries particularly manufacturing industries have a big role to play in conserving the environment by employing better Environmental management systems like EMA to promote effective environmental management and benefit the company as well. This leaves a lot to be desired in the aspect of environment management and call for serious change in the way organisations like the manufacturing industries in Uganda and the world in general do their business since their products and activities could have a serious impact on the environment and the economy.

1.5 Objective of Study Environmental management accounting (EMA) and Environmental Financial Accounting (EFA) are the two categories of Environmental accounting. EFA focuses on external reporting while EMA is concerned with internal reporting aspect of environmental management. Whereas many papers have been written on Environmental accounting, most of them have focused on external reporting and few on EMA. This implies that more research is still needed in EMA. Feldman. S. J. P.A. Soyka and P. Ameer, (1997) found a ‘positive correlation between the level of Environmental management and decreases in environmental emissions’ implying that EMA promotes better environment management in addition to many other benefits. Aldonio Ferreira, C. Moulang and B. Handro, (2010) found out that there is a relationship between the share price of the organisation and the social and environmental activities as indicated by many other authors.

Negative environmental impacts related to waste generation and disposal, pollutions and emissions etc, could damage the reputation of the company and cause a loss in its value. For-insistence in 1990, Shell SPDC- Nigeria struggled with a dropping environmental performance, coupled with poor environmental track record and controversial record. Local management got concerned and set environmental targets and policies that successfully changed that bad reputation. Jacob Hottentot, (EMAN Abstracts-2006)

The aim of this study is to find out what the manufacturing industries in Uganda are doing to enhance effective environmental management. The extent to which they are implementing EMA and the challenges these industries face in implementing it to achieve effective environmental management. The study explores the benefits, costs and challenges from the use of EMA, and the roles of management accountants with regard to environment management. Furthermore, recommendations are drawn regarding EMA use in Uganda and how the companies and government of Uganda can achieve effective environment management. Findings from this research are expected to provide useful information for companies, the public, accountants and government

regulators to guide them in providing policies that improve on accountability and efficiency in environmental management.

The study uses convenient sampling, qualitative methods to collect both primary and secondary data. Using existing theories and framework it explains EMA and environmental management issues. Primary data are collected by questionnaires guided by the ISO 14001 Hand Book (version 2.02, 1998) and other literature. Secondary data are obtained from published reports, articles and websites among others.

1.6 Structure of the paper The rest of this paper is structured in 5 sections; Section 2; highlights previous studies and relevant literature on the topic in order to specify the contribution that this study intends to make by identifying and closing the knowledge gap.Section 3 briefly discusses the structure of the Uganda’s economy to understand the nature of the economic amd regulatory environment in which manufacturing industry and firms operate. Section 4 focuses on research methodology and design, discusses how data was collected as well as related problems.Section 5 analyses data and repots findings Section 6 concludes the study, makes recommendations and suggests areas for further research.

Section2. LITERATURE REVIEW

2.1 Overview

This Section reviews the relevant literature on EMA and environmental management. It provides an overview of EMA and Environmental Management; critics of the conventional management accounting systems, Environmental costs, the role, benefits and challenges of implementing EMA and the role of Management Accountants in environmental management.

Environmental management can be defined as the planning, implementation and control of strategic, tactical and operational measures for prevention, reduction and elimination of damage caused to the environment and the use of market advantages gained from it. Tatjana Tambovceva, (2010). The general concept of environmental accounting may be classlfied into three accounting systems as shown in Figure 2.1. EMA is part of management accounting which is concerned with physical and monetary measures of environmentally driven aspects intended for internal decision making. Stefan Schaltegger, Tobias Hahn and Roger Burritt, (2000).

Insert figure 2.1 here

Environmental Financial Accounting is concerned with physical and monetary aspects of the environmental impact for external reporting purposes. Other environmental accounting is concerned with physical and monetary aspects of specific accounting systems like the tax accounting systems, and other regulatory accounting systems. Schaltegger et al, (2000) From the literature, there are many definitions of EMA. It is also stated that EMA has no single universally accepted definition but guidance on the information considered under EMA is offered by UNDSD and EMA experts that suggest including both the physical and monetary information that is considered under EMA.

Ferreira et al, (2010:922) defined EMA as a “Technique that generates, analyses, and uses both financial and non financial information, to improve the environmental and economic performance of a company and contributes towards a sustainable business. In another study, Christine Jasch, Daniel Ayres and Ludovic Bernaudat, (2010:96) simply defined EMA as “management accounting(MA) with a focus on physical information on the flow of energy, water, products and materials as well as monetary information on environmental costs, earnings and savings from projects related to environmental protection”. The above definition also brings out the fact that that EMA incorporates both physical and monetary items. This is in agreement with Matteo Bartolomeo, Martin Bennet, Jan Jaap Bouma, Peter Heykamp, Peter James and Teun Wolters, (2000:35) who urged that ‘if management accounting is to take environment seriously, the tracking and analysis of this non-financial information should become as important as the tracking of financial information’

K. Clark et al, (2006)

advises Management Accountants to make environmental

performance visible in organizations by incorporating both financial and non-financial information as key performance indicators into the traditional control systems. With the evolution of environmental management in business, there is a growing interest to develop a better understanding of environmental-related financial costs and benefits because of increasing evidence that shows that environmental factors affect profitability and financial position of a business (M. Bartolomeo et al, 2000).

2.2 Limitations of Conventional Accounting Practices Concerns on environmental issues along with their related revenues, costs and benefit are increasing world-wide.. However, many authors have criticized conventional management accounting practices in many respects. The general criticism has been that these traditional practices do not provide adequate information needed for decision making in environmental management related issues. Christine Jasch (2006). UNDSD (2001) and Christine Jasch, (2003) also argue that conventional management accounting systems are ill-equipped to deal adequately with environmental costs. These systems attribute environmental costs to general overheads which makes it impossible for managers to trace. According to. Dits et al (1995); Hansenand Mowan, (2005) and

Burrit et al, (2002) cited in A. Ferreira et al(2010), hiding environmental costs from managers makes it difficult for managers to observe the actual environmental costs related to activities, yet there is evidence that these costs can be 20% or more of the total operating costs. UNDSD,(2001:1) explains that “costs of industrial protection including pollution reduction, waste management, monitoring, regulatory reporting, legal fees and insurance have increased rapidly in recent years due stringent environmental regulations however, conventional management accounting attribute these costs to overheads and management and executives are unaware of the extent of these costs”

If mangers have no concrete and complete information regarding these costs, they will not have the incentives and motivation to reduce them. Alternatively, if wrong information is provided, then management will make wrong decisions regarding; product, process, investment appraisal and pricing decisions among others. Stefan Schltegger, Tobias Hahn and Roger Burrit, (2000) criticize conventional corporate accounting for not giving explicit, separate

recognition to company related

environmental impacts. From UNDSD, (2001) in the production process with the traditional cost accounting systems, as inputs like water energy and materials are processed. The end result is a product output and non-product output like waste or waste water. The non-product material flow is however not quantified and monetized separately within the traditional systems. Yet these material flows are considered as money flows. Therefore, wasted labour costs, material costs and capital must be added. Material and money flow can be illustrated in figure 2.2

Insert figure 2.2 below

UNDSD, (2001) emphasizes

the limitations of conventional accounting approaches

which cannot provide sufficient cost data onmaterials. The incomplete data creates inconsistencies andmakes it difficult for the company to track the point of internal material consumption and identify exact flows and trace the cost materials in each

material flow. Linking the physical and monetary material flow data, flow cost accounting eliminates the information gap.

2.3 Definition, Identification and Controlling of Environmental costs The definition of these costs also depends on the intended use of the cost information by the organizations. The United States Environmental Protection Agency (USEPA), in 1998, was able to make a distinction between four types of costs to include; potentially hidden costs, contingent costs, relationship costs and lastly the conventional costs.

Potentially hidden costs are those costs that are captured by the accounting systems but their identity is lost in overheads. Conventional costs are such costs of raw material and energy which have relevance to the environment, contingent costs on the other hand are costs to be incurred in future and lastly the image and relationship costs may include such costs incurred in preparing environmental reports. These are intangible in nature. Ann Irons, (2010) According to Christine Jasch, (2003:669) and UNDSD (2001:11) “Environmental costs comprise both internal and external costs and relate to all costs incurred in relation to environmental damage and protection costs” and costs of inefficiencies in the production process that may include wasted labour, wasted material and wasted capital. UNDSD (2003) and UNDSD, (2001) also explains that protection costs include costs incurred for prevention, planning, disposal, control and damage repairs like emission treatment and pollution prevention etc. that can occur at the companies and can affect government and the people.

UNDSD (2001) and C.Jasch (2003) argue that the guidance document on the definition of environmental protection costs and other terms of pollution protection only deals with corporate environmental costs and the external costs that arise from internal activities but are not internalized via regulations and prices are not considered. “It is the role of governments to apply political instruments such as eco-taxes and emission control regulations in order to enforce the “polluter-pays” principle and thus to integrate external costs into corporate calculations’ UNDSD, (2001: 11)

Many studies carried out in Germany and Australia show that of the total environmental costs, costs of waste disposal are only between 1% and 10% while the purchase cost of wasted materials represented 40% to 90%. However, this is dependent on the type of the business (UNDSD 2001). As noted, most of the environment costs are hidden in general overheads, which makes identification of such costs by management very difficult. For organizations to be able to make well informed decisions, the costs should be allocated to products, activities and processed that give rise to these costs. This can be guided by such tools like Activity Based Costing that can help in allocation these costs.

Lastly controlling environmental costs can only be effective if these costs have been well defined, identified and allocated. For example costs associated to waste like the fines for pollution, taxes for landfills and costs of unused materials and disposal. For instance the wasted material can be determined by making a comparison between the weight of the material bought and the product yield. With this information, the organization is able to know how to save on such costs. Another example could be reduction on water consumption that would reduce water bills and make a cost saving for the organization. This can only be achieved if the organization is able to measure its water consumption and know where the water is consumed (Ann Irons 2010). Several accounting techniques explained below are useful in identification and allocation of environmental costs:

2.4 Accounting Techniques for Environmental Costing a. The Input/output Analysis; This is basically applied on the flow of materials. It works on the idea that the input must equal the output i.e. what comes in the production process must go out or must be stored. It tries to balance the flow of materials and trace the differences.

For instance if 200 kilograms of

materials have been bought and only 150kg of

materials have been produced, the difference of 50kg must be accounted for in physical and monetary terms part of it may be waste and another part could be scrap This kind

of accountability forces businesses to focus on the environmental costs”. Ann Irons (2010) and Shane Johnson (2004)

UNDSD (2001) goes further to state that the firsts step in setting up the material inputoutput statement at a corporate level is to collect quantitative data from the stockkeeping and accounting systems. The systems provide physical and monetary data on material input and out-put into the company implying that all materials purchased during the year must either leave the company as a product, or waste or emission or stored on site. b. Flow Cost Accounting Ann Irons (2010) and (UNDSD 2001) asserts that flow cost accounting technique aims at reducing the quantity of the material which would have a positive effect on the environment and in the long run should have a positive effect on a business. The technique uses material flow and the organization structure and can only be performed with an appropriate computer support. It looks at the physical quantities, costs and value of material flows thereby promoting material flow transparency. “This transparency can contribute to clarifying the complex relationships of effects operating within the material flow system and thus create a comprehensive database for evaluating measures for improvement and realizing saving potentials” UNDSD (2001). This is because it promotes efficiency in production and lowers material handling and waste disposal costs.

With this technique, the material flows are divided into three categories which include; the material, system and delivery/disposal whose values and costs are then calculated. This approach is supported by technical process flow charts. UNDSD (2001) argues that whereas this method “results in better calculation of production costs, it avoids the need to separate the environment- related share and to obtain a complete list of other environmental costs” Figure 2.3: below shows a diagrammatical presentation of flow cost accounting.

Insert figure 2.3 here

(i)

Material values and costs

UNDSD (2001)The material value and costs can be calculated if the physical quantities of materials involved in various flows and inventories are known and this usually possible by the existing material management systems and production planning systems provide comprehensive database.“Based on the flow quantities and inventories, one can proceed to make valuations in terms of prices and thus obtain the material values of these flows and inventories. Material costs can then be determined by defining which material flows is cost relevant” UNDSD (2001:83). Material value orientation which involves the possibility of reporting the material purchase values and costs at later stages for material flow and material inventories is the core of flow cost accounting.

(ii)

System Values And Costs

System costs are those costs that are incurred in the process of in-house handling of material flows such as the personnel costs or depreciation. Material movements have to be treated as cost drivers for the purposes of assigning the system values and costs. The system costs that are assigned to material flows are known as system values and the system cost are allocated to the outgoing product flows and these are then passed on as system values to the subsequent flow and inventories. (UNDSD (2001)

(iii)

Delivery or Disposal

Delivery or disposal costs are assigned and allocated for those flows that are leaving the company. These are not part of the system and they may include payments to external third parties and all costs incurred in ensuring that the materials leave the company like transport, costs of disposing waste among others. UNDSD (2001)

c. Environmental Activity-Based Costing. Ann Irons (2010) in the environmental accounting context this technique shows the distinction between environmental related costs that are attributed to cost canters and environmental-driven costs that normally tend to be hidden is overheads and these should have adequate allocation keys to obtain correct information.

The four main allocation keys include: volume of emissions or waste, toxicity of emission and waste treated, environmental impact added (volume x input per unit of volume) volume of the emissions treated and the relative costs of treating different kinds of emissions” Shane Johnson (2004) UNDSD 2001 explains that this approach is focused to deal with allocating costs to products in a correct way, by minimizing the costs hidden in overhead costs categories.

UNDSD (2001) states that this approach is advantageous because it improves economic performance and consequently improves environment performance and eliminated distortions in the product pricing, and investment decisions. Distinction should be made between overheads costs and joint environmental costs as illustrated in the figure 2.4 below.

Insert Figure 2.4 here

In the above diagram a difference is made between environmental costs such as the waste water treatment plant, incinerators etc. From the production process in the manufacturing plant above, all the three production steps produce waste, this waste is treated in an incinerator at a cost of $900 and the remaining general overhead costs is at $9000.

d. Life Cycle Costing This incorporates the related cost caused over the life of a product and it requires the full environmental consequences. Ann Irons (2010).This method has however not received much attention UNDSD (2001).

2.4 EMA Roles, Benefits and Challenges Several studies, including Ferreira et al(2010), have shown that EMA use has several potential benefits which range from cost reduction, attraction of better human resources, better stakeholder relationships, improvement of company reputation, improved

corporate image, and improvement of product pricing, among others as will be explained later. They also found a relationship between share price and social and environmental activities.EMA is applicable in product pricing, budgeting, investment appraisal,

assessment

of

environmental

costs/design

and

implementation

of

Environmental Management Systems (EMS). Other applications include environmental performance evaluation, calculating costs and savings of environmental projects, benchmarking, cleaner production and eco-design projects, external disclosure of environmental expenditure, external environmental and sustainability reporting and other reporting of environmental data to statistical agencies and local authorities etc UNDSD (2001) and C. Jasch (2003)

EMA which uses such standard accounting techniques as Activity Based Costing to identify, analyse, manage and reduce environmental costs mutually benefit both the company and the environment.“By identifying, assessing and allocating environmental costs, EMA allows management to identify opportunities for cost savings” UNDSD (2001) Shane Johnson 2004. Ann Irons (2010) and Ferreira et al, (2010) “Rachel Jackson, ACCA's head of social and environmental issues, says that making environmental improvements makes business sense. It makes sense to save money on resources, save on bills and save the environment” Richard Willsher (2004). “Some companies are able to implement sophisticated environmental cost systems which can report on savings and benefits.”Roger Adams (2002). This is in agreement with Porter and Van der Linde (1995) and Reinhardt (1999) cited in Ferreira et al (2010) who found that ‘pollution reduction is likely to produce future cost savings and eliminate future environmental liabilities’

Most of the authors point on the importance of EMA in providing information for decision making. C.Jasch (2003:670) states that ‘the most important goal of using EMA is to make sure that all relevant, significant cots are considered when making business decisions.’ ‘EMA is closely related to process costing as well as to environmental performance and Management systems. Well designed and implemented EMA helps to ensure better internal management and decision –making for investment appraisal,

cleaner production, improving eco-efficiency and

calculating savings

with

in

organisations. Ferreira et al (2010:923) adds that “economic benefits are likely to flow from better-informed decision making” Ferreira et al (2010) found out that among the 15 benefits surveyed, the highest benefit experienced by organisation from use of EMA was that of identifying new opportunities, followed by improvement in reputation and the decision making. The author stated that this was consistent with other authors like Adam, 2002; Anand, 2002; Bernhut, 2002). In addition, other benefits like process innovation, reduction in operating cost and product innovation and little reduction in organisation’s perceived risk were also higher than the remaining benefits. However, cost of capital and insurance costs were the lowest level of 17 benefits that were surveyed. Adam (2002) cited in Ferreira et al(2010) also found out that ‘organisations which produce social and environmental reports, are able to develop better internal control systems and lead to better decision making and cost savings are likely to occur as a result of continuous improvement. Therefore this confirms that EMA serves as a basis for external reporting and life cycle assessment of products as reported by C. Jasch et al (2010) K.Clarke et al (2006:118), C. Jasch et al (2010:96) say that focused on the provision of organization-specific performance information for internal decisions-making, management accounting systems are essentially unregulated and individually tailored to meet the needs of an organization.

EMA emphasizes costs related to the use of energy, water and material and on the generation of waste and emissions which are related to the organizations impacts on the environment. It also considers the material costs and losses of material in waste and emission which have now become some of the prominent cost drivers in most organizations. In countries with low enforcement of legal compliance and relatively low labor costs, material and energy use and related losses are a significant cost driver. That is why EMA places particular emphasis on material and related costs. Christine Jasch et al (2010:97). Cleaner production which ensures minimal environmental costs with minimum environmental impact can be attained through EMA and this enables

firms to produce environmentally friendly products in a more efficient and profitable way. Environment-friendly products are now highly demanded and can gain competitive edge. Ferreira et al (2010) states that good citizenship behavior and offering environmentally friendly products lead to improvement in the organizational reputation. In addition, Adams,(2002) cited in Ferreira et al (2010) adds that ‘organizations may also reduce the risk of consumer boycott by providing information on social and environmental issues’ which enables stakeholders to understand the way the organization conducts its activities and to assess the environmental performance of the organization. Given that few organizations provide this information, those that provide it, tend to experience improved reputation and are likely to gain competitive advantage. Many authors explain that the main challenges of environmental management accounting are related to defining, separating, identifying and allocating and controlling of environmental costs. Another challenge is related to international standards in management accounting which make environmental issue a challenge to management accountants.

The main problem with environmental management accounting is that we lack a standard of environmental costs (UNDSD 2001). This is also in agreement with ACCA & UNEP (2002:34) they stated that there are no international standards dealing with management accounting and thus there is no consistence guidance for companies on how to deal with the various issues. “A recent development of EMA is to also include social aspects to enlarge the focus from environment to sustainability” C. Jasch (2006) Watchaneeporn Setthasako (2010; 321) findings identified three root causes of barriers to the development of EMA to include lack of building organizational learning due to limited environmental training and team working. Secondly, a narrow focus of economic performance where companies focus on a short term than long term perspective and reject projects like EMA that bring loss today even though they will generate profit in the future. They also do not look beyond the factory wall to see the negative impact of their actions in communities.

The third cause is absence of guidance on environmental

management accounting where they stated the lack of a uniform framework.

2.6 Role of Management Accountants and EMA W. Setthasako, (2010;321) found that in Thailand, ‘even though there is a moderate level of organizational response to environmental improvement, there is a low level of involvement by accountants in environmental management practices. The findings also indicate that accountants are conservative and unable to adjust to new challenges; they are not proactive towards environmental agenda and also perceive their role as simply number crunchers and book keepers’. Accountants need to understand the identification, measurement, allocation of environmental costs so that they find means of controlling them so as to achieve the intended benefits since it is proved by most organizations that having concern for the environment saves money in terms of cost saving. Richard Willsher (2004)

If accountants portray poor environmental behaviors, this may have adverse impact on the organization and its finances. As a consequence of these poor behaviors, the company may face punishment like loss of sales, fines, loss of insurance cover, contingent liabilities increased liability to environmental taxes, loss in value of land, destruction of brand values, consumer boycotts, inability to secure finance, law suits, and damage to corporate image” Shane Johnson (2004). ‘While every accountant will be involved in environmental accounting, management accountants (in particular) will play a key role in assessing environmental costs, liabilities and risks, and in developing the information infrastructure to support an effective EMS’ ACCA-UNEP (2002:34)

2.7 The EMA Framework . Schaltegger et al (2000) proposed framework for the application of EMA in Table 2.1 below that will be used. This model and why it was chosen will be discussed in details in section four.

Insert Table2.1 here

2.8 Knowledge Gap in the Reviewed Literature and conclusion. The literature reviewed focused more on application of EMA in industrialized developed countries and in most parts of Asia. Few studies have been conducted in Africa and Uganda in particular. This study aims to fill that gap by exploring what manufacturing industries are doing to promote effective environment management and the extent to which they are applying EMA in their accounting systems.The major challenges and costs that they face regarding environmental management and EMA applicability are also identified.

The above discussion clearly shows the importance of differentiating environmental costs from the general overheads. Manufacturing industries consume large amount of resources including water, energy, materials, implying that they are prone to generate large amount of environmental costs. Definition, identification measurement and allocation of these costs is very crucial but it is the most difficult and challenging aspect of environmental costs. EMA with the aid of other techniques like ABC can ease this process. It is important for management to have correct information regarding these costs in order to make better decisions which could benefit the company and also save the environment at the same time. The next section discusses briefly the structure of the Ugandan economy, standards and regulations to enable us to understand the nature of the economic environment in which manufacturing firms operate.

Section 3: Ugandan Economy, Standards And Regulations 3.1 Introduction This section discusses briefly the structure of the Uganda’s economy, standards and regulations to enable us to understand the nature of the economic environment in which manufacturing firms operate and the role of government and industry in environmental management. Uganda’s economy is comprised of different sectors leading by service that contributed to 52% of GDP, followed by industry that contributed to 25%, agriculture forestry and fishing around 15%. Figure 3.1 below summarizes this structure.

Insert figure 3.1 here

In Figure 3.1, whereas service and industry sectors are the major contributor to the country’s GDP, in terms of employment, agriculture sector employs above 70% of the total population www.ubos.org visited (10th July, 2011). Environmental management is very crucial in the economy of Uganda since it will have an impact on the performance of those sectors especially the agriculture sector which is declining because it depends on climate factors like rainfall and other environmental factors like the soil quality. Constance L. Neely (2010:24) also states that ‘Climate change is impacting and will continue to dramatically impact agriculture and productivity. On a regional basis climate change may lead to increased unpredictability, not necessarily global warming. The effect of increased unpredictability can be as damaging to yields and as significant for producers’ behavior as warming. Food production and Climate change manifests as climate variability, greater incidence and intensity of floods, droughts, and other extreme events; climate change will dramatically shift crop production patterns and yields’ Agriculture plays a very important role in Uganda’s economy not only by providing employment but also boosting the agro-based manufacturing industries like the food processing industries. In addition industry sector is also supported by resources like water availability, fish, and agricultural supplies which are all climate dependant.From PWC Uganda website visited on 17/07/2011, it’s indicated that Uganda’s industrial

manufacturing sector is relatively small and the sector is currently facing some challenges like intermittent power supply and increased cost of electricity for production that have hampered its growth.

3.2 Overview of the Manufacturing Industry in Uganda The manufacturing industry comprises of formal manufacturing, informal manufacturing, and construction among others as shown by figure 3.2 below.

Insert figure 3.2 here

According to MOFPED (2011), the above figures were computed using GDP numbers for each year in constant 2002 prices. The formal manufacturing is the second largest in the industry sector. From the recent budget speech, it was stated that this sector is growing since it was projected to have grown at 7.2% in 2010/2011 compared to 2009/2010 at 6.1%. It was indicated that this growth is from industries in tobacco and drink processing, paper and printing, chemicals, paint and soap, metal product, brick and cement. The informal manufacturing sector was also seen to have grown by 4.3% in 2010/2011 which was below the 8.3% of 2009/2010 due to poor performance of the grain production. However, long rain seasons in 2011 that favored crop production boosted the food processing industries. MOFPED (Budget 2011)

3.3 Standards and Regulations on Environmental Management and EMA The drive towards environmental management has resulted in an increase in the implementation of environmental Management systems in order for the organisations to improve their environmental performance, reputation and image. Whereas some companies enact voluntary measures, most of them are guided by standards and regulations.

OECD (2001:13) identified five factors driving environmental initiatives to include: ‘government policies and regulations, commercial and economic considerations,

corporate

image,

codes

of

conduct,

and

growing

pressures

from

the

financial/investment community. Deriving the full benefits from these drivers depends in large measure on the knowledge and effectiveness of stakeholders (i.e. the general public, public authorities, the financial/investment communities, NGOs, and other interested parties). The more that these stakeholders know about environmental issues, the better able they will be to advocate and pursue more forward-looking strategies’

Environmental standards and regulations play a big role in limiting environmental damage. However, standards setting process should take into consideration the costs and benefits analysis. For instance ‘A new, more expensive, technology should be incorporated into a legal standard only if its marginal costs are lower or equal to the marginal benefits of the additional reduction in environmental damage’ Michael G. Faure (2002:4). OECD (2001:24) states that ‘industry interest in the ISO standard has been rising, for a number of reasons. Customers, for example, are demanding more often that companies and their suppliers be part of a total “supply chain” which is environmentally sound. In addition, certification can improve the public image of companies, leading to market advantages. In fact, many firms are using certification as part

of

a

proactive

environmental

communications

strategy

that

showcases

environmental commitment. On the cost side, conforming to ISO 14001 is requiring firms to view their operations in a more comprehensive fashion. In some cases, this has resulted in the development of more cost-effective procedures and approaches’

The standards aim at achieving improved environmental performance by organisations and they address environmental aspects by considering what an organisation does to minimise its harmful environmental effects of its activities, products and processes. Firms are being pressured to adhere to these international standards because of globalisation and more awareness of environmental related issues. Besides the customers are increasing their interest and demand for environmentally friendly products and investor interest is also shifting to companies with cleaner production processes. Adoption of the standard in developing countries has been slow as compared to that in industrialized and developed countries. Globally as of 2006, there

are only 129199 ISO 14001 certifications and registrations” May A. Massoud, Rabih Fayad, Rabih Kamleh, Mutasem El-Fadel (2010:1885) The information found on the website http://www.ecology.or.jp/isoworld/english/analy14k.htm (17.07.2011) indicates only 129,031 certification as of Jan 2007. Of this, Uganda had only 4 certifications by then. As of December 2008, these increased to 188,815 of which Uganda had only 6 ISO 14001 certifications. Corbett and Kirsch,(2000) cited in OECD(2001) states that ‘the ISO standard appears to be a promising one that can help support a more spontaneous, holistic response by companies to environmental issues by changing the way they think about, and react to, challenges in the field of environment. It is not; however, a means through which environmental performance will necessarily be raised. The standard does not, for example, attest to the environmental attributes of a product, nor does it certify compliance with any national or international regulation, nor does it mean that facilities have been inspected to determine their “environmental” performance. As Jacob Hottentot (EMAN Graz 2006) clearly put it that ‘getting ISO 14001 certified is one thing, but keeping it is another thing’

Regarding Total Quality Management (TQM), Shane Johnson 2004 urges that environmental management and TQM are interlinked because good environmental management is becoming an essential component of TQM since both focus on continuous improvement and a pursuit for excellence. Therefore organisations should aim at achieving an integrated environmental strategy with the same culture that is required for successful TQM operations by pursuing objectives aimed at zero complaints, zero waste, zero spills, zero accidents and zero pollution. Shane Johnson (2004)

In Uganda National Bureau of Standards (UNBS) a member of ISO is mandated to issue ISO certifications.UNBS adopted the ISO 9000 Quality Management and Quality Assurance series of International Standards. UNBS established a method of assessment and certification of Quality Management Systems in the manufacturing and

service industries as an essential mechanism to ‘build quality at every stage and assure the production of goods and services of consistent quality’. www.unbs.org 17/07/2011 Uganda has been a member of World Trade Organization (WTO) since 1995 and because of globalization; it faces a competitive international market with a lot of challenges including those related to the environment. The Government of Uganda is doing its best to keep pace with the global trend of Environmental protection.

Strengthening the legal framework for promoting environmental management in Uganda began in 1995 with the revision of the constitution under article 245 (a) (b) (c) to provide measures intended to protect and preserve the environment, manage the environment for sustainable development and promote environmental awareness. In addition National Environmental Management Authority (NEMA) was established in 1995 with the

responsibility for coordinating,

monitoring,

regulating and

supervising of

environmental management in the country. Through NEMA the state has issued a set of environmental laws and regulations among them are the following; (i)

The

national

environmental

environment audit

(audit)

reports,

regulations

environmental

2009

deals

management

with;

systems,

enforcement environmental audits and voluntary environmental audits. (ii)

The national environment (minimum standards for management of soil quality) regulations.

(iii)

The national environment (minimum standards for discharge of effluents into water or land) regulations.

(iv)

The national environment (access to genetic resources and benefit sharing regulations 2005.

(v)

The

national

environment

(wetlands,

riverbanks

and

lakeshores

management) regulations. (vi)

The national environment impact assessment regulations, 1998.

(vii)

The

national

environment

1998.www.nema.org

waste

management

regulation,

In addition, multilateral agreements like the Stockholm convention on persistent organic pollutants (POPs) a global treaty entered into force in 2004 requires parties to take measures to reduce the release of POP into the environment so as to protect human health and the environment from chemicals that remain in the environment for long periods. www.nema.org.Penalties imposed under the court jurisdiction for environmental degradation in Uganda include such penalties like for polluting the environment which include imprisonment for three to thirty six months or a fine between 300,000 to 3,000,000 UGX respectively. Michael G. Faure (1995:11) explains that ‘the problem with fines, however, is that the probability of detection is often low and the amount of harm done so high that the fine would far exceed the total wealth of the individual offender. In that case, judgment proof problems could arise and the potential fine would not provide the desired deterrence’. Besides, imprisonment and fines, non-monetary sanctions that could force the offender to remove the environmental harm caused are suggested to be more effective in improving the quality of the environment than fines and imprisonment.

Gabor Harangzo, Sandor Kerekes and Agnes Zsoka (2010) suggest otherwise. Their findings show that the requirement for regulatory compliance was strongly detected as a motivation behind EMS implementation. Public authorities were considered to exert the highest pressure on companies to take environmental measures, throughout the whole international sample. This implies that the strongest incentive is legitimacy and compliance even in the cases of companies that enact voluntary measures. On the other hand, Allen Blackman (2008:19) adds that ‘voluntary regulation is unlikely to be successful in situations where both the regulatory and non regulatory pressures for improved environmental performance are lacking because polluters avoid the costs and benefits for compliance. Therefore compliance will be low when the costs and rewards are low’ From the financial perspective, ‘Financial regulators such as the Securities Exchange Commission (SEC) and the accountancy profession have been concerned to ensure that current financial reporting standards are adequate to capture the full scale of potential environmental liabilities, however, it was argued that ‘the

current standards themselves are adequate provided that they are properly followed and enforced’ M. Bartolomeo et al (2000:35) In another study, it was indicated that “unlike management accounting information, external financial reporting is highly regulated and profession’s conceptual framework provides particular challenges to accountants seeking to account for the performance, or impact, of an organization holistically. K. Clarke et al (2006:119). The International Federation of Accountants (IFAC) supported by the Division for Sustainable Development of the United Nations Department of Economic and Social Affairs (DSD/UNDESA), has issued new guidance on environmental management accounting. Christine Jasch- (EMAN Abstracts Graz, Australia 2006:4).

It is recognized that the accounting professional has made positive contribution in this aspect like developing the conceptual underpinnings for environmental management and sustainability, encouraging environmental reporting and expanding the boundaries of accounting to include Environmental Financial Accounting which is concerned with external reporting and Environmental Management Accounting concerned with internal reporting purposes for internal decision making. However, other issues that still require a positive thought include, ‘limited international financial reporting and auditing standards dealing explicitly with social environmental and sustainability reporting, accountants fail to join up with other groups such as environmental economics to develop appropriate costing techniques and lack of a close relationship between accounting function and environmental function.’ (ACCA & UNEP 2002:11) This is true because most organizations have accounting and environmental departments which work independently and have different objectives.

3.4 The Role of Government and Industry. The rising concerns over environmental challenges have also made the role of government and industry very important in this regard. Government and industry have major roles to play in promoting effective environmental management. The role of

government is a vital one but at the same time, the role of industry should not be downsizes.

3.4.1 Role of Government Government’s major roles are related to setting laws, regulations, standards and policies that can enhance sustainable development. Unlike developing countries, the power of government in developed countries forces company strategies to change from economic- driven strategies to those that are driven by society and the environment. There by giving corporations a more active role in developing EMA via publications or Green Accounting Act. Watchaneeporn Setthasakko (2010). UNEP (2000) Advises government authorities to carry out ‘effective deployment of detection equipment, intensive public awareness campaigns, tightening controls within borders and across borders, and heavy penalties including jail sentences are some of the measures that countries intend to take to prevent environmental crime. Watchaneeporn Setthasakko (2010:325)Thai case suggests that government agencies should play a crucial role in successful implementation of Environmental management accounting through issuing accounting guidelines’ and cited that this view also consistent with that of Monetiro and Guzman(2010)

3.4.2 Role of Industry Besides the role of government, due to the declining natural capital and increasing level of pollution and waste in most cities, industry as a major consumer resources and a major source of pollutants

is also a major player in this regard. ‘Aligning business

strategy with environmental performance and social responsibility has become crucial and ‘The positive role that industry can play in meeting environmental and interrelated social and economic challenges has been recognised for some time. OECD, (2001: 9) For insistence companies can promote environmental protection can be attained, by using more preventive strategies, cleaner production technologies and procedures, efficient production processes, throughout the product life cycle. OECD,(2001) In addition, compliance to the set laws, regulations and standards by industry is another

way through which they can promote environmental protection. Industry is moving from an ‘end-of-pipe’ reaction strategy that focuses on capturing and disposing of pollutants generated during manufacturing, to a more holistic approach that integrates environmental considerations more effectively over a broader range of firm functionsincluding product design and procurement practices and production processes. OECD (2001)

3.5 Challenges and Solutions for Developing Countries. One important step in achieving environmental management is by complying with all the legislations on environmental protection. Although the Ugandan government has set environmental legislations, it is still very hard for individual businesses to meet the requirements. As stated that ‘Most businesses would not increase environmental expenditure unless there is a strong legal requirement’ Li Xiaomei (2004:53). Enforcement of environmental laws is still weak in most countries due to limited financial and human resources. On the other hand, ‘Non- compliance with environmental legislation is not always deliberate. But there is still a tendency in society to consider this kind of violation less serious than the violation of other laws” Christopher Scarff (UNEP 2002:17)

In addition, the adoption of international standards like ISO 14001 in developing countries is still slow due to factors like lack of appropriate infrastructure, regulations, financial and human resources and lack appropriate policies. Implementation and enforcement is still a challenge and most of these countries lack the skills and technology, in addition to having high corruption levels. Christopher scarff (UNEP; 2002) Uganda being a developing country is still facing challenges in developing better environmental

management

systems

due

to

inaccessibility

to

environmental

technologies, limited enforcement of environmental standards and laws, corruption, limited training, limited funds. Michael G.Faure (1995:5) adds that the population in most of the developing countries have less value to environmental protection. However, “Since most developing countries are still in an early stage in the introduction and enforcement of environmental legislation, systems and standards, it is believed that

they might benefit from the knowledge of previous mistakes that have been made elsewhere especially in developed countries and successfully introduce and enforce environmental legislation. Michael G. Faure (1995). Christopher Scarff (2002) also adds that ‘legislative and enforcement measures must be developed at the same time as facilities and support services are established’ Allen Blackman (2008:20) suggests that disseminating information about pollution and abatement options to participating firms and the public at large can boost the effectiveness of voluntary initiatives. The challenge in developing countries is that collecting reliable plant-level environmental performance information is costly.” May A. Massoud, et al (2010:1886) concluded that improved environmental performance is linked to national regulatory requirements. Clearly implementing ISO in a country that lacks sufficient infrastructure and has a weak institutional capacity and poor enforcement of laws will not guarantee environmental improvement. Some of the suggested solutions to the above challenges by most authors in implementation of ISO 14001 EMS in developing countries like Uganda include. Government promoting the use of imported pollution control equipment through reduction and exemptions from tariffs review and update the outdated environmental regulations, training, technical assistance and public awareness among others.

NEMA report (2008) also identified policy options for action for environmental management in Uganda. Among the many options identifies include; The need for the Government of Uganda to pursue aggressive public awareness and environmental education programs and that government needs to analyze and recognize the role of the environment and natural resources sector to economic growth and wealth creation. Government was also advised ‘to put in place incentives for job creation and employment in other sectors of the economy to reduce pressure on the environment’ NEMA report (2008; 5)

3.6 Conclusion The role of government in formulating appropriate environmental legislation is very important in order to attain improved environmental management. However, implementation and enforcing these laws is still a big problem is developing countries

that are still in early stages of instituting such regulations.

On the other hand,

developing countries are at an advantage because they could learn from the mistakes that were made in developed countries and formulate better regulations and standard.Section 4 will discuss the EMA framework, research design, population and sample, data collection procedures primary data, secondary data assumptions, problems encountered during the research collection and a conclusion.

Section 4: Conceptual Framework And Research Methodology. 4.1 The EMA Framework This section gives an insight of the methodological framework introduced in section two, its relevance, discuss how data was collected. It will also explain the research design, methodology, problems with data collection, target population, sample size, technique and descriptive methods applied to obtain more information on the research topic. The EMA framework in figure 2.5 was proposed by Stefan Schaltegger, Tobias Hahn and Roger Burritt (2000:14). This frame work focuses on ensuring that all environmental information is captured by the systems.

The

EMA framework in SECTION two

considers a distinction between the following five dimensions; internal versus external, physical versus monetary classifications, past and future time frames , short and long terms and ad hoc versus routine information gathering which will be discussed in details. (i).Physical vs Monetary: The frame work integrates the two perspectives i.e. internal monetary and physical aspects of defining EMA which are; the Monetary Environmental Management Accounting (MEMA) and Physical Environmental Management Accounting (PEMA). PEMA tools/ accounting systems are used to collect information on the company’s impact on the environment expressed in physical units such as quantities like kilograms, joules which can be used for internal decisions by management. PEMA serves as an analytical tool that can detect ecological strength and weaknesses, direct or indirect control of environmental consequences, decision support, measurement tool, and accountability tool. MEMA tools on the other hand collect information on the company’s impact on the environment expressed in monetary terms for management internal decision making. Schaltegger, Hahn and Burritt, (2000:15) state that MEMA “is the central, pervasive tool providing, as it does, the basis for most internal management decisions as well as addressing how to track, trace, and treat environmentally driven costs.

Monetary information could for example include information such as cost incurred on cleaner production or cost of fines and the value of environmental assets. Physical information could for example include kilograms of materials and joules of energy consumed per product or customer. The physical and monetary information requirements by stakeholders will depend on what their interest. Some may be more interested in physical information while others may be interested in monetary information. For instance, share holders may be concerned with material effect on value. On the other hand environmental protection authorities may be interested physical units of waste. Both PEMA and MEMA information is for internal use in the organisation. Other systems like the External monetary environmental accounting and the external physical environmental accounting are responsible for proving external information. The focus of this study is on MEMA and PEMA.

(ii). Short and long term perspective This is a distinction related to the time frame. Whereas management is usually criticized for adopting short term perspectives, ecological issues are generally considered as long term. Another distinction can be made in relation to past or future orientations for those tools/systems that focus on the past and those that look into the future respectively. Putting into considering the need for internal decision by management, future and past approaches are divided further into routinely generated information and ad hoc information for systems that provide routine information to management and those that produce information on a needs basis for making specific decisions respectively. Schaltegger, Hahn and Burritt, (2000). The framework also supports the use of different accounting systems or techniques like ABC, life cycle costing. This can help meet different environmental information need for management internal decision making. Businesses are facing increasing pressure from stakeholders to provide environmental reports. EMA tools can be applied to provide the information needed for external environmental reporting and internal decision making. This model was used as a guide in formulating the questionnaire for data collection.

The propositions below were identified from the above framework as main forces that hinder effective application environmental management accounting in manufacturing industries in Uganda. Some of the industries have not yet reached significant level of efficiency in EMA applicability due to limited resources, lack of technology and limited legislation compliance, enforcement and implementation. Limited sensitization of the public on environmental issues due to lack of training and awareness of the environmental related issues by the public.

4.2 Research Design Research design was defined in Boris Blumberg, Donald R. Cooper and Pamela S. Schindler (2008:218) book as ‘The strategy for the study and the plan by which the strategy is to be carried out. It specifies the methods and procedures for collection, measurement and analysis of data’. It deals with the structure of the research, allocation of the scarce resources like time and guides in the use of tools like observations, experiments, interviews; it’s also concerned with the sample size and whether the analysis should be qualitative or quantitative. There are different classifications of research design approaches and these include; exploratory study, cross sectional and longitudinal studies, case, descriptive, archival sources, laboratory research, causal, actual routine, modified routine and formal study Blumberg et al (2008)

This research was a descriptive case study because it estimated the proportion of the population that have a certain characteristics and it was also structured with investigative questions. This design helpful in obtaining first hand information from respondents that enabled the formulation of simple and direct conclusion and recommendations. In addition, the researcher will use qualitative approach.

4.3 Sample Selection The population to the study includes the manufacturing firms in Uganda. There are few manufacturing companies listed on the Uganda Securities exchange. The researcher used the Uganda Revenue Authority database to identify the manufacturing firms in the

large tax payers’ category and some few from the medium taxpayers’ category. Convenient sampling was used to select companies that were easily reached and had their accountants or management accountants available and willing to respond to the questionnaires. Blumberg et al (2008; 232) explain that ‘the ultimate test of a sample design is how well it represents the characteristics of the population it purports to represent. In measurement terms, the sample must be valid. Representation of a sample depends on accuracy and precision’

In total 60 questionnaires were distributed to 60 companies. The researcher managed to get only 30 responses from 30 companies out of the 60 questionnaires distributed. This is an indication that the response rate was low. The questionnaire targeted the accounts department of each organisation. In each company, a questionnaire was issued to the accountant or management accountant or the financial controller. They filled this questionnaire in depth by providing the relevant company information on applicability of EMA and environment management of their organisation.

4.4 Data Collection Procedures The companies were in different locations and had different policies regarding providing company information for research. Whereas the researcher had email addresses of the companies, the personal emails of the accountants were more important. Contacting these companies for the contact emails of their accountants was not fruitful and this necessitated the researcher to go these companies and physically deliver the questionnaires to the accountants. Given that most accounts offices were busy preparing final reports due by 30th June the same period the researcher visited the companies. Most of them just picked the questionnaires and promised to fill at a later date after reducing their work load and then sent the questionnaires by email. Constant reminders were also made by email or phone call to ensure that the questionnaires were filled in time.

(i).Primary Data Primary data is data that is received first hand. This was got by administering questionnaires physically to the accountants. Questionnaires have an advantage because they do not involve any verbal aspect that may influence the respondent. Questionnaire may be filled at a later date especially if the respondent is busy. However, the challenge with them is the responses are not guaranteed and the researcher cannot get instant feedback.

(ii). Secondary Data Secondary data is second hand data already published to be used my many other interested users. The researcher accessed this kind of data websites, research papers, text books, magazines and journals, newspapers, among others. Secondary data is advantageous because it has data that could not be researchable through primary source, it is cheap and easy to obtain.

The research is based on two assumptions. One assumption is that the respondents wholly understood the questions posed in the questionnaire and were unbiased in the answers they provided. The second assumption is that the questionnaires were filled by accountants with knowledge of environmental management accounting and how it operates.

4.5 Problems Encountered During the Research Collection The researcher had limited time to move to all the companies and at the same time, most accounts departments were busy preparing year end accounts reports and could not give much attention.

Whereas the researcher tried to move to these companies, it was a challenge to access the accounts departments. First in some companies the gate keepers stated that their policy doesn’t allow researchers, in others the procedure for getting a questionnaire filled was too long and in others the gate keepers /receptionist were a problem and seemed like they needed monetary benefits to access the respective offices.

Some of the respondents completely refused to fill the questionnaire even after constant telephone reminders. They did not state the reasons but I attribute it to the culture since most of them would promise to fill but they didn’t keep their promise.

Some of the big companies were located far from the capital city and it was impossible to reach them physically. Whereas the researcher tried calling to ask for email addresses to send questionnaires, none of them were actually filled.

Most of company websites have limited information due to the fact that they are not listed on the Uganda Securities Exchange. They are not propelled to have their websites with all the necessary information.

4.6 Conclusion The methodology explained EMA framework, the data collection methods and the sources. Primary and secondary sources were necessary in collecting data and convenient sampling was used due to time constraints. Problems in data collection were also identified and listed. The next section deals with data presentation, analysis and findings.

Section 5: Data Analysis And Findings 5.1 Introduction The section focuses on presentation of detailed analysis, summary of findings and provides a clear presentation of the information in graphs, charts and tables. Industry classification of each firm was identified as represented below. The others category which had 13 firms out of the 30 companies includes those firms that indicated manufacturing, those that indicated construction, plastics, packaging and clay roofing products. This gives a wider coverage to give a better analysis.

Insert figure 5.1 here

Concerning ISO 9000/14000 certification, the information gathered from the firms show that 21 firms are ISO certified. However, this certification is for both ISO 9000 and 14000 for quality management system and environment management systems respectively. The majority of firms in Uganda have only ISO 9000 certification compared to ISO 14000. On a good note, 10% of the companies stated that plans are in place to acquire ISO 14000 Certification. Figure 5.2 below shows the responses as regard the certifications.

Insert figure 5.2 here

In addition to the above international certification, most of the companies stated that they had acquired national certifications from Uganda National Bureau of standards (UNBS) and National Environmental Management Authority (NEMA) concerned with quality standards and environmental management respectively.

Application of management accounting techniques was important to know to what extent the companies are applying these tools because some of them facilitate the use of EMA. The results in the figure 5.3 below show the extent to which such tools are applied. Budgetary control, Total quality management and Activity based costing are such tools that were always applied by most firms. Target costing, standard costing and marginal costing were never used by majority of the organizations and a fair number of companies indicated that they sometimes use EMA and no company applies it.

Insert figure 5.3 here

5.2 Environmental Management Accounting and Environmental Management 5.2.1 Uses of EMA The biggest number of respondents agreed about the uses of EMA in the following order. Identification of Environment-related costs, estimation of environment –related

contingent liabilities (fines), product improvement analysis, allocation of environmentrelated costs to products, product inventory analyses classification of environmentrelated costs, product impact analyses and introduction or improvement of environmentrelated cost management. Few respondents agreed on the use of EMA for creation and use of environment-related cost accounts and product life cycle cost assessments. The responses are summarized in the figure 5.4 below.

Insert figure 5.4 here 5.2.2 Benefits from Use of EMA Benefits from use of EMA ranked highest in the following; better waste management, improvement in reputation and corporate image, improvement in decision making customer satisfaction and product costing improvement Benefits like cost of capital reduction and identification of new opportunities were ranked last. This is in agreement to some of the results of Ferreira et al (2010)

Insert figure 5.5 here 5.2.3 Costs Incurred in Environmental Management The respondents incur most frequently costs on pollution reduction, followed by waste management and monitoring. Most organizations stated that they sometimes incur costs in fines and almost all the companies have not paid any environmental taxes and very few have incurred costs in regulatory reporting. This is because the environmental tax is not yet introduced in Uganda. The environmental tax in Uganda is only applicable to purchase of very old used cars which is not applicable for most manufacturing firms. Since few companies are listed on the Uganda securities exchange mostly banks and some few international and local companies, the ones not listed are not mandated to make environment reports the reason why regulatory reporting costs are incurred by few firms. Figure 5.6 shows the costs.

Insert figure 5.6 here

5.2.4 Challenges in Implementing EMA. The companies find difficulties in defining, separating, identifying, classifying, measuring and controlling for environmental protection costs as the greatest challenge followed by other challenges like; Inaccessibility to environmental management technologies, limited knowledge and training and corruption. The least challenges are limited legislation and challenges in availing environmental management information. Other challenges lie in between as displayed by figure 5.7 below.

Insert figure 5.7 here

5.3 Disclosure Items by Companies Disclosure Items on Environmental Management by Companies helps to know if the issues of environmental management are being considered. Whereas the greatest number of companies’ mission or vision statement do not say anything on environment management, over 25 of the companies adopt internally developed environmental policy and the number of companies with environmental goals and objectives is more than those without.

Insert figure 5.8 here

5.3.1 Goals and Objectives This was intended to know if the respective companies have goals and objectives that could facilitate environmental management and sustainability. Most of the companies have goals and objectives that state at a minimum commitment to Continuous process improvement and monitoring, Waste emissions and discharge management, Material, water, and energy conservation, compliance with environmental laws and regulations. Few companies have goals and objectives for Environmental performance reporting and quite a number of respondents stated that it is not applicable. However the increasing demand of environmental reports by stakeholders will in future increase the number of companies that produce them because stakeholders are increasingly concerned with

how the companies impact on the environment. Also companies will be forced to voluntarily produce these reports to enhance their reputation.

Insert figure 5.9 here.

In terms of targets and achievements, the results show that most companies have environmental targets and objectives and in some organizations these targets cover major environmental issues however, in others it was indicated not applicable especially in covering major environmental issues as illustrated in figure 5.10 below.

Insert figure 5.10 here

5.3.2 Environmental Management Systems This was to show if the companies have an environmental management system and if the system is at least certified by any of the governing bodies like NEMA, UNBS or International certifications like ISO. On a good note, most companies have EMS but certification as indicated above is by NEMA, UNBS or ISO 9000.Above 50% have members on the board and divisions or departments responsible for environmental management. Regarding training, the training programs are being carried out by few organizations as indicated in figure 5.11 below.

Insert figure 5.11 here

The researcher also wanted to find out what companies are doing about their impact on the environment. More than half of the responses show that to some extent, companies recognize the environmental impacts of the organization’s activities, products and services and some of them have hired environmental specialists or external auditors to facilitate the identification of environmental impact. However those that don’t do so are also quite many which are almost over 30%.

Insert figure 5.12 here

5.3.3 Resources Measurements Over 70% of companies always and often measure the quantity of resources like water, energy and material used by the organizations. However, few companies do this for emission, effluents and waste. Measurement of resources, waste and effluents is important so that physical value can be attached to facilitate monetary measurement. With this companies can find means of controlling them to reduce on their impact on the environment. The resources measurement is shown by figure 5.13 which illustrates how often companies measure the quantity of energy, water, materials and emissions in their production process.

Insert figure 5.13 here 5.3.4 Research and Development Research and development initiatives in environmental improvement are not always or often undertaken by most organizations. Around 20% of the companies do this more often, and around 30% sometimes do it, but over 50% of the companies have environmental goals clearly set out and 30% rarely do it while another small number have never undertaken any research nor do they have objectives for environmental improvement.

Insert figure 5.14 here

5.3.5 Compliance to Environmental laws Almost same number of companies stated that always, often or sometimes there is a statement that indicates that the company complies with environmental regulations. 50% stated that rarely there are sites or departments that have been prosecuted and have rarely environmental incidents occurring in the past years. The majority of companies also indicated that always or often there are procedures that have been put

in place to prevent such incidents or non compliance from occurring. Concerning fines, some companies sometimes pay fines while others rarely do so. Figure 5.15 illustrates.

Insert figure 5.15 here

5.3.6 Financial Data Responses indicate that very few companies always or often produce environmental financial statement and practice environmental full cost accounting. 20% of the companies sometimes do so as seen in figure 5.16 below.

Insert figure 5.16 here

Stakeholder engagements; this was to show if the companies have made any engagement and initiatives regarding environmental management. Responses indicate that slightly over 50% of the companies have sometimes made charitable contributions /partnership with environmental organisations and have supported environmental campaigns/initiatives by other parties. The other few companies often or always do the above as illustrated in figure 5.17 below.

Insert figure 5.17 here

5.4 Awards and Comments by Respondents. Respondents were asked to state if the companies have had any environmental related award. The following were listed by a few companies. Regionalia and NEMA Best in sustainable development in SABMiller-Africa for 3 years in a row. International Trade Company of the year 2006. NEMA WARD 2009 Plaque Award (In recognition of the exemplary contribution to environment management

The respondents were also given a chance to make comments on the questionnaire and below are the comments received which clearly show how seriously companies are taking issue relating to environmental management. (i).Environmental management Accounting is playing a vital role in the organization. It depends upon the nature of the company whether it affects directly or indirectly to the company. There are many cases which affect the company badly for its pricing decision, innovation of a new product, product competition and financial growth of the organization. Moreover, now it has been a legal compliance and has to follow the rules and regulation of the environmental body. There are certain criteria which organization has to meet to operate the business in Uganda. (i).Thank you very much for giving me a chance to fill the form. The Environmental Management Accounting plays a vital role in the modern manufacturing organization. We need to know the environmental cost before doing anything. It can be harmful for the company without knowing these costs and lead to bankrupt. I hope i am able to answer your all questions best of my knowledge and experience. - Good questions - Supporting laws should be enforced by the environmental managing bodies for proper conservation of wild life. - The questionnaire is well designed. I wish you the best. - We spend a lot of money on environment management programmes but the questionnaire is silent on how much organisations spend in relation to Total costs - The questionnaire is very clear and good as it captures all the information regarding environmental management Accounting. Its good as it helps to access how organizations manage environmental costs which arise as a result of their activities. - Any corporation without a clear environmental preservation policy must never be allowed to operate. The profit principle alone cannot ensure the future of industry, for this relies heavily on whether the local and global climate shall be in adequate position to sustain mankind and our actions on the land 10, 50, 100 years from now.

5.5 Conclusion The responses clearly show the extent to which manufacturing companies are using management accounting techniques in their organisations. As indicated, EMA use in these firms is still minimal but most of the companies are taking environmental issues seriously by adopting environmental policies, setting objectives and goals related to effective environmental management. Whereas most of the organisations measure the amount of energy, water and materials, most of them are not measuring the value of emissions, waste and effluent. Lack of information regarding such would result is wrong decision making; low incentives to reduce them and this may have an adverse effect on the environment. The next Section draws the final conclusions on the research, recommendations and points out areas for further research.

Section 6: Conclusions, Recommendations And Future Research 6.1 Overview The study was intended to examine what the manufacturing industries in Uganda are doing to enhance effective environmental management since environmental concerns have become a global issue. The study mainly focused on Environmental management accounting, it’s use in the manufacturing firms in Uganda and the challenges companies in developing countries like Uganda face in implementing EMA to achieve effective environmental management. Uganda’s economy depends mostly on exploitation of natural resources which are also climate dependent resources. Manufacturing industries consume a lot of these resources and on the other have high emission rate for gases and waste. Their actions could have an impact on the environment in terms climate change, depletion and degradation of natural resources, increased waste, pollution etc hence negatively impacting on the economy.

Objectives and research questions were based on the

above. The researcher adopted a multiple case study to answer the questions and used qualitative form of analysis

6.2 Conclusions Whereas most of the manufacturing firms in Uganda indicated that they have adopted the use of management techniques like ABC, Budgetary control and TQM, the study revealed that the use of EMA in these firms is still minimal. However, on a good note, this study discovered that most of the manufacturing firms are taking environmental issues seriously by adopting internally developed environmental policies, they have sets of Environmental goals and objectives and environmental management systems certified by NEMA and UBOS. Whereas some have ISO 9000 certification, Uganda as a whole still has among the lowest numbers of ISO 14000 certifications for environmental management systems worldwide. Most of the firms also indicated that they have divisions and members on the board responsible for environmental management with an aim of achieving effective environmental management.

Most of the respondents indicated that they understand the roles of EMA and its benefits. They indicated that EMA is majorly used in identification and allocation of environmental related costs. They highest benefits attached to EMA were those related to better waste management, reputation, image, decision making and customer satisfaction.

Regarding environmental costs, most firms incur costs on pollution

reduction, waste management and monitoring and they don’t pay environmental taxes since it’s not applicable as indicated in the findings

Even though most firms indicated that they are able to measure the physical and monetary values of water, material and energy, knowing this information may provide incentives for cost saving. However, not many firms are in position measure the quantity of emissions and waste. This may cause difficulties in knowing the costs and allocation of these costs to activities and products hence reducing the opportunity to reduce on such costs. This however is a result of some of the challenges that firms face. The study revealed that the greatest challenge was defining, separating, identifying and measuring environmental protection costs. Other challenges identified were; inaccessibility to environmental management technology, limited knowledge and training, and corruption.

among others.Some of these factors, which are common in most developing countries, could hinder the achievement of effective environmental management goals.

6.3 Recommendations Our study has led to the following recommendations in order to address the above challenges faced by companies in

implementing EMA to achieve

effective

environmental management and benefit both the manufacturing industry and society as a whole:. (i). Government should encourage and facilitate more research in the field of EMA. The government is fully aware that the economy of Uganda is entirely dependent on natural resources like water, minerals which act as raw materials used in production by manufacturing firms. Research will stimulate awareness in firms and the public. They will understand the benefits of providing both physical and monetary values of resources and why saving and proper utilisation of resources is crucial. Other natural resources like cash crops, fish depend on climate variability and water quality respectively. Uncontrolled emissions by manufacturing industries may affect the climate; also disposal of waste into the water bodies has already reduced on the fish species due to high level of water pollution. (ii).T he challenge of inaccessibility to environmental management technologies can be overcome by Government providing subsidies on importation such equipments at reduced or exemption from taxes. Importation of such technologies would encourage the use of EMA in the manufacturing industries hence benefiting both the companies and the environment. (iii). Constant training and awareness in EMA and environmental management through environmental education programs and courses. For instance, Professional courses like ACCA have fully incorporated EMA in syllabus. Accountants are advised to take up such courses so that they equip themselves with the current developments in EMA. (III). Government should provide infrastructure, financial and human resources, update and enforce laws, regulations and policies to match the current international standards so that adoption of international standard is made easier. Enforcement of laws and anticorruption measures can also help to reduce on the level of corruption.

(iv). ‘Accountants and environmental experts should pool their skills to form a multifaceted team to address environmental issues of significance to the organisation and recommend appropriate remedial action’ W. Setthasakko, (2010; 322). (v). Government could investigate on the applicability of environmental taxes by assessing if it can encourage firms to find better means of production that may not harm the environment.

6.4 Suggestions for Future Research Further study is needed by taking a larger sample and also considering small manufacturing firms in the study. Also including other stakeholders like the government officials in the National Environment Management Authority is important to know their views on the status of the environment and the challenges involved because this would give more evidence in the area. It would also be more interesting if the researcher uses methods like observation and personal interview to properly analyse the systems and policies in these firms regarding EMA and environmental management.

REFERENCES And BIBLIOGRAPHY ACCA-UNEP. (2002). Industry as a partner for sustainable development UNEPAccounting ACCA. London: UNEP-Accounting ACCA. Adams, R. (2002, April o4). Management accounting and the environmentSustainability and ACCA qualification. ACCA technical Article – ACCA student Accountant . Aldonio Ferreira, C. M. (2010). Environmental management accounting and innovation; an exploratory analysis. . Auditing and Accountability Journal , 920-948.

Blackman, A. (2008). Can voluntary environmental regulation work in Developing countries? Lessons from case studies. . The Policy Studies Journal Vol 36 No.1 , 119141. Boris Blumberg, D. R. (2008). Business research Methods Second European edition. UK: McGraw-Hill Higher education. Christine Jasch, D. A. (2010). Environmental Management Accounting(EMA) Case studies in Honduras- an Integrated UNIDO Project. Social and Environmental Accounting , 89-103. EMAN-ABSTRACTS. (2006). Environmental Management accounting network-9th Annual Conference- EMA and cleaner production Abstracts. Austria: Graz Univerity Austria 2006. Faure, M. G. (1995). Enforcement issues for environmental legislation in Developing countries. United Nations University / Institute for New Technologies. Working paper number 19 , 1-26. Feldman. S.J.P.A. Soyka, a. P. (1997). Does improving a firm's environmental management system and environmental performance result in a higher stock price? . Journal of Investing. Fitzpatrick, D. D. (1995). It may not be easy being green, but `green accounting' may help to keep it profitable. . Westchester County Business Journal Vol. 34 Issue 44 . Gabor Harangzo, S. K. (2010). Environmental management practices in manufacturing sector- Hungarian features in international comparison. JEEMS , 312-347. Hottentot, I. J. (2006). (EMAN Graz 2006) Successful implementation of an environmental management system based on ISO 14001 at major Oil Company in Nigeria. . Graz- Austria: Ing. Jacob Hottentot (EMAN Graz 2006) Successful implementation

of

an

environmental

managementEnvironmental

management

Accounting and cleaner production -Abstracts. Irons, A. (2010, December). Environment management accounting. ACCA technical article paper F5 , pp. 1-6. Jasch, C. (2006). Environmental management accounting as the next step in the evolution of management accounting. Journal of cleaner production .Vol 14 , 11901193.

Jasch, C. (2003). The use of environmental management accounting for identifying environmental costs. Journal of cleaner production , 667-676. Johnson, S. (2004, Jan 13). Environmental management accounting. ACCA technical article , pp. 1-9. Kevin Clarke, S. O. (2006). Is the environmental Professional an Accountant? Green leaf publishing , 111-124. Matteo Bartolomeo, M. B. (2000). Environmental management accounting in Europe. . The European accounting review , 31-52. May A. Massoud, R. F.-F. (2010). Environmental management system (ISO 14001) certification in developing countries: Challenges and implementation strategies. Environmental science and technology , 1884-1887. MOFPED. (2011). Uganda National Budget 2011/2012. Kampala: Ministry of Finance Planning and Economic development. Neely, C. L. (2010). Capacity Development for Environmental Management in the Agricultural Sector in Developing Countries. OECD Environment working paper No.26 , 1-73. NEMA. (2008). State of environment report for Uganda . Kampala: NEMA and UNDP. OECD.

(2001).

Science

Technlogy

and

Industry

Encouraging

environmental

management in industry. Paris: OECD Publications. Scarff, C. (2002). Industry as a partner for sustainable development; Waste management. UK: International solid waste association-United Nations Environmental Program. Setthasakko, W. (2010). Barriers to the development of Environmental management accounting-An explorative study of pulp and paper companies in Thailand . EuroMed Journal of Business , 315-331. Stefan Schaltergger, T. H. (2000). Environmental Management Accounting- Overview and main approaches. Centre for sustainability management , 1-19. Sturm, A. (1998). ISO 14001-Implementing an Environmental management system (ISO Handbook). Switzerland: ELLIPSON. Tambovcev, T. (2010). Assessment model of environmental Management: A case study of construction enterprises in Latvia. Issn. Economics and management , 1822-6515.

Tuan Zainun, T. M. (2010). Management Accounting and organisational change: An exploratory study in Malaysian manufacturing firms. JAMAR , 51-80. Uganda Bureau of standards. (2011, July 10). Retrieved July 10, 2011, from www.ubos.org: http://www.ubos.org/onlinefiles/uploads/ubos/pdf%20documents/TLAB32010.pdf. UNDSD. (2001). Environmental management accounting procedure and principles ‘improving the role of government in the promotion of EMA’ . New york: United Nations Economic and social affairs. UNEP. (2000). Evolving Role of government authorities to prevent environmental crime. UNEP Press release. Wei Qian, R. B. (2011). Environmental management accounting in local government (A Case Of Waste Management) . Accounting, Auditing And Accountability Journal Vol.24 No.1 , 93-128. Wendy

Chapple,

C.

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(2005).

Manufacturing

and

corporate

environmental

responsibility-cost implications of voluntary waste minimization. Structural change and economic dynamics , 347-373. Wendy Chapple, R. H. (2006). The cost implications of waste reduction: factor demand, competitiveness and policy implications. J Prod Anal (2006) , 245-258. Willsher, R. (2004). Can environmental improvements save money? ACCA technical article. Xiaomei, L. (2004). Theory and practice of environmental management accounting; Experirnce of implementation in China. International Journal of technology management and Sustainable development , 47-57.

Websites http://www.ecology.or.jp/isoworld/english/analy14k.htm (17/07/2011) https://za.dqs-ul.com/fileadmin/files/za/Documents/Content/survey_2008.pdf (24/07/2011).

www.nema.ug

www.unep.org

www.accaglobal.com

www.oecd.org

www.accaglobal.com

www.unbs.ug www.ubos.ug

Appendix 1 Appendix of figures

Figure 2.1 Categories of Environmental Accounting Management Accounting

Financial Accounting

Other

Accounting

Systems Convention

Environm-

Conventiona Environm

Other

Other

al

mental

l

Conventio

Environme

Manageme

Managem

Accounting

Financial

nal

ntal

nt

ent

Accountin

Accounting Accounting

Financial e-tal

Accounting Systems Accountin Tobias Hahn and Roger g Source: Stefan Schaltegger, Burritt (2000:12)

Systems

g Figure 2.2: Material and Money Flow

100kgs/$1000

process

Product

Emissio

n

Material purchase

Emission 29kg/$180

Product 12kg/$390

Waste Water Waste water 16kg/$20

Waste 43kgs/$410

Source UNDSD (2001: 42)

Figure 2.3: The Basic Idea of Flow Cost Accounting.

4 6 1

8

5 2 3 Material System

9 7

Delivery

Source: UNDSD (2001:83)

Supplier

6.Outgoing goods store

Raw materials store

7. Waste disposal system

Production

8. Customer

Intermediate product store

9. Disposal

Quality control

Figure 2.4; Environmental Activity Based Costing Production steps Cost object A Cost

Cost

Cost

centre 1

centre 2

centre

Cost object B

3 Incinerator

‘Environmental cost centre’

Environmental-driven costs Waste treatment Costs, disposal fees etc $900 Differentiation

Other overhead costs Administration, Salaries of top mg’t $9,000

Source UNDSD (2001:73)

Table 2.1 EMA Framework

ENVIRONMENTAL MANAGEMENT ACCOUNTING Monetary

Environmental

Mg’t Physical

Accounting

Environmental

Accounting

Short term focus

Long

term Short term Focus

focus P Routinely

Environmental

A generated

cost

T

Long

term

focus

Environmentall

accounting y

S information (e.g.

Mg’t

Material & energy Environmental

induced flow

Variable capital

accounting (or

(Short

term capital

costing,

expenditure

impacts

absorption

and revenue.

environmental-

costing and ABC)

natural) impact

on accounting.

product,

site,

divisional

and

company level). Ad

hoc Ex

post -Environmental Ex

information assessment

post Life

of life cycle (and assessment

of inventories post

related

target) costing.

short

environmental

-Post

environmental

costing decisions. investment

term investment assessment of

impact (e.g. of a physical

assessment of site or product.)

environment

individual

investment

projects

appraisal

F Routinely

-Monetary

Environmental

U generated

environmental

long

Physical

Long

term environmental

term

physical

T information Operational

financial

budgeting

U

budgeting(flows)

planning

and stocks) e.g. planning

R

-Monetary

material

E

Environmental

energy flow ABB.

capital budgeting

cycle

(flows environmental

and

(stocks) Ad

hoc Relevant

Information environmental

-Monetary

Relevant

Life

environmental

Environmental

analysis

costing

e.g. project

special

orders, investment

product mix and appraisal

short constraints

-Environmental activities.

constraints

cycle

run on

budgeting and target pricing Source Stefan Schaltegger, Tobias Hahn and Roger Burritt (2000:14)

Figure 3.1; Structure of Uganda’s Economy 60,000% 51,600% 50,000% 40,000%

20,000%

25,000%

2009/2010 2010/2011

14,700% 8,700%

10,000% ,000% Agriculture, Forestry and Fishing

Industry

Service

Source; National Budget 2011/2012 (June 2011)

Figure 3.2; Manufacturing Sector in Uganda

of

impact (e.g. given specific project.

capacity

30,000%

cycle

Adjustments

Electricity supply; 4,400%

Water supply ; 7,000%

Informal manufacturing ; 6,800% Formal Manufacturing ; 20,600%

Construction; 59%

Mining and quarrying; 1,500%

Source, MOFPED –Uganda Budget 2011/2012

Figure 5.1 Industry Classifications of Firms Breweries; 2; 7%

Soft drinks; 3; 10%

Food processing; 3; 10% Textile and apparel; 2; 7%

Other; 13; 43%

wood based; 0; 0% Life science/Medical; 1; 3% Agro- processing; 2; 7% Tobacco ; 1; 3%

Source: Researcher’s data base

Figure 5.2; ISO 9000 and 14000 Certification

Machinery and equipment; 1; 3%

Rubber products; 2; 7%

Plans are in place 3 10%

No 6 20%

Yes 21 70%

Source: Researcher’s data base

Figure 5.3 Management Accounting Techniques 20 Not applicable

15

Never 10

Sometimes Often

5

Always

0 BC

AC

CVP MC

SC TQM TC

ABC VCM EMA

Source: Researcher’s data base Key; BC-Budgetary control, CVP-Cost-Volume-Price, SC-Standard Costing, TC-Target Costing, VCM-Value chain management Accounting

Figure 5.4 EMA uses.

AC- Full/Absorption costing, MC-Marginal costing, TQM-Total Quality Management, ABC- Activity Based Costing, EMA-Environmental

Management

25 20

Strongly disagree

15

Disagree

10

Neutral Agree

5

Strongly agree

0 a

b

c

d

e

f

g

h

i

j

k

Source: Researcher’s data base Key to the figure above; Identification of Environment-related costs,

h-Product life cycle cost

assessments Estimation of environment –related contingent liabilities(fines), i-

Product

inventory analyses Classification of environment-related costs,

j-

Product

impact

analyses Allocation of environment-related costs to products,

k-

product

improvement analysis Introduction or improvement of environment-related cost management, Creation and use of environment-related cost accounts, Development and use of environment-related Key Performance Indicators.

Figure 5.5 EMA benefits 20 15

Strongly disagree Disagree

10

Neutral Agree

5

Strongly agree 0 a

b

c

e

f

g

h

i

j

k

l

m

n

o

p

d

Source: Researcher’s data base Key;

increased demand in green products,

i- Better waste management

increase in customer satisfaction,

j- attraction of better quality staff

Better stakeholder relationship,

k- Improvement in product

pricing increase in customer satisfaction,

l-Improvement

in

reputation cost of capital reduction,

m-Improvement

in

corporate

image Cost saving opportunities,

n-

Improvement

in

decision

making identification of new opportunities,

o-

Product

costing

p-

product

process

improvement Generation of product innovation, improvement.

Figure 5.6; Environmental Costs incurred by the Companies. 25 20 15 10 5 0

Not applicable Never Sometimes Often Always

Source: Researcher’s data base

Figure 5.7: Challenges in implementing EMA

18 16 14 12 10 8 6 4 2 0

Never Rarely Sometimes Often Always a

b

c

d

e

f

g

h

Source: Researcher’s data base

Key; Difficulties in defining, separating, identifying, classifying, measuring and controlling for environmental protection costs Challenges in availing environmental management information Inaccessibility to environmental management technologies Limited legislation Limited enforcement of environmental standards and laws Limited knowledge and training

g-Limited fund

h-

Corruption

Figure 5.8 Disclosure Items 30 25 20

a

15

b

10

c

5 0 TRUE

FALSE

Not applicable

Source: Researcher’s data base Key;

a-The mission or vision statement of the organization mentions anything on environmental management, b-The company adopts internally developed environmental policy c- There is a set of environmental goals and objectives.

Figure 5.9 Goals and Objectives. 35 30 25 20 15 10 5 0

TRUE FALSE NOT APPLICABLE

a

b

c

d

e

f

Source: Researcher’s data base Key;

a- Material, water, and energy conservation,

d-

Compliance

with

stakeholder

relation

environmental laws b- Waste emissions and discharge management

,

e-

management c- Continuous process improvement and monitoring, f- Environmental performance reporting

Figure 5.10 Targets and achievements. 20 15 a

10

b 5 0 TRUE

FALSE

Source: Researcher’s data base Key;

Not applicable

There are specific environmental targets to be achieved The targets have covered major environmental issues.

Figure 5.11; EMS 25 20 15

TRUE FALSE

10

Not applicable 5 0 a

b

c

d

e

Source: Researcher’s data base Key The organization has an environmental management system. There are members on the board, responsible for environmental management There is a division or department responsible for Environmental Management The environmental management system is externally certified. There are training program and related educational activities for staff and other related parties .e.g. suppliers contractors on Environmental management.

Figure 5.12; Impact on the Environment 20 15 a

10

b 5 0 TRUE

FALSE

Not applicable

Source: Researcher’s data base Key; Identification of the significant environmental impacts of the organization’s activities, products and services The hiring of environmental specialists or external auditors to facilitate the identification of environmental impact.

Figure 5.13 Resources Measurement. 25 20 a

15

b

10

c

5

d

0 Not applicable

Never

Sometimes

Often

Always

Source: Researcher’s data base Key; Energy usage- Absolute (Joules) available; normalized, trends over time and comparative data within sector Material usage- Absolute (tones, volume or kilograms) available; normalized, trends over time and comparative data within sector

Water consumption -Absolute (litres, or cubic meters); normalized, trends over time and comparative Emission, effluents and waste- absolute (tones or kilograms); normalized; trends overtime; comparative data within sector. Figure 5.14; Research and development 20 15 a

10

b 5 0

Never

Rarely

Sometimes

Often

Always

Source: Researcher’s data base Key; There are research and development initiatives undertaken in Environmental improvement Environmental objectives for improvement are clearly set out.

Figure 5.15; Compliance to Environmental laws 16 14 12 10 8 6 4 2 0

a b c d e Never

Rarely

Sometimes

Often

Always

Source: Researcher’s data base Key; Is there any statement to indicate that the organization is in compliance with environmental laws and regulations?

Are there sites or departments that have received complaints or have been prosecuted? Has the company paid any fines/ taxes in relation Environmental impacts? Has the company had any environmental accidents occurring in the past years? Are there procedures that have been put in place to prevent such incidents/noncompliance to occur?

Figure 5.16; Financial Data 14 12 10 8

a

6

b

4

c

2 0 Never

Rarely

Sometimes

Often

Always

Source: Researcher’s data base

Key; There is an environmental financial statement The environmental information is integrated within the conventional financial statement The company practices environmental full cost accounting.

Figure 5.17; Stakeholder Engagements 20 15 a

10

b 5 0 Never

Rarely

Sometimes

Often

Always

Source: Researcher’s data base Key The company has supported any environmental campaigns/initiatives by other parties The company has made charitable contributions /partnership with environmental organisations.