Environmental accounting is more than a numbers game for compliance

As regulators home in on environmental violations, companies are looking for ways to deal with the ever-increasing frequency of data requests writes Jeff Ladner, vice president of environmental performance at Sphera.

It’s probably time to consider some environmentally friendly data solutions.

No, we don’t mean recycling old hard drives and moving to the cloud, even though in some cases that might not be a bad idea; instead, we’re referring to the way we track and access Environmental Performance data.

Without a doubt, one of the biggest questions companies wrestle with in the big data arena is: Now that we have advanced technology in place and more and more data are tantalisingly flowing upstream much like salmon in a river, how do we transform that raw data into meaningful information that we can use to the company’s advantage?

It is a problem that is not unique to the environmental performance space, but it is a situation that speaks directly to the challenges of true environmental accounting in an era of increased scrutiny from regulators, customers and stakeholders.

In 2017, the external operating environment protection expenditure of British industry was approximately £1.3bn whilst capital spent on technologies, methods and processes designed to collect to remove pollution and pollutants after their creation reached £665m.

With stakes this high, it’s clear companies need to ensure their environmental house is in order or risk significant financial problems.

Defining environmental accounting

So what do we mean by environmental accounting?

It’s a difficult term to define, but according to the UN System of Environmental Economic Accounting, it is broadly defined as transactions concerning activity undertaken to preserve and protect the environment.

Accounting, of course, is a familiar term, especially in the financial world.

There, it is used as a way of tracking the money that goes in and out of a business as well as any tax liabilities, but, in the environmental compliance arena, what we are referring to is quantitative operational data and how that data is managed with respect to tracking environmental performance.

Environmental accounting provides companies with disciplined data management practices that yield accurate, reliable and complete environmental performance data that can be used to meet a multitude of needs, not just compliance.  A true win-win situation.

The Internet of Things, or IoT, and other technological innovations have given companies a greater ability to monitor their emissions, operating environments and such, but having that ability to produce more accurate and more timely data also comes with a significant burden as well: How do we manage it?

A fragmented environmental performance tracking system affects compliance abilities and the corporate bottom line, especially if companies are wasting money on a system that can’t capture the proper data easily or use the information to help mitigate environmental risks, especially at a corporate level.

Additionally, environmental accounting plays a big role in overall corporate sustainability as well as managing costs.

The Harvard Business Review, for instance, recently reported that disruptions in water supplies in Peru have led to the indefinite suspension of more than £17 billion in mining projects. We’re not saying that environmental accounting could have necessarily prevented such a situation, but it is important to note the significant financial pain points that can be attributed to environmental challenges.

‘Significant cost reductions can result from improving operational efficiency through better management of natural resources like water and energy as well as minimizing waste,’ the Harvard Business Review wrote. ‘One study estimated that companies experience an average internal rate of return of 27% to 80% on their low carbon investments.’

Keep in mind that ISO 14000 environmental management standards have already provided a framework for companies to develop environmental management systems to mitigate risk, so you’ll often see these intersect with standards related to health, safety and other disciplines within an organisation.

Challenges

There are two key areas where environmental accounting comes into play: for regulatory and voluntary reporting initiatives.

Many companies still rely on spreadsheets, desktop databases and other homegrown solutions to keep track of environmental performance data.

Unfortunately, those types of tools may work for local regulatory compliance and reporting purposes, but as a company strives to centralise and standardise environmental performance data for corporate use, these tools are woefully inadequate.

This is especially true for companies that work in highly regulated fields with escalating demands for more data more frequently.

Different nomenclatures that are tracked at various divisions, for instance, can not only cause internal confusion but also affect a company’s ability to track data and stay in regulatory compliance. Workforce turnover can also complicate matters if a new employee isn’t familiar with how a previous worker tracked data for a certain software application.

Beyond the difficulties of simply harnessing the information for environmental accounting purposes is the challenge of handling many different types of data in real time from simple metrics or usage information to complex accounting methodologies, which fall on the end of the data-collection spectrum.

When rigorous engineering calculations come into play, a robust environmental accounting platform can offer even more value for compliance, governance and reporting obligations. In essence, such a system acts as the one source of ‘truth’ for the organisation, especially as a way to handle ad hoc requests for information.

A high-performing environmental accounting system allows an organisation to be more efficient, mitigate risk and ensure compliance.

And plug-and-play technology allows companies to be able to acquire historical data from hundreds of systems without complication to ensure compliance and better manage their environmental accounting.

Also, with the emergence of IoT, direct measurement is now possible in ways that were previously difficult at best or near impossible.

Yes, there have been examples of direct measurement in the past, such as for acid rain measurements, but as technology improves, regulators are beginning to expect more data.

A true Integrated Risk Management strategy for environmental performance will also go above and beyond what is required to include predictive and prescriptive capabilities to mitigate risk.

What we’re learning about information technology is that it’s a great enabler for businesses and offers more standardization. The flipside is the perceived loss of end-user control that needs to be managed.

Addressing these concerns should be done by focusing technology on making EHS managers’ jobs easier.  Eliminating tedious and redundant work. C

onsider the burden that comes when you go from annual to monthly to weekly or even daily or hourly tracking requirements. And what about every few seconds? It’s easy to see how that deluge of data quickly becomes all but unmanageable without the correct systems in place.

Technology may require changes in the way EHS managers have historically done their job, but new tools should make their job easier and enable them to focus on more activities than managing data collection and data quality.

Final thoughts

For many companies, environmental accounting is not optional; it’s a must.

To achieve that goal, the primary challenge that we most often see is not technology-related at all but instead it’s programme management-related. Embracing change is not always easy. It goes without saying that any new environmental accounting platform you implement will not work exactly the way your legacy tools and systems have worked in the past.

There will be a learning curve, but the benefits of employing an environmental acccounting system far outweigh any workforce buy-in challenges.

The environmental regulatory landscape is changing quickly; how you account for the changes is key. After all, data accuracy is your company’s burden to bear.

Photo Credit – Pixabay

Jeff Ladner

Jeff Ladner

Sphera’s vice president of environmental performance.

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