An Analysis of the Engagement with the Environmental Accounts of Corporations

ABSTRACT

The following is a survey analysis of all the environmental reports that have been compiled, in 2001, by companies in the first and second sections of the Tokyo Stock Exchange. Out of the 352 companies that compile environmental reports, 200 record and publicize environmental accounts. The characteristics of such environmental accounting efforts were examined by industry. While, extracting aggregate item names that could be used to compare companies across the board, items were also considered that would reflect the differences between the industries.

Of those companies that have committed themselves to environmental accounting, 38 are in the electrical equipment industry, 22 in the chemicals industry, 19 in transportation machinery, 10 in gas and electricity, 8 in each of the construction, glass and stone, and precision instruments industries, and 7 in the wholesale industry. Finally, in the four industries of medical supplies, non-ferrous metals, metals, and other manufactured products, six companies have implemented environmental accounting.

In contrast to the high number of publicly listed companies in the financial sector, relatively few have adopted environmental accounting. Adoption is also low in the service sector. Most likely, these sectors are delayed because these companies perceive less immediate results from implementing environmental accounting than do manufacturing companies.

There are currently few companies that have been utilizing environmental accounting since 1998, the year in which it was first adopted. However, there are many companies that have implemented since 1999 and 2000. Furthermore, the number of companies that publicize their accounts has increased rapidly in recent times. In addition, 12 companies have stated that their environmental accounting efforts include their overseas branches.

In environmental accounting, the economic effects of a business operation are supposed to be compared against the costs of that operation. Yet, there are many cases in which companies are only documenting costs. There are also many cases in which investment figures, which are a part of costs, are not documented. Some companies have noted that they have not reached the stage at which it is necessary to publicize such information.

Economic effect is measured in the categories of energy conservation, recycling, resource conservation, waste reduction, and sale of valuable resources. There are also cases, like CO2 reduction, in which the economic effect is calculated through an estimation of the deemed effect. Comparing the sum of costs (including investments) to the sum of economic effects, 15 companies reported that their economic effect surpassed their costs.

Both pollution control and global environment preservation were important cost items for many companies. The largest cost item, however, was R&D or resource circulation, depending on the company.

Global environment preservation, recycling, and resource circulation were the most popularly adopted economic effect initiatives, signifying the importance, to companies, of energy and resource conservation. Depending on the company, some environmental accounts calculate real effects separately from deemed effects.

Though the number of companies that have committed themselves to environmental accounting has rapidly increased, the quality of their efforts, while allowing for the fact that many companies have just begun their initiatives, is varied. The adoption process is difficult because environmental accounting differs on many points from financial accounting. Nevertheless, as adoption increases in the coming years, environmental accounting will undoubtedly become a standard expectation for all major companies.