i ABSTRACT
The extraction of raw materials has environmental impacts. Forestry and the extraction of coal, oil, natural gas, gold and other minerals can have serious impacts on the environment. Exploration and evaluation, development activities, production and mine closure result in high costs. The years of waiting between the start of exploration, commencement of production and mine closure create specific challenges in accounting for mining organisations.
Most of the damages caused by mining activities cannot be hidden because of the processes involved, it is best to prevent it rather than avoidance. It is important to implement Environmental Management Accounting (EMA), which will assist in presenting a decision-making system for corporations. The system measures and promotes environmental performance by identifying effective cost assessment structures.
This study assessed the awareness of environmental management accounting in the mining industry. An analytical methodology was used. A questionnaire was administered to a selected group of participants. It was based on the employee’s understanding of their organisation’s practices or point of view on environmental issues to build a case about the awareness of environmental management accounting.
Selected participants were mine management or mine production personnel, financial practitioners and environmental practitioners from different mining organisations in the Gauteng, Mpumalanga and North-West provinces of the Republic of South Africa. All participants in the study are employees in the mining industry.
Mine management is less aware of environmental management accounting compared to environmental and financial practitioners. Mine production personnel only perceive environmental issues as costs to the operations. This group rated compliance with regulation as the main driver for their organisation’s environmental management system. Gauteng province is more aware of environmental management accounting compared to Mpumalanga and North West provinces. Organisations with high annual
ii turnover tend to disclose more financial environmental information than those with low annual turnover.
Organisations explain and classify environment-related costs differently according to the intended use of the cost information. There are standards and measures to collect and record environmental and accounting information stipulated in ISO14001 including environmental management systems (EMS) in different organisations. Systems and measures put in place ensure good environmental performance in the mining operations. The tracking and reduction in the amount of energy, water and materials used by organisations may result in environmental benefits. Employees should have environmental cost information associated with their operations in order to minimise environmental impacts of an organisation.
The findings of the study indicated low levels of awareness of environmental management accounting in the mining industry; however, there is a higher level of awareness of environmental impacts and costs, environmental management system and financial environmental information. The level of rating at which organisations generate and record physical and monetary information of environmental management accounting is higher.
Key terms: Environmental management accounting, environmental impact, ISO14001, mining, water.
iii Table of Contents ABSTRACT ... i CHAPTER 1 ... 1 1. INTRODUCTION ... 1 1.1. Introduction ... 1 1.2. Problem statement ... 2 1.3. Literature review ... 3 1.4. Research objectives ... 5 1.5. Research method ... 5
1.6. Limitations of the study ... 7
1.7. Chapter division ... 7
1.8. Chapter summary ... 8
CHAPTER 2 ... 9
2. LITERATURE REVIEW ... 9
2.1. Introduction ... 9
2.2. Environmental management accounting ...10
2.3. Physical and monetary information in EMA ...12
2.4. Potential benefits of EMA ...18
2.5. Environmental management accounting challenges ...20
2.6. Mining industry and Environmental Management Accounting ...20
2.7. South African perspective on Environmental Management Accounting ...31
2.8. Chapter summary ...34
CHAPTER 3 ...36
3. EMPIRICAL STUDY ...36
3.1. Introduction ...36
3.2. Research methodology ...36
3.3. Data analysis and discussion ...39
3.4. Results ...39
CHAPTER 4 ...66
4. CONCLUSION AND RECOMMENDATIONS ...66
4.1. Conclusion ...66
iv
5. REFERENCES ...72
APPENDICES ...76
Appendix A: Letter from language editor ...76
Appendix B: Survey questionnaire ...77
LIST OF TABLES ... PAGE Table 2.1 Types of inputs and outputs of the physical information 15
Table 2.2 Environment-related cost types 17
Table 2.3 The South African mining history 23
Table 2.4 Environmental issues associated with the mining industry 24
Table 2.5 Environmental impacts due to mining activities 25
Table 2.6 International examples of EMA application 33
Table 3.1 Showing number of respondents on the legal status of their organisations 40
Table 3.2 Showing number of respondents on the geographical location of their organisations 41
Table 3.3 Showing number of respondents according to organisations’ annual turnover 42 Table 3.4 Showing number of employees in the organisations 42
Table 3.5 Showing number of respondents according to functional roles in the organisations 43
Table 3.6 Showing responses on environmental strategies and tools 45
Table 3.7 Showing drivers for the organisation’s environmental management system 47
Table 3.8 Showing effect sizes with regard to drivers for EMS 48
Table 3.9 Showing respondents ‘ ratings on the priority of acceptance of broad environmental issues 50
Table 3.10 Showing respondents’ ratings on current important environmental issues 52
Table 3.11 Showing effect sizes with regard to environmental issues of current importance and functional roles 53
Table 3.12 Indicates respondents’ awareness of disclosures of environmental information in the annual report 55
Table 3.13 Indicates percentage awareness responses of participants on environmental information disclosures in the annual reports 56
v Table 3.14 Indicates respondents’ rating levels of disclosure on environmental
expenditure 57
Table 3.15 Indicates respondents’ rating levels of disclosure on operating
expenditures 58
Table 3.16 Indicates respondents’ rating level of disclosures on remediation costs 59 Table 3.17 Showing effect sizes with regard to disclosures of environmental
expenditure 60
Table 3.18 Indicates respondents’ rating levels at which the organisation generate
and record physical environmental information of EMA 62 Table 3.19 Effect sizes and respondents’ ratings on the generation and recording
of physical environmental information 63 Table 3.20 Indicates respondents’ rating level at which the organisation generate
and record monetary environmental information 64 Table 3.21 Effect sizes and participants’ ratings on the generation and recording of
monetary environmental information of EMA 65
LIST OF FIGURES PAGE
Figure 2.1 Flow of materials accounting 14
Figure 2.2 Uses and benefits of EMA 19
Figure 2.3 Showing open cast mining activities 21 Figure 2.4 A tunnel for access during the underground mining activities 22 Figure 2.5 Environmental drivers and pressures 29 Figure 2.6 Perceptions on the introduction of EMA in South Africa 34
1
CHAPTER 1 1. INTRODUCTION 1.1. Introduction
It is critical to ensure sustainability and save the environment, which is a challenging aspect to develop the economy in the developing countries (Farouk, Cherian & Jacob, 2012:37). This is the case especially for countries depending on natural resources for economic growth. During times of economic crisis or recession, the impact on environmental costs becomes high for mining organisations in the developing countries. Some governments are likely to become insensitive to the environment. Organisations in the mining business, energy-reliant manufacturers and power generating utilities are likely to be under more pressure with respect to implementing environmental accounting (Bennett, Bouma & Wolters, 2002:33).
Government authorities may introduce legislation and regulate the industry but the mining organisations will have to buy-in and be sensitive to the environment. This requires the provision of adequate information on corporate social and ecological impacts and performance for decision makers. Society recommends environmental responsible behaviour from both the government and business by examining ecological disasters and degradation of the earth’s ecosystem (Jasch, 2003:669).
The information collected and provided by the environmental accountants is related to economic development. It is also related to costs that occurred because of pollution or resource depletion during the development or mining of natural resources. Environmental accounting (EA) will be important to determine and create awareness regarding costs related to environment. The awareness and practice of environmental accounting helps to identify the techniques for reducing and avoiding related environmental costs (Farouk, Cherian & Jacob, 2012:38).
2 Environmental officers at the mining organisations continue to collect data and information that will contribute towards environmental management accounting. It is important for mining personnel such as environmentalists, managers and accountants to be aware and familiar with the principles of environmental management accounting. A study will be undertaken to assess the awareness of environmental management accounting (EMA) in the mining industry. Mining organisations report on environmental sustainability and projects that are related to improve sensitivity to the environment.
1.2. Problem statement
1.2.1. Overview of the problem
Mining companies are exposed to legal and contractual obligations to meet costs of current production and mine closure. There are environmental costs during and after the mine’s economic life such as rehabilitation of the mining area to its original state. The Department of mineral resources requires financial provisions and environmental management programmes before mining operations commence (MPRDA, 2002).
Costs of complying with environmental regulations are a significant item of expenditure for most mining companies. These are generated by human activities and may or may not be measured in monetary terms. There is a challenge in the mining industry to optimally use environmental information collected and recorded by environmental officers in the company’s accounting system.
Environmental management accounting can assist to manage and keep track of internal and external environmental costs (Betianu & Briciu, 2010:8). Accountants and environmental officers need to realize the uses and benefits of EMA.
3 The following research questions can be formulated based on the above-mentioned overview of the research problem:
Is the mining industry (especially accountants, management and environmental officers) aware of environmental management accounting?
Is the mining industry aware of the benefits and uses of environmental management accounting?
What is the attitude and practice of the mining industry towards environmental issues and environmental management accounting?
1.3. Literature review
Environmental accounting is defined as a management tool that integrates financial implications of environmental issues in the financial systems of different organisations in order to enhance more effective decision-making to promote environmental and economic sustainability. It is divided into three components, namely, environmental management accounting, environmental financial accounting and reporting, and auditing for environmental aspects in the financial statements (IFAC, 2005:13).
Environmental management accounting has been defined as the identification, collection, analysis, and use of two types of information for internal decision-making. The two types of information are physical and monetary. Physical information is about the use, flows, and fates of energy, water and materials including wastes. Monetary information is about environment-related costs, earnings, and savings (EMAN-Africa, 2005).
Environmental management accounting is a growing area of research and has received relatively little attention from accounting researchers (Ferreira, Moulang & Hendro, 2010:939). It is necessary to assess the awareness of all stakeholders with regard to environmental management accounting.
4 The explanation and description of EMA is to create a system consisting of methods and techniques that can be used to gather and provide information. Data and information provided to management in the company can be useful for environmentally sensitive internal decision-making (Debnath, Bhose & Dhalla, 2012:44). Once these methods and techniques are understood, different managers in different companies may use the information collected to make better decisions with regard to environmental issues and sustainability.
The aim of environmental management accounting is to identify the environmental damages that may be caused by any activity, to measure the social and benefit cost, to report environmental accounting, and to account for external problems quantitatively (Kurnati Rahadi & Danial, 2010:404).
Environmental management accounting will address aspects such as physical environmental management accounting and monetary environmental management accounting (Ambe, 2007:60).
Environmental accounting will be important to determine and create awareness regarding costs related to environment. The awareness and practice of environmental accounting help to identify the techniques for reducing and avoiding related environmental costs (Farouk, Cherian & Jacob, 2012:37).
It is clear that the industry cannot avoid environmental impacts of the mining operations. The awareness of EMA will benefit the companies in the mining industry. Mining companies that are certified under the International Organization for Standardization (ISO14001) have an environmental management system for collecting and recording environmental information that can be easily used and imported into environmental management accounting.
5 1.4. Research objectives
1.4.1. Main objective
The main objective of the study is to assess the awareness of environmental management accounting in the mining industry. This study will further assess current environmental management practices as well as mining companies’ attitudes and awareness on environmental issues with regard to incorporation of the practice of environmental management accounting in their accounting system.
1.4.2. Secondary objectives
The secondary objectives of this research are to:
Define environmental management accounting
Describe the mining industry
The importance of EMA in the mining industry
Test awareness of EMA in mining
Provide conclusions on the study
1.5. Research method
This research, pertaining to the objectives, consists of two phases, namely, a literature review and an empirical study.
1.5.1. Phase 1: Literature review
In phase 1, a literature review regarding the awareness of environmental management accounting in the mining industry was done.
The sources that were consulted include:
Scientific Journals
Books
6 This literature review will further make use of relevant literature on environmental management accounting.
1.5.2. Phase 2: Empirical study
The empirical study consists of the research design, participants, measuring battery and statistical analysis.
1.5.3. Research design
The methodology to collect data is based on the quantitative approach. A structured questionnaire was designed to collect data. The questionnaire based approach was used to collect information (for example, environmental practices of the awareness of accountants, management and environmental officers) about EMA. It was administered to participants.
1.5.4. Participants
Participants of the study are management staff, environmental officers and accountants. In order to collect data a convenience sample was taken from the above-mentioned population. The rationale for the chosen participants is based on their decision-making, knowledge and expertise in the mining environment.
1.5.5. Statistical analysis
Measuring tools that were used include statistical analysis and descriptive statistics according to the Statistical Consultation Services at the North-West University. The study will further investigate the relationship between variables using correlations, t-tests, ANOVA, Effect sizes and factor analysis to investigate the validity of the questionnaire.
7 1.6. Limitations of the study
1.6.1. Participation of respondents
Environmental pollution is a sensitive issue in the mining industry. The green peace organisations and environmental activists are critical about the mining industry with regard to the environment.
The study will be limited to few a mining companies in the specified provinces. It will further be limited to management, accountants and environmental officers.
Respondents may be suspicious of the survey questionnaire. It is unlikely that all respondents may complete and return the questionnaire as expected. Some respondents may be afraid to expose, incriminate or implicate their employer in environmental non-compliance. This may subsequently compromise and limit honesty of respondents in completing the questionnaire.
1.6.2. Ethical considerations
There will be no major ethical considerations because the questions will be mostly assessing the level of knowledge and understanding of environmental management accounting in the mining industry.
1.7. Chapter division
The chapters in this mini-dissertation are presented as follows: Chapter 2: Literature review
Chapter 3: Empirical study
8 1.8. Chapter summary
The first chapter is the introduction about the nature and scope of the study. Companies in the mining industry are facing challenges of environmental degradation. Mining activities continue to directly or indirectly affect the environment. Sustainability and environmental compliance in the mining industry involve costs.
Environmental data and information collection will be useful to understand or account for costs. The first type of information is physical information that is mostly on the use, flows and destinies of energy, water and materials (including wastes). The second type of information is the monetary information that is used on the environment-related costs, earnings and savings (Savage & Jasch, 2005:23).
Standardized and quantitative measures are required in the collection of environmental information and accounting. The environmental accounting system will assist to prevent the unwanted pollution or unintentional damages. Most of the damages caused by mining activities cannot be hidden because of the processes involved. Environmental Management Accounting (EMA) can assist in presenting a decision-making system for corporations concerning measures to promote better environmental performance by identifying effective cost assessment structures.
The main objective of the study is to assess the awareness of environmental management accounting in the mining industry. A questionnaire was given to selected participants in different mining companies from the North West, Gauteng and Mpumalanga provinces.
This introductory chapter will be followed by a literature review on environmental management accounting. Origin, definitions and explanation of EMA will be discussed. Other examples of environmental management accounting practices in the manufacturing and mining industry will be considered. The South African perspective on environmental management accounting will also be explored.
9
CHAPTER 2
2. LITERATURE REVIEW
2.1. Introduction
The aspects of accounting for mining activities present challenges and difficulties to almost all stakeholders. There is a significant upfront investment required, uncertainty over prospecting activities and long project lives that lead to a variety of approaches to be developed by mining companies. Failure to collect data about environmental impacts associated with business operations will result in information, which is insufficient to provide the needs of corporate management to keep up with the changing requirements of the marketplace (Savage & Jasch, 2005:26).
Decision-making processes directly linked to maintenance of productivity, diversity, balance in eco-system and equity across generations includes business, social and environmental procedures of the company. Information on the environmental performance of organisations may be available to some extent. Internal decision makers within the organisation including public authorities are finding it difficult to link environmental information to economic variables and are lacking environmental cost information (Betianu & Briciu, 2010:1).
A management system that can be implemented by organisations should ensure sustainable management of natural resources. Sustainable accounting is much better than traditional measures because it also takes into consideration different inputs and processes (IFAC, 2005:27). The sustainable accounting methods present more benefits especially with regard to cost and benefit analysis in terms of risk control, adjustment costs, overhead costs and disclosure notes that can be identified in an effective manner. These benefits will ensure better sustainable practices (Burritt & Christ, 2013:168).
10 According to Kurniati, Rahadi and Danial (2010:405), environmental management accountancy has formed part of increasing literature research and thinking that emerged to help organisations use accounting information for environmental sensitive internal decision-making. Damages or disturbances to the original state of the environment are unavoidable and will require sound decision-making processes informed by credible data.
It is clear that with current practice a change is needed in the generally accepted accounting principles to record environmentally sensitive costs. Some companies are acting on voluntary disclosure practices, which are not sufficient to address sustainable environment. Environmental management accounting principles, tools and new methods designed by researchers and practitioners can be used to generate information, containing economic as well as environmental sensitive costs, and support management to enable environmentally-sensitive decision-making (Debnath et al., 2012:44).
According to Ambe (2007:59), there is apparently a lack of awareness of the environmental costs because of organisational processes, and subsequently opportunities for cost savings are lost.
2.2. Environmental management accounting
Mining organisations should make sufficient provisions for environmental damage that may be due to their operations. They have made progress in developing and adapting accounting mechanisms to these requirements.
Organisations still have a lot to do to deal with all the challenges and problems associated with the known conventional and environmental accounting. Most of the research articles on environmental management accounting (EMA) are on developed countries and on the cost-benefit analysis of the implementation of individual EMA tools (Farouk et al., 2012:41).
11 Environmental Management Accounting is trying to establish the relationship that exists between decision-making situations and the motivation for the application of EMA tools including barriers as well as the implementation process (Farouk et al., 2012:37).
The decision-making processes should be improved for the purposes of increasing responsibility and accountability by all people with regard to issues affecting the environment. Managers in different companies are able to make informed decisions when they are aware and can identify environmental costs associated with products, processes or systems. Reduction of environmental expenses, recovery processes and improvement of environmental performances to address current and potential environmental costs have led to the development of environmental management accounting (Betianu et al., 2010:4).
In the environmental cost accounting for a case study on Sugarcane Company, one of the methods applied was environmental cost iceberg. An environmental cost iceberg method was used to estimate the hidden and transport costs, where hidden costs were defined as unreported costs such as incidental cleaning, extra cost of waste treatment and others (Kurniati et al., 2010:409). Management, accountants and environmental officers in the mining operation experience waste treatment costs and other possible environmental liabilities such as illegal discharges of polluted water, illegal dumping of discarded material including contamination of surface and ground water.
2.2.1. Definition of EMA
According to International Federation of Accountants (2005:19), environmental management accounting (EMA) is the management of the environment and economic performance through the development and implementation of appropriate environment-related accounting systems and practices. The definition includes reporting and auditing. In other companies, environmental management accounting involves life-cycle costing, full-cost accounting, benefits assessment, and strategic planning for environmental management.
12 Environmental management accounting is the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices (Mohr-Swart, 2008:21).
According to the United Nations Expert Working Group on EMA, which highlights both the physical and monetary sides of EMA, environmental management accounting is defined as the identification, collection, analysis and use of two types of information for internal decision-making. EMA can also be described as a tool that can be used for balancing the interaction between the economic, social, and technological factors in the development process in order to achieve conditions leading to sustainable development (Ambe, 2007:59).
2.3. Physical and monetary information in EMA
The first type of information is physical information that is mostly on the use, flows and destinies of energy, water and materials (including wastes). The second type of information is the monetary information that is used on the environment-related costs, earnings and savings (United Nations Division for Sustainable Development, 2001:18).
2.3.1. Physical information for decision-making in EMA
It is important for organisations to collect both physical and monetary information in order to evaluate and assess costs correctly. The physical information includes materials that are used, personnel hours worked and other related cost drivers. Environmental management accounting focuses mostly on materials and materials-driven costs. Energy, water, materials including generation of waste and emissions are directly related to many of the impacts organisations have on their environments. Purchasing costs of materials is a major cost driver in many organisations. Organisations buy energy, water and other materials to support production related activities.
13 Most literature research is about the manufacturing operations. Non-manufacturing operations such as agriculture and livestock, resource extraction sector, service sector, transport, and the public sector use a significant amount of energy, water and other materials in the running of operations.
The materials used in production activities result in the generation of waste and emissions. Environmental impacts as a result of generation of waste and emissions affect the health of human beings, plans, animals and natural ecosystems. Released emissions and generated waste will cause pollution and contamination of air, water and land (IFAC, 2005:20).
2.3.2. Physical Information and environmental performance indicators
Physical information on the flow of energy, water, materials and wastes is important in environmental management accounting. A system must be in place to collect and record the information.
This information (physical) is important because it allows organisations to assess and report important materials-related aspects of its environmental performance. Purchase costs of materials are key cost drivers in many organisations (Kurniati et al., 2010:404). In most organisations measurements of physical information is only known by people working in production and environment. The information is not normally checked and compared to that of the accounting department. Involvement of accountants with other departments is important to accurately assess and evaluate the physical information aspect of environmental management accounting. The physical accounting in organisations will require proper collection and recording of physical inputs and outputs. According to Jasch (2003), failure to collect data on the environmental impacts associated with business operations will result in information that is insufficient to serve the needs of corporate management.
14 Figure 2.1: Flow of materials accounting
Source: (UNDSD, 2001:40)
Materials balances in an organisation can be taken at many different levels of the operation as shown in figure 2.1. Organisations may collect physical information that could be used for an entire organisation, particular sites, input materials, product or service lines and waste streams. Collected information can be used to support the cost accounting side of environmental management accounting and to create environmental performance indicators. Environmental performance indicators can assist organisations to assess and report the material-related aspects of its environmental performance (Henri & Journeault, 2008:168).
2.3.3. Types of physical information
There are different types of physical information that include inputs and outputs as indicated in table 2.1. Examples of inputs are any energy, water or other materials that come into the organisation. The outputs are mostly any products, wastes or other materials that leave the organisation.
15 Table2.1: Types of inputs and outputs of the physical information
Source: (UNDSD, 2001:40)
2.3.4. Monetary information for decision- making in EMA
There are an increasing number of voluntary initiatives and requirements that promote external reporting of environment-related cost information that is mostly used for external reporting (financial and national reporting) and internal management (for environmental performance).
Different types of costs are considered in order to control or prevent waste and emissions that can damage environment and human health. Some of the costs include costs to prevent the generation of waste/emissions, costs to control or treat waste and costs for remediation of polluted or damaged sites.
Environment-related costs in environmental management accounting include other important monetary information required to cost-effectively manage environmental performance. Organisations tend to consider materials purchase costs in internal management decision-making, but do not necessarily view it as environment related. Organisations can use these costs related information to assess the financial aspects that the costs could have on the management of the environment. It will be applicable to financial aspects of the environmental management that are related to physical products and waste.
16 A broader and strategic view of both environmental management and environment-related costs is critical, though some of the costs may be viewed as quality or efficiency related. Environment-related costs are required to manage potential aspects of environmental performance in a cost-effective way. Environment related costs are material costs of products and non-products, waste and emission costs, prevention and other environmental management costs, research and development project costs, less tangible costs such as liability, regulation and company image (Savage & Jasch, 2005:22).
2.3.5. Monetary Information and costs that are related to environment
Monetary information collected for an organisation as a whole, or for particular sites, input materials, waste streams, process or equipment lines, product or service lines, depends on the intended use of the information. It may be collected for investment appraisal, assessment of total annual costs or budgeting.
Costs related to the environment and monetary information may be extended by main organisations to their suppliers, customers and other elements of the supply chain to do a whole life cycle or process assessment and costing analysis (Savage & Jasch, 2005:38).
2.3.6. Types of environment-related costs
There are different types of environment-related cost information that management needs for decision-making about organisation’s environmental performance and its associated economic performance as indicated in table 2.2.
Organisations have environmental management accounting methodologies and approaches, which include four types of environment-related costs.
The different types of costs are related to environmental activity (such as waste control versus waste prevention), traditional accounting (such as materials versus labour),
17 environmental inputs (such as water versus air versus land), and data visibility in the accounting records (such as obvious costs versus hidden costs (IFAC, 2005:37).
Table 2.2: Environment-related cost types
Source: (IFAC, 2005:38)
2.3.7. Monetary information and environmental performance indicators
The assessment and evaluation of environment-related costs in an organisation can be conducted at different levels. An organisation may be interested to assess total environment-related costs for the profit and loss account, or data that are more detailed
18 can be collected for specific sites, cost centres, processes, materials, product lines, customer services or waste streams of interest.
Monetary information collected can be used to assist in environmental performance leading to cost and savings in the organisation. Some stakeholders may prefer to see environmental performance indicators expressed in monetary rather than physical terms. Cost information and physical accounting data can be combined together to create environmental performance indicators known as eco-efficiency indicators. The concept of eco-efficiency links monetary and physical EMA for decision-making in a systematic manner (IFAC, 2005:38; Debnath et al., 2012:46).
2.4. Potential benefits of EMA
There are uses and benefits of environmental management accounting which can be classified into compliance, eco-efficiency and strategic position as shown in figure 2.2. Eco-efficiency and strategic position can be related to the evolution of management accounting to include information provision and management planning and control, and a focus on effective resource use and value creation.
EMA is particularly valuable for internal management initiatives with a specific environmental focus. The same information collected could also be used for external reporting purposes. EMA is important for environmental management decisions and all types of management activities. It can further help business to reduce waste, generate value and work with other resources to support strategic role of planning (Debnath et al., 2012:45).
19 Figure 2.2: Uses and benefits of EMA
20 2.5. Environmental management accounting challenges
Conventional management accounting systems and practices present limitations to effective collection and evaluation of environment-related information. Limitations can lead to management decision-making based on missing, inaccurate or misinterpreted information. Management may misunderstand the negative financial consequences of poor environmental performance and the potential costs and benefits of improved environmental performance. EMA systems can generate information for internal decision-making which may either be physical or monetary (Betianu & Briciu, 2010:6) Some of the challenges of environmental management accounting are communication, costs and information. Communication between accounting and other departments is often not well developed. Environment-related cost information is often “hidden” in overhead accounts. Materials use, flow and cost information is not often tracked adequately. Many types of environment-related cost information are not found in the accounting records, and investment decisions are often made because of incomplete information (Bennet et al., 2002).
2.6. Mining industry and Environmental Management Accounting
There are communities living near the mines and mining has a huge impact on the surrounding communities (Mohr-Swart, 2008:11), so people and the environment are affected by mining activities.
Different types of mining operations or methods include underground (deep) and open cast (shallow) mining operations. Figure 2.3 shows the open cast mining activities and equipments including environmental processes and issues. The operational activities that resulted in a tunnel to access workings for the underground mining operation are shown in figure 2.4 and environmental processes and issues towards the final product. There are also processing plants and smelters to extract the final product from the raw material or rock produced by mining production activities (Fuggle & Rabie, 2003:342).
21 Figure 2.3: Showing open cast mining activities
In the open cast mining operation the following form part of the issues affecting the environment, namely, infrastructure, consumable materials and equipment. The infrastructure involves water and power supply, construction of roads, conveyance system, workshops/yards, change houses, offices and open pits including slime dams and stockpiles.
Consumable materials include diesel, grease, oils, and paints, resins, cleaning materials, rubber, fluorescent tubes, paper, steel, plastics and roof support where necessary. Equipments that contribute to environmental impacts include draglines, trucks, shovels, diesel machines, pumps, auxiliary equipment, dozers, substations and engineering equipment.
22 The final product stage contribute to environmental impacts in the form of solid waste (rubber, plastic, paper, glass, tramp iron, medical waste, hazardous substance, containers), liquid waste (grease, oils, fuels, polluted water, sewage), polluted air and dust, and surface disturbance which must be rehabilitated at the end of the life of mine. Figure 2.4: A tunnel for access during the underground mining activities
The underground mining activities will require ventilation shafts and ventilation systems in addition to the infrastructure above for open cast mining. Consumable materials and processes towards the final product remain the same as open cast mining. Equipment required for underground include continuous miners, continuous haulage, shuttle cars, diesel machines, pumps, fans, substations and engineering equipments.
23 South African mining industry is rich in minerals and has a long history as shown in table 2.3. Some of the commodities in South Africa are gold, diamond, PGMs (platinum group metals such as palladium, platinum, and others), copper, zinc, vanadium, manganese, magnetite and zircon (Fuggle & Rabie, 2003:354).
Table 2.3: The South African mining history
YEAR ACTIVITY ORE TYPE
1685 Discovery of copper deposits in Namaqualand Copper
1840 Discovery of coal in Natal Coal
1852 Establishing of the first copper mine near Springbok Copper 1859 Discovery of coal in the north-eastern part of the Cape Coal 1867
First diamond ‘Eureka’, weight 21,75 carats, discovered near
Hopetown Diamond
1868
First documented gold discovery by Carl Mauch near the
Olifants River Gold
1869 Discovery of the ‘Star of South Africa’ a 82,5 carat diamond Diamond 1871 Discovery of the De Beers and Kimberley diamond pipes Diamond 1872 Discovery of alluvial gold near Sabie (Pelgrimsrus) Gold 1875 Discovery of the Koffiefontein diamond pipe Diamond 1879 Exploration starts at Vereeniging Coal 1882
Power station opened near Kimberley. Receive coal from
Vereeniging Coal
1883
Discovery of a major reef in the district of Barberton and
prospecting starts Gold
1886 Discovery of the Witwatersrand reef and mining activities start Gold 1890 Delivery of coal to the gold mines Coal 1902 Discovery of the Premier diamond pipe near Pretoria Diamond 1905 Discovery of the ‘Cullinan diamond’ a 3025,25 carat diamond Diamond 1924
Discovery of platinum north-west of Rustenburg by Dr Hans
Merensky Platinum
1926
Discovery of alluvial diamonds near Lichtenburg and
Ventersdorp Diamond
1951
Sigma coal mine starts as well as the Sasol plant to produce
petrol from coal Coal
1952 Vaal Reefs Exploration and Mining Co. opened Gold
1955 First fuel produced from coal Coal
1960 Coalbrook mine disaster Coal
1967 Establishment of Impala Platinum Mine Platinum 1976 Opening of Rietspruit Mine near Ogies (open cast mining) Coal 1990 Underground mining starts at Rietspruit Mine Coal Source: (Fuggle & Rabie., 2003)
24 Mining activities affect the biophysical environment especially the way it is performed in order to extract final product from raw material such as broken rock material (fig 2.3). Table 2.4 indicates the environmental issues that are associated with mining activities. Table 2.4: Environmental issues associated with the mining industry
ENVIRONMENTAL ISSUES IN MINING Air emissions Dust emissions Noise Radiation Climate change Energy consumption
Siltation and changes in river regimes Effluent discharges and acid drainage Groundwater alteration or contamination Hazardous wastes and chemical residues Site stabilisation and rehabilitation
Mine waste/tailings disposal Sudden failure of tailings facilities
Destruction of habitat and biodiversity at a mine site
Ecosystem/habitat/biodiversity protection on adjacent land Landscape/visual impact/loss of land-use
Hazardous chemicals handling, safety, workplace exposure Workplace health and safety
Cultural and archaeological values
Public health and urban settlement issues around mines Source: (Mohr-Swart, 2008:41)
Environmental impacts are measured according to different types of mining methods, which are actually determined, by the size and geographic nature of the area being mined including environmental management of that operation. Impacts of mining activities in South Africa are considered critical when it comes to water quality.
25 The contamination of water due to acid mine drainage and other related factors reduce the amount of clean water available in South Africa (Clement & Forster, 2000:22). Table 2.5 shows the physical, chemical and biological environmental aspects, causes and impacts of mining activities in the environment.
Table 2.5: Environmental impacts due to mining activities Environmental media Environmental aspect Environmental impact Cause/Activity Direct impacts Water Turbidity Smothering of ecosystems
Suspended solids from creation of infrastructure, mine dewatering and surface run-off Groundwater contamination; surface water contamination; bio-toxicity Degradation of potable water resources, rivers, streams and water ecosystems
Acid rock drainage (from e.g. surface wastes, rock dumps, stockpiles, mine workings); deliberate or accidental spillage of process chemicals (e.g. cyanide, heavy metals); spill or leakage of other
materials (e.g. oil,
lubricants, cleaning agents)
Eutrophication Nitrates derived from wash-down of explosive residue Oxygen consumption Presence of organic and inorganic chemicals Depression of water table Dewatering of mine workings; hydrological and hydro-geological disruption of surface and underground aquifers Contamination of sediments Erosion and dispersion of solid waste
26 water owing to salt
concentration.
sulphate and other
chemicals in water sources; gypsiferous water are found in the workings
Soil (land)
Soil
contamination
On and off site contamination of top and sub soil horizons
Wind and water erosion and dispersion of metal-bearing solids; transfer from contaminated water to soil components Biodiversity degradation Land sterilisation and/or destruction of vegetative cover or species Disposal of contaminated and/or inert wastes; opencast mining; footprint of mining operations.
Inhibition of
vegetative regeneration
Surface and sub-soil contamination; soil acidification
Aesthetic impact Lack of vegetation; waste rock dumps and tailings; open cast operations; severe topographical
disruption (e.g. re-routing of rivers)
Fauna species
loss Destruction of habitat
Subsidence Disturbance, damage to soil surface and/or surface caving
Unstable overlying rock strata in underground, near surface, mining moving downwards to fill voids; dewatering of underground dolomite compartments leaving voids; roof collapse. Source - Mohr-Swart, 2008:42-43
27 Table 2.5 (Continued): Environmental impacts due to mining activities
Environmental media Environmental aspect Environmental impact Cause/Activity Direct impacts Soil (land)
Dust Air pollution Creation of infrastructure; wind erosion and dispersion of fine solids (e.g. from tailings);
crushing; movement of vehicles; surface blasting Greenhouse gas emissions Contaminant emissions, impact on climate change
Mineral processing operations (SO2, NO2); methane
emissions; other emissions (e.g. hydrogen cyanide, CO2);
smouldering coal dumps and underground fires
Noise Noise pollution Creation of infrastructure; blasting; operating of heavy equipment Radioactivity Radiation Contamination of soil and water sources Leaching of radioactive substances into soil,
groundwater and surface water
Air pollution
resulting in human health problems
Radiation gas in underground mines Indirect impacts Air Greenhouse gas emissions Air pollution, contaminant Emissions, impact on climate change Electricity use
Water Surface and groundwater loss
Degradation of water sources
Electricity use
South African mining industry is regulated and environmental issues including impacts are addressed in the legislation. There are mostly two acts that are directly related to mining which include Minerals and Petroleum Resources Development Act (N0. 28 of 2002) (MPRDA) (SA, 2002) and Mine Health and Safety Act (No.29 0f 1996) (MHS) (SA, 1996).
28 Other legislative requirements for mining include National Environmental Management Act (No.107 of 1998) (NEMA) (SA, 1998a), Environmental Conservation Act (No.73 of 1989) (SA, 1989), National Water Act (No.36 of 1998) (SA 1998b), National Heritage Resources Act (No.25 of 1999) (SA, 1999), National Environmental Management: Air Quality Act (No.39 of 2004) (SA, 2004), National Environmental Management: Protected Areas Act (No.57 of 2003) (SA, 2003). Mining companies should get approvals from all relevant departments before mining operation commences.
Mining companies are experiencing difficulties in mining especially close to communities due to social and environmental challenges. Environmental issues in the business are becoming more complex than regulatory compliance or social responsibility. A shift from environmental management to environmental strategy to accommodate different environmental management drivers has been observed (Mohr-Swart, 2008:106).
There are four drivers of environmental management and environmental strategy that has been adapted from different authors Beaumont (2010:10) and Hoffman (2000:18) which shows interrelationships between the organisation, drivers and pressures from society. The four drivers are namely, resources, social, market and coercive drivers. Figure 2.5 shows all stakeholders involved and link between the four drivers identified.
29 Figure 2.5: Environmental drivers and pressures
Source: (Beaumont, 2010:10)
Environmental management accounting studies and practice has been conducted mostly in the manufacturing and services industry. The application and implementation of EMA has been done by international companies. According to the ministry of economy, trade and industry of Japan, utilization of environmental management accounting contributes to the decision-making process of a company and the improved efficiency of material.
Examples of manufacturing companies that implemented EMA practices (material flow cost accounting utilization) are Nitto Denko, Tanabe Seiyaku, Canon, DMC Corporation, Nippon Film Co. and IBEX Co. Ltd (Ministry of economy, trade and industry of Japan, 2007:34).
30 Mining companies incur environmental costs in different forms and from different activities in the value chain. Environmental costs and expenditures in the mining industry are: waste and emission treatment costs, depreciation for related equipments, maintenance and operating material and services, related environmental staff wages and external services (consultancy fees), fines and penalties, insurance for environmental liability, provision for clean-up costs and remediation, remediation and preventative activities costs such as provision for closure (trust funds), provision for post-closure, research and development costs, extra expenditure for cleaner technologies, and material purchase value(such as raw materials, packaging, energy, water) (Mohr-Swart, 2008:337).
The mining industry can improve correctness of the balance sheet, since mining involves intensive capital investment during the project stage, adopting proper costing methods such as environmental management accounting will assist in keeping track of the costs related to waste management, resources, mine closure and rehabilitation costs (United Nations Environmental Programme, 2007:16).
Implementation of EMA system will assist mining organisation to better manage environmental costs, better formulate business strategies, more accurately cost products and processes, and discover new opportunities to reduce environmental costs (Mohr-Swart, 2008:190).
It is important for accountants to have a clear understanding of environmental management systems and link the accounting methods to EMA.
31 2.7. South African perspective on Environmental Management Accounting
There are some examples of environmental management accounting studies conducted within the South African mining industry. According to (Mohr-Swart, 2008:189) the companies in the South African mining industry need to recognize that the long term future and sustainability of operations is inescapably linked to ability to reduce the environmental impacts and improve environmental performance.
It is important for mining companies to be aware of environmental costs and benefits. Environmental management accounting matrix should include material costs of products, material costs of non-product output, waste and emission control costs, prevention costs, rehabilitation and closure costs. Environmental media aspects of the mining sector include wastewater, mine waste, other waste, soil and land, ground and surface water, biodiversity, air and climate, noise and radiation.
A case study was done on a multinational company operating in South Africa. The mining company has operations in Africa, Europe, Australia and South America. Environmental costs were incurred from waste management activities. Different activities of waste management include waste separation, decommissioning of dam water, air quality and land management.
This company has formalized environmental management accounting system in their accounting system. Constraints experienced in implementing EMA in the mining industry include current costing system, complexity of operations, consistency in the group, integrated nature of environmental management systems, shift to sustainable development and lack of understanding between environmentalists and accountants (Ambe, 2007:64).
In support of the current costing system constraints experienced in implementing EMA in the mining industry, a case study was conducted on four South African mines. The findings indicated the following (Mohr-Swart, 2008:250):
32
Financial criteria are not into consideration in identifying significant environmental aspects in the environmental management program reports.
Environmental costs such as water, energy and consumables were hidden. Costs were accumulated and allocated in overheads by the current costing systems.
Waste costs were underestimated or not reported. Waste costs reflected the amount paid to subcontractors to remove the waste.
The costs associated with the handling of waste rock and slimes dam were not included in the total costs related to waste.
There was not proper accounting for environmental costs which resulted in lost opportunities to improve financial performance.
Minor or low cost changes to the current accounting costing systems can lead to operational improvements.
Accounting systems do not have cost codes to identify all possible environmental costs and revenues. Cost codes for environmental activities are allocated to overheads and consumables categories.
Environmentally related descriptions in the accounting system is vague, such business services (rehabilitation), metallurgy (slimes dam), and mine specific (water use).
Activity listings in the current costing system are environmentally specific but not good or proper for EMA system. Examples of listings are engineering (waste rock dumps), metallurgy (reclamation, stock piling, rock dump treatment) and slimes (residue disposal, slimes clean up, slimes dam).
33 Literature review has shown that there are some examples of the practice of environmental management accounting in South Africa. Other international examples on the practice of EMA from different countries are indicated in table 2.6. The study has further indicated that there is a growing awareness of the financial implications of environmental performance. Environmental accounting practices have shown a gradual increase. The current application of environmental accounting is still at low levels in South Africa (Ambe, 2007:62).
Table 2.6: International examples of EMA application
Source: (Ambe, 2007:62)
According to KPMG, 2001 survey findings, there is a growing awareness of financial implications of the environmental performance and environmental accounting practices are being explored to manage costs. There is a lack of formal environmental accounting systems and environmental performance information is critical for EMA. Application of environmental accounting in the South African mining industry is at a low level (Mohr-Swart, 2008:7). The perceptions of the introduction of environmental management accounting in South Africa were measured by a survey questionnaire as shown in figure 2.6.
34 Figure 2.6: Perceptions on the introduction of EMA in South Africa
Source: (Ambe, 2007:63)
Participants provided answers about their opinion on the introduction of environmental management accounting in South Africa. It was clear that majority of the respondents indicated that EMA was important and minority had mixed feelings with regard to EMA introduction in South Africa (Ambe, 2007:63).
2.8. Chapter summary
Environmental data collected and analysed from different companies can be used to understand costs. Adoption of environmental management accounting will ensure the accurate determination of the production costs related to environmental issues. It will also help managers to identify cost reduction methods and to preserve only products that are profitable. EMA provides tools and methods that will assist organisations to reduce expenses and improve their decision-making processes (Betianu & Briciu, 2010:13).
35 Decision makers in the organisations will be sensitive and careful when selecting inputs into production. The output material should be considered carefully to save the environment saved from degradation. Consideration of environmental aspects such as costs of services and products will enable organisations to reduce the consumption of natural resources (Farouk et al., 2012:37). EMA should provide information to the decision makers on the flow and stock of materials, energy, waste, water that is consumed or wasted in producing goods and services (Debnath et al., 2012:45).
The literature review has shown that there are challenges experienced by international and national organisations in different industries with regard to implementation of environmental management. There are countries that are implementing EMA in their operations. The level of awareness of EMA is higher in European countries compared to Africa. EMA can be a tool to realise benefits in the manufacturing and mining operations.
The chapter on literature is followed by the empirical study. A survey questionnaire distributed to participants will be analysed statistically to assess the awareness of environmental management accounting in the mining industry in South Africa.
36
CHAPTER 3
3. EMPIRICAL STUDY
3.1. Introduction
This chapter outlines methodology and systems used to conduct the research study. In addition, there is a discussion and analysis of data gathered from the survey conducted. A survey questionnaire distributed to selected participants is analysed through statistical methods. Information presented and analysed are from different respondents in different provinces. The research study utilises collected data to assess the awareness of environmental management accounting in the mining industry.
3.2. Research methodology
This study used a survey questionnaire, compiled and distributed to selected participants. It is a modified questionnaire and adopted from Ambe, 2007, where the main objective was to show a South African perspective on the theory and practice of environmental management accounting.
A survey questionnaire was distributed to mine production personnel, environmental and accounting practitioners in the mining industry within selected provinces and mines. Mining companies employ less accountants and environmental practitioners compared to production personnel. This study targeted mine production personnel responsible for decision-making on production costs related to the environment. Selected participants were targeted according to their roles, expertise and understanding of the mining industry.
Mine management or production personnel, environmental practitioners and accountants or financial practitioners at the mining operations were selected from the provinces of Gauteng, Mpumalanga and North West. The questionnaires were completed manually and returned. Environmental information, accounting and production related activities including practices in these functions are critical to assess the awareness of environmental management accounting.
37 The questionnaire was designed to assess the awareness of environmental management accounting in the mining industry by formulating questions on environment, accounting and mine production related aspects. It is divided into five sections, namely organisational characteristics, environmental issues, compilation of sustainability reports, physical and monetary environmental information.
Section 1 focused on the organisational characteristics of the companies that employed the participants. It includes the legal status (i.e. public (Ltd), private (Pty, Ltd), Joint venture or close corporation) of the organisation, the geographical location, approximate annual turnover, number of employees and the functions or roles of the selected participants in the organisation. The selected geographical location of the organisations is Gauteng, North West and Mpumalanga provinces. Functions or roles of selected participants according to expertise are mine management or production personnel, environmental practitioners and financial or accounting practitioners.
Discussion on environmental issues of the organisation is in Section 2. The main objective is to determine existence of environmental strategies and tools, drivers of organisations’ environmental management system, priority of acceptance of the broad environmental issues faced by organisation, level of current importance of protection of soil and ground water, surface water use and land management to the mining organisations. Drivers for environmental management system include compliance with regulation, certification of international standard and corporate citizenship. Environmental strategies and tools assessed are environmental policy, environmental management system, environmental action plan or/and quantified environmental targets and ISO 14001 certification.
Compilation of sustainability reports used by organisations for annual reporting and informing investors of the care for the environment is discussed in section 3. The main objective is to assess the awareness of participants with regard to environmental information disclosed by the organisations in their annual reporting.
38 A Yes or No response was expected on the disclosure of environmental objectives, quantitative non-financial information, financial information, environmental performance indicators relating to materials, energy and water, initiatives to manage the environmental impacts of products and incidents, fines or non-monetary sanctions for non-compliance. A 5-point Likert-type-scale, ranging from (1) to (5), where (1) is extremely low and (5) extremely high, is used to assess the level of disclosures on environmental expenditures (such as operating and capital expenditures).
A disclosure on operating expenditures is related to pollution prevention, remediation and solid waste treatment. Capital expenditure is related to compliance to legislation, remediation and pollution prevention.
The physical information of environmental management accounting is addressed in section 4. A 5-point Likert-type-scale, ranging from (1) to (5), where (1) is extremely low and (5) extremely high, is used. It is used to rate the level at which organisations generate and record physical environmental information with regard to raw and auxiliary materials, operating material and water.
Raw and auxiliary material refers to input materials that become part of an organisation’s final product or by-product. Operating materials are input materials purchased and used by the organisation, but which do not become part of any tangible product delivered to the customer. Water means all water used by an organisation from all sources.
The last section (section 5) in the questionnaire design is about the monetary information of environmental management accounting. A 5-point Likert-type-scale, ranging from (1) to (5), where (1) is extremely low and (5) extremely high, is used to determine the level at which organisations generate and record monetary environmental information with regard to cost of product outputs, cost of non-product outputs, research and development costs, prevention and other environmental management costs.
39 Respondents’ understanding of the organisation’s situation or point of view and practice of EMA is required to build a case on the awareness of EMA in the mining industry. Environmental officers collect and record environmental information including implementation of the environmental management system of the organisation. Mine production personnel generate physical environmental information through mining activities.
Accountants record monetary environmental information and allocate a budget to ensure compliance to legislation on environmental issues in the mining industry. The number of questionnaires distributed to participants in the mining industry were 200 and 130 were completed and returned. This results in a response rate of 65%.
3.3. Data analysis and discussion
Measuring tools used in the analysis include statistical analysis and descriptive statistics. Data collected was analysed through statistical and practical analysis methods by the Statistical Consultation Services of North-West University. Additional analyses include the relationship between variables using correlations, t-tests, ANOVA, Effect sizes and factor analysis.
These analytical methods were useful to investigate the validity of the questionnaire and assess awareness of environmental management accounting in the mining industry among mine management, environmental and accounting practitioners. Generally, data collected is reliable with a Cronbach’s alpha of 0.7 to a maximum of 0.889.
3.4. Results
3.4.1. Organisational characteristics
40 Mining organisations are differing according to location, size and operational methods including commodity of interest. They will also have a different culture, values and ways of practice with regard to the environment.
The main objective of section 1 is to understand the differences in the organisations and related perception of practises to environmental management accounting according to selected and targeted participants. Organisational characteristics of interest from the mining organisations in this study are legal status, geographical location, approximate annual turnover, number of employees and functional responsibilities of the selected participants.
3.4.1.1. Legal status of the organisation (section1, question1)
Majority of the respondents in the study are from private companies. The percentage proportions of participants are 58.5% and 40.8% for private and public companies respectively (table 3.1). None of the Joint venture organisations participated in the survey. There is only one close corporation organisation that participated in the survey (table 3.1). The study indicates that most of the mining organisations in South Africa are owned by the private sector.
Table 3.1: Showing number of respondents on the legal status of their organisations
Legal status Frequency Percent (%)
Public (Ltd) 53 40.8
Private (Pty Ltd) 76 58.5
Joint venture 0 0.0
