Eco Efficiency Indicators

1
Eco Efficiency Indicators

• Professor Doug Cerf
• Donald Bren Graduate School of Environmental
  Science and Management
• ESM 284-Spring 2005

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Eco Efficiency Manual

• Based on
• A Manual for the Preparers and Users of
  Eco-efficiency Indicators
• United Nations Conference on Trade and
  Development (2004)
• UNCTAD serves as the focal point within the
  United Nations Secretariat for all matters
  related to foreign direct investment and
  transnational corporations

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Purpose

• Main objective is to describe the method to
  provide information on environmental performance
  vis-à-vis financial performance
• Information should be provided in a systematic
  and consistent manner over periods of time.

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Eco Efficiency Definition

• Eco-efficient strategies reduce the damage caused
  to the environment while increasing or at least
  not decreasing (shareholder) value.
• The World Business Council for Sustainable
  Development (WBCSD) describes how eco-efficiency
  is achieved
• "Eco-efficiency is reached by the delivery of
  competitively priced goods and services that
  satisfy human needs and bring quality of life,
  while progressively reducing ecological impacts
  and resource intensity"
• The WBCSD includes a clear target level
• An eco-efficient state is reached when economic
  activities are at a level "at least in line with
  the earths estimated carrying capacity". (WBCSD
  1996)

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Eco efficiency indicator

• An eco-efficiency indicator is the ratio between
  an environmental and a financial variable.
• It measures the environmental performance of an
  enterprise with respect to its financial
  performance.
• The problem with constructing eco-efficiency
  indicators is that there are no agreed rules or
  standards for recognition, measurement and
  disclosure of environmental information either
  within the same industry or across industries.
• Most importantly, there are no rules for
  consolidating environmental information for an
  enterprise or for a group of enterprises so that
  it can be used together and in line with the
  enterprises financial items.

6
Combining Financial and Environmental Accounting

• The conceptual frameworks for ecological and
  financial accounting have to be comparable if
  environmental and financial data are to be
  combined to produce eco-efficiency indicators
• framework will follow a similar approach in
  reporting financial information as specified by
  International Accounting Standards
• The data have to be derived from the same
  reporting entity and not different subsets of
  that entity

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Student presentations of the five guideline areas

• Water use
• Energy use
• Global warning contribution
• Ozone depleting substances
• Waste

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Value added

• Reference figure for normalization in
  eco-efficiency accounting and reporting
• Denominator of eco-efficiency ratio
• All financial items are defined in line with the
  International Accounting Standards (IAS).
• Value Added Revenue Purchase of Goods and
  Services
• Net Value Added Value Added - Depreciation on
  tangible assets

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Value added

• Value added is the aggregate that gets taxed by a
  value added tax scheme
• A value added tax is levied on the value which is
  added to the goods or services in question at
  each stage in the production and distribution
  process.
• "output" tax is charged on the current sales
  value, but the "input" tax which has been charged
  by those at an earlier stage of the game can be
  offset or recovered.
• Thus the tax liability at each stage is based on
  the difference between the value of the outputs
  and the value of the inputs (hence "added value")

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Value added

• There are two ways to calculate value added
• both approaches yield the same result
• Method 1--generated source or tax approach
• how value is added
• Value added Revenue Cost of goods and
  services purchased
• Called gross profit or gross margin in
  traditional accounting
• Method 2 distribution approach
• how value added is distributed
• Value added Salaries Depreciation
  Amortization Interest Taxes Dividends
  Retained Profit

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Net Value Added

• Investment goods purchased are not accounted for
  as goods and services purchased but rather as
  depreciation
• For the purpose of eco-efficiency accounting,
  investment goods (tangible assets) and good
  purchased should not be treated differently.
• Their value has been created outside the
  enterprise and the energy, water etc. used and
  the waste produced for the production of the
  asset are accounted for within the accounts of
  the enterprise that produced the respective
  asset.
• Therefore, depreciation on tangible assets is
  deducted from value added.
• Net value added Revenue Cost of goods and
  services purchased - Depreciation on tangible
  assets
• Net value added Salaries Amortization on
  intangible assets Interest paid Taxes
  Dividends Retained Profit

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Ciba Specialty ChemicalsA Swiss based global
company

• Case example of eco efficiency indicators in each
  of the guideline areas