New ISO Standard for Environmental Management Accounting
In the fast-paced world of high-tech manufacturing, it’s easy to get caught up in the quality and risk-management challenges of production, supply chain management, and regulatory expectations. Keeping costs down, however, gets harder to do as OEMs make more complex products, expect faster times to market, and demand more vendor services.
So chances are that trying to find better ways to reduce environmental impacts (especially if you think you’re already doing a good job in this regard) is low on your to-do list. However, getting serious about managing “environmental” costs can make a big difference to your bottom line—and there is a new ISO standard that can show you the way.
ISO 14051:2011 tackles environmental management through material flow cost accounting (MFCA). It provides a general framework to help companies better understand the environmental and financial consequences of their material and energy use practices, so that they can identify opportunities for improvement. This cuts costs linked to waste and emissions, enhances environmental performance, strengthens corporate culture, and perhaps most importantly, builds your brand.
MFCA traces and quantifies material input and output flows and stocks within an organization. The system helps identify material and energy-use practices and understand them in costs and physical terms. The information can then be applied to reduce losses and increase gains.
This tool has been around for decades and is especially well developed in Japan. The new ISO standard was developed by ISO technical committee ISO/TC 207, Environmental Management, led by Katsuhiko Kokubu, professor of social and environmental accounting atKobeUniversity.
“Many organizations are unaware of the full extent of the cost of their material losses because this data is often difficult to extract from conventional information, accounting, and environmental management systems,” says Kokubu. “MFCA produces such precise and clear data that it can motivate managers to enhance material productivity and significantly reduce unnecessary waste, far more effectively than conventional means.”
This approach can be used in all industries that consume materials and energy, including extractive, manufacturing, service, and other industries. It can be implemented by organizations of any type and scale, with or without environmental management systems in place, in emerging economies as well as in industrialized countries. MFCA can also be utilized throughout the supply chain, both upstream and downstream, to help develop an integrated approach to improving material and energy efficiency.
“The bottom line is that not only do organizations increase profits, they improve their environmental performance and contribute to sustainable development,” says Kokubu.
Some of these improvements include:
- Increased production efficiency through capital investment
- Appropriate and accurate evaluation of investment items
- Cost reduction through changes to product design and raw materials, which allows precise evaluation of manufacturing cost
- Identification of specific targets for on-site improvement activities
- Reduced supply chain and social costs
- Reduced costs for raw materials, waste disposal, etc.
- Energy savings
In general, the costs for any capital investments suggested by MFCA can be recovered within 1-2 years through improved efficiencies.
The MFCA framework presented in ISO 14051:2011 includes common terminologies, objective and principles, fundamental elements, and implementation steps.
ISO 14051 is available from ISO national member institutes (see the complete list with contact details). It may also be obtained directly from the ISO Central Secretariat through the ISO Store or by contacting its marketing, communication, and information department.
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