Accounting Business Reporting for Decision Making

CHAPTER 14 Performance measurement 581

for definitions of these environmental indicators. The ISO 14031, updated in 2013, specifies two categ-

ories of environmental performance.

1. Environmental condition indicator (ECI) that provides information about the local, regional,

national or global condition of the environment which could be impacted by the entity. Water

and air quality are typical concerns that are monitored via environmental condition indicators.

Some companies may monitor this, but normally this is monitored by government agencies. For

instance, a government may monitor the noise levels around airports, the water quality of major

river systems to check for over-fertilisation, emissions surrounding power stations, or soil quality

around major farming land.

2. Environmental performance indicators (EPIs) consisting of:

(a) Operational performance indictor (OPI) that provides information about the environmental per-

formance of an organisation’s operations. Material, energy and water consumption and waste and

emission amounts are typical indicators.

(b) Management performance indicator (MPI) that provides information about the management’s

efforts to influence an organisation’s environmental performance. Examples are staff training, cer-

tification, environmental audits and cases of non-compliance.

Just like financial data, indicators could be expressed in absolute figures, percentages, as ratios or as an

index to some base year. They are also more meaningful when monitored over time, compared to bench-

marks and other sites and standards. In setting up an environmental performance information system

there is a need to consider the purpose of such a system, the types of environmental and social concerns

most relevant to the entity, the access to information systems and expertise that will help measure, col-

lect and store the information, and the stakeholders to whom the information needs to be communicated

in order to improve environmental performance. In a similar manner to those applied to financial infor-

mation, the UNDSD has put forward some basic principles to be applied. They are:

• relevance


• understandability


• target orientation


• consistency


• comparability


• balanced view


• continuity.

The suitability of indicators would differ from organisation to organisation and be driven by the organ-

isation’s strategic goals. This would then be linked to financial performance measures such as return of

investment, residual income or economic value (which were covered earlier in the chapter).

Eco-efficiency

Related to environmental outcomes is the concept of eco-efficiency. The Organisation for Economic

Co-operation and Development (OECD) (1998, p. 7) states that eco-efficiency ‘expresses the efficiency

with which ecological resources are used to meet human needs’. Schaltegger and Burrett (2000, p. 358)

further elaborate, stating that eco-efficiency is the ‘ratio between value added and environmental impact

added, or between an economic performance indicator and an ecological performance indicator’. The

purpose is to integrate the ecological impact with economic information. Simply recording environ-

mental information, without integration into the traditional accounting system, may not bring about the

change required or the understanding on the entity’s bottom line. For instance, recording a reduction in

the energy used may be worthwhile, but putting a cash value on that reduction shows both the environ-

mental and financial impact of the goal of energy reduction.

The basic formula is:

eco-efficiency =

value added

environmental impact added