Triple bottom line accounting for the chemical manufacturing sector in South Africa.
The chemical manufacturing sector of South Africa and particularly the Durban Chemicals Cluster members are accountable for numerous environmental and social impacts in its pursuit of financial gain. Increasing legislative and external pressure has forced the sector to review and replace typical end-of-pipe pollution prevention strategies with a “cradle to grave” approach to environmental management. The triple bottom line of four voluntary organizations within the Durban Chemicals Cluster was determined by analysing the financial, environmental and social costs and benefits of sustainable development. An environmental management accounting system, adapted from the template proposed by the United Nations Division of Sustainable Development was implemented in each organization for the calendar years 2012 and 2013 to determine the internal environmental costs of each organization. The external costs due to waste water discharge, emissions release and solid/semi-solid discharge of these organizations were determined using European environmental taxes and external studies. The effect of the external environmental costs on the gross domestic product or green gross domestic product for the chemical manufacturing sector was determined. The implementation of the environmental management accounting system into the organizations of the Durban Chemicals Cluster provided actual monetary values of total environmental expenditure that was previously not amalgamated and known and this expenditure amounted to millions of rands per annum for each company. Prevention and environmental management activities accounted for the majority of environmental expenditure incurred by the participating organizations of the Durban Chemicals Cluster. These costs ranged from R1 269 333 to R31 883 724 amongst the companies studied for 2012 and R172 182 to R32 641 619 in 2013. Waste and emission treatment costs comprise the second largest portion of environmental management costs followed by material purchase value of non-product output and processing costs of non-product output. Environmental expenditure contributed significantly to the organization’s production costs, in the region of 0.52% of production costs or R4 229 644 to 1.28% of production costs at R36 735 393 to 8.69% of production costs at R18 263 783 for 2012. A similar trend in environmental expenditures contribution to production cost was seen in 2013. Environmental costs severely erode the organization’s profits and threaten to continually decrease the bottom line if not managed, optimized and reduced. Environmental revenue was realized by the organizations in the Durban Chemicals Cluster through recycling efforts. Monthly monitoring and recording of these costs enabled prompt reduction and optimization opportunities to be identified and implemented. The chemical manufacturing sector of South Africa through the production of air emissions, waste water and solid and semi-solid waste contribute to external costs on the environment and society estimated to range from R64 688 to R4 873 337 in 2012 and R73368 to R2 280 086 in 2013; an average of 0.375% of production costs for organizations studied within the Durban Chemicals Cluster for both 2012 and 2013. External costs as a result of chemical manufacturing activities reduced the gross domestic product of the chemical manufacturing sector by 0.006% which equated to R621 888 873 for 2012 and R612 175 018 for 2013. Key performance indicators identified from the study included effluent/waste water cost per kilogram of product, hazardous waste cost per kilogram of product, destructed material cost per kilogram of product and reworked material cost per kilogram of product. The average projected cost of each of these indicators was determined for 2014 via the utilization of the actual costs of these indicators relative to the total production volumes for 2012 and 2013. The social sustainability aspect of triple bottom line accounting was addressed by analyzing key social performance indicators. Generally social sustainability issues amongst all the organizations were being addressed and improved upon. The deficiency in scientific, technical and industrial skills amongst the female population of South Africa was highlighted by the lower number of women employed in these areas by the participating organizations within the Durban Chemicals Cluster. The advantage of continuous employee training and education was realized and budgeted for within the chemical manufacturing sector; health and safety in the workplace was a key focus area and community development was beginning to gain increased importance. As illustrated by the study the expansion of conservative financial accounting and reporting to include environmental and social accounting and reporting is a time consuming, labour intensive task; however the benefits achieved in reducing environmental expenditure and the impacts of manufacturing activities on society and the environment is worth the effort. It was recommended that organizations within the chemical manufacturing sector of South Africa amalgamate environmental costs into a single environmental management accounting system; that a ‘cradle to grave’ approach to waste management is adopted in this sector and that waste water re-use initiatives be implemented. The implementation of key environmental performance indicators within the chemical manufacturing sector was recommended as a tool to optimize production processes and reduce operational costs. It is imperative that the South African government actively promote environmental management accounting and triple bottom line accounting in South African and ensure the incorporation of environmental management accounting practices into financial and management accounting systems in the country. It is recommended that government applies the Polluter Pays principle to the chemical manufacturing sector of South African through the implementation of environmental taxation. The South African government is urged to actively address the skills deficiencies amongst the female population of South Africa.