Analysis And Evaluation Of An Environmental Management . - Atlantis Press
Advances in Social Science, Education and Humanities Research, volume 3483rd Asia-Pacific Research in Social Sciences and Humanities (APRiSH 2018)Analysis and Evaluation of an EnvironmentalManagement System: A Case Study at PT X–ASteel CompanyNadifa Dewinta DanastriDepartment of Accounting, Faculty of Economics and BusinessUniversity of ��This study aims to analyze and evaluate whetherincreased awareness regarding environmental issues hasencouraged organizations to apply environmental managementsystems and use environmental management accounting(EMA), which drive environmental innovation, and thusenhance the company’s environmental performance. There is,however, little evidence to consubstantiate this claim and thusthis paper aims to investigate the issue. PT X is one of thelargest steel companies in Indonesia. This study highlights theimportance of using EMA in implementing an environmentalmanagement system within the company. It shows that eventhough an environmental management system has beeninstalled by the company to avoid any serious impacts ofenvironmental pollution (e.g., in the form of iron dust), thecompany has yet to implement an EMA system withenvironmental management reporting (e.g., in the form of acost–benefit analysis) to address problems. The companycarried out its environmental management system to complywith the prevailing legislation and regulation, rather than as anenvironmental strategy and innovation for the futuresustainability of the business.Keywords—environmental management system, environmentalstrategy, environmental management accounting, environmentalcosts, environmental innovations, and environmental performanceI.INTRODUCTIONEnvironmental management is a systematic approach toenvironmental care in all aspects of a company’s businessoperations, designed to realize environmental management inevery aspect of a company’s business that requires anenvironmental management system or what is often called anenvironmental management system (EMSyst) [1]. Ferreira[2] explains that EMSyst provides the organization’s desireand consistency to redirect environmental concerns toresource allocation, responsibility sharing as well as ongoingevaluation of implementation, processes, and procedures.The company’s environmental management strategy(EMStrat) includes a reactive strategy that only aims to meetlegal requirements. It also implements pollution controls anda proactive strategy [3]. Proactive environmental strategiesrequire changes in routines, as well as proactiveenvironmental operations and strategies. These elementshave been identified as organizational competencies sincethey require complex coordination of some heterogeneoushuman and technical skills, along with resources, to reduceElvia R. ShaukiDepartment of Accounting, Faculty of Economics and BusinessUniversity of ntal impact while maintaining or enhancing thecompetitiveness of the enterprise (Christmann 2000; [1,4]).Masanet-llodra [1] explains that environmentalmanagement accounting (EMA) is a system that combinesphysical environmental data and financial monetary datarelated to the environment. This EMA can be used as a toolin reporting environment-related activities, environmentalcost efficiencies, and performance evaluations [2].Environmental Accounting Guidelines Japan [5] says thatenvironmental accounting is an effective way to accuratelymeasure investments and costs associated withenvironmental conservation activities. Thus, the applicationof EMA is crucial for companies to detect and provide waysof treating waste to prevent environmental pollution.By definition, innovation is a set of ideas or processesinitiated by perceptions in the creation and improvement ofproducts or services, processes, marketing and businesspractices, and these perceptions can be in a workingenvironment or have a relationship with achieving success.Innovation is an essential element of all types and sizes oforganizations. Companies that do not innovateenvironmentally will eventually experience decline anddefeat, having lost competitive advantage against emergingcompanies or those that are constantly innovating andchanging. To be able to know and assess whether a companyhas done environmental innovation, the company’senvironmental performance must be reviewed. It is a tangibleform and a realization of the innovation undertaken anddecided by every company.This research is important to be able to assist companiesin evaluating EMSyst that has been carried out within thecompany so as to maximize the reduction of air pollutionaround the factory area. The EMSyst system implemented sofar in the company does not have a big impact in reducing airpollution that occurs. Furthermore, this research contributesby helping companies obtain information in the form ofcompany evaluations of strategies, environmental costcomponents, benefits and also strategic environmentalinnovations in PT X that may be used to improve thecompany’s environmental performance in the future in—order to improve themselves and help companies maximizeinnovation. This research can help companies improve theirimage, too, mitigating the problem of iron dust waste thatoccurs, by helping companies know about theirenvironmentalperformancesofar.Copyright 2019, the Authors. Published by Atlantis Press.This is an open access article under the CC BY-NC license 19
Advances in Social Science, Education and Humanities Research, volume 348Prior research conducted on steel wire companies onlyfocused on the process of managing the company’s waste bymanaging environmental costs. This research focused onproviding an overview and advice on alternative solutionsthrough the role of the EMSyst in generating information, sothat companies are able to identify costs, strategies,innovations and accounting management systems that are inline with the company’s needs to optimize environmentalperformance, so as to reduce environmental damage.PT X is a company engaged in the steelmaking industry.It has produced steel for various roads, buildings, factories,and other structures in Indonesia. PT X was established in1970, and its products include steel wire, steel rods, hotrolled sheet steel, and cold-rolled sheet steel. The results ofthis production generally become the raw materials for moreadvanced industry. The production process conducted by PTX was able to create B3 waste (hazardous and toxicmaterials), one of which is iron dust waste that can pile up,causing respiratory disturbances and damage to thesurrounding environment.Companies that engage in mining have a high risk ofmining operations related to environmental and workplaceaccidents. The problem faced by PT X is its frequentenvironmental pollution incursions. Environmental problemssuch as air pollution, water pollution, and industrial solidwaste are among the most frequent issues and challenges toovercome in Indonesia. Based on an initial interview with thechairman of the health, safety and environment division ofPT X, it was disclosed that the environmental pollutionoccurred in PT X was due to lack of quality controlconducted by the management company and also PT X hasset an environmental cost investment for plant projectdevelopment in accordance with the regulations and also thestandards made by the Ministry of the Environment(Respondent 1, 2018). However, until 2018, environmentalpollution, such as air pollution and iron dust waste wasrecorded.Iron dust waste is thought to be the result of iron oresmelting process conducted by PT X [6]. Fakta Banten [7]reported again the occurrence of dust pollution from one ofthe joint venture companies owned by PT X. Residentscomplained of dust pollution that pollutes the air in residents’dwellings, this dust is believed to come from steel productionwaste [8]. Residents have reported this nuisance to themanagement of the company, and the company continues toseek its cause. Management of PT X strives to keepimproving the quality control of the factory waste treatmentplant in order to avoid the same pollution for the second time[7]. This stands in contrast to the awards earned by PT X forthe environment; PT X in 2017 received the Blue PROPERAward from the Ministry of Environment for its success inpreserving the environment and meeting all environmentalrequirements required by the government. This wasconveyed directly during an interview by HSE manager, Mr.Afrizal, stating that by obtaining the Blue PROPER award byPT X the company’s targeted environmental performancehas been achieved and PT X has been proven to have carriedout environmental management activities and alsoparticipated in preserving the environment around thecompany’s industrial site. At the same time, iron dust wasteis still repeatedly being found in the industrial area of PT Xand until now the surrounding community continues to fallvictim of the negligence of PT X, which causes the airaround the industrial site to be dirty.Besides, other problems contained in PT X are in therecording of environmental costs incorporated into factoryoverhead costs and do not carry out recording and disclosureof environmental costs that occur specifically and solely(Respondent 1, 2018). The root of the problem that occurs inPT X is the occurrence of air pollution repeatedly withoutsolutions. This might be due to the fact that PT X has feltthat the company has done the environmental managementactivities well and has complied with all existing laws andregulations; so that PT X thinks that there are no moreenvironmental problems in its industrial site. One way thatcompanies can overcome these problems is to use a cost–benefit analysis (CBA) based on the concept of EMSyst thathas been described previously because the capital issued byPT X tailored to the analysis of costs and benefits incurredby the needs of the project undertaken. Thus, by using CBA,PT X is expected to determine and measure the benefits of aproject in the form of investment (cost) that does not exceedthe capital issued or invested in reducing the occurrence ofexternal failure costs in the future.Based on the problems faced by PT X, the formulation ofthis research problem is as follows: What environmental strategies are applied to PT X? What is the role of environmental strategy withrespect to the use of EMA and environmentalinnovation in PT X? What are the environmental cost components(financially and non-financially) recorded at PT X? What benefits (financial and non-financial) does PTX make after investing in these environmental costs? How does the environmental innovation done by thecompany affect the performance of environmentalmanagement at PT X?II. THEORETICAL REVIEWThis section describes previous studies on EMSyst, theweaknesses and advantages of the EMSyst and theimplementation of CBA in the company. In this section willalso discuss the theoretical basis of the resource-based viewtheory.A. Environmental Management System (EMSyst)The environment has been a recent topic in thecommunity since 2006 and, up until now, environmentalissues are better-appreciated in the community and morepeople are concerned with the environment. Masanet-llodra[1] explains that environmental consciousness to some extentcan be regarded as an emerging value in our society. Thecompany tries to incorporate new values in theseenvironment-related communities into its enterprise, throughthe merging of both new values in society and theenvironmental management system.Khanna, et al. [9] explain that EMSyst can assist thecompany in the following ways: Minimize environmental responsibility; Maximize the efficient use of resources; Reduce waste;120
Advances in Social Science, Education and Humanities Research, volume 348 Demonstrate an excellent corporate image; Building awareness of environmental concernsamong employees; Gain a better understanding of the environmentalimpact of business activities; and Increase profit and environmental performancethrough more efficient operational processes.EMSyst could be a powerful tool for companies to jointlyimprove their environmental performance and also improvetheir business efficiency. ISO 14001 has many potentialbenefits in addition to improving business performance butalso can encourage the implementation of energy savings,waste reduction, low regulatory compliance costs and moreefficient processes. Research conducted by Mezinska andStrode [10] in food sector companies find that the companysuccessfully implemented EMSyst under ISO 14001 eventhough the environmental impact assessment of itsproduction remains a challenging task due to the limited dataavailable along the supply chain.B. Environmental Management Strategy (EMStrat)Khanna et al. [9] in his research explains that they changemanagement practices and systems based on businessimplications of environmental issues, these strategies helpchange corporate culture and establish policies that should beable to integrate environmental issues into managerialdecisions in all parts and levels of the organization.Government regulations or laws are usually treated as themost fundamental motive for the company’s environmentalproblems [11]. Although, not all industries attract the sameamount of government regulation [12,13]. Cater, et al. [14]found that 153 manufacturing companies adopted anenvironmental strategy as a reflection of their topmanagement commitment, those environmental problemsmost often included in production and marketing strategies,followed by purchasing and personnel strategy, and there is apositive but very weak relationship between environmentalstrategy and firm performance.C. Environmental Management Accounting (EMA) andEnvironmental Management Reporting (EMR)De Beer and Friend [15] explain that EMA is part ofenvironmental accounting and EMA has been claimed as auseful tool to overcome the limitations of conventionalmanagement accounting to better understand and facilitatemeasuring the problems related to the environmentpertaining to the decision-making process. So, it can beconcluded that EMA has a primary focus on providinginformation for decision-making within the internaldiscussions of the company.Jasch [16] determined the important areasimplementing EMA within the company, namely:for The assessment of annual environmental costs orexpenditures, Product pricing, Budgeting, Investment appraisal, and Savings of environmental projects orquantified performance targets.settingJudging from the important parts in the application ofenvironmental management accounting, it can be concludedthat the use of EMA in EMSyst is necessary to help facilitatemanagement in viewing, monitoring and anticipating anypossibilities that will or may occur. Besides EMA, there is anEMR that is equally important in realizing a good EMSyst,where companies serious about improving EMA willundoubtedly pay attention and also make improvements toenvironmental performance, controlling environmental costs.Duman et al. [17] explain that environmental problems mayarise depending on future planned investment projects,wherein a solution plan derived from EMR should also bepresented. In doing so, sufficient information may bepresented to the public about events that may arise from nonfinancial environmental risks that can affect the business andits future, along with the financial position of the business.D. Environmental Management InnovationCainelli, et al. [18] describe the importance ofenvironmental innovations to achieve sustainable growthand-in some countries-policy makers consider environmentalinnovations as the basis for achieving sustainable growthpatterns by incorporating environmental innovations intotheir policy agenda such as The Environmental TechnologiesAction Plan adopted by the European Commission in 2004and The Europe 2020 Strategy. Environmental innovation isone of the important factors in EMSyst because they areneeded in making EMStrat. EMStrat will be better iffollowed by further innovation and good environmentalinnovations that produce good environmental performance.Research conducted by Nadkarni and Narayanan [19] showempirical evidence that strategic and flexible environmentalinnovations affect business performance positively.Figure 1 outlines the research framework for this study, itstarts with the discussion on the strategy taken by thecompany which influences the company’s reports, and theway the company invest in its program, product, processinnovations which at the end will increase company’senvironmental performance.E. Environmental Management PerformanceSchultze and Trommer [20] explain that environmentalperformance is considered to be multidimensional constructthat includes not only the environmental results and impactsof the company, its stakeholders, and the environment butalso the principles of environmental responsibility and theenvironmental responses that determine future outcomes andimpacts. Environmental performance is a measurableoutcome of EMSyst, which deals with the control of itsenvironmental aspects, and environmental performanceassessment based on environmental policies, andenvironmental targets. Environmental performance issomething that industry members can show by reporting theirperformance to the Ministry of the Environment for relatedprograms. Research conducted by Moneva and Ortas [21]found a positive effect of environmental performance onfinancial performance.F. Resource Based View TheoryKillen, et al. [22] explain that RBV is a strategicmanagement theory widely used in project management, totest how resources can drive competitive advantage.Dunford, et al. [23] explain that RBV has also influenced121
Advances in Social Science, Education and Humanities Research, volume 348strategic human resource management because humanresources have an important value and function in acompany. So, it can be concluded that the selection of RBVuse in this study is intended because company X is in need ofbetter strategic management that will be most effective in aproject.Fig. 1. Research frameworkSecondary Data, 2017Fig. 2. Implementation of PT X Environment Management SystemThis situation occurs because most environmentalperformance and environmental costs in PT X are calculatedand assessed based on each project undertaken.G. Research FrameworkThe application of EMsyst with single case study methodin one steel company in Indonesia (PT X) is backed by RBVtheory, which is a strategic management theory that hasdirect validity. RBV theory emphasizes human resources inthe company, too, where companies need to pay attention tohuman resources which are the important elements incarrying out and implementing a quality environmentalmanagement system so that the results obtained are asexpected and there are also significant changes in theachievement of the company’s environmental performance.Because to create and design strategic management, qualityhuman resources are needed who also have specialknowledge and understanding of environmental managementsystems. Hence, the environmental management system istailored in accordance with the needs of the company. And toidentify the resources that can drive the company’scompetitive advantage through the implementation ofEMStrat, EMA / EMR, environmental innovation as well asenvironmental performance.III. RESEARCH METHODOLOGYThis research uses a qualitative approach and a singlecase study conducted on single unit analysis: PT X. Theinstrument of research in the form of interview anddocumentation. Field studies were conducted via in-depth122
Advances in Social Science, Education and Humanities Research, volume 348interviews with competent resource persons in the field ofenvironmental management and environmental accounting.Interviews were made using convenient sampling. Becausesuch sampling is best used in observations of this studybecause of limited access and also the research permits givenby the company to the location of the research and the dataprovided, namely the HSE and accounting division whoknow exactly about the environmental management systemand environmental costs that exist in PT X. Interviews wereconducted with two divisions that directly addressed theenvironmental costs of PT X namely the HSE division to getmore accurate data and also to obtain more detailedinformation on the company’s environmental issues,strategies, and innovations. To obtain a comprehensive andobjective description of the phenomenon studied, the authorsconducted in-depth interviews with various related parties asfollows: manager of HSE, manager of accounting, seniorengineer for environmental management systems, seniormanager for accounting, HSE staff and also localcommunities. A literature review was undertaken bystudying a number of studies, journals, books, articles, andother research results to obtain the theoretical framework thatform the foundation in this study. In addition, literature studywas also done by studying the provisions/regulations relatedto environmental factors in Indonesia regarding strategy,innovation, cost and management system. Documents usedby researchers here in the process of documentation in theform of company profile, organizational structure, as well assystems and activities related to the environment. Dataanalysis was performed per division according to the datacollected during the interview. The data was then processedby using descriptive analysis and content analysis.IV.RESULTS AND DISCUSSIONA. DocumentFigure 2 shows the implementation of the environmentalmanagement system used by PT X. Environmental Policy isthe prevailing laws and regulations made by the government,local government and other relevant bodies to be compliedwith by the company. PT X first collects and identifiesexisting environmental policies to guide the company, then itimplements EMSyst through the planning stages of onmental issues, provisions of existing regulations,targets and creates an environmental program that suits theneeds and responsibilities of the company.After doing the planning, PT X created an organizationalstructure that would undertake and conduct all environmentalmanagement activities within the HSE division as well asdescribe the duties and responsibilities of each employee toclearly understand authority, rights and obligations aboutwhat it does, so that operational activities run well and arecontrolled. Then the HSE division conducted related trainingto implement the EMSyst within the company. And it caninnovate such that employees can follow all the progress andchanges regarding the rules, systems and also the applicationof the environment. Further monitoring communicationsbetween managers, staff, engineering, and technicians tocontrol EMSyst both in the field and in the office to run in aconducive manner.During the next stage, the HSE division is responsible formonitoring and measuring the machines, tools and also themain factors of pollution by the existing SOP. The seniormanager of environmental management is responsible forrecording documents on the results of monitoring andmeasurement conducted by the HSE division. The findingsare then reported to the HSE manager for review, notingwhether the process is in line with the existing SOP. To beable to implement what is shown in Figure 2 optimally, themanagement of PT X needs to do all the stages well, startingfrom planning of the environment strategy, implementing nnovation to solve environmental problems, and producingthe maximum environmental performance. A detaileddescription of the steps follows.PT X has organized some environmental strategies in thecompany to be able to continue to compete in business.There are two main environmental strategies in PT X: (1) sellthe waste generated by the factory directly while still in theproduction process and (2) manage the waste from the steelproduced into products that have value added.The environmental strategy created by PT X must then becarried out. Its implementation was much to causeenvironmental problems such as the existence of waste leaks.This oversight was due to the weaknesses and shortcomingsconcerning implementation of such good environmentalstrategies. Because the strategy created by PT X did not useEMA and EMR regarding calculation and recording, manyweaknesses still occur in the environmental strategy createdby PT X. This weakness suggests that PT X must act quicklyso that the problem is not increasingly widespread anddetrimental to the company through environmentalinnovation. Such innovations are often conducted by PT X,but two major innovations already done stand out:conducting quality analysis and analysis of wastemanagement components.This environmental management performance is theresult of PT X’s process from the planning of anenvironmental strategy created to achieve the company’starget. In 2017, PT X received several awards in theenvironmental field including one where PT X was awardedthe Level 5 Green Industry Award from the Ministry ofIndustry of Indonesia. PT X also received the Blue ProperAward from the Ministry of Environment and Forestry of theRepublic of Indonesia. Too, PT X made measurements in theimplementation of environmental management in general,consistently implementing ISO 14001: 2015.Through the awards received, the management of PT Xwanted to show and prove that the company has succeeded indoing a conscientious job of environmental sustainability. PTX Thus sought to convince stakeholders and investors thatPT X continues to strive to maintain environmentalsustainability by continuing to maximize all activities thatcan improve the company’s future environmentalperformance.B. Discussion1) Environmental Strategy Performed by PT X(Environmental Management Strategy - EMStrat)According to the findings presented in subsection 4.1, PTX has established a long-term strategy and has alsoimplemented it. In the long-term plan, PT X aims to be ableto sell the recycled industrial waste and value added to someneighboring countries as well as companies in Indonesia to123
Advances in Social Science, Education and Humanities Research, volume 348earn additional revenue. PT X is still in the planning stage,calculating and observing its waste-recycling strategy(Respondent 1, 2018). Parameters emphasized in theachievement of environmental conservation and the existingecosystem were achieved by complying with the existinglegislation, making it difficult to transform PT X into acompany green company as its slogan suggests.Companies that want to transform themselves into greencompanies must have environmental insight and must controlthe utilization of natural resources wisely and sustainably tobe able to ensure the needs of present and future generations.While all this time PT X has not implemented and done so,the insight about the importance of environmental andnatural resources owned is still very low and has yet to leadto a green industry that is environmentally friendly aspresented in its slogan (Respondent 2, 2018).PT X also executes other environmental strategies byconducting a cleaner production program. This cleanerproduction program continuously adopts environmentalconservation elements listed in SOP as well as its qualityobjectives. All these tools are integrated into ISO 14001EMSyst and have been done consistently by the companysince 1970 (Respondent 2, 2018). This affirmation is in linewith what is explained by Masanet-Llodra [1] that ISO14001 is a voluntary environmental initiative in which theguidance of the use of ISO can be a new challenge forcompanies to start handling environmental management inaddition to acting economically.PT X complements its environmental strategy byensuring that its air pollution control facilities can work withfull capacity in every production process to minimizeexhaust gas or air emissions (Respondent 3, 2018). Forexample, waste heat is treated by using heat exhaust gas toreduce carbon emissions produced, which is one of thefactors causing global warming. This strategy has beenhandled by the HSE division. This finding is consistent withthat described by Khanna, et al. [9] that EMSyst can assistcompanies in maximizing the use of natural resources moreefficiently and also reducing the waste generated.Not only must natural resources be considered by PT Xin forming its environmental strategy, but human resourcesthat become the main element in the decision making, too,with respect to system, strategy, innovation and costcalculations done. Moreover, PT X still does not havepersonnel who understand about environmental aspects andthings that support it in optimizing environmentalperformance well. Where employees in the HSE division donot have much knowledge and understanding of theimportance of using EMA and EMR in implementingEMSysts owned by companies (Respondent 1, 2018).This limitation is in accordance with the report submittedby the HSE manager, stating that PT X has not included thecriteria for the acceptance of new employees of PT X withcriteria that comprehend environmental issues in themanagement system, calculation, or environmental audit(Respondent 1, 2018). This is not in accordance with theprevious research conducted by Dunford, et al. [23] thatstrategic management is influenced by the existence ofhuman resources that have value and important functions inthe company to optimize the company’s competitiveadvantage. PT X needs to focus more on internal factors ofthe company i.e., human resources, in project managementthan it does.2) Role of Environmental Strategy with use of EMA andEnvironmental Innovation in PT XPT X has yet to use EMA and EMR in any environmentalstrategy decision making (Respondent 1, 2018). PT X hasnot applied or planned the use of EMA in the planning anddecision-making
Environmental management is a systematic approach to environmental care in all aspects of a company's business operations, designed to realize environmental management in every aspect of a company's business that requires an environmental management system or what is often called an environmental management system (EMSyst) [1]. Ferreira
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