The role of controlling in sustainable development – in the information support of strategic management

Keywords: eco-controlling, green-economy, competitiveness, geoeconomie, V4 countries

As a result of the complex crises (economical, environmental and ecological) it has become an important question which strategy we should follow to develop the economy, to create more jobs. Moreover it is also relevant to pay attention to the innovation and different ideas, which can help progress the eco-friendly sectors. Some countries including Hungary and the other Visegrád countries have realized that “Green economy” could be a developing point. We must change and solve some problems regarding the use of fossil materials during production as it increases the risk of the security of supply and push up prices. The G20 countries believe in the “Green economy” idea as a great example which is necessary to follow. Beside Spain, Austria and Germany will spend 1.7% of their GDP on developing the traffic system – the main part of the project will be the railway system. On the other hand companies which are environmentally friendly are gaining bigger slice of some markets and becoming more “popular”. Truly investing into green energy can be quite expensive but mostly pays off in the long run. The “Green economy” for most of the countries will result a renewal in knowledge and innovation.

During the determination of their strategies, business organisations applying eco-controlling always take into account also the impact of the competitors’ steps related to the protection of the environment. If the forward-looking eco-controlling wishes to constitute an integral part of care about the company’s future, then it do not have to focus only on individual actions and intervention points but it has to involve also the entire product life cycle into its perspective. Our study illustrates the green or eco-controlling information aspirations for the strategic management in the preparation of decision-making.

1. The functional relationship between strategic management control and eco-controlling

At international level, in the regulation of accounting we can find more stipulations in respect of regulation of environmental accounting and also in connection with the environmental activities; these information is emphasized increasingly dominantly particularly in case of cost-benefit analyses in management accounting. In the future, the volume of information relevant to the accounting of environmental costs must be increased in the accounts. However, it can also be stated that the data provision obligation concerning information related to the protection of the environment should be increased, as well. For example, we can mention probably one of the biggest scandals of today, which hit the Volkswagen group of companies. Between the environmental goals and the goals related to the corporate image, communication and economic competition there are or may be strong, mutually supportive synergies. It is important to mention that the corporate social responsibility and responsible behaviour that targets the protection of the environment in order to achieve ecological and economic sustainability must appear more and more widely in the organisational culture of corporations. The strategies prepared within the framework of eco-controlling therefore always take into account also the impact of the competitors’ steps related to the protection of the environment. Agreeing with the opinion of Péter Horváth, in which – by highlighting the controlling methodology – competitiveness is divided into the following:

• According to the “pragmatic” approach, competitiveness means the adaptation ability of firms: the way they can take over the best practice, the technical and organisational solutions successful at other companies (benchmarking). Then the competitiveness of the region and the country depends on the totality of adaptation capabilities of firms operating there.
• According to the “environmental/system” approach, competitiveness means the ability of the company to optimize the elements of its economic environment, i.e. its economic base (capital and labor markets, quality of inputs, infrastructure). Then the region or country is competitive which is able to provide a high-quality economic base necessary for the dominant industry branches and corporations operating there.
• According to the “capital development” approach, competitiveness means the ability of a company or a sector to accumulate human and physical capital and develop the technology. A region or country is competitive if it attracts investments and the establishment of such new production sites and service provision activities which are related to large, mainly international corporations.”

In our view, these rules can be supplemented with the competitiveness proposal formulated by IMD in 2005, according to which: Develop aggressiveness in the international markets, together with aggressiveness for the foreign direct investment.

2. The functional and decision supporting tasks of eco-controlling in management

• Timely recognition of future development trends related to the environment
• Formulation of special environmental goals and their integration into the strategic views of corporate management
• Design and introduction of special systems controlling and monitoring environmental steps (e.g. eco-balance, environmental impact study, early warning environmental indicator system, controlling of eco-costs)
• Monitoring of compliance with legal requirements (environmental standards).
• Development and introduction of environmental information devices and systems.
• Development of special environmental indicators, furthermore, provision of environmental information necessary for the decisions.
• Development of methodology for cost and profitability analyses in environmental areas.

The environmental impact studies help, inter alia, to monitor whether the workers or the business itself complies with the statutory requirements or not; whether there is a prepared, regulated to do list for the case of malfunctions and emergencies, or not; whether the risks associated with the specific products have been analyzed or not and whether it is mentioned in the user manual and the other information provided to the consumers, or not.

In addition to the assessment of external environmental influencing factors, these studies focus on mapping of internal environmental awareness. The whole value creation chain is evaluated in the light of better recycling, energy saving and cost reduction opportunities. After the assessment of the internal environmental awareness we can conclude what kind of environmental options for actions are available to the business, so that it can posision itself in the individual markets also from the aspect of environmental protection. The company’s management receives information on the implementation of the environmental goals, the environmentally friendly character of products and operational processes, furthermore, the resource conservation opportunities.

It should be noted that the residues of the business do not only load the environment but also degrade the operating and business results. However, costs are not caused only by the after-treatment or disposal of these residues through expensive filtration; these must be stored and moved, which means extra load for logistics. Previously, the residue materials had tied up production capacities; what’s more, (unnecessary) amounts of money had to be paid out for them when they were acquired by the business in the form of raw, auxiliary or fuel materials. If we systematically collect and use the data and correlations of waste management, we can create operating profitability opportunities to reduce certain cost blocks. The cost-saving opportunities may amount up to the research and development budget of a future-oriented enterprise. As the waste amounts up to five-ten percent of total costs, but they do not contribute to value creation by anything, the integration of environmental measures into the strategic and operative plans of the business is a fundamental corporate interest, which should be ensured by the strategic management.

Therefore, the environmental costs can be more precisely assigned to the products and technical procedures causing them. By applying activity-based costing we can accurately map the technical cause-effect relationships, and consequently – by using the eco-balances – we can recognize the available cost reduction opportunities in connection with the products causing serious harm to the environment. By taking all these into account, we can more precisely determine the costs per product unit; furthermore, it improves the effectiveness calculations based on the unit cost. It means an information source for the corporate governance if it is possible to compare the ratio of the input – consisting of raw and auxiliary materials, purchased parts and semi-finished products – and the product output.

In the international practice, often a ratio of 20:1 is the result, which means that the company has to take care of the placement and disposal of 19 tons of production-dependent residue per one ton of product. We should also be able to determine the amount of energy necessary per ton of product. This is the indicator indicating energy efficiency. Another useful information is the pollutant emission per ton of product, furthermore, the cost of disposal per the same. From among the avoidance, reduction, reuse and disposal of residues, so far the end-of-pipe technologies have been focusing almost exclusively on the last one. However, the costs of storage and disposal of waste at the landfills inexorably and progressively increase. The costs related to waste become likewise increased if the enterprises are obliged to take back their old, used products. And, on the other hand, the emission of pollutants energing during waste incineration – despite the use of expensive filters – is significantly greater than if we chose inherently environmentally friendly raw materials. When the waste is burned, the ash deposited on the filters – at best – contains all the pollutants in the waste in a concentrated manner. The EU’s environmental legislation supports the economic (material) cycle in which there is no or only a minimal proportion of non-reusable materials. Accordingly, one should primarily strive to avoid all forms of waste. In many places, recycling opportunities started to be applied right because of this regulation, although given the current knowledge, disposal must be improved even under these applications. Compared to the disposal of waste, the prevention of their formation means a much higher environmental quality. The product life model comprising the phases of applied research – development/innovation – material management/production – sales/marketing – use – “post-life” after use can help the management of the business in starting to improve the environmental quality of the product at the phase where the other quality elements are the weakest.

3. The information providing role of eco-controlling

As one needs to keep abreast of development also in the field of environmental protection, this makes it inevitable that a need of the enterprise arises for environmental information. It happens only very rarely that accounting is able to provide adequate information for the control of impact of the specific activities of the enterprise on the environment. Without proper information technologies, it is no longer possible to reasonably protect the environment and to assess – in this context – the complex interaction of the various environmental factors (e.g. air, water, waste, radiation). It is not enough either if the environmental signaling system consists of a single measurement system, as the environmental management needs information which make also the relationship between the various influencing factors recognizable and observable. An integrated database is needed that contains all environmental (protection) information and which can be used jointly by all functional areas. The development department needs the data which introduce the reuse opportunities of the chosen raw materials or the effects of their disposal.

The latter one should cover the monitoring of wastewater discharge, the transport of hazardous materials, the harmful effects of the production of the specific product lines on workplaces and the environment, furthermore, the preparation of energy balances. The recipes must include the emission of all pollutants which can be expected during the processing phase. The environmental data bank should have access to any data that relate to the studied products and procedures – regardless of where they are stored (e.g. records of operating data, production management, accounting, and external data banks). If we create a relationship with an environmental measurement system, it becomes possible to immediately trigger countermeasures upon exceeding the emission limit values. Of course, the operation of the whole environmental system should be integrated by the management of the company. One of the unique tasks of the information system completed and improved in this way is to serve eco-controlling. Its information pyramid is shown in the following figure.

Figure 1: Information pyramid of eco-controlling, Source: My own compilation

It can be stated that the task of classic controlling is to avoid financial difficulties; therefore eco-controlling must ensure the timely recognition of improper development tendencies endangering the environment. During this, it tries to draw accurate conclusions from past data, including – amongst others – the experimental curve, the indicator and index system of the eco-balance, or by using the portfolio analysis. This is supplemented and made more future-oriented by the analysis of factual data (indicators, eco-balance, portfolio analysis, product life cycle curve) and the analysis of possible scenarios (environmental impact study). Relying on the environmental information system, eco-controlling should be able to provide decision-making aids, thereby supporting the company’s competitiveness.

The development of competitiveness can be measured mainly at the players of the SME sector.

The “Entrepreneurship 2020 Action Plan”, published in 2013 aimed to boost employment and increase the number of small and medium-sized enterprises, highlighting the indispensability of the following three pillars:

• education for entrepreneurship, improvement of the training
• establishment of the right business environment
• setting of role models and addressing specific groups

The measures mainly focus on improving competitiveness, thanks to which the SMEs can take advantage of the opportunities offered by the accession to the EU. According to Incze, the Hungarian SMEs have committed themselves to the global market only to a lesser extent, mostly because they perceive the natural process of globalization and the appearance of multinationals and transnationals in the domestic economic life as a threat.

According to the “environmental/system” approach, competitiveness means the ability of the company to optimize the elements of its economic environment, i.e. its economic base (capital and labor markets, quality of inputs, infrastructure). Then the region or country is competitive which is able to provide a high-quality economic base necessary for the dominant industry branches and corporations operating there.

Examining the environmental information appearing in the specific parts of reports by performing practical research, we examined 150 corporations included in a ranking of international interest, from the 6 industry branches the environmental impact of which can be declared as significant. In an empirical study, we evaluated the amount of provision formed to cover the environmental obligations based on the international accounting standards and the requirements and guidelines accounting to the Accounting Act, furthermore, the components of the supplementary annex in respect of the inventories and tangible assets. The selection took place per scope of activities: Agricultural industry, Pharmaceutical industry, Rubber industry, Chemical industry, Plastic industry, Construction industry. From among the companies included in the test sample, 22%, i.e. 33 companies did not mention anything related to the protection of the environment at all. 117 companies, i.e. 78% of the analyzed sample already include environmental information in its report, in a detailed form (product fee, pollution charge, waste recycling, hazardous waste). The reviewed supplementary annex shows that 50% of the companies (of course, from among those companies who already perform provisioning), i.e. 59 companies describe the information that affect the environment, primarily e.g. the cases of provisioning per industry branch, paying attention to the green accounting information.

1. table: Environmental provisioning per industry branch, Source: My own compilation

The table illustrates the number and proportion of those corporations per industry branch which have not formed any provision at all and which have formed provisions under any title – within which, whether they have implemented the breakdowns required by the law in the supplementary annex, or not, from which the number of those corporations could be found which have formed provisions specifically for environmental purposes.

Taking a look at the dat of the table, we can see that from among the total of 150 businesses examined, 59 ones have formed provisions related to the protection of the environment, in which it detailed environmental information, thus their relevance to the environment is clear, which may arise out of their activities performed. The strikingly low rate of those forming a provision for the protection of the environment is also shocking because the environmental concern of corporations belonging to the industry branches examined is obvious. In our opinion, the reasons must be sought from two directions: one of the reasons must be sought for in the regulatory environment and the other one in the strategic deficiencies of companies (protection of the environment) – furthermore, the requirements are observed only by a part of them.

4. Summary of conclusions

By using the environmental information system, the environmental pollution potential can be recognized and assessed in a timely manner. It helps in the efficient processing of the incidents occurred, furthermore, in the compilation of documents required for the environmental impact study. However the software market does not yet “suffer” from softwares supporting the establishment of an environmental information system. Thus, the main task of the environmentally conscious management of businesses cannot be else than to ensure already in the product or production development phase that in all functional areas, all the produced and/or used materials/products are recyclable in the highest possible quality, by selecting the appropriate raw materials and manufacturing technologies. This goal is served by the introduction of “waste-free” technologies, the preparation of dismountling plans in parallel with the product development, furthermore, the marking of built-in materials (primarily plastics) – the latter is an essential condition for the later (re-) use of the product.

It can significantly reduce our costs if instead of expensive raw materials we use materials obtained via recycling, by which also the waste disposal costs can be reduced. By taking into account the environment – during the product design – we have to consider one more aspect, as the necessity, appropriatenes and ability of the products to fulfil their function must be assessed and influenced also from the aspect of environmental valuability. If eco-controlling wishes to constitute an integral part of care about the company’s future, then it does not have to focus only on individual actions and intervention points but it has to involve also the entire product life cycle into its perspective: each phase starting from production design and product development, through purchasing, manufacturing and sale to the use, furthermore, including also the disposal, degradation or demolition after the use. The warning and signalling systems of the firm must be supplemented with environmental elements, so that it can be able to adapt quickly also in this sensitive field and make the necessary corrective steps.

Summary

Overall, it can be said that the environmentally responsible corporations dislose more and more information on their environmental responsibility, i.e. their activities recognized in connection with the protection of the environment; these are information of economic nature which, of course, are expressed in monetary value and are related to the aforementioned operating costs, thus they can be directly linked to emissions, loads, energy use and waste management. The impact of environmental responsibility on value formation can be already observed in the operation of many corporations and in combination with environmental responsibility, it has a value-adding tendency, i.e. it generates value. Consequently, we can state that the environmentally responsibly operating corporations spend more and more money on the protection of the environment, i.e. one can observe the increase in the costs of environmental governance; however, at the same time they show a reduction of the proportion of expenditures related to waste and other emissions within their cost structure, with an appropriated energy efficiency.

List of references

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