Environmental accounting in China – the influence of accountants’ philosophical values
John Margerison, De Montfort Univer...
Research on influences on the development of environmental accounting has mainly taken a Western
perspective and focused o...
A case study methodology has been employed with accountants from eight different organisations (see
Appendix 1 for a summa...
inside, whole society, sustainable development of China”; “seeking to maximise social benefit
from our activities”; sugges...
5. Other influences on environmental accounting
Government: Already discussed in terms of environmental reporting is the a...
written into our Articles of Association”. The other interviewee stated that the US company
culture is a driver for her th...
APPENDIX 1
Summary of organisations from which data gathered for this paper:
Location Ownership Industry Employees in Chin...
Include in question on personal philosophy – Buddhism, Daoism, Confucianism, Feng Shui,
Socialism/Communism, Western influ...
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Environmental accounting in china

  1. 1. Environmental accounting in China – the influence of accountants’ philosophical values John Margerison, De Montfort University, Leicester, UK jmargerison@dmu.ac.uk Abstract This paper seeks to analyse a set of eight exploratory interviews with Chinese accountants in Shenyang and Shanghai in April 2010. These interviews sought to establish the environmental policy and environmental accounting in place in their organisations. They also sought to examine the accountants’ personal philosophical values, to see if there is any possibility that these values could influence organisational environmental policy and environmental accounting initiatives. Although it was found that the accountants in general had enlightened personal philosophical values on environmental matters – some based specifically on traditional Chinese philosophy – these accountants’ values were not influential at an organisational level in terms of the environmental policy or environmental accounting. Instead the following influences were identified: government, sector scandals, markets, Western parent companies’ values. Encouragingly, only one of the eight interviewees mentioned the business case as a driver for environmental accounting. Acknowledgement The research interviews in China on which this paper is based could not have been carried out without the help of Wang Yingying of Liaoning University in Shenyang and Dr Mingchuan Ren of Fudan University in Shanghai. Sincere thanks to both of these academics for their ongoing help and assistance. Paper Introduction This paper seeks to make an original contribution to the knowledge about environmental accounting in a Chinese context. It seeks to explain for the first time the ways in which Chinese accountants formulate environmental accounting responses/practices/mechanisms and the influences over their work (in particular philosophical influences). It is hoped that it will stimulate debate about the need for environmental accounting responses to be developed and foster better understanding that such responses are culturally distinct in different countries (using China as an example) (Lewis and Unerman 1999). Environmental accounting is defined for this paper using the Society of Management Accountants of Canada definition (Epstein 1996): “....the identification, measurement and allocation of environmental costs, the integration of these environmental costs into business decisions, and the subsequent communication of the information to a company’s stakeholders....Measurements might be quantified in physical units or monetized equivalents.”
  2. 2. Research on influences on the development of environmental accounting has mainly taken a Western perspective and focused on environmental impacts or broader social accounting in countries such as USA, UK, Germany, Portugal, Australia and New Zealand (see (Adams 2002) as an example). The key influences identified link to legitimacy and institutional theory and include regulatory pressures (Deegan 2002; Holland and Foo 2003; Cho and Patten 2007). Recent Chinese research on disclosure by Chinese companies of environmental accounting information (Zhang 2010) presents a pessimistic view: that there is a lack of concern by government and the general public about such disclosure. The suggestion is made that investors tend to invest in any business which will bring high profit and to ignore environmental effects. Zhang recommends that: the idea of Green investment should be advocated; naming and shaming of heavy polluters; a national database of environmental reports of companies; and, pressure on companies to publish environmental accounting information voluntarily. What Zhang’s work does not attempt to do is assess the extent of unpublished environmental accounting information. This paper also attempts to address this in its questioning of Chinese accountants about the environmental accounting in their organisation rather than the reporting thereof specifically. (Rowe and Guthrie 2009) examined the influence of institutional cultural norms on Chinese corporate environmental reporting and outlined the influence of Confucianism in this sphere. However, their research was carried out in 2002-2005 during a period of minimal reporting. This paper aims to extend and develop their findings in a period of increased environmental accounting and reporting activity (as evidenced from recent studies e.g. (Guo, Zhong et al. 2008). Existing research and scholarship suggest that the central strands of Chinese philosophy (Taoism, Buddhism and Confucianism) have strong links to ecology in their ideas (Berthrong 2003; Miller 2003; Sponsel and Natadecha-Sponsel 2003). Many researchers and commentators suggest that these philosophies are very influential in Chinese life today (see (Bell 2008). However, this researcher has found that discussion of these influences tends not to be based on empirical research, with many unsupported statements being made e.g. (Wang and Juslin 2009). This paper, and the research that it is based on, aims to examine these philosophical influences in the practice of environmental accounting in China. Methodology The research on which this paper is based (and offers some preliminary insights) works from a social constructionist perspective (Easterby-Smith, Thorpe et al. 2008) in that environmental accounting is seen as socially constructed and given meaning by people (Birkin 1996). It is both deductive and inductive in approach, moving from theories such as legitimacy and institutional theory to see what influence they have on environmental accounting practice in China; but also reflecting, via interviews, whether it is possible to develop a new theoretical basis to explain the responses received. Overall an interpretive (as opposed to positive) epistemological stance has been taken.
  3. 3. A case study methodology has been employed with accountants from eight different organisations (see Appendix 1 for a summary of the organisations) in two industrial cities - Shenyang and Shanghai – being interviewed using a semi-structured interview schedule (see Appendix 2 for the schedule used). The interviews were carried out where possible in English, but in all cases an interpreter was used (a Chinese accounting academic who was sympathetic to the aims of the research). As the interviews were usually carried out away from the workplace in cafes and restaurants it was not possible to record them and the researcher had to content himself with notes taken during the interview and written up in detail after the event. In all cases the interview transcript was checked by the interpreter for accuracy. In several cases the interviewees (who had been briefed on the purpose of the interview beforehand) brought with them corporate literature and other information that was useful in the research and this has been incorporated into these findings. Analysis of interviews 1. Environmental accounting in the interviewees’ organisations A common feature of environmental accounting in most of the organisations was the accounting to the government – in China represented by the Provincial or State Environmental Protection Agency (SEPA) – so that a report could be made annually on environmental impacts and the relevant levy paid to the government. In the case of the animal feedstuff manufacturer the annual levy or taxation was in the region of 100,000RMB (approximately £10,000) for a small business unit involved with pigs. The government official in Shenyang talked of RMB 1 billion in levies paid to the SEPA at provincial level (Liaoning Province) in 2009. No other common themes emerged from the interviews but a number of interesting environmental accounting activities were described: information on costs involved with waste water treatment; measurement of pollution related costs of new factories in business planning; identification of costs of equipment recycling; estimates of remediation costs associated with incineration plants with associated liabilities; accounting and reporting on bottle recycling projects; measurement of energy reduction initiatives and the reporting thereon; detailed data generated on energy usage and pollutants. As can be seen, in most cases the accountant interviewed could identify environmental accounting activities in addition to the reporting around the SEPA levy. Only in one case (the dairy company) did public reporting of the environmental accounting information take place (and that only in newspaper reports with minimal quantitative information disclosed). So the contention from these interviews is that Chinese organisations are “doing” environmental accounting but to a large extent they are not going public on this. 2. Organisations’ environmental policies and underlying philosophy Most of the organisations had laudable policies to reduce pollution and emissions; also to minimise energy use. One company’s clear policy was formulated into four words: “respect, responsibility, reduce and recycle”. A recurrent theme was that the policy reflected what government required and did no more. Government was seen as the arbiter of environmental standards and the companies followed these standards. In terms of an underlying philosophy, no mention was made of traditional Chinese philosophy, with statements such as: “outside,
  4. 4. inside, whole society, sustainable development of China”; “seeking to maximise social benefit from our activities”; suggesting a strong tendency towards communist philosophy in the official pronouncements of the organisations. One interviewee said that his organisation was motivated by the market and followed the practices of competitors and responded to the demands of customers (this equates closer to institutional theory and mimetic isomorphic activities). 3. Accountants’ personal philosophical ideas about environmental matters If the organisations’ philosophies could only be equated with communist philosophy, it was interesting to see whether there were parallels in the philosophies of the accountants interviewed, and the extent to which their personal philosophies appeared to be influential in the organisations’ policies and environmental accounting activities. Personal philosophies were rationalised down to: “a strong desire to keep the earth beautiful”; “if you want to do things – do good deeds”; “the environment is important to everybody and needs protecting”; “human beings should live harmoniously with Nature”; “Nature will punish mankind if yin and yang are not kept in harmony”; “we must preserve the environment for our children”; “Nature must be respected”, “I would stress the harmony between humans and Nature from ancient times”. In these personal philosophies there are strong parallels with the ecological thinking in the three central strands of Chinese philosophy: Buddhism – aspiring to oneness with the natural environment (Sponsel and Natadecha-Sponsel 2003); Daoism – ideas of the harmony between heaven, earth and humans (Miller 2003); Confucianism – human flourishing can only take place within the larger matrix of Nature (Berthrong 2003). However, only three of the interviewees could be drawn into identifying one of these philosophies (one Buddhism and two Taoism). Another of the interviewees mentioned the influence of Feng Shui that he had learned from his father, particularly in terms of humans’ position on the Earth. Almost all the interviewees acknowledged ancient roots to their philosophies. Certainly it can be concluded that all the accountants exhibited enlightened personal philosophical values on environmental matters and that these were almost all rooted in ancient Chinese philosophy. 4. Linking personal philosophies of Chinese accountants with their organisations’ environmental accounting and environmental policy In this part of the research the findings are affected by the fact that the interviewees were selected only to be Chinese accountants working for Chinese based organisations (mainly companies). No prerequisite for selection was that they were involved in their organisation’s environmental accounting and environmental policy. In fact only three of the interviewees identified themselves as champions of environmental accounting in their organisations. Of these there seemed to be a separation of personal philosophy from that of the organisation and no acknowledged link between personal philosophy and environmental accounting activities. In the cases of the five interviewees who did not identify themselves as champions of environmental accounting (or in fact having any involvement in environmental accounting) presumably their personal philosophy on environmental matters cannot have had any influence on the organisations’ environmental accounting.
  5. 5. 5. Other influences on environmental accounting Government: Already discussed in terms of environmental reporting is the accounting for and reporting of environmental impacts to SEPA at provincial level. This was mentioned by all the interviewees to some extent. In particular one interviewee said that the policy on environmental matters was shaped by the requirements of SEPA. As this research progresses it is intended to interview officials from SEPA and to analyse its own reporting and hopefully that of the companies that report to it. The extent to which the relationship of organisations with SEPA parallels that with companies and government departments in the UK will also be examined, to try and establish whether the relationships in China have a particular flavour that may provide models for other countries to follow. Another interesting feature of government is the apparent benevolent nature of government in China – this is strongly influenced by and derives from Confucian thinking (Dao 1996) and is worthy of further examination. Another strand of government influence is the Ministry of Finance (MOF). One interviewee said that at present there are no MOF accounting standards on the accounting for and reporting on environmental impacts. The implication was that if the MOF standardised this area then companies would be forced to follow the standards. This research will seek out accounting standards in this area from around the world to see if there is a model for China to follow. Sector scandals: The dairy company interviewee referred particularly to the recent scandals in China (mainly around the poisoning of babies drinking factory produced dried baby milk). He was at pains to assure me that his company was not involved in these scandals and that the company went to enormous lengths to ensure that its products were clean and healthy without pollutants. This company was the only organisation of the eight to be involved in reporting on its environmental activities – via national newspaper and staff communications – and the interviewee was very interested to know how the company could be more proactive in this area. In this case legitimacy theory (Deegan 2002) seems to come into play as a way of explaining the proactive behaviour of this company in a sensitive industry which has recently been beset by scandals. The company seeks to legitimise its activities through environmental reporting based on environmental accounting data. Markets: Several of the interviewees stressed that companies in general were profit seeking and that it was the role of the State to ensure compliance with environmental regulations rather than voluntary compliance by companies. This suggests that the market is a not a strong driver towards environmental accounting and its reporting. However one interviewee stressed the business case for, for example, energy use reduction and control over pollutants. Customers produced standards for the company that it had to follow if it wanted to remain an approved supplier. This interviewee described this as the company being a market follower. Western parent companies’ values: Two of the organisations involved in this study were Chinese foreign owned enterprises. One of these interviewees stressed that: “the mother company has a strong philosophy on environmental matters so that a no pollution policy is
  6. 6. written into our Articles of Association”. The other interviewee stated that the US company culture is a driver for her thinking and the behaviour of the Chinese enterprise on environmental matters. This suggests that organisations with strong ownership links to Western parents may be more environmentally aware and have policies that reflect Western values. This researcher has also in an earlier research study interviewed the Chinese subsidiary of a major shipping and transportation company with its parent in Denmark. This interview pointed up a number of features of the company’s social and environmental operations that seemed to be influenced strongly by the values of the Danish parent. It is intended to further pursue this as this research progresses. Conclusions This paper attempts to draw together several strands. The first strand is traditional Chinese philosophy which is often said to be highly influential in the lives of modern Chinese people. The second strand is the ecological thinking within the modern interpretations of the ancient philosophies. The third strand is the modern phenomenon of environmental accounting. It is hypothesised that if traditional Chinese philosophy is so influential and if it has strong ecological ideas in its thinking then it will influence the practice of environmental accounting by modern Chinese accountants. In attempting to test this loose hypothesis eight Chinese accountants were interviewed from eight different Chinese based organisations (mainly companies). These interviews were exploratory in nature and represent only the beginning of a bigger project extending over several years from now. The interviews were based on a semi-structured schedule of questions and allowed for digressions by the interviewees. The interviews were conducted with the help of Chinese academics who acted as interpreters in all cases – even where the interviewee could manage most of the questions in English. The interviews were carried out in Shenyang (4) and Shanghai (4) – both modern industrial and commercial cities and therefore in no way representative of China as a whole but only of the cities of the Eastern seaboard. Although it was found that the accountants in general had enlightened personal philosophical values on environmental matters – some based specifically on traditional Chinese philosophy – these accountants’ values were not influential at an organisational level in terms of the environmental policy or environmental accounting. Instead the following influences were identified: government, sector scandals, markets, Western parent companies’ values. Encouragingly, only one of the eight interviewees mentioned the business case as a driver for environmental accounting. The research carried out to date has shown that it is possible for a Western academic to carry out interviews in China and paves the way for more fruitful and in-depth interviews to be carried out, along with surveys of the extent of environmental accounting and its reporting in China. The interviews have pointed up the fact that it is extremely difficult to detect links between traditional Chinese philosophy and the practice of environmental accounting in China – but should this difficulty preclude further investigation of what is a most interesting and unique feature of Chinese culture.
  7. 7. APPENDIX 1 Summary of organisations from which data gathered for this paper: Location Ownership Industry Employees in China 1. Shenyang Chinese company – part of German multinational Engineering 200 2. Shenyang Chinese owned Automobile parts 65 3. Shenyang Chinese owned Animal feedstuffs 5,000 4. Shenyang Provincial government department Finance 9 (30,000 in the provincial government) 5. Shanghai Chinese owned Building 500 6. Shanghai American owned enterprise Engineering 100 7. Shanghai Chinese owned Dairy products 20,000 8. Shanghai Chinese owned Electronics 4,000 APPENDIX 2 Interview Schedule Questionnaire for Chinese accountants in Shanghai and Shenyang Group 1 questions (the interviewee – background information) Position held How long in that position Previous position Qualifications Date started work Group 2 questions (the company) Industry in which company operates Size of company (number of employees) Environmental policy of the company Philosophy underlying environmental policy What environmental accounting does the company do Management accounting (budgeting and costing) Project appraisal Financial accounting and reporting Ecological accounting and reporting Group 3 questions Are you involved in any of the environmental accounting? Are you a champion of environmental accounting or are you merely doing what you are told to do? Does your personal philosophy of life influence you in your environmental accounting work?
  8. 8. Include in question on personal philosophy – Buddhism, Daoism, Confucianism, Feng Shui, Socialism/Communism, Western influences. What is your view on the position of humankind in relation to Nature? Are humans at the centre of the universe? Should Chinese companies do more in the environmental accounting area? References Adams, C. A. (2002). "Internal organisational factors influencing corporate social and ethical reporting - beyond current theorising." Accounting, Auditing and Accountability 15(2): 223-250. Bell, D. A. (2008). China's New Confucianism: Politics and Everyday Life in a Changing Society. New York, Princeton University Press. Berthrong, J. (2003). Confucian views of nature. Nature across cultures: views of nature and the environment in non-western cultures. H. Selin. London, Kluwer Academic Publishers: 373-392. Birkin, F. (1996). "The ecological accountant: from the cogito to thinking like a mountain." Critical Perspectives on Accounting 7: 231-257. Cho, C. H. and D. M. Patten (2007). "The role of environmental disclosures as tools of legitimacy: A research note." Accounting, Organizations and Society 32: 639-647. Dao, M. C. (1996). "Administrative concepts in Confucianism and their influence on developement in Confucian countries." Asian Journal of Public Administration 18(1): 45-69. Deegan, C. (2002). "The legitimising effect of social and environmental disclosures - a theoretical foundation." Accounting, Auditing and Accountability Journal 15(3): 282-311. Easterby-Smith, M., R. Thorpe, et al. (2008). Management Research. London, Sage. Epstein, M. J. (1996). Tools and Techniques of Environmental Accounting for Business Decisions. Ontario, Canada, The Society of Management Accountants of Canada Guo, P., C. Zhong, et al. (2008). A journey to discover values 2008 - Study of sustainability reporting in China. SynTao. Holland, L. and B. Y. Foo (2003). "Differences in environmental reporting practices in the UK and the US: the legal and regulatory context." The British Accounting Review 35: 1-18. Lewis, L. and J. Unerman (1999). "Ethical relativism: A reason for differences in corporate social reporting?" Critical Perspectives on Accounting 10: 521-547. Miller, J. (2003). Daoism and nature. Nature Across Cultures: views of nature and the environment in non-western cultures. H. Selin. London, Kluwer Academic Publishers: 393-409. Rowe, A. L. and J. E. Guthrie (2009). Institutional cultural norms of Chinese corporate environmental reporting. Interdisciplinary Perspectives of Accounting Conference. Innsbruck, Austria. Sponsel, L. E. and P. Natadecha-Sponsel (2003). Buddhist views of nature and the environment. Nature across cutures: views of nature and the environment in non-western cultures. H. Selin. London, Kluwer Academic Publishers: 351-371. Wang, L. and H. Juslin (2009). "The impact of Chinese culture on corporate social responsibility: the harmony approach." Journal of Business Ethics 88: 433-451. Zhang, J. (2010). "Probing into the environmental accounting information disclosure by Chinese companies." Green Finance and Accounting.

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