Environmental Accounting and Reporting:

Fujitsu Ltd.

Bersamina, Alim Grace

Dimapilis, Ernan John
Hermones, Jenie Pee
Quiambao, Arlene
Rozul, Lerma Joyce
I. INTRODUCTION OF THE COMPANY

Fujitsu Ltd. (富士通株式会社 Fujitsū Kabushikigaisha) is a Japanese multinational

information technology equipment and services company headquartered in Tokyo, Japan. In 2015,

it was the world's fourth-largest IT services provider measured by IT services revenue (after IBM,

HP and Accenture). Fortune named Fujitsu as one of the world's most admired companies and a

Global 500 company.

Fujitsu chiefly makes computing products, but the company and its subsidiaries also offer

a diversity of products and services in the areas of personal computing, enterprise computing,

including x86, SPARC and mainframe server products, as well as storage products,

telecommunications, advanced microelectronics, and air conditioning. It has approximately

159,000 employees and its products and services are available in over 100 countries.

Fujitsu is the third oldest IT company after IBM and before Hewlett Packard, established

on June 20, 1935, under the name Fuji Telecommunications Equipment Fuji Denki Tsūshin Kiki

Seizō), as a spin-off of the Fuji Electric Company, itself a joint venture between the Furukawa

Electric Company and the German conglomerate Siemens which had been founded in 1923.

Fujitsu reports that all its notebook and tablet PCs released globally comply with the latest

Energy Star standard. Energy Star (trademarked ENERGY STAR) is a voluntary program

launched by the U.S. Environmental Protection Agency (EPA) and now managed by the EPA and

U.S. Department of Energy (DOE) that helps businesses and individuals save money and protect

the environment through superior energy efficiency. Energy Star provides simple, credible, and

unbiased information that consumers and businesses rely on to make well-informed decisions to

save money and reduce emissions. A widely recognized symbol for energy efficiency.
 Greenpeace's Cool IT Leaderboard of February 2012 "evaluates global IT companies on

their leadership in the fight to stop climate change" and ranks Fujitsu 3rd out of 21 leading

manufacturers, on the strength of "well-developed case study data of its solutions with transparent

methodology" and " Outstanding in the Leaderboard for scoring high in the Future Savings Goal

criterion."

II. ENVIRONMENTAL ACOUNTING AND REPORTING

Earth provides enough to satisfy every man's needs, but not every man's greed (Mahatma

Gandhi). It is wealthy enough to satisfy the need of everyone living in it. However the greedy man

exploits the abundant resources of the environment and the environment protection becomes a

pressing issue in the present day context. The developmental activities undertaken by the present

civilization generates huge amount of wastage with potential constituents. The disposal of such

wastes contributes towards the environmental pollution. Today, the magnitude of environmental

pollution is at an alarming level in many parts of the globe.

Well-known environmental tragedies like Minamata mercury poisoning in Japan (1956),

Chernobyl nuclear-power plant disaster in Ukrain (1986), Love canal incident in US (1978) and

the Bhopal gas tragedy (1984) reinforced the importance of environmental protection in the minds

of people. The issues such as rapid climate changes, glacier meltdown, soil erosion, degradation

of lands, deforestation, and pollution contributed towards increased awareness about the

importance of protecting the environment. The business, in their role as corporate citizen, is also

conscious about the environmental changes and the optimum utilization of resources. Thus, the

responsibility towards environment has become one of the most vital areas of corporate social
responsibility. A tradeoff between environmental protection and development is a great concern

today. The concern of environmental responsibility and the sustainable industrial development has

given birth to a new branch of accounting i.e. Environmental Accounting.

Environmental accounting refers to the identification, measurement and communication of

the data on environmentally responsible performance of a business entity to facilitate economic

decision-making. It identifies the resources used by a business and measures and communicates

costs of its impact on the environment. In other words, it is the process of accounting for any costs

and benefits that arises out of the resulting change in environment due to the change to a firm’s

product and processes of production. The costs include costs to clean up or remediate contaminated

sites, environmental fines, penalties and taxes, purchase of pollution prevention technologies and

waste management costs. Simply, environmental accounting is all about making environment

related costs more transparent with corporate accounting system and reporting. The concept of

environmental accounting was first adopted by Norway in the early 1970s. In India, the application

of environmental accounting is limited to certain industries such as oil and petroleum, cement,

power and electronics, natural gas, steel, engineering and textile industries.

Objectives of Environmental Accounting

The objectives of environmental accounting and reporting are as follows:

1. To help in negotiation of the concept of environment and to determine the enterprise’s

relationship with the society as a whole and the environmental pressure group in particular.

2. To segregate and collaborate all environmental related flows and stocks of resources.
3. To minimize environmental impacts through improved product and process design.

4. To estimate the total expenditure on protection and enhancement of environment.

5. To assess changes in environment in terms of costs and benefits.

6. To ensure effective and efficient management of natural resources.

Merits of Environmental Accounting

The basic advantage of undertaking the practice of environmental accounting is that the

identification and increased awareness of environment related cost gives the opportunity to find

ways to trim down or to completely avoid these costs whilst improving environmental

performance. To be more specific environmental accounting is an effective tool in order to place

the environmental related issues resolutely before the top management, to provide valuable data

to inform environmental and financial managers’ decision making process, and to demonstrate

environmental commitment of the company to its stake holders. The organization that opts to

disclose environmental issues in their financial statements gets certain other benefits which are

listed below:

1. It enhances the image of the product and the company which may have an impact on the

sales and ultimately profitability.

2. It improves the safety of the workers which in turn will help increasing productivity.

3. It provides competitive advantage as the customers may prefer environmental friendly

products and services.

4. It helps to build up trust and confidence in the society.

5. Environmental cost can be offset by generating revenues through sale of waste or by products.

6. Better knowledge of environmental cost can facilitate more accurate costing and pricing of

products.

Forms of Environmental Accounting

Environmental accounting can be classified under three forms:

1. Environmental management accounting

Environmental management accounting focuses on material and energy from information

as well as environmental cost information. It can be studied under the following sub classes:

(i) Segment environmental accounting: This is an internal environmental accounting tool that

facilitates the selection of an investment activity, or a project which is environmental friendly from

among all processes of operations. It also helps in evaluating the environmental effects of the

project for a certain period.

(ii) Eco balance environmental accounting: This is also an internal accounting tool to support the

firm for sustainable environmental management activities.

(iii) Corporate environmental accounting: This is a tool to inform the public of relevant

information compiled in accordance with the environmental accounting. It can be called as

corporate environmental reporting and it uses the cost and effect of its environmental conservation

activities.
2. Environmental Financial Accounting (EFA)

Environmental financial accounting refers to the financial accounting practice with special

reference to the reporting of environmental liability costs and other significant environmental

costs.

3. Environmental National Accounting (ENA)

Environmental National Accounting focuses on natural resources stocks & flows,

environmental costs & externality costs etc.

Relevance of Environmental Accounting

Environmental course are one of the most important types of course that a business

enterprise incurs as they provide goods and services to their customers. In the present global

scenario the environmental performance of an enterprise holds an edge over determining the

success of business. Environmental costs and performance ought to have enough management

attention due to the following reasons:

1. Most of the environmental costs can be effectively reduce or avoided as a result of better

business decisions, ranging from base level to top level, to invest in “green” projects.

2. Many environmental costs such as the waste row materials may provide no additional value

to the product or system. Thus environmental costs may be obscured in overhead accounts.

3. Better management of environmental costs can result in improved environmental performance

and significant benefit to the society as a whole.

4. The understanding of environmental costs and the performance of processes and products

may lead to more accurate costing and pricing which will aid the organizations in developing more

environmental friendly products and services in the future.

5. It is identified that environmental cost can be written off by generating revenues through sale

of waste by products or transferable pollution allowances such as carbon credits.

6. Accounting for environmental costs supports a company’s development and facilitate an

overall environmental management system. Such a system will facilitate the company to obtain

international standards such as ISO 14001 developed by International Organization for

Standardization.

III. Causes of Environmental Accounting Adaption

• Clarifying Fujitsu’s stance through disclosure of information to stakeholders

Fujitsu Group aims to clarify and to inform the public, particularly its stakeholders, of its

social activities concerning the environment. Since 1935, the company has been environmentally

active. It treats environmental preservation as a corporate value rather than a cost and thinks that

the basic principle of environmental management is manufacturing in harmony with nature. The

Fujitsu is placing a high value on environmental activities as it works to achieve a steady reduction

in its own environmental load in response to global warming and environmental regulations. In

addition to financial data and quantitative information, Fujitsu’s principles include the disclosure

of environment-related information on its business-related activities, products and services. It also

utilize the resulting feedback to further improve its environmental programs. Through its
environmental reports, the company publishes its environmental policy, action plan and business

activities.

• Implementation of long-term, continuous environmental measures

Environmental Management Accounting is the management of environmental and economic

performance via management accounting that focus on both physical information on the flow of

energy, water, materials, and wastes, as well as monetary information on related costs, earnings

and savings. By adopting environmental accounting, the company is able to evaluate and assess

its products as well its product environment. Aside from that, the company is aware and updated

with respect to the measures that it needs to implement to be environmentally-friendly. Example

of environmental measures is the antipollution measures. The company has internal environment

auditing for the purpose of the assessment of environmental management risk by the top

management. External auditing by ISO14001 examination company is conducted periodically to

keep the fairness of environmental information system. Fujitsu’s environmental report includes

environmental performance data.

• Raising the efficiency of investment in environmental protection measures

Another beneficial cause of adapting Environmental Accounting is that it allows the company,

Fujitsu, to raise the effectiveness of its environmental investments. Through such accounting

system, assessment of the cost increases associated with material investments and efforts to

improve environmental efficiency can be easily implemented. Its introduction will shed light on

various environmental costs and effects that were previously difficult to measure. Moreover, as

what the company envisioned, priority is to be given for the overall betterment of its newly-raised

environmental programs such as energy-saving/waste reduction guidelines among all plants and
affiliates. Its effectiveness will also increase due to intra-company cooperation. Thus, the

accounting system paved the way to a more efficient management of various environmental

investments.

• Energizing environmental protection activities

Environmental Accounting was also adapted to vitalize Fujitsu’s program of environmental

protection activities. The company determinably raised measures regarding environmental

protection to ensure hazard-free operations throughout the company. Such accounting system is

meant to energize the implementation and conduct of the following environmental protection

activities: air/water pollution prevention, global warming prevention, saving energy, waste

disposal, efficient utilization of resources, collection, recycling, reuse, and proper disposal of

products, provision and operation of environmental management systems, environmental

education of employees, R&D on products and solutions that contribute to environmental

protection, and lastly, donations to, and support for, environmental groups. The adapted accounting

system will lead to increased consciousness of involvement in these environmental protection

activities. Hence, the overall purpose of the environmental accounting is that it will serve as a tool

to ultimately reduce various environmental impacts related to resource usage, transportations,

goods and services and environmental loads and waste emissions resulting from business activities.
Fiscal 2016 Environmental Accounting Results

Breakdown of Results (Investment and costs) [billion yen]

Fiscal 2016 Breakdown of Results (Capital investment, costs, economic benefits)

Capital
Economic
Main areas investment Expense
Item benefits
covered (billion (billion yen)
(billion yen)
yen)

Pollution
Air/water pollution
prevention 0.46(-0.28) 4.69(+0.35) 6.23(-0.03)
prevention, etc.
costs/benefits

Global
Business Global warming
environmental
area prevention, saving 0.60(-0.05) 2.45(-0.50) 1.49(-0.32)
conservation
costs/benefits energy, etc.
costs/benefits

Resource Waste disposal,

circulation efficient utilization 0.11(+0.11) 2.30(-0.06) 9.98(-0.26)
costs/benefits of resources, etc.

Collection,
Upstream/downstream recycling, reuse,
0.01(+0.00) 0.83(-0.02) 0.53(+0.08)
costs/benefits and proper disposal
of products, etc.

Provision and
operation of
environmental
management
Administration costs/benefits 0.03(+0.01) 2.64(-0.06) 0.49(+0.19)
systems,
environmental
education of
employees, etc.
 Capital
Economic
Main areas investment Expense
Item benefits
covered (billion (billion yen)
(billion yen)
yen)

R&D on products
and solutions that
R&D costs/benefits contribute to 0.10(-0.11) 46.69(+5.46) 79.10(+7.84)
environmental
protection, etc.

Donations to, and

support for,
Social activity costs 0.00(+0.00) 0.03(-0.00) -
environmental
groups, etc.

Restoration and
other measures
Environmental remediation
related to soil and 0.04(+0.03) 0.08(-0.01) 0.00(+0.00)
costs/benefits
groundwater
contamination, etc.

TOTAL 1.35(-0.28) 59.70(+5.17) 97.81(+7.50)

 Numbers in parentheses indicate increases or decreases in comparison with the previous

year.

 Due to rounding, figures in columns may not add up to the totals shown.

 Amounts shown as "0.00" include amounts for which the value was smaller than the

display units used.

Costs and Economic Benefits in FY 2016

The results of environmental accounting for FY 2016 showed expense of 59.7 billion yen

(a 9% increase from the previous year) and the economic benefits were 97.8 billion yen (an 8%

increase from the previous year). Thus both costs and benefits increased. Also, the capital

investment was 1.3 billion yen (a 17% decrease from the previous year).

Driving forward the R&D on products and solutions to contribute to environmental

conservation for customers and society led to broad increases in R&D costs and economic benefits

(calculated by Fujitsu’s own method for estimating economic benefits).

Calculation basis for environmental protection costs

 Accounting method for depreciation and amortization: Depreciation and amortization

expenses for investments are included in expenses using straight line depreciation (with no

residual value) based on a useful life of 5 years. The useful life of 5 years was chosen based

on the average length of the actual period from the introduction of environmental facilities

to the implementation of repairs and upgrades.

 Basis for recording composite

costs: In regard to composite

costs in which environmental

protection costs are coupled with

other costs, the Fujitsu Group

records only the portion

corresponding to environmental
 protection in conformance with the Environmental Accounting Guidelines 2005 issued by

the Japanese Ministry of Environment.

Calculation basis for the economic benefits of environmental protection measures

 Scope of benefits in environmental accounting: The Fujitsu Group records the actual

benefits and estimated benefits (risk avoidance benefit and deemed benefit) of reducing

environmental impact related to the following items.

o Benefit of reducing the environmental impact related to resource usage in business

activities

o Benefit of reducing the environmental impact related to environmental loads and

waste emissions resulting from business activities

o Benefit of reducing the environmental impact related to goods and services

produced by business activities

o Benefit of reducing the environmental impact related to transportation and other

activities

 Investment benefit materialization period and basis: The accounting period for actual

economic benefits has been aligned with the depreciation and amortization period for

investments (60 months). However, the accounting period for economic benefits derived from

reducing personnel costs related to the environmental management system is 12 months, in

line with the main thrust of the environmental management system, which is reviewed every

year. With regard to estimated economic benefits, the accounting period for economic benefits

derived from capital investment is the same as the depreciation and amortization period (60

months) for actual economic benefits. Benefits corresponding to a given fiscal year, such as
the amount of contribution to environmental protection and the avoidance of operational

losses, are recorded only for that fiscal year. The basis for accounting for economic benefits

is as follows.

o Contribution of environmental protection activities to added value derived from

production activities

The Fujitsu Group recognizes support provided by environmental protection

activities to production activities as an economic benefit. Accordingly, the amount

of contribution is determined by multiplying the added value derived from

production activities by the ratio of the maintenance and operation cost for

environmental protection facilities to the total facility cost of each site.

Contribution = Added value x Maintenance and operation cost for environmental

protection facilities / total facility cost

o Avoidance of operational loss at business sites due to non-compliance with laws

and regulations

The Fujitsu Group recognizes the avoidance of operational loss as the amount of loss

that is avoided in the event of the materialization of risk arising from neglect to make

upfront investments needed to comply with laws and regulations. The number of

operational loss days is determined based on the size of investment related to the

environment, but shall not exceed three days.

Benefit = Added value / Operational days x Operational loss days

o Benefit of public relations activities

This benefit is calculated by converting publicity efforts related to environmental

protection activities in newspapers, magazines and TV into an advertising cost.

Benefit=Advertising cost of newspapers, magazines and TV x Number of

advertisements ran and programs broadcast.

o R&D benefit

The Fujitsu Group calculates the amount of additional earnings resulting from the

contribution of R&D achievements for environmental protection purposes, such as

Super Green Products and environmental solutions.