Chapter 1

INTRODUCTION

Background of the Study

Evident through unusual environmental phenomenon experienced by almost all

countries around the globe, Climate Change has been a major concern of governments

and businesses. Extreme weather and rising sea levels will have financial impacts. The

catastrophic impacts of climate change are imposing a cost on future generations that the

current generation has no direct incentive to fix, according to Mark Carney, Governor of

the Bank of England and chair of the international Financial Stability Board (FSB).

Climate change is a business risk, not just an environmental, social and

governance issue. These dangers include physical risks such as damage to property and

disruption to trade caused by floods and storms and transition risk such as adapting to

legislative and technological changes as we shift to a lower-carbon economy.

The Philippines is ranked third among the countries in the world most vulnerable

to climate change, according to a recent survey by HSBC. The organization assessed 67

developed, emerging and frontier markets on vulnerability to the physical impacts of

climate change, sensitivity to extreme weather events, exposure to energy transition risks

and ability to respond to climate change.

These major concern on climate change affects consumers’ perspective on

ecological effects of products and services that they avail of. In an article by Adam Butler

of Forbes New York Business Council, he stated that on a 2017 study conducted in

America, 87% of consumers will have a more positive image of a company that supports

social or environmental issues. 88% of them will be more loyal to a company that
 2

supports social or environmental issues. 87% would buy a product with a social and

environmental benefit if given the opportunity. 92% will be more likely to trust a

company that supports social or environmental issues.

The exposure to risk brought by climate change and the recent change in the

concerns of consumers on environment give birth to a new way of forming Corporate

Social Responsibility (CSR) which now becomes greener. Enrique Dans of Forbes said

that as the impact of climate change is increasingly felt, the environmental part of CSR is

becoming increasingly important. Some companies have begun to redefine their CSR

policies to prioritize the environmental, which until a few years ago was considered

simply by many as a “nice to have”, giving the annual report a feel-good factor.

One of the measures formed out of this redefinition of CSR is the implementation

of Environmental Management Accounting (EMA). The Chartered Global Management

Accountant (CGMA) defines EMA as the identification, collection, analysis and use of

two types of information for internal decision making. The first is physical information

on the use, flows and rates of energy, water and materials including wastes. The second is

monetary information on environment-related costs, earnings and savings.

As a subset of management accounting, EMA focuses on accumulation of data

and processing them to help managers make decision. Although not limited to strategic

management, one of the major areas of management accounting deals with the collection

and use of information to create strategies that can be used to achieve competitive

advantage.

Competitive advantage is the result of a value creating strategy that is not carried

out by current and potential competitors. The competitive advantage is the main area of
 3

the strategic management literature and the primary interest of the resource-based view. It

had grown significantly with the Harvard Business School through the Porter’s works.

As one of the premier Freeport areas in the Philippines, Subic Bay Freeport Zone

is home to a number of used vehicle importers who import automotive specifically trucks

from Japan, Hong Kong and other countries to the Philippines with the goal of converting

them to a form that suits to the requirement of the Philippine Government. The group, as

one of the biggest in SBFZ, is often tagged as major violators of environmental laws.

Recently, Atty. Wilma Eisma instructed all re-manufacturing facilities and truck traders to

shape up, clean their areas and make programs to help conserve the ecological assets of

the Freeport.

This study focused on the assessment of the use of Environmental Management

Accounting practices of re-manufacturing facilities in Subic Bay Freeport Zone (SBFZ)

and its contribution in the attainment of competitive advantage.

Significance of the Study

The study generally aimed to find out the Environmental Management

Accounting practices of remanufacturing facilities in Subic Bay Freeport Zone and its

contribution to competitive advantage. Consequently, this study would be significant to

the following:

Existing Re-manufacturing Facilities. From the findings of the study, existing

re-manufacturing facilities would be able to identify major Environmental Management

Practices used by the industry and its contribution towards the attainment of competitive

advantage. Through this, they can make necessary adjustments to their existing EMA
 4

programs to better equip their organization with capabilities to transform opportunities

into strength.

Prospective Re-manufacturing Facilities and Investors. This group may utilize

the result of this study in preparing feasibility studies focusing on establishment of re-

manufacturing facility. The implementation of EMA helps identify areas of concern

wherein cost is inevitably incurred thus may affect feasibility of a project.

SBMA Ecology Center. The findings could also be of use to the Ecology Center

and the Subic Bay Metropolitan Authority as a whole. Through this, Ecology Center can

monitor adherence of respondents to the call of SBMA to protect and conserve the

environment. Also, the data could be used as basis for future issuances and policies of the

department.

Future Researchers. The study could be used as reference by researchers who

want to conduct a similar research in the future.

Statement of the Problem

The study generally aimed to assess the Environmental Management Accounting

practices of remanufacturing facilities in Subic Bay Freeport Zone and its contribution to

competitive advantage. Specifically, the study sought to answers the following:

1. What is the profile of the respondents in terms of:

1.1. Type of Business Organization;

1.2. Number of employees; and

1.3. Years in Business?

 5

2. What is the extent of implementation of Environmental Management Accounting

(EMA) practices by the respondents in terms of:

2.1. Planning and Organization;

2.2. Operations; and

2.3. Communication?

3. What is the current level of respondents’ competitive advantage in terms of:

3.1. Price;

3.2. Quality;

3.3. Delivery dependability;

3.4. Product innovation; and

3.5. Time to market?

4. Is there a significant difference in the extent of respondents’ implementation of

Environmental Management Accounting (EMA) practices when grouped

according to their profile variable?

5. Is there a significant difference in the respondents’ level of competitive

advantage when grouped according to their profile variable?

6. Is there a significant relationship between the extent of implementation of

Environmental Management Accounting practices and level of Competitive

Advantage?

Scope and Limitation

The study was conducted among registered vehicle remanufacturing facilities and

truck traders under the General Business Investment Division (GBID) of the Subic Bay

Metropolitan Authority. The GBID is the primary investment division handling the
 6

registration of vehicle re-manufacturing facilities and truck traders located in the Subic

Bay Freeport Zone.

The study was limited on the assessment of current practices of EMA among the

respondents and how it contributes to their competitive advantage. It did not cover the

evaluation of their awareness on EMA and their reasons for employing such practice.

According to the Philippine Institute of Certified Public Accountants (PICPA),

there is no specific environmental accounting standards today. However, the International

Accounting Standard Council (IASC) has core standards that relate to environmental

issues in business. In the Philippines, there is no specific requirement on the conduct of

environmental accounting other than the Securities and Exchange Commission

requirement to submit statement of compliance with current environmental laws and

regulations. These facts lead to lack of awareness Philippine companies on the practice of

Environmental Management Accounting.EMA is a newly evolving practice and concept.

Most of the registered business uses environmental protection measures to comply with

government requirements and seldom for other reasons.

Furthermore, in identifying the respondents’ business size, the researcher involved

the number of employees currently working in the company rather than their asset size.

The Department of Trade and Industry classifies businesses into micro, small, medium

and large businesses according to two factors: the number of employees in the company

and the company’s asset size. The researcher did not consider the asset size due to

perceived confidentiality of the matter. The asset size may have an effect on the variables

which if considered might impose change in the result of the study.