7.7 Good answers to these questions cannot be obtained by considering only some needs and neglecting others. To move toward sustainable development, federal departments need reliable information on past performance as well as good predictions of the future. For example, Agriculture and Agri-Food Canada weighed several different dimensions of crop insurance programs through an integrated assessment (Exhibit 7.1) . Integrating information in this way can contribute to better sustainable development decisions.
7.9 The federal government has a special responsibility to provide public services, such as national defence, and maintain assets of national significance, such as national parks, that are protected and conserved for the benefit of all Canadians. The government's role of balancing competing and complementary objectives, and weighing the interests of multiple stakeholders, leads to a need to consider a wide range of information.
7.10 Reflecting this responsibility, the government has made a public commitment to integrate environmental factors in its decisions. First, in the Code of Environmental Stewardship (1992), the government committed itself to integrating environmental concerns with operational, financial, safety, health, economic development and other relevant concerns in decision making. In A Guide to Green Government (1995), the federal government asserted, "An integrated approach to planning and decision making will ensure progress on all the dimensions - social, economic and environmental - of sustainable development."
7.12 In his first Report, issued in March 1997, the Commissioner described four studies. One of them was to address how information on environmental costs and benefits could be used to improve decision making: "Wise decisions affecting the environment and sustainable development require an understanding of the relative costs and benefits of action and inaction .... An assessment of the current state of knowledge will be prepared to identify best practices." That is the focus of this study. Two other studies in this Report complement this study, one providing practical guidance for performance measurement for sustainable development (Chapter 8) and the other examining strategic decisions for sustainable development (Chapter 5) .
7.13 In a distinct but parallel initiative, Agriculture and Agri-Food Canada had begun to implement an environmental management system and had identified several needs, including the need to define baseline reference measures for physical operations. Seeing the advantages of collaboration, the Commissioner and Agriculture and Agri-Food Canada agreed to work jointly on approaches to track progress toward sustainable development. The resulting effort went beyond the original intention to develop practical methods and tools (for accounting for environmental progress). We focussed on the facilities and materiel management of Agriculture and Agri-Food Canada, rather than its policies and programs. In conjunction with the Department, we reviewed current practices and identified some of the key opportunities and constraints.
7.14 The review of Agriculture and Agri-Food Canada's situation was complemented by an analysis of emerging practices in other organizations in the private and public sectors. The study also benefited from collaboration with an ad hoc working group from other federal departments interested in managing the environmental effects of their operations. Both the analysis of other organizations and the collaboration with different departments helped us understand what is feasible for federal departments.
7.15 By adopting this pragmatic approach, we have laid the foundation for a fuller accounting of the environment and, from there, for an improved decision-making process. This longer-term goal will not be accomplished quickly. The Accounting for Sustainable Development Project, planned to be carried out over the next five years, is intended to help the government develop better tools to support implementation of sustainable development. While the focus is on information for better decisions, the same information could and should be used for reporting on results.
7.16 The three long-term objectives of the project are:
7.19 Environmental challenges. The duration, size and diversity of Agriculture and Agri-Food Canada's physical operations create three different kinds of environmental management challenges. The first is what might be termed "legacy" issues - issues resulting from past operations (for example, contaminated sites, underground fuel storage tanks) or use of substances that are being phased out, such as polychlorinated biphenyls (PCBs) and ozone-depleting substances.
7.20 The second category of environmental management issues includes those that are a normal outcome of day-to-day operations - for example, issues related to fuel consumption, heating-plant boiler emissions, waste water, or solid waste disposal. This category may also include: the use of an installation for program needs, resulting in laboratory fume hood emissions; or the use and handling of chemicals such as pesticides, with the risk of spills or contamination. The Study Management System and environmental assessment are used to ensure that studies are undertaken efficiently and in line with environmental concerns.
7.21 The final category of environmental issues relates to new projects or initiatives. For instance, construction of a new facility or purchase of new vehicles may cause adverse environmental impacts, such as those assessed under the Canadian Environmental Assessment Act . These impacts may be mitigated by construction of energy-efficient buildings and selection of alternative-fueled vehicles.
7.23 An initial focus on high-risk environmental issues. Through the early 1990s, Agriculture and Agri-Food Canada focussed on managing contaminated sites, replacing underground storage tanks, constructing chemical storage facilities and addressing other high-risk environmental areas. By 1994, Agriculture and Agri-Food Canada had tackled most of these problems and had expanded its environmental agenda beyond its earlier focus and identified the advantages of a more systematic and proactive approach.
7.24 Adoption of an environmental management system. In response to these and other pressures, Agriculture and Agri-Food Canada decided to develop and implement an environmental management system (see Appendix A - Glossary) . The Department made a public commitment to this initiative in its sustainable development strategy (Exhibit 7.2) .
7.25 A commitment to the greening of government operations. In November 1995, the Department established an Environmental Management System Task Force to co-ordinate development of the system. The Task Force had representatives from all branches: Human Resources, Research, Food Products and Inspection, Policy, Review, Communications, Market and Industry Services, Corporate Services and Prairie Farm Rehabilitation Administration. The initial focus of the Task Force was to clarify the roles and responsibilities of all branches in the development of the system, and identify gaps in the existing environmental management practices and the resulting risk to the Department.
7.26 Need for environmental policy identified. In its initial review, the Task Force concluded that the Department had a somewhat fragmented approach to environmental management and identified areas for improvement. This review used the Environmental Management System Self-Assessment Guide developed by the Office of the Auditor General and the Federal Committee on Environmental Management Systems. The Task Force identified the need:
7.28 A Steering Committee of Assistant Deputy Ministers was established to align the proposed environmental management system with other departmental activity and to define accountability for environmental performance. The objective of the Steering Committee was to streamline the implementation process.
7.29 A shift in focus to implementation. The Steering Committee approved the environmental policy in April 1997. With that approval, the focus shifted from policy to the support tools for implementation of the environmental policy. Training was provided across the country for facility managers to help them analyze the environmental aspects of the Department's operations. The Task Force also recognized some key principles:
7.31 To help managers assess the potential environmental risks, the Task Force developed its Environmental Management Review guide. This guide contains a process for managers to assess the environmental aspects of their operations, to evaluate the environmental risks and liabilities, and to set environmental objectives and targets. The resulting environmental agenda will allow for comprehensive monitoring of progress and management performance for specific physical operations. During 1998, responsibility centre managers will complete the Environmental Management Review of their physical operations.
7.32 The Department recognized the need for elementary measures of energy use, waste, and water use that could be used to set goals, measure progress and identify opportunities for reducing both costs and environmental degradation due to, for example, emissions of toxic substances to the atmosphere. To support this more proactive approach, the Department wanted to make a link between its financial accounting system and its environmental management system.
7.34 In one example, Agriculture and Agri-Food Canada's Dairy and Swine Research and Development Centre (Lennoxville) has purchased and will continue to assess a Neighbourhood Electric Vehicle for use on research station property. The direct acquisition and operation costs of the vehicle are estimated to be 50 percent less than those of a conventional internal combustion vehicle. The vehicle has a battery life of more than eight hours and can reach a speed of 40 km/hour.
7.35 A second example points to the possible environmental benefits from more efficient use of existing resources. Following two reviews of their fleet management, the Prairie Farm Rehabilitation Administration and other branches of the Department decided to pool their vehicles within their Regina headquarters. The centralized vehicle pool, operating on a cost recovery basis, has dropped from 28 to 22 vehicles and has allowed ongoing cost reductions estimated at $25,000-$30,000 per year.
7.36 As a final example, the Vineland station has conserved energy through a co-generation project that was supported by the Federal Industrial Boiler Program (Exhibit 7.3) . The project demonstrates what can be accomplished even in older facilities.
7.38 To evaluate their performance and to make good planning decisions, managers need appropriate information. Given that each research facility is unique, comparisons over time may be most meaningful. Environmental aspects of some operations may be similar enough that it may also be useful to make comparisons against benchmarks. These benchmarks may be internal to the Department, comparing facilities against one another, or demonstrating progress toward departmental environmental goals.
7.40 Some information is available. The Department is in the early stages of implementing its environmental management system; some pieces are in place, and others are slated for implementation by 1999. For example, the Department has provided support to managers through the Environmental Management Review guide, an intranet site and training workshops. Much of the basic information on the environmental aspects (for example, amount of resources used, associated costs) is already being collected, filed and tracked, and is being used in a limited way in operational decisions. For instance, managers monitor energy bills for surcharges related to electricity use during peak periods. Obtaining and using this information is seen to be part of good management. In this context, one manager downplayed the possible data collection burden: "It's only a burden for those that aren't managing properly."
7.41 Some managers commented that not all information is worth collecting. The reasons given range from the source of the inputs (for example, in some instances the volumes and costs for self-supplied water are not easily estimated) to the size of facilities (for example, the electricity use at individual community pastures is so small and unchanging that it is not worth tracking separately). In some cases, the resources required to obtain the information are not worth the cost reduction and overall environmental benefits.
7.42 Potentially large energy cost reductions. Energy costs are a major contributor to total operating costs. The way energy use is managed at each facility depends on the rate structure each operation faces; it may differ from one municipality to another. Substantial reductions in energy costs have been achieved at some facilities and more are being sought. Across facilities, managers have not yet taken a systematic approach to evaluating energy use or potential savings. This systematic evaluation will be part of the departmental Environmental Management Review of the responsibility centres to be completed during 1998. In the face of fiscal restraint, managers at the facilities visited recognize the need to identify opportunities that reduce pollution and financial costs (for example, through lower energy costs).
7.43 Support from facility managers. The managers interviewed are clearly interested in doing a good job and are committed to environmental stewardship. They also speak of the potential value of sharing information among sites (and among departments) on more effective environmental management, such as innovative energy practices.
7.45 Limited financial resources. The funding for suitable environmental projects is limited by the available departmental resources and, in some cases, is secondary to program decisions. The payback periods for some energy-saving projects are estimated to be less than five years, but funds are not available to implement these projects because of other departmental priorities. The funding is further complicated because there are two sources of money (facility/region and departmental headquarters) that must be co-ordinated for some larger projects. This lack of capital may be partially offset by additional outside funding, which provides an impetus to upgrade or reconfigure existing facilities.
7.46 Perceived disincentives . Another important limitation is that managers who implement environmental projects that result in cost reductions may not perceive an increased availability of funds. Providing financial incentives could be an effective tool to promote the environmental management system within the Department.
7.47 As an example of how incentives can make a difference, the Prairie Farm Rehabilitation Administration is currently a tenant in a Public Works and Government Services Canada building. The Administration is part of a pilot project to assess the implications of being a "reimbursing client". It will manage its own facilities and has an incentive to achieve savings by collocating with other organizations, sharing services and common facilities, and cutting costs for waste, water and energy. Long-term accommodation management strategies also provide opportunities for incorporating environmental concerns.
7.48 Lack of clarity regarding possibilities for "green" procurement. There is an interest and willingness on the part of some managers to implement environmentally beneficial procurement measures as long as the measures do not affect their costs substantially. Managers have several suggestions for measures that could be used to implement such procurement practices and to track progress (for example, recycled paper as a proportion of total paper purchases). The managers we interviewed advised us that they need more information in the form of practical guidelines on how to implement departmental policies for green procurement. Contract and purchasing managers wanted to know how much of a premium was acceptable for a product or service with significantly smaller environmental impacts.
7.49 Other external constraints may also limit the effectiveness of procurement initiatives. The availability of alternative suppliers is an issue for procurement outside major urban areas. The many minor decisions when making purchases with credit cards are not cost-effective to track individually. Training programs and audits could play an important role in addressing such obstacles.
7.50 Limited information on environmental aspects of physical operations. There are two main types of environmental management challenges for the operations we considered -those related to inputs or outputs for the facilities such as solid waste; and those related to the inventory of certain types of structures or substances, such as underground storage tanks. Responsibility centres are currently monitoring their activities, but most are not systematically tracking the consequences for third parties, such as the effects of waste water on water quality outside Agriculture and Agri-Food Canada properties. The centres are also not reporting the results of their monitoring activity. Existing budgetary and accounting systems are mostly silent on environmental impacts and physical consumption. Baseline information being collected through the Environmental Management Review will address some of these data gaps.
7.52 This working group set itself the task of developing common environmental performance measures. After discussion, group members selected eight environmental aspects for detailed consideration: energy use, water use, solid waste, hazardous materials, storage tanks, spills, ozone-depleting substances and procurement of environmentally responsible products. These aspects were chosen on the basis of their potential for environmental impacts, their broad applicability to the operations of different departments and the objective of minimizing overlap with the work of other interdepartmental committees.
7.53 Comparison of the approaches taken by each of the custodial departments led to the selection of common performance measures for six of the eight aspects (Exhibit 7.4) . For the other two aspects, the proposed measures are still under consideration. The measures were chosen to facilitate useful comparisons among facilities and departments. Some departments may choose to collect and report additional information, such as total energy use, and may also vary the weight they attach to particular measures in their decisions.
7.54 Some departments have already begun to use this kind of information to achieve cost reductions. One recent study estimated that the net savings government-wide of implementing energy conservation measures could be $29 million per year by 2005.
7.55 While the focus of this project was on information for decision making, the members of the working group recognized that the same measures could also be used for reporting on results. For example, the measures in Exhibit 7.4 could be used for reporting compliance with regulations on storage tanks. As another example, a performance measure for energy use could be developed from the ongoing monitoring data. A description of how to translate and apply this baseline information is given in Chapter 8 of this Report.
7.58 Strategic decisions. A major question was "Where do we want to be positioned relative to other firms on the environment?" All organizations visited had decided, during the past five to seven years, to become environmental leaders. They had all moved from reacting to environmental issues to implementing a form of comprehensive environmental management that included a focus on pollution prevention. Each organization had made different decisions on how fast and how far it wanted to move, and the cost that it was prepared to incur to make the journey.
7.59 Budgeting decisions. All organizations visited had to make decisions about changes in operations, products and processes. They had to make decisions on such matters as major retrofits of buildings, heating and lighting systems and more minor capital investments. Managers wanted information to set objectives and targets, to monitor progress against corporate environmental goals, and to evaluate the effectiveness of their activities.
7.60 Control decisions. All organizations interviewed recognized that their challenge was managing changes - changes in the corporate culture, in the way they did business, or in the attitude of employees. They needed to know whether they were successful in making these changes. From an environmental perspective, senior management and boards of directors were concerned about compliance and "due diligence" with respect to applicable environmental laws and regulations.
7.63 The organizations we interviewed have moved beyond reporting against regulated standards (for example, for atmospheric emissions). They collect information on the broader implications of their environmental management system and, in many cases, track effects on their local communities. However, in general, even the leading organizations we reviewed are not translating all their environmental impacts into monetary terms. They use a combination of financial and non-financial measures to track their overall environmental performance.
7.64 In some cases, organizations are using this information simply to manage the environmental dimensions of their performance. For example, one Canadian resource company tracks water consumption for several different uses, including faucets, toilets and air-conditioning equipment. Another Canadian company separates its solid waste into streams for cardboard, paper, metals, plastic, glass, wood, toner cartridges, wire and cable, and tracks each stream individually. In another case, a chief executive officer looked at his company's atmospheric emissions of toxic substances with other sources of pollutants and made a commitment to reduce emissions by 90 percent, well below regulatory limits at the time.
7.65 Private sector organizations have used information about performance as a source of competitive advantage. One corporation screens each possible new product for its sustainable development implications as it decides whether to bring the product to market. It is not just private sector organizations that have benefited from using this information; municipalities have used their environmental performance as a way of attracting businesses and investment.
7.66 Another recent survey of private sector organizations concluded that, overall, the use of this kind of sustainable development performance information was limited, but had the potential to grow rapidly.
7.68 One partial explanation for the difference we found between the public and private sector organizations may be the focus of the public sector on the policies and programs they are undertaking rather than on their operations. For example, the sustainable development indicators employed by several public sector organizations are weighted toward measures for the entire society rather than for their internal operations.
7.69 It appears that Canadian federal departments are at a similar stage as most other public sector organizations we surveyed. Thus the Government of Canada has an opportunity to demonstrate leadership in developing and using analytical tools for collecting and integrating environmental information and then using it in decision making.
7.72 Motivation and incentives are different. The motivation for federal departments to expend effort on their environmental performance differs from their private sector counterparts. The public sector mandate is broader and departments are expected to balance competing interests and objectives. This provides a greater opportunity to bring together a wide range of information and to make decisions that more fully integrate the available perspectives. It also increases the demand for public accountability and reporting. However, as previously noted, the incentives may not be in place for public sector managers to act aggressively on the available opportunities. We believe it is important for federal departments to move toward more fully accounting for the environmental implications of their activities.
7.73 Similar environmental challenges. Federal departments and multinational companies may face similar challenges with respect to the environmental aspects of operating offices, managing fleets and conducting laboratory research. Thus the ways that corporations collect and manage information on their environmental performance may also be useful to government departments.
7.75 There are three main advantages to an information system that links an organization's environmental management system and its accounting system:
7.77 Design principles. In designing the information tools for managers, we were guided by six principles:
7.79 Input/output record. This report would be the least aggregated and would summarize facility-specific costs and quantities periodically. It would be analogous to an income statement and used for recording additions and deletions in both financial and non-financial terms. The report would rely almost exclusively on information that is already contained in invoices for such items as electricity, natural gas and water use. It would be used for evaluating performance on inputs, such as fuel, and outputs, such as waste water.
7.80 Environmental balance sheet. The periodic reports would be rolled up into a yearly environmental balance sheet for each facility or branch. This would differ from a traditional accounting balance sheet in that it would provide totals for the inputs and outputs, and would capture the "inventory items", such as contaminated sites, storage tanks, and ozone-depleting substances. This report would be used primarily to summarize the status of environmental management and to report progress over time, against standards, objectives or targets. For internal use, it would be helpful in making capital decisions at the branch level. The report would include a comparison with last year's figures and an explanation of differences. For example, an increase in energy costs could be due to high summer temperatures and the resulting need for air conditioning.
7.81 Annual environmental report. The final and most aggregated report would be produced for the entire department and would summarize the status of environmental management across all facilities. Information from this report could be used for a government-wide "roll-up". In addition to the summary of inputs/outputs and inventory items, this report could describe cost reduction programs and, possibly, measures of external costs or benefits. For example, the energy use information for both fossil fuels and electricity could be used to generate an estimate of greenhouse gas emissions from departmental operations. This report would be used by senior management in the department to assess progress against departmental objectives and targets, to identify environmental priorities, and to allocate resources. Part or all of this report could be used for public reporting, for example against sustainable development strategy goals, perhaps as part of the annual Performance Report.
7.82 "Roll up" procedures. Corporate information on compliance with applicable environmental, health and safety standards will provide senior management with a key element of "due diligence". For operations and capital items, the information will provide a basis for future planning decisions - whether the goals are the minimization of total costs, or targets for environmental stewardship. The information tools described here represent an important first step in what could be termed "accounting for environmental management".
an information tracking framework that integrates internal (private) and external (societal) costs and benefits, and supports evaluations of the short- and long-term consequences of activities and projects from environmental, social and economic perspectives.7.84 We observed that, from the accounting perspective, there were essentially two phases of the journey to sustainable development: accounting for better environmental management and accounting for two generations (that is, considering the impacts on future generations).
7.85 A productive collaboration. This joint project between the Office of the Auditor General and Agriculture and Agri-Food Canada is a modest step on the journey. The Office's interest in promoting consistent and effective reporting to Parliament was combined with the practical experience of Agriculture and Agri-Food Canada and the other departments that participated in the ad hoc working group. The project has laid the foundation for possible further work in several areas: refining the measures for consistent public reporting among departments; extending the set of common measures to include areas such as procurement and hazardous materials; and pilot implementation of the prototype reports for integrating financial and non-financial information.
7.86 Future directions. Other areas for possible future development include extending the implementation to other departments, expanding the government activities considered to include policies and programs, and enlarging the set of measures to include social indicators such as those relating to employment and health.
7.87 Over the long term, we expect this work to result in better environmental management. We also expect it to improve implementation of departmental sustainable development strategies. The integrated information generated by departments should help the Commissioner monitor departmental progress on sustainable development.
7.89 The first step in integrating environmental information into decision making is making sure the data are available. We identified measurements that could be readily made, by Agriculture and Agri-Food Canada and by other departments, that would reflect considerations of sustainable development in departmental operations and would help in making better decisions. Cost reductions may be achieved by using some kinds of information; however, there are some important obstacles to be overcome. We expect that better decisions will contribute to better results.
7.90 Based on our review of the state of the art for integrating different kinds of information, we conclude that organizations face similar challenges and opportunities. Comparing leading organizations in the public and private sectors, it appears there are substantial opportunities for progress by federal departments and for taking advantage of the experience of other organizations.
7.91 The journey to sustainable development is a long road that will require patience, discipline and realistic expectations. We can help each other along the way by sharing our successes.
Agriculture and Agri-Food Canada's response: Agriculture and Agri-Food Canada would like to thank the Office of the Commissioner of the Environment and Sustainable Development for the opportunity to participate in this valuable project.
The study has provided the Department with a broad understanding of the implementation process of an environmental management system (EMS) in both the public and private sectors. As a result, the Department has a clear understanding of how implementation of an EMS will enable Agriculture and Agri-Food Canada to identify cost savings through reduced energy and material costs related to physical operations. Although it must be kept in mind that resources for EMS implementation will have to compete with existing priorities within the Department.
Agriculture and Agri-Food Canada looks forward to the opportunity to contribute to additional phases of this joint study.
The overall objective of this study was to demonstrate the practical feasibility of preparing a set of accounts for sustainable development. These accounts would be used to support decisions as departments make the transition to operations consistent with the tenets of sustainable development. There were three sub-objectives for this first phase:
1. to document the state of the art for integrating new information on environmental assets, costs and liabilities, as well as other information on environmental, social and community impacts (including jobs) with existing governmental financial and non-financial databases;
2. to design practical and implementable accounts to reflect considerations of sustainable development in the operations of departments; and
3. to support the implementation of prototype accounts for sustainable development in the context of the operations of a federal department.
We took a very practical approach to assessing the needs of managers for environmental information and the decisions they would make based on that information. We conducted a series of interviews with managers and departmental branch heads in Ottawa, reviewing their information priorities and identifying their key decisions.
We then conducted site visits and interviews at Agriculture and Agri-Food Canada facilities in several locations across Canada. The sites represent a mix of facilities of different sizes from two of the main operational branches (Research Branch and Prairie Farm Rehabilitation Administration) and the Canadian Food Inspection Agency. The Department suggested that these were well-managed sites. This was appropriate given the emphasis in this phase on identifying good, feasible and transferable practices. During each of the site visits, we met with operational managers. They described their facilities, the key environmental issues, the decisions they normally make and the information they would like to have to make those decisions.
Our second key activity involved working closely with an ad hoc working group composed of
departmental representatives on the Federal Committee on Environmental Management Systems. The
working group undertook a series of meetings, workshops and presentations, with the focus of its activity
being environmental performance measurement for sustainable government operations. The group's
perspectives, insights and work contributed substantially to this study.
As our third activity, we evaluated the emerging practices in both the public and private sector. Through literature and Web searches, we reviewed the experience with accounting for environmental management. A total of 27 private sector and 15 public sector organizations were considered in more detail. Specific information was then obtained from three organizations in each sector that were recognized for using leading practices. We drew on examples from North America, Europe and Australia, and then conducted in-depth interviews during site visits to several leading North American organizations. The intent of this survey was not to identify the very best organizations, but rather to select ones that had operations similar to the federal government, that represented a diversity of perspectives and that offered opportunities from which lessons could be learned.
Office of the Auditor General:
Principals: Wayne Cluskey and Dan Rubenstein
Director: Peter Morrison
Gordon Stock
For information, please contact Wayne Cluskey or Dan Rubenstein.