INSTITUTIONAL PERSPECTIVE TOWARDS THE ADOPTION OF ENVIRONMENTAL MANAGEMENT: A
CONCEPTUAL FRAMEWORK
Avylin Roziana Mohd Ariffin1
1Faculty of Economics & Muamalat, Universiti Sains Islam Malaysia, Malaysia
*Corresponding Author: [email protected]
Accepted: 1 August 2019 | Published: 15 August 2019
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Abstract:
Previous literatures have shown that the practice of Environmental Management Accounting (EMA) is underutilized and diverse, even among those firms which are regarded as being more environmentally-sensitive. This has led to the gap in the literature pertaining to what motivates firms to develop environment-related management accounting and what conditions facilitate the implementation. Further promotion is needed if it is to help the business to move towards sustainability. Therefore, this research is interested in extending the focus of EMA adoption among companies in Malaysia and understands the factors influencing them. Based on institutional framework perspective, this study attempts to look at how institutional isomorphism’s concept may explain organisational change, and in this context, the adoption of EMA. Three types of institutional isomorphism namely the coercive isomorphism, mimetic isomorphism and normative isomorphism are explained in this study to develop hypotheses related to the factors that might influence the adoption of EMA. This paper aims at providing a picture of the diffusion of EMA and an understanding of how it can further be promoted to help the country achieve a balance in its environmental and economic performance.
Keywords: Environmental Management Accounting, NIS, Institutional Theory
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1. Introduction
Most EMA studies have focused on developed countries such as the United States, Australia and Japan (for example Burritt & Saka, 2006; Chang & Deegan, 2008; Deegan, 2003a; Gale, 2006a). Less developed countries are relatively distinctive as they have a larger residue of traditional cultures and modes of production, and their poverty renders them more dependent on external finance, ideologies and structural reforms, with lower institutional capacity to deliver change (Hopper, Tsamenyi & Wickramasinghe, 2009). Therefore, the findings on the adoption of management accounting systems and factors influencing the adoption in more developed countries might not be relevant in the context of developing countries. This situation signifies a critical need for EMA studies to be conducted in developing nations, especially as environmental issues are always associated with industrialization and economic growth (Xiaomei, 2004). Realizing the importance of EMA and the difference in the characteristics of the countries, and considering the lack of research on accounting for the environment in developing countries (Belal et al., 2013; Burritt, 2004), this study contributes to the extant EMA literature from this perspective.
2. Environmental Management Accounting
EMA terminology might have various definitions, but all these definitions are similar and focus more or less on the same thing, that is, EMA as a system that identifies, measures, traces and analyses environmental costs and physical environmental flows (Burritt & Saka, 2006; Gibson & Martin, 2004). Generally, EMA helps companies to go beyond the capability of their conventional management accounting system by uncovering, and then having a full measure of business’s environment-related costs and benefits, and to later integrate this information into day-to-day business decision making. The EMA method arises in response to the increasing concern for sustainability and the limitations of conventional management accounting systems in addressing this issue (Burritt, 2004; Gale, 2006a; Gale, 2006b; Jones, 2010). Thus, EMA is somewhat an extension to, rather than a different method of, Management Accounting, where it is a refined MA system that provides companies with their environmental performance information (Deegan, 2003a; Jasch, 2006). With its focus on accounting for the flows of natural resources such as energy, water and other materials, EMA draws together MA practices responsive to the trend of addressing environmental issues (Jasch, 2009). EMA is indeed significant in the implementation of environmental management through disclosure of environmental costs which were not previously known to companies. Gale’s (2006a and 2006b) case study applies the framework of UNDSD to one division of a Canadian paper mill company and reports that the use of the framework has revealed the real environmental cost, which is estimated to be at least twice what was currently reported. This study evidenced the inaccuracy of the conventional accounting system in calculating environmental costs. Chang and Deegan (2008) also conducted a case study to understand current accounting practice for managing and treating the environmental costs, but limited their scope to service organisations with a focus on the cost of energy, water and paper, and on the generation of solid wastes. The study shows that major environmental costs are obscured within the accounts, such as aggregated with “consumable materials” and “facility expenses”. Even so, EMA is not being prioritised by the participants, neglecting its potential usefulness. The study further delineates the barriers to EMA adoption and finds factors such as the absence of institutional pressures, low profile of accounting for environmental costs and management’s attitude to be impediments for such.
3. Institutional Perspective Framework
Neo-Institutional Sociology (NIS) Theory provides insights into the effect of the organisational field of an organisation on its environmental management and management accounting practices (Dayana, 2010); management perceptions are believed to be influenced by their social institutional contexts. Authors using this theory suggest that organisations also aim for political power and institutional legitimacy, rather than focusing solely on economic fitness (Bourma & van Der Veen, 2002). Institutional factors play an important role in initiating change in an organisation and encouraging the process of adoption of any particular technique. As organisations are social actors, they are subjected to institutional pressures within their institutional field, in which they will try to obtain legitimacy by conforming to the dominant practices within the field (DiMaggio & Powell, 1983). Business entities are bound in a network in which communication operates either directly or indirectly (Midgley, Morrison & Roberts, 1992). Thus, the development and diffusion of any innovations involve not only an organisation but also a group of organisations with different roles which interact with each other.
From the institutional perspective, organisations interact within their organisational field in ways perceived as acceptable by various constituents in that environment. An organisational field is defined as "those organisations that, in the aggregate, constitute a recognized area of institutional life: key suppliers, resources and product customers, regulatory agencies, and other organisations that produce similar services or products (DiMaggio & Powell, 1991, p.64 - 65). All these institutions provide the “rules of the game”; firms are inclined to respond to the pressures and expectations exerted by them (Baughn, Bodie & McIntosh, 2007). The focus of institutional perspective is to answer the question of “why is there such homogeneity of organisational forms and practices?” rather than seeking to explain variation among organisations in structure and behaviour, as in other organisational theories. The answer to this question lies in the process called isomorphism (DiMaggio & Powell, 1983). Basically, isomorphism, which has been created from the sources of institutionalisation, is a constraining process that forces one unit in population to resemble other units in that population who face the same set of environmental conditions (DiMaggio & Powell, 1983, p.
149). According to Meyer and Rowan (1977), isomorphism has three crucial consequences:
first, it incorporates elements which are legitimated externally rather than in terms of efficiency; second, it employs external or ceremonial assessment criteria to define the value of structural elements; and third, it depends on externally fixed institutions to reduce turbulence and maintain stability. As a result, institutional isomorphism promotes the success and survival of organisations (Meyer & Rowan, 1977). This indicates that the underlying drivers of institutionalisation arise mainly as a consequence of seeking legitimacy and isomorphism.
Institutional pressure basically shows how a company handles its coercive, normative and mimetic force. Coercive pressure comes from increased concern by the company’s stakeholders, such as the investors, the government and the general public. Organisations are also influenced by the actions of others who are deemed to be in the same industry. This is called a mimetic effect and its influence is high when organisations experience cognitive pressure as they try to behave in a way that is collectively accepted and internalised in the organisation field. For example, if an organisation perceives that similar members of organisations in the organisational field in which it currently operates are practicing sustainable innovation, the organisation will then be under cognitive pressure. For them not to be labelled as “laggards” or worst performers, mimicking may be their “safest” choice.
(Qian & Burritt, 2008). Studies show that an imitation act does appear among companies within sectors with regards to the level and direction of environmental accounting (Campbell, 2003; Deegan & Gordon, 1996; Deegan & Rankin, 1996). It is believed that these companies experience similar threatening issues and therefore adopt similar responses. Additionally, rivalry exists within the industry domain, which puts peer pressure on a firm to follow certain practices (Hofer, Cantor & Dai, 2012).
However, despite increased awareness among the public and organisations themselves, the move to institutionalised environmental accounting is not yet occurring widely. Some researchers argue that this is due to the reluctance among accountants to move away from traditional attitudes and paradigms (Clarke & O’Neill, 2006); in order to better capture the environmental issues and to diffuse EMA, management accountants should be exposed to environmental costs, and provided with the knowledge and skills of new techniques available to identify and calculate these costs. Such a scenario suggests that companies can also be affected by normative pressure.
The uptake of any new practices such as EMA is therefore inevitably influenced by social institutional elements and changes (Qian & Burritt, 2008). For example, Onishi et al. (2008) find that the rapid development of environmental accounting in Japan is due primarily to the pressure imposed by the government. Briefly, institutional factors have a high impact upon adoption and implementation of any new practice. Therefore coercive, mimetic and normative perspectives should be kept in mind when we are discussing diffusion of EMA.
Therefore, the employment of NIS Theory is expected to complement the explanation of the diffusion of EMA from a social perspective. The research framework is depicted in Figure 3.1.
Figure 3.1 The research framework
As EMA is perceived as a new management accounting system, the diffusion viewpoint provides relevant guidance in exploring and explaining the adoption of practice within the industries. The diffusion of EMA in this study is represented both by the rate of adoption and organisational innovativeness.
4. Conclusion
Many studies have evidenced the importance of institutional influence on the diffusion of management accounting techniques (see for example, Bjornenak, 1997; Lapsley & Wright, 2004; Malmi, 1999), environmental management practices (Delmas, 2002; Delmas & Toffel, 2004; Ervin et al., 2013; Zhang et al., 2012; Zhu et al., 2012) and environmental reporting practice (Aerts & Cormier, 2009; Aerts, Cormier & Magnan, 2006; Azlan & Devi, 2008;
Contrafatto, 2014; Islam & Deegan, 2008). Contrafatto (2014) suggests that institutionalization process begin with a phase of construction a common meaning, followed by practicalisation and later the reinforcement phase, in which organisation act in response to various pressures in each of these phases. The insights from Institutional Theory have provided researchers with an understanding of the interaction between the context of the organisation and the organisation’s behaviour. This basically explains how individual organisations adopt various environmental management practices to respond to institutional pressures and why there appears to be variation in adoption rates (Delmas, 2002; Delmas &
Toffel, 2004; Pondeville et al., 2013; Rodrigue et al., 2013). For example, market pressures resulting from the increased concern of consumers and suppliers about environmental issues have led companies to implement pro-environmental practices so that they can maintain their
EMA DIFFUSION
ORGANISATIONAL INNOVATIVENESS (Early and late adopters)
ORGANISATIONAL INNOVATIVENESS (Number of innovation)
Extent of adoption
Institutional factors Coercive pressure Mimetic pressure Normative pressure
Antecedents of adoption
position in the market or penetrate a new market (Islam & Deegan, 2008; Simpson, 2012;
Zhang et al., 2012). In terms of theoretical contribution, this study responds to calls for theoretically informed EMA research (Bouma & van der Veen, 2004; Burritt, 2004). In addition to that, this paper extends the context of the adoption in which EMA adoption is not solely defined as the rate of those who adopting or not adopting, but this paper also look at the influence of institutional pressures towards the organizational innovativeness. This has provided a new framework which was not addressed by previous research. Thus, the framework embraces a comprehensive consideration of organisations’ internal and external contexts, and thus this study has the potential to advance the understanding of the interaction between pressures for change and organisational behaviour, with specific relation to EMA.
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