August 29, 1995

MEMORANDUM

TO: Holly Elwood, EPA/PPD

FROM: Paul Bailey, ICF

SUBJECT: Work Assignment 109, Task 3, Final AT&T Case Study

Contract No. 68-W2-0008

Please find attached Deliverable 3.5, final camera-ready AT&T case study. This version

incorporates changes to respond to comments on the August 29 fourth draft of the case study, conveyed

earlier today.

PB:mdb

Attachment
United States Office of Pollution EPA #742-R-95-

Environmental Prevention & Toxics 003

Protection (MC-7409) September 1995

Agency Washington, D.C. 

20460

 EPA Environmental Accounting Case

Studies:

GREEN ACCOUNTING

at AT&T
 AT&T Environmental Accounting Glossary (1995). 1

 Copies can be obtained from the EPA's Pollution Prevention Information Clearinghouse at 202/260-1023. 2

Disclaimer

This case study reports AT&T's developing position on "Green Accounting," as defined by

AT&T as of July, 1995. AT&T defines Green Accounting to mean "identifying and measuring

AT&T's costs of environmental materials and activities, and using this information for environmental

management decisions." The case study intentionally uses AT&T's language and definitions in 1

explaining environmental accounting efforts underway there. The concepts, terms, and approach

represent AT&T's view and not necessarily the position or views of the U.S. Environmental Protection

Agency (EPA). The EPA is offering this case study as one of many possible approaches to

environmental accounting. Readers may also want to consult An Introduction to Environmental

Accounting as a Business Management Tool: Key Concepts and Terms, EPA 742-R-95-001

(June 1995) for more general information about environmental accounting.2

 In December 1993, a national workshop of experts drawn from business, professional groups, government, 3

nonprofits, and academia produced an Action Agenda which identifies four overarching issue areas that require

attention to advance environmental accounting: (1) better understanding of terms and concepts, (2) creation of

internal and external management incentives, (3) education, guidance, and outreach, and (4) development and

dissemination of analytical tools, methods, and systems. The purpose of this document is to help address the

third recommendation, which includes the preparation and dissemination of case studies. The U.S. Chamber of

Commerce, the Business Roundtable, the American Institute of Certified Public Accountants, the Institute of

Management Accountants, AACE International (the Society of Total Cost Management), and the U.S. EPA cosponsored the Workshop. For more information on the workshop, see Stakeholders' Action Agenda: A Report of

the Workshop on Accounting and Capital Budgeting for Environmental Costs, December 5-7, 1993; EPA 742-

R-94-003 (May 1994).

Acknowledgements

The United States Environmental Protection Agency (EPA) wishes to acknowledge the

cooperation and input of AT&T which generously allowed access to its people and materials for

preparation of this case study. In particular, Jeannie Wood, Co-Chair of AT&T's Green Accounting

Team repeatedly made time in her busy schedule to answer questions and share information. In

addition, Barry Dambach (Co-Chair) and other members of the Green Accounting Team graciously

agreed to review drafts of this document and provided helpful comments to EPA. EPA also appreciates

the comments provided by Daryl Ditz of the World Resources Institute. EPA hopes the documentation

of AT&T's experiences will help other companies begin to use environmental accounting and

appreciates the cooperation of AT&T in telling its story.

This case study was prepared for the EPA's Environmental Accounting Project, which has been

working with stakeholders for the past three years to encourage and motivate business to understand the

full spectrum of environmental costs and incorporate these costs into decision-making. As a product 3

of this effort, EPA has commissioned case studies documenting
Acknowledgements (continued)

companies' efforts to address environmental accounting. For more information on EPA's activities in

this area or for additional copies of the case studies, please contact the EPA's Pollution Prevention

Information Clearinghouse at (202) 260-1023. Holly Elwood, Coordinator of EPA's Environmental

Accounting Project, would like to hear about companies beginning to implement environmental

accounting. She can be reached at 202/260-4362.

This case study was prepared by ICF Incorporated under EPA Contract No. 68-W2-0008, Work

Assignments 82 and 109. The EPA Work Assignment Managers were Holly Elwood and Marty

Spitzer. Carlos Lago served as the EPA Project Officer. The ICF principal author was Paul Bailey.
TABLE OF CONTENTS

Page

1. Organization of Case Study ................................................. 1

2. Background .............................................................. 2

3. Why Did AT&T Decide to Address Green Accounting? .......................... 5

3.1 Management Commitment ............................................ 5

3.2 Support to Related AT&T Initiatives ..................................... 6

3.2 Customer Demands .................................................. 9

4. How Did AT&T Initiate Its Green Accounting Project? ......................... 10

4.1 AT&T Chose a Team Approach ....................................... 10

4.2 Team Clearly Defined Its Vision and Charter ............................. 11

4.3 Multi-Functional, Company-Wide Team ................................. 12

5. How Did AT&T's Green Accounting Team Gather Information? ................. 13

5.1 Literature Review Process ............................................ 13

5.2 Information Collection Through Team Meetings ........................... 14

5.3 Addressing Related DfE Issues ........................................ 16

6. What Has AT&T Learned? ................................................ 17

6.1 Defining Green Accounting and Developing A Common Language ............ 19

6.2 Applying the ABC/ABM Approach to Green Accounting .................... 21

6.3 Developing Green Accounting Tools to Assess Baseline Performance and

Foster Improvements ................................................ 24

7. The AT&T Self Assessment Tool ........................................... 25

7.1 The Status Survey .................................................. 25

7.2 Environmental Activities Dictionary (ABC/M) ............................ 27
TABLE OF CONTENTS (continued)

Page

7.3 The Activities/Resources Matrix ....................................... 29

7.4 Protocol for Using the Tool ........................................... 32

7.5 Design Reviews .................................................... 33

8. Looking Ahead .......................................................... 35
Introducing

"GREEN ACCOUNTING"

in AT&T

1. Organization of Case Study

This case study describes the actions AT&T has taken and the issues it has encountered in

applying environmental accounting, which AT&T refers to as "Green Accounting." The presentation is

not chronological, but is organized as follows:

C Background. This section introduces AT&T, highlights its definition of Green

Accounting, and presents a chronology of key events in its development of its

Green Accounting approach.

C Why Did AT&T Decide to Address Green Accounting? This section discusses

AT&T's management commitment to Green Accounting and its relationship to

AT&T Design for the Environment (DfE) and quality programs.

C How Did AT&T Initiate Its Green Accounting Project? This section describes

AT&T's use of a multi-functional team to develop Green Accounting.

C How Did AT&T's Green Accounting Team Gather Information? This section

summarizes AT&T's fact-finding visits and literature review process.

C What Has AT&T Learned? This section presents the key findings of the

Team's activities through June 1995.

C AT&T's Self Assessment Tool. This section describes the elements comprising

AT&T's first environmental accounting tool.

C Looking ahead. This section addresses AT&T's evolving agenda for future

Green Accounting activities.

Exhibit 1 on the following page lists some of AT&T's key accomplishments in Green

Accounting, all of which are covered in this case study.
- 2 -

Exhibit 1: AT&T's Key Accomplishments in "Green Accounting"

Senior management commitment to Green Accounting

Established internal multi-functional team with global representation to develop Green Accounting concepts

and tools

Clearly defined "Green Accounting"

Developed a literature review process and appointed subject matter "experts"

Prepared a Green Accounting Glossary

Developed a Green Accounting "self assessment" tool for AT&T facilities including a protocol, status

survey, environmental activities dictionary, and data matrix

Completed design reviews of Green Accounting "self assessment" tool at three facilities and revised tool

accordingly

Explored and articulated linkages between Green Accounting and other AT&T initiatives including Total

Quality Management (TQM), Design for Environment (DfE), Pollution Prevention (P2), Activity-Based

Costing and Management (ABC/M), supply line management, and product take-back programs

2. Background

This case study illustrates how AT&T, a major multinational high-technology company has

begun to implement what it terms "Green Accounting." AT&T defines "Green Accounting" as follows:

: Identifying

and measuring the costs of environmental materials and activities and

using this information for environmental management decisions. The

purpose is to recognize and seek to mitigate the negative environmental

effects of activities and systems.

AT&T recognized that some definitions of environmental accounting include both "private

costs," which are the costs that impact a firm's bottom line, and "societal costs" (also termed

"externalities") which is a term for impacts on society and the environment that currently are not

reflected in a firm's bottom line. AT&T has focused to date solely on private costs, particularly

conventional and potentially hidden environmental costs. Eventually AT&T expects to address
- 3 -

 For a discussion of these cost categories, see An Introduction to Environmental Accounting as a Business 4

Management Tool: Key Concepts and Terms, EPA 742-R-95-001 (May 1995), pp. 7-17.

 AT&T 1993 [latest available] Annual Report, p. 19. 5

contingent costs and externalities. Few companies outside of the utility sector in North America have 4

moved to incorporate externalities into their accounting systems; however, AT&T does intend to go

further and look at externalities in the future.

AT&T. Driven by its expressed desire to keep a healthy balance between business interests

and environmental protection, AT&T has stated that the two interests are not necessarily inconsistent.5

AT&T believes that investing in the environment has helped it decrease operational costs and avoid

future liabilities. As a result, AT&T has set aggressive environmental goals. For example, in 1993

AT&T reached its goal of eliminating emissions of chlorofluorocarbons (CFCs) and other ozonedepleting substances from its manufacturing operations. AT&T achieved this goal two and a half years

ahead of a worldwide ban by creating new manufacturing techniques that eliminated the use of the

materials responsible for the emissions. AT&T has also achieved significant results by reducing waste,

increasing recycling, and using recycled paper.

AT&T was created in 1984 under a court-ordered division of the Bell System's

telecommunication business. The world's largest telecommunications company, AT&T employs over

300,000 people around the world, and its revenues exceeded $75 billion in 1994. AT&T's revenues are

derived from telecommunications services, products, and systems; rentals and other services; and

financial services and leasing. With the Company's recent mergers and acquisition of cellular service,

cable, and entertainment companies, AT&T has positioned itself to be a major player in the nation's

efforts to construct an "information superhighway" of communication links.
- 4 -

 AT&T defines life cycle analysis/assessment as "the review of the environmental impact of a product or 6

process over its entire life cycle, including resource extraction, manufacture, packaging and transportation, use

and recycling/disposal." AT&T Environmental Accounting Glossary.

 Barry F. Dambach and Braden R. Allenby, "Implementing Design for Environment at AT&T," Total Quality 7

Environmental Management (Spring 1995).

AT&T manufactures and purchases components and products to support its global information

movement and management offerings, including microelectronics, switching, transmission, wireless,

and satellite operating systems; fiber optics; voice, data, and video communications devices; and

mainframes, videoconferencing systems, multimedia personal computers, automated teller machines,

and other integrated business systems. AT&T Bell Laboratories and other AT&T research and

development (R&D) units investigate new technologies and evaluate ways to make technology more

useful to customers. AT&T recognizes that environmental aspects may be found in all of its business

operations, such as equipment manufacturing and telecommunications services, its laboratories, and

even its office buildings.

AT&T's manufacturing subsidiary, Western Electric, first issued a corporate environmental

policy in 1973. Following divestiture and restructuring in 1984, AT&T issued a Policy for

Environmental Protection that recommitted the company to the concepts of the original policy. 

AT&T's policy goes beyond regulatory compliance by committing the company to develop and use

nonpolluting technologies, minimize wastes, increase recycling, design products and processes with

environmental impacts as a critical factor, and raise all employees' awareness of environmental

responsibilities. AT&T's recently updated policy embraces a life cycle approach and the use of Design 6

for Environment practices throughout the organization.7

This case study begins in February 1994 and documents the birth of the Green Accounting

project at AT&T, the avenue through which environmental accounting is being introduced into the
- 5 -

company. As of July 1995, the project has left its infancy, but is still in the growing, formative stage. 

See Exhibit 2.

Exhibit 2: Chronology of Green Accounting at AT&T

1993 C AT&T creates new senior management position for Technology and

Environment and organizes Design for Environment (DfE) Program

February 1994 C Green Accounting Team assembled (as part of AT&T's DfE Program) to

develop AT&T approach and tools for Green Accounting

December 1994 C Design reviews of AT&T Green Accounting tools began

February 1995 C Design reviews of AT&T Green Accounting tools completed and tools

revised

April 1995 C Field tests of Green Accounting tools began

September 1995 C Field tests of Green Accounting tools to be completed

October 1995 C Green Accounting tools to be presented to AT&T DfE Team

3. Why Did AT&T Decide to Address Green Accounting?

This section describes the factors, which include management commitment, support to related

programs, and customer demands, that led AT&T to address Green Accounting.

3.1 Management Commitment

AT&T's senior management commissioned the Design for the Environment (DfE) program as

part of AT&T's policy for environmental protection. The architects of AT&T's DfE program see

economic considerations as a key component and have established a Green Accounting Team to help

implement DfE. The Green Accounting Team believes that Green Accounting can support the

achievement of AT&T's environmental policies by:
- 6 -

 Barry F. Dambach and Braden R. Allenby, "Implementing Design for Environment at AT&T," Total Quality 8

Environmental Management (Spring 1995).

C Supplying relevant cost data to understand and improve environmentally

impactive processes, and drive desired behavior towards designing

environmentally preferable products and services;

C Providing information to support the most cost-effective solutions to preventing

and/or meeting environmental compliance needs; and

C Providing evidence of compliance with environmental standards (both

regulatory and voluntary).

In this way, Green Accounting can help AT&T avoid potential environmental liabilities, reduce

costs, and minimize its impact on the environment. Green Accounting has been described as "essential

not only to give the environmental projects an equal chance of receiving needed resources, but also to

get an accurate description of the true environmental costs associated with the manufacture of each

product." Providing management with environmental cost data facilitates making better environmental 8

and business decisions.

3.2 Support to Related AT&T Initiatives

The prospects for adopting Green Accounting were enhanced by its relationship to several

important programs and activities at AT&T, including Total Quality Management (TQM), Design for

Environment (DfE), and Activity-Based Costing and Management (ABC/M). This section summarizes

the relationships seen at AT&T between Green Accounting and each of these programs.

Total Quality Management. Top management at AT&T has emphasized that its

environmental goals are based on Total Quality Management (TQM) principles. AT&T employs the
- 7 -

 These priorities were established to support EPA's environmental management hierarchy, which was codified 9

by Congress in the Pollution Prevention Act of 1990.

“We base our environmental goals on Total Quality Management

principles.”

– AT&T

Cost of Quality (COQ) model, focusing priorities on prevention through source reduction first, followed

by reuse, recycling, and treatment -- with disposal as the last option. For example, AT&T views the 9

reduction of waste as a means to reduce costs. Senior management has identified three major ways that

improved environmental management strategies support TQM, noting that they enhance:

(1) Customer satisfaction through improved relationships, which come as a result

of meeting or exceeding environmental expectations;

(2) Organizational effectiveness, by involving everyone in sharing the mission to

improve environmental quality; and

(3) Company competitiveness, because when a company addresses social concerns

such as its impact on the environment, it significantly increases value for its

customers.

AT&T views Green Accounting as a major component of Total Quality Environmental

Management (TQEM). AT&T believes that "quality is a given in competition today" and that

"environmental quality will be a given very soon."

Design for Environment. AT&T is a leading corporate proponent of Design for Environment

(DfE), which calls for environmental considerations to be incorporated into product design from the

outset. AT&T's commitment to DfE figures prominently in its vision statement:

"AT&T's vision is to be recognized by customers, employees, shareowners and

communities worldwide as a responsible company which fully integrates

lifecycle environmental consequences into each of our business decisions and
- 8 -

 Barry F. Dambach and Braden R. Allenby, "Implementing Design for Environment at AT&T," Total 10

Quality Environmental Management (Spring 1995).

"Designing for th e

environment is a key in

distinguishing our processes,

products, and services."

– AT&T Vision

activities. Designing for the environment is a key in distinguishing our

processes, products, and services."

This progressive vision is backed up by top level management commitment. In 1993, AT&T

created a new post to develop the rules and tools needed to achieve its vision. Brad Allenby, named

Research Vice-President for Technology and Environment, moved quickly to constitute a DfE

Coordinating Team which identified a number of priority areas for subteams:

C green accounting C international environmental standards

C product takeback C external relations

C supply line management C energy

C life cycle analysis

AT&T management developed a charter

for each of these subteams. The DfE Team

commissioned the Green Accounting subteam to

address environmental attributes in accounting in

order to support AT&T's environmental

programs, especially DfE. The charter that was given by management to the Green Accounting Team

was to (1) develop methods and tools, (2) identify environmental costs and related activities, and (3)

implement this understanding throughout AT&T. AT&T views Green Accounting as an essential

component of DfE programs intended to make AT&T's operations more environmentally responsible: 

"the full life-cycle environmental cost for a product ... will be used to drive the desired behaviors

needed for DfE to be successful."10
- 9 -

 

Ibid.

10

"[A]ctivity based costing ...

drives the costs to the cost

drivers or root causes. Most

environmental costs are still

included in overhead

accounts for the facility and

are allocated using methods

that may have been appropriate for labor-intensive

operations but that will not be

so in today's high tech

electronics industry where

labor is continually becoming

a smaller portion of the total

product cost."

– Dambach &

Allenby10

Activity-Based Costing and Management. AT&T's DfE Team has made a commitment to

the use of Activity-Based Costing (ABC) and Activity-Based Management (ABM). Viewing them as

tools that support TQM, AT&T often refers to ABC/M or ABC/ABM.

AT&T sees ABC and ABM performing

related but different functions. AT&T views

ABC as a method for assigning relevant costs to

products by identifying the resources consumed

by activities performed for these products, which

are termed "cost objects." (A telephone,

computer, or ATM could be a cost object.) But

AT&T believes that "tracking costs alone does

not drive improvement." That is where AT&T

sees ABM coming into play. From its process

point of view, ABM seeks to determine what are the "cause drivers" of activities and their costs. 

AT&T believes that ABM can put the management focus on such areas as product or process design,

supplier qualification, process performance (e.g., efficiency, waste), and product disposal alternatives,

among others. Through ABC/ABM, AT&T's goals are to reduce or eliminate costs by dealing with

their driving causes and to employ performance measures as indicators of AT&T's progress.

3.2 Customer Demands
- 10 -

 

Ibid.

10

“When we address social concerns and reduce the need for

environmental remediation, we significantly increase value for our

customers.”

— AT&T
- 11 -

AT&T has recognized customer expectations as a driver for improving environmental

performance in the context of DfE. For example,

C More and more customers are asking AT&T to identify and validate its

reductions in use of targeted chemicals and materials (e.g., CFCs)

C Customers are asking AT&T to reduce packaging or recycle it

C Customers are asking AT&T to take back old products as part of sales

contracts.

AT&T's position is that environmental management can improve customer satisfaction and

relationships by meeting or exceeding environmental expectations. The Green Accounting Team has

noted that the definition of "customer" in some cases may include not only the marketplace, but also

society, shareholders, employees, the government, or even the environment (as "an abstract customer").

4. How Did AT&T Initiate Its Green Accounting Project?

This section describes AT&T's use of a multi-functional Team to foster Green Accounting. 

The section covers why AT&T chose a team approach, the Team's vision and charter, and how the

Team has operated.

4.1 AT&T Chose a Team Approach

“The issue isn't limited to one discipline, one industry, or one nation. 

The environment affects all of us, and it will take all of us to protect it.”

— AT&T Chairman and CEO Bob Allen

AT&T frequently uses teams as a part of its TQM approach to managing and improving its

operations. Recognizing that Green Accounting must involve several traditionally separate

perspectives and functions (e.g., environmental, accounting, finance) as must DfE (e.g., environmental,

process/product design, research and development, marketing), AT&T management saw a multi-
- 12 -

Green Accounting Charter

Facilitate the integration of

environmental considerations

into management accounting

systems, models, and practices

throughout AT&T through

communication, education and

development of guidelines.

Emphasis is placed on using Activity

Based approaches, principles and

costing methodologies to support

TQEM.

functional team approach as the only viable option. To achieve its goal of integrating environmental

concerns into business decisions, AT&T senior management has alerted its associates to expect changes

in their roles and company processes as AT&T implements environmental initiatives such as Green

Accounting and DfE. In particular, AT&T expects that associates who have roles in technical,

purchasing, and financial processes must collaborate -- by understanding, communicating, and working

with each other -- to consider the environmental and financial consequences of decisions. Similarly,

AT&T believes that its cost accounting systems must change to allow a much clearer view of the true

costs of producing products and providing services. In anticipation of these coming changes, a team

approach to implementing Green Accounting would involve and ready its people for designing the

corporation's future and initiating the necessary multi-functional dialogues.

4.2 Team Clearly Defined Its Vision and Charter

At its first meeting in February 1994, the

Team reviewed the charter developed for it by

AT&T senior management. The Team developed a

vision statement relating Green Accounting to

TQEM and highlighting AT&T's Pollution

Prevention Policy, which is based on achieving and

sustaining a healthy balance between business

interests and environmental protection. The Team

then decided to expand its charter to reflect its vision. Notably, the Team agreed that its purpose was

not to impose environmental cost accounting, but to facilitate Green Accounting throughout AT&T by

communication, education, and development of approaches and tools that can be used to foster

accountability and better management processes for achieving environmental goals.
- 13 -

Using brainstorming techniques, the Team discussed "why does it make sense for AT&T to

implement Green Accounting?" Conclusions included the following

C to control/improve process costs

C to trace costs to green activities

C for investment decisions/trade-offs

C to assess design impacts, now and in the future

C to prove compliance with environmental standards

C to respond to customers and other stakeholders

C to support sustained growth of profitability

C to make it easier to understand AT&T's impacts on the future.

The Green Accounting Team had a project and product-focus from early on. For example, the

second meeting of the Team included group brainstorming on key projects and priorities. Continuously

identifying specific products and tools crystallized for the Team a set of near-term objectives for

orienting Team activities and defining the Team's purpose. The Team agreed that tools to assess

environmental costs could guide AT&T activities and decisions to make a positive impact economically

and environmentally.

4.3 Multi-Functional, Company-Wide Team

From the start, recruiting and maintaining the Team has been a priority. Initially, the Team

was intended to be a multi-functional management Team with an environmental focus. The first

meeting included nine members from various parts of the company representing functions such as:

C Finance/Policies C Supply Line Management

C Manufacturing/Production C Design

C Information Systems C Manufacturing Engineering

C Manufacturing Strategies C Technology and Environment
- 14 -

As the work progressed, the Team decided to add members who could represent product

management (and the "voice of the customer"), logistics (e.g., transportation and packaging concerns),

and finance from a plant perspective. New members were also added to facilitate coordination with

other relevant AT&T activities and as replacements for departing members. In time, the multifunctional membership of the Green Accounting Team has expanded to include members representing

AT&T facilities nationwide and overseas as well, to encompass global considerations. The result has

been a lively, motivated group that has made significant progress in giving body to abstract concepts

and translating those concepts into practical approaches. Team members have learned to work together

and communicate in an evolving common language. As the focus of the Team changes over time, its

members will likewise change.

5. How Did AT&T's Green Accounting Team Gather Information?

Much of the Team's first six months was spent in gathering and reviewing information. This

learning program included literature reviews, fact-finding visits to diverse AT&T facilities, and focused

efforts to understand how Green Accounting relates to other ongoing DfE efforts. This section

describes these activities.

5.1 Literature Review Process

At the start, each Team member received a copy of Accounting for the Environment by Rob

Gray as well as the February 1994 issue of IMA's Management Accounting magazine. These reference

documents were soon joined by a flood of articles having some relevance to Green Accounting. To

deal with the volume of information systematically, Team members chose a team approach to filter the

information through designated "subject matter experts." Each expert was to filter information for the

Team by preparing a synopsis of each article and then e-mailing it to Team members with a
- 15 -

recommendation on whether or not to read the article thoroughly. Resource materials were grouped

into the following categories for assignment to Team members:

C Environmental Management Systems and waste minimization (as related to

costs)

C Life Cycle Cost, business case, and cost/benefit models

C Design (to recycle/reuse/cost, including trade-off models)

C Recycling/takeback (European regulations)

C SEC requirements, corporate policies, and other companies' annual reports

C Accounting systems with environmental attributes, and bridges between

accounting systems and environmental management systems

C Asset management and investments/dispositions

C Qualifying and requalifying suppliers for environmental reasons

As Team members ran across relevant reading material, they contacted the subject matter

expert or copied the entire Team, based on whether the information merited full distribution. The

objective was a more efficient, economical, and faster approach to information review and

dissemination.

5.2 Information Collection Through Team Meetings

AT&T used Team meetings as opportunities to learn about different company operations,

capabilities, and needs. For example:

C A meeting at the AT&T Atlanta Works fiberoptic cable manufacturing facility

was enriched by a tour and presentations that provided an opportunity to

explore how environmental costs are handled at that facility. On the same trip,

the Team met with Coca Cola, headquartered in Atlanta and perceived by the

Team as a leader in life-cycle environmental assessment, which described its

environmental program.

C A meeting in Colorado Springs allowed the Team to visit an AT&T

microelectronics plant and be briefed on its environmental programs. The
- 16 -

Team heard about some of the business benefits of pollution prevention. For

example, past pollution prevention actions and community relations activities

had created a favorable atmosphere for the community's acceptance of

subsequent plans to expand wafer fabrication capacity in Fort Collins.

C A meeting in Scotland was the occasion to expand the global horizons of the

Team, which heard about the environmental program at AT&T-Dundee (where

ATMs are manufactured) as well as take-back programs in Europe. This

meeting brought the Team together with two professors at University of

Dundee who had co-authored the text Accounting for the Environment, used as

a key reference by the Team. In the course of the meeting, the professors

responded to questions about different aspects of green accounting.

C A meeting at AT&T-Paradyne (where network cards for laptops are made) in

Florida was scheduled to dovetail with AT&T's Activity-Based Costing and

Management (ABC/M) Conference. This allowed the Team to learn about the

connection between Green Accounting and ABC/M.

C A meeting at AT&T-Merrimack Valley Works in Massachusetts gave the

Team an opportunity to observe a pilot system developed for tracking chemical

usage and waste generation and linking associated costs to products, using an

average purchased cost of chemicals drawn from Accounts Payable. The

system provided a model for allocating chemical costs to a process or product.

At the AT&T Merrimack Valley Works, the Green Accounting Team met with Merrimack

Valley Work's Pollution Prevention Team, which made the following comments that directly spoke to

the potential value of Green Accounting:

"If we'd had Green Accounting and process cost information, we could have

saved weeks [of effort]"

"We'd like to know how much it costs to research the viability of alternative

materials [to lead solder], the cost impact on materials purchases, and the time

and cost spent on completing a toxics use reduction report."

"More awareness and measurement of things like disposal costs ... would drive

attention to where the costs are."

To support incorporating Green Accounting into AT&T's pollution prevention initiatives, the Green

Accounting Team envisioned developing an environmental accounting assessment tool (see pp. 25-33)

that site teams could use in determining the most helpful information and in setting priorities to meet

environmental objectives.
- 17 -

Green Accounting Team meetings to date have facilitated active interchanges, helped the Team

develop an understanding of the status of environmental accounting at AT&T, and demonstrated

corporate commitment to DfE and Green Accounting.

5.3 Addressing Related DfE Issues

One important activity of the AT&T Green Accounting Team has been to relate its efforts to

other relevant DfE initiatives underway at AT&T. The Green Accounting Team started by reviewing

the charters of the other DfE subteams to determine their respective areas of expertise and emphasis. 

Based on this review, the Green Accounting Team decided to coordinate with other AT&T DfE teams,

such as the Takeback Team, the Supply Line Management (SLM) Team, and the Life Cycle Analysis

Team. Such coordination was seen as allowing Green Accounting Team members to learn what other

relevant DfE groups were doing and to identify potential areas of linkage and coordination (e.g., where

Green Accounting may figure into take-back programs, purchasing, and facilities and engineering

functions). As a result, Green Accounting Team members with expertise in certain subject areas were

selected to serve as liaisons to other DfE sub-teams when common topics of interest were identified.

Notable examples of such common topics include the Green Accounting Team's work with the

SLM Team and with product takeback issues.

C A joint meeting with the DfE SLM Team focused on a Total Cost of

Ownership (TCO) model, which takes the perspective of AT&T as the

customer. The AT&T Green Accounting Team worked with the DfE SLM

team on accounting aspects of activities such as qualifying and requalifying

both suppliers and materials, with the ultimate goal of reducing defects and

costs.

C The Green Accounting Team explored how its approach would apply to product

takeback. The Team first sketched the takeback process in activity terms and

then identified which activities (e.g., reverse distribution) would entail resource

costs and which activities (e.g., reuse, resell) might entail financial benefits. 

The Team agreed that a trade-off analysis could assess whether benefits exceed

costs in product takeback. The Team noted that a separate trade-off analysis
- 18 -

also should be performed comparing the costs and quality of recycled or reused

materials compared to new materials, including associated purchasing costs.

The Green Accounting Team is continuing to explore and articulate the relationships between

Green Accounting and other DfE activities.

6. What Has AT&T Learned?

As Team members learned about Green Accounting and how it could be applied to AT&T's

operations, the Green Accounting Team generated a number of findings and identified issues for later

consideration. This section describes the key findings and issues the Team identified in its first nine

months of activity.

Over the course of its meetings, the Team realized that the use of different management

information systems at AT&T Business Units would pose an implementation quandary. In order to

implement Green Accounting, a number of different information systems across AT&T could be

employed, but there is no single cost accounting or environmental support system in common use

across the corporation at this time. The Team also discovered that some business units had already

implemented ABC for reporting product costs (i.e., inventory valuation for financial statements). The

next logical step appeared to be using ABC/M for process costing to develop environmental

performance reports and decision models for management purposes.

In its meetings, the Team reached some additional conclusions and articulated a variety of

findings about applying Green Accounting at AT&T. The Team identified the following key points:

C AT&T should define its Green Accounting terms and establish a common

language;

-- A glossary or dictionary of terms should be developed;
- 19 -

 AT&T also refers to these costs as "private costs" meaning those costs that affect the firm's bottom line and 11

that the firm actually pays out. AT&T Environmental Accounting Glossary.

C Green Accounting at AT&T should be based on ABC/ABM principles;

-- ABC/ABM can provide a common-sense platform to apply Green

Accounting; and

-- The essential ingredients are to identify desired behaviors and establish

rewards and recognition.

C Baseline information is not available concerning the degree to which

environmental costs are allocated to specific products;

-- Attention is already being paid to some environmental costs at AT&T;

-- Accounting treatments may vary when it comes to overhead costs (i.e.,

some costs may be allocated to products, general and administrative

overhead (G&A), or research and development (R&D));

-- AT&T must set a baseline to help target opportunities.

The following sections describe the actions taken by the AT&T Team to define Green

Accounting and establish a common language, base Green Accounting on ABC/ABM principles, and

develop tools for assessing baseline performance and improvements.

6.1 Defining Green Accounting and Developing A Common Language

Defining Green Accounting. From the very first meeting on, the Team sought to define

Green Accounting. The Team discussed the many applications of environmental accounting, including

requirements for insurance and taxes, regulations, and external financial information. The Team agreed

that Green Accounting should first focus on "true and relevant" costs that appear in a facility's budget. 11

At the kick-off meeting, members related Green Accounting to two basic accounting activities: (1)

planning, such as predictive analysis weighing environmental impacts on the future (i.e., life cycle

analysis, target costing), and (2) collecting and reporting data (such as gathering information to support

decision analysis and reporting to SEC, EPA, etc.). For both activities, the Team believed that
- 20 -

 See An Introduction to Environmental Accounting as a Business Management Tool: Key Concepts and 12

Terms, EPA 742-R-95-001 (May 1995), pp. 7-12.

"excellent costing capabilities" were a prerequisite for effectively accounting for the environment (i.e.,

identifying costs that mirror operations). Using what Jeannie Wood, AT&T's Green Accounting Team

Facilitator, terms "root cause thinking," the Team concluded that the best business focus for Green

Accounting is the collection and use of information for internal management, because making better

decisions will result in improved performance for external reporting.

As noted on page 2, the Team defined Green Accounting as follows:

: Identifying

and measuring the costs of environmental materials and activities and

using this information for environmental management decisions. The

purpose is to recognize and seek to mitigate the negative environmental

effects of activities and systems.

A recurring issue in environmental accounting is how to define and identify "environmental"

costs. The Team acknowledged the difficulty of distinguishing in some cases between environmental 12

and health/safety materials and activities, but kept its focus on environmental issues. The Team

recognized that environmental aspects would sometimes be inseparable from health and safety

concerns. The Team also recognized that certain costs may be hidden and not attributed directly to

environmental activity, such as production shutdowns caused by responding to emergency spills or

retooling for environmental impact reduction. The Team started to address this issue by developing

definitions of environmental activities, as described starting on page 27.

Establishing a Common Language: The Green Accounting Glossary. The Team took

several actions to foster a common language to communicate about Green Accounting both within the
- 21 -

Team as well as across AT&T. A key activity was the preparation of an Environmental Accounting

Glossary.

The Environmental Accounting Glossary was an early project of the Team. It was designed to

identify and clarify the definitions of key terms in an ABC/M context. The AT&T Environmental

Accounting Glossary was based on the "Glossary of Activity-Based Management," which was

published by Computer Aided Manufacturing-International (CAM-I) in 1991 and edited by

Norm Raffish and Peter B.B. Turney. Other terms were incorporated from "Common Cents" written

by Peter B.B. Turney. AT&T appended Green Accounting examples to many of these terms and added

new terms specific to Green Accounting. The 12-page glossary covers such terms as:

Absorption costing Environmental Logistics

Activity attribute management system Performance management

Activity-based cost system Externalities/external costs Performance measure

Activity-based management Full cost accounting Pollution prevention

Activity cost pool Full cost environmental Private costs

Activity driver accounting Reduce, reuse, recycle

Benchmarking Full cost assessment Resource driver

Cost driver Full cost pricing Supply chain cost

Cost object Green Accounting Sustainable resource

Cost of quality Indirect costs development

Design for environment Investment management Value-added activity

Direct cost Life cycle analysis Value chain

Environmental cost Life cycle costing

 accounting

The Glossary is a "living document" that is expected to evolve as AT&T further implements

Green Accounting. The July 1995 version of the Glossary constitutes Attachment A of this case study.

In another effort at spreading awareness of Green Accounting and developing a common

language throughout AT&T, the Team explored the possibility of adding a Green Accounting

newsgroup to AT&T's news network or leveraging off the existing environmental newsgroup. The

Team envisioned using this medium for communicating objectives, policies, vocabulary, model
- 22 -

 Design to environmental cost refers to a concept of product design oriented toward environmental cost goals 13

or constraints much like the terms design for disassembly and design for recyclability refer to concepts of product

design which emphasize ease of disassembly and recycling, respectively, at the end of a product's useful life.

adaptations, and researching current capabilities and practices. To determine the level of interest in this

initiative, the Team put a few paragraphs about its activities in the environmental newsgroup. The

Team has been entering information into this newsgroup about conferences and forums relating to

Green Accounting and is still evaluating the effectiveness of this activity.

6.2 Applying the ABC/ABM Approach to Green Accounting

The first meeting of the AT&T Green Accounting Team included viewing an AT&T

conference video on ABC/ABM that contained a few references to environmental considerations. The

Team agreed that good cost management is necessary for Green Accounting; thus, the Team's

orientation was on how ABC/ABM practices and principles could help AT&T achieve better

environmental habits. For example, ABC/M could help measure the cost savings from reduced

materials costs due to recycling and reuse. Through the course of its meetings, the Team reiterated the

view that ABC/ABM provides an excellent vehicle to implement Green Accounting. The Team

believed that ABC/ABM would help AT&T identify environmentally preferable activities and measure

them against AT&T's objectives and strategies, thus "balancing the scorecard with several

perspectives." In addition, the Team concluded that ABC/ABM provides an approach to understand

and target areas of opportunity in current processes and in design considerations, including design to

environmental cost. Moreover, the Team came to believe that Green Accounting can provide an 13

impetus to move forward with ABC/ABM because it demonstrates a practical and useful application of

ABC/ABM.

The Team decided to recommend use of ABC/ABM principles to stimulate improvement of

environmental results. The Team viewed ABC/ABM as an ideal platform for Green Accounting,
- 23 -

concurring that AT&T can account for the environment effectively by incorporating environmental

elements into ABC/ABM cost tracking and planning models as follows:

"Where Activity Based Costing (ABC) captures cost elements in processes -- we

need to add the environmental elements.

Where Activity Based Management (ABM) uses data to make decisions -- we

need to add environmental criteria to the decision models."

The Green Accounting Team took these principles to heart and used them as a touchstone for

its work. The Team's vision is to see environmental elements added where ABC links costs to

processes, and environmental criteria added to the decision models used in ABM. The Team sees ABC

as a tool for identifying the true costs of products, and thereby providing an impetus for process

improvement or reengineering that does not necessarily arise from traditional cost accounting systems,

which do not highlight environmental costs.

"When we look at total costs and their `cause' drivers, two approaches can be

considered: (1) attempt to reduce the cost or (2) reduce/eliminate the cause

driver. The environmental preference is to eliminate the cause driver; doing

this, we'll both avoid costs and avoid environmental waste/hazards."

— AT&T Green Accounting Team

Activity-based management employs a set of specific concepts and terms such as "cost drivers"

(i.e., factors or causes that influence the costs of an activity such as the amount of waste generated),

"activity drivers" (e.g., regulatory compliance), activity "characteristics" or "attributes" (e.g., valueadded, non-value-added, environmentally-preferable), "inputs" and "outputs" of activities (e.g.,

materials, products, wastes), and performance measures (e.g., percent of recycled context). The Team

added some examples to the AT&T Environmental Accounting Glossary and conducted its own

exercises to clarify the terminology.
- 24 -

In addition, at one point, the Team performed an exercise in defining inputs, outputs, and

drivers for environmental activities. The inspiration for this exercise came from reviewing the format

of an Activities Dictionary published by ICMS, Inc. While the Green Accounting Team's activity

dictionary (described on pp. 27-29) listed activities, definitions, and general ideas of resources used in

the activities, the ICMS dictionary employed a more involved format that included cost drivers, inputs,

outputs, and other information. The exercise of labelling environmental activities with value-added or

non-value-added characteristics proved to be difficult for the Green Accounting Team to complete at

that time. The Team concluded that (1) there is a need for clarifying the value-added nature of certain

environmental activities (e.g., training), which may depend on who is viewed as the customer; (2)

output measurements should be linked to corporate strategic environmental objectives; and (3) any preexisting dictionary should be used with caution because of the need to tailor the language. Team

members decided to try individually, based on their own areas of expertise, to define inputs, outputs,

and drivers for each environmental activity, with the goal of pooling these efforts later into the Green

Accounting environmental activities dictionary (see pages 27-29).

6.3 Developing Green Accounting Tools to Assess Baseline Performance and Foster

Improvements

The Green Accounting Team found that although attention was being paid to some

environmental costs at AT&T, good data were not readily available to assess the degree to which

environmental costs were being identified and allocated to specific products. The Team found that,

viewed as overhead, environmental activities' costs might be allocated to products generically or might

be charged to research and development (R&D) or general and administrative (G&A) overhead. 

Among the major action items considered by the Team to develop baseline information were the

following options:

(1) Survey AT&T plants to learn how they currently trace environmental costs and

cost recoveries to products,
- 25 -

(2) Pilot implementation of Green Accounting for a product or plant with relatively

high "green costs,"

(3) Develop a self-assessment tool that AT&T plants could use as an aid in

establishing baselines and goals for improvement

After much discussion, the Team decided to implement the third option as a first step.

7. The AT&T Self Assessment Tool

A major product of the AT&T Green Accounting Team has been the development of a selfassessment tool. The tool is meant to be used by business unit or site Pollution Prevention Teams as a

springboard for discussion and improvement (both immediate and continuous). It provides a platform

or template that can be adapted for local considerations. In addition to the Green Accounting Glossary

described above, the tool includes the following components:

C Status Survey

C Environmental Activities Dictionary

C Activities/Resources Matrix

C Protocol

Each of the tool's components is described in turn.

7.1 The Status Survey

The purposes of the survey are to raise awareness of potential weaknesses in existing decision

processes and accounting systems and drive behavior in desirable directions. The survey was a product

of the entire Green Accounting Team; for example, all Team members were asked to think up at least 5

questions to put into the survey. All members were responsible for reviewing, editing, and enhancing

the survey. Team members pooled their questions and edited the results to generate a first draft of the

survey. At a subsequent meeting of the Green Accounting Team, participants made considerable
- 26 -

revisions to the survey. The Team crafted one portion of the survey to help users identify both (1) what

cost information is available for a list of environmental activities and (2) how costs are classified (i.e.,

direct, product overhead, or G&A).

The survey was designed to draw attention to how decisions are made and what information is

used, available, or needed; how costs are classified in accounting systems and whether environmental

elements and activities are reflected in product and process costing. In addition, the status survey

includes a module of questions relating to post consumer product take-back. The following are some

selected examples of questions from the survey:

AT&T Status Survey – Selected Questions

Q At what stage in the business case process is the environmental manager normally included in

decisions on equipment and facilities acquisitions or divestitures?

Early Just before final decision After final decision 

Not generally included 

At what stage should environmental considerations be introduced and weighed?

 

Are the financial impacts of environmental considerations included in the business case?

Yes No 

Q When production and materials handling processes are designed/reengineered (including

tooling/equipment acquisitions), are financial estimates of tangible and intangible

environmental costs/benefits included? (Examples: licenses, treatment, chemicals recovery,

improved goodwill, reduced risk of fines and penalties, etc.)

Yes No 

If so, what was included and how was it derived?

What was the confidence level of the estimate? %

Q Is product life cycle regularly considered during the design phase?

Yes No 
- 27 -

Has life cycle analysis and related life cycle cost impact analysis been performed on any

product(s)?

If so, which product(s)? 

Did the scope of the analysis include end of life recycling or disposal costs?

Yes No 

Q Are depreciation expenses and assets related to equipment acquired for environmental

management easily segregated from other depreciation expenses or capital assets?

Yes No 

A major focus of the survey was whether decisions about

– product design features

– production and handling processes

– sourcing and make vs. buy choices

– capital investments, or

– facility investments/divestments

consider environmental impacts and cost trade-offs, and if so, which costs are considered and how are

they handled. This included frequently overlooked costs such as future costs, potential liabilities or

contingent costs, and so-called "intangible" costs (and benefits) such as brand image and customer

relations costs. The survey also posed questions about the process used to evaluate cost trade-offs for

environmental impacts, including when environmental managers are consulted on decisions about

equipment and facility acquisitions.

To assess the availability of cost data, the survey provided a listing of environmental activities

and a table to note whether the costs of the activities were classified as direct product costs, product

overhead, or G&A. To promote consistency, the Green Accounting Team developed definitions for the

activities, which were collected in an "Environmental Activities Dictionary (ABC/M)."
- 28 -

7.2 Environmental Activities Dictionary (ABC/M)

The Green Accounting Team identified over two dozen environmental activities that could

serve as a starting point for Green Accounting. Each activity was defined in a sentence or two,

sometimes with explicit examples. The dictionary covered all the activities included in the activities/

resources matrix (described on pages 29-31 below), presented in the same order, as well as over a

dozen activities related to product take-back. Selected examples of environmental activities on AT&T's

list include the following:
- 29 -

AT&T — Selected Entries

Obtaining permits: time and expenses for all involved in documenting and applying

for environmental permits.

Operating and maintaining environmental/pollution control equipment: time and

expense of operators and contractors to train, operate, and maintain equipment or

equipment parts for specific environmental purposes; includes depreciation costs of

equipment and tooling (i.e., wastewater treatment plant and air pollution control

devices).

Environmental media testing (sampling and analysis): time and expense, including

contractor's fees, for scientific testing of air, soil or water. This includes sample

collection and analysis costs.

Training (environment-related): includes internal instructor time, materials, and

room costs as well as participants' time and expenses in courses that are related to

environmental and safety training; if external instructors are used, this activity cost

includes fees.

Storing waste and hazardous materials: time and expense of personnel and space

requirements for specialized storing of hazardous materials and other solid wastes

pending use for production or disposal. This includes flammable liquids, compressed

gases, etc.

Evaluating equipment for environmental projects: time and expense by environmental managers in evaluating equipment for purchase which has either the primary

function of pollution prevention or will improve or replace current equipment which has

an environmental impact.

Reengineering to meet environmental objectives: time and expense involved in

redesigning a product or process or researching alternative materials and/or processes.

Qualifying/requalifying suppliers: time and expense by environmental and sourcing

staff and other technical personnel involved in evaluating, interviewing, and monitoring

suppliers as a result of a specific environmental reason; this includes suppliers for

materials, supplies, services, and transportation. An example includes activities of

requalifying suppliers of CFC solvent substitute material.

Developing (environmental) plans/strategies: time and expense involved in

choosing, documenting, communicating, and deploying environmental strategic plans.

De-ionizing water for manufacturing: time and expense, including equipment costs,

to de-ionize incoming water for a production process. While it may be a normal

production cost, using this information may lead to reducing use and costs of processing

this natural resource.
- 30 -

AT&T's list of environmental activities included activities required to comply with

environmental regulations as well as activities not compelled by law (e.g., developing environmental

strategies). Some activities, such as training, might include both required training and training provided

voluntarily by AT&T to supplement legally required minimums. Some environmental activities

overlap (or may constitute) production activities, such as evaluating process equipment that will reduce

or prevent pollution, and process/product reengineering. Some activities (e.g., qualifying suppliers)

may be performed by non-environmental staff. Notably, AT&T included the use of certain resources in

the scope of its list of environmental activities; energy and water consumed directly in production are to

be assigned to "other environmental activities." As noted above in the description of "de-ionizing

water," AT&T believed this focus might lead to reducing use and costs of natural resources.

The Environmental Activities Dictionary included a short key definitions list covering the terms

activities, resources, liabilities, residues, and waste. Several categories of resources were

distinguished, consistent with the activities/resources matrix (described next).

7.3 The Activities/Resources Matrix

From the start, the Green Accounting Team aligned its approach with ABC/ABM principles. 

Toward this goal, the Team designed an activities/resources matrix, which lists over two dozen

environmental activities (as defined in the AT&T Environmental Activities Dictionary) and provides

several major resource categories, including labor, materials/supplies, services/consulting fees,

equipment depreciation, energy and other utilities, and other facilities. A separate companion matrix

covers product take-back activities and resources. Exhibit 3 presents an illustrative excerpt.
- 31 -

Exhibit 3

Excerpt of AT&T Green Activity Matrix

RESOURCE COSTS WITH ENVIRONMENTAL FOCUS

Activities (as defined inActivities Dictionary) People

Materials/

Supplies

Services/

Consulting/

Fees

Equipment

Depreciation

Energy and

Utilities

Other

Facilities TOTALS

training (environmentally related)obtaining permitsmonitoring/tracking regulatoryrequirementsqualifying/requalifying suppliers &materialsdeveloping (environmental) plans/strategiesreengineering to meetenvironmental objectivesoperating & maintainingenvironmental equipmenttreating on-site wasterecycling materialshandling hazardous materialsstoring waste/hazardous materialsdisposing of waste/hazardousmaterials
- 32 -

The user fills appropriate cells in the matrix with one of the following symbols:

$ Yes, the data are readily available

? No, the data are not available, but are needed or desirable

X No, the data, whether available or not, are not relevant

Users of the matrix can employ these results to identify what information is important. In this

way, AT&T facilities can establish priorities for reconfiguring accounting systems to capture the

desired information. AT&T noted that priorities would usually be determined by regulatory

compliance requirements, best practices, Cost of Quality categories, and total activity cost.

The Team thought that once the cost data were developed, AT&T facilities could assess their

relative performance by assigning activity costs to Cost of Quality (COQ) categories (i.e., prevention,

appraisal, failure). The conceptual model is a total COQ of 30% of sales revenues (i.e., 5% for

prevention, 10% for appraisal, and 15% for failure costs including non-compliance); and AT&T

believes that by making greater investments in preventive measures, AT&T can reduce the overall

COQ in half (i.e., to 15% of sales revenues). Thus, the Team invested some time in relating different,

general environmental activities to the three segments of the COQ model as follows:

C Prevention

– DfE

– Advanced Manufacturing

– Supply Line Management

– Prevention training

– Better tools and systems

– Waste minimization

C Appraisal

– Environmental testing, audits, analysis

– Tracking performance

– Risk analyses

C Failure

– Residues and wastes
- 33 -

– Remediation and litigation costs

– Devalued assets

– Lost sales and higher cost of capital due to

impaired corporate image

Then, the Team conducted an exercise to apply its work directly to the COQ model. It took

some examples of specific environmental activities and tried to map them to the elements of Cost of

Quality. The Team reached the following conclusions:

C Some activities could easily be correlated to prevention (e.g., operations and

maintenance (O&M) on environmental equipment) or failure costs

C Other activities (e.g., monitor and track regulations) were more ambiguous and

usually ended up in the appraisal category

C Activities might need to be further subdivided; for example, some types of

training might be more compliance than preventive in nature.

The Green Accounting Team tabled this effort in order to develop and test the assessment tool,

with the intent of returning to this exercise. The Team learned from this exercise that it should provide

examples of COQ activities as part of the assessment tool package to help AT&T facilities in

determining priorities and assessing performance.

7.4 Protocol for Using the Tool

The Green Accounting assessment tool was intended to help AT&T business units optimize

decisions and activities to meet a set of environmental objectives. The assessment tool reflects multiple

perspectives, can be adapted to local situations, and incorporates Activity-Based Costing principles. 

The suggested protocol included the following:

C Employ a team approach in applying the tool to capture a "diversity of

perspectives" (e.g., engineering, accounting, plant management)

C Begin with an awareness session to discuss the purposes of the exercise
- 34 -

C Review and understand the Key Definitions and Environmental Activities

Dictionary before attempting the assessment

C Understand the current accounting system's capabilities, limitations, and

potentials

C Come to a consensus on the answers to the survey's questions and the

activity/resource matrix to identify targeted performance measurements and

opportunities

C Use the answers to establish the baseline for improvement

C Agree on what areas should be emphasized for improvement

C After an appropriate period of time, conduct the assessment again to evaluate

progress and affirm the next steps for improvement.

Because actual data reporting mechanisms were beyond its Charter, the Green Accounting

Team did not require or request that the findings of the assessment be reported back. However,

comments that would improve the survey or enlighten the Team were welcomed.

The Green Accounting Team suggested that after an AT&T facility completes the survey,

logical follow-up actions for improvement could include: (1) establishing which environmental

activities, because of perceived importance and relevance, will need to be captured, (2) assigning

activities costs to Cost of Quality categories (prevention, appraisal, failure) to assess relative

performance, (3) comparing activities costs to available benchmarks, (4) establishing policies and

practices to include environmental elements in decision making and business case analysis, and (5)

aligning desired objectives to compensation and rewards.

7.5 Design Reviews

In early 1995, AT&T completed the process of having three sites review the assessment tool. 

The purpose of the reviews was to evaluate the usefulness of the tool, not to assess the resulting
- 35 -

information. Initial feedback was generally positive, emphasizing the tool's success in highlighting key

issues:

"The approach goes to the `heart of the matter' which is to understand

environmental issues and impacts through raising awareness, getting

people involved, and understanding what action needs to be taken."

– Design Review Team #1

"All questions increased awareness and indicated a need for change .... 

The review team seemed enthusiastic about the tool and the potential

improvements it can achieve."

– Design Review Team #2

"Most questions increased awareness and indicated a need for change. 

Several improvements (e.g., consideration of costs of closure and

contingencies, examples of intangible costs/benefits and liabilities)

were suggested by the participants that are being incorporated into the

tool."

– Design Review Team #3

Although initial feedback from the reviews indicated that some survey questions could benefit

from improvements in wording and sequencing, all the questions were viewed as relevant. As a result

of the review, AT&T also added some new questions. The answers to several questions documented

the need for (1) decision modeling tools and (2) improvements in decision processes to include

environmental considerations. The Green Accounting Team representatives present at the reviews

agreed that a site group applying the tool could quickly grasp its role and realize the importance of

improving AT&T's capability to measure and improve environmental activities.
- 36 -

8. Looking Ahead

Next Steps for the Assessment Tool. Looking ahead past the design reviews of the

assessment tool and the resulting enhancements to it, the Green Accounting Team outlined next steps

for application of the assessment tool:

(1) Assist pilot locations to capture environmental activity cost data, select a trial

product, and perform an evaluation of conventional costing for the product

versus Green Accounting costing. Identify the differences and what business

decisions would have changed.

(2) Develop guidelines for critical environmental activities and methods for

assigning costs.

(3) Distribute the assessment package to all AT&T BU's with recommendations for

its use

(4) Contact the CFO's office for its support in establishing the process and

templates as guidelines for reporting to corporate management

In looking ahead, the Team also considered the issue of incentives: "It is essential to connect

the activities with desired behaviors and rewards/recognition." The Green Accounting Team believed it

had identified the activities. The next step, linking output measurements to behaviors and rewards,

would require the involvement of the entire DfE Team and AT&T senior management.

Future Issues and Objectives for Green Accounting at AT&T. Given the limited amount of

time since the Team was formed, it has covered quite a bit of ground. In the course of its work, the

Team identified a number of other issues to address in the future, including the following:

C Determining whether future liabilities should be spread over product life in

order to build reserves for environmental costs that are predictable;

C Developing a process for focusing (i.e., through interviews with process

owners) on what is important in order to avoid being inundated with irrelevant

data;

C Defining inputs, outputs, and drivers for environmental activities; and
- 37 -

C Relating environmental activities to Cost of Quality categories.

The AT&T Green Accounting Team has identified many areas throughout AT&T where Green

Accounting can be successfully applied. Working with other AT&T groups, tying in with other

environmental programs within the company, and supporting the use of Green Accounting in AT&T's

management practices were cited as some of the Team's objectives. Specific objectives for future

applications of Green Accounting include the following:

C Bring environmental cost considerations into the business case for any future

plant start-ups and divestitures;

C Inject environmental considerations into standard business case process models

used by AT&T organizations for business planning and management;

C Move environmental information and cost impacts into the hands of designers

and tie in with the Green Index, which is an AT&T software tool being

developed to assist designers in scoring the environmental attributes of a

product and identifying areas for improvement;

C Introduce life cycle cost models that incorporate environmental considerations,

eventually including "societal costs" or "externalities" and customer costs (e.g.,

product disposal). This would support the TQM concept of Total Cost of

Ownership. These environmental attribute decision models will help AT&T

define its business and environmental strategies; and

C Use Green Accounting to develop lists of corporate environmental metrics that

can be used to measure and reward performance.

In light of this vision, as of July 1995, the Team faces a rich agenda of future projects in

furthering AT&T's adoption of Green Accounting.
- 38 -

For additional information on AT&T's implementation of Green Accounting, contact

Jeannie Wood, Team Facilitator

AT&T Green Accounting Team

Phone 513/445-2660, FAX 513/445-1441

E-Mail SMTP!Jeannie Wood@Dayton OH.NCR.COM

Part of the glossary is based on the "Glossary of Activity-Based Management," which was published by Computer Aided

Manufacturing-International (CAM-I) in 1991 edited by Norm Raffish and Peter B.B. Turney. Terms preceded by an asterisk

have been added from "Common Cents" written by Peter B.B.Turney.

Definitions added by the AT&T Green Accounting Team are in italics.

Attachment A:

AT&T Green Accounting Glossary

(July, 1995)

Absorption costing. Also known as full absorption costing. A method of costing that assigns all or a

portion of the manufacturing costs to products or other cost objects. The costs assigned include

those that vary with the level of activity performed and also those that do not vary with the

level of activity performed. 

Activity. 1. The processes or procedures that cause work to be performed within an organization. 2.

The aggregations of actions performed within an organization that are useful for purposes of

Activity Based Costing (ABC).

Activity analysis. The identification and description of activities in an organization. Activity analysis

involves determining what activities are done within a process, how many people perform the

activities, how much time they spend performing the activities, what resources are required to

perform the activities, what operational data best reflect the performance of the activities, and

what value the activity has for the organization. Activity analysis is accomplished by means of

interviews, questionnaires, observations, and reviews of physical records of work.

Activity attribute. A characteristic of individual activities. Attributes include cost drivers, cycle time,

capacity, and performance measures. For example, a measure of the elapsed time required to

complete an activity is an attribute. In Green Accounting, the environmental impact of

disposing of waste is an attribute of this activity.

Activity-based costing (ABC). A methodology that measures the cost and performance of activities,

resources, and cost objects. Resources are assigned to activities, then activities are assigned to

cost objects based on their use. ABC recognizes the causal relationships of cost drivers to

activities.

Activity-based cost (ABC) system. A system that maintains and processes financial and operating

data on firm's resources, activities, cost objects, cost drivers, and activity performance

measures. It also assigns cost to activities and cost objects. In Green Accounting, this includes

assignment of environmental attributes and categories, such as preventive, assessment and

failure.

Activity-based management (ABM). A discipline that focuses on the management of activities as the

route to improving the value received by the customer and the profit achieved by providing this

value. The discipline includes cost driver analysis, activity analysis, and performance

measurement. Activity-based management draws on ABC as its major source of information. 

In Green Accounting, this includes providing information to product designers, facility

managers, environmental managers and process engineers in order to achieve desired

performance metrics.
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Activity cost pool. A grouping of all cost elements associated with an activity. In Green Accounting,

this includes all resources consumed in activities like environmental training, treating and

disposing waste, special handling of hazardous materials, etc.

Activity driver. 1. A measure of the frequency and intensity of the demands placed on activities by

cost objects. 2. A measure of the use of an activity by the cost objects. An activity driver is

used to assign costs to cost objects. It represents a line item on the bill of activities for a

product or customer. An example is the number of part numbers, which is used to measure the

consumption of material-related activities by each product, material type, or component. The

number of customer orders measures the consumption of order-entry activities by each

customer. Sometimes an activity driver is used as an indicator of the output of an activity, such

as the number of purchase orders prepared by the purchasing activity. In Green Accounting,

this includes an activity driver such as regulatory compliance.

Activity level. A description of how an activity is used by a cost object or other activity. Some

activity levels describe the cost object that uses the activity and the nature of this use. These

levels include activities that are traceable to the product (i.e., unit-level, batch-level, and

product-level costs), to the customer (customer-level costs), to a market (market-level costs), to

a distribution channel (channel-level costs), and to a project, such as an R&D project (projectlevel costs).

Benchmarking. The process of comparing an organization's performance and procedures in a given

area to that of the best companies, with the company's current practices compared with those of

world-class operations. In Green Accounting, this could include supplier packaging, recycling

or product packaging management.

Best practices. Also known as competitive benchmarking. A methodology that identifies an activity

as the benchmark by which a similar activity will be judged. This methodology is used to assist

in identifying a process or technique that can increase the effectiveness or efficiency of an

activity. The source may be internal (e.g. taken from another part of the company) or external

(e.g. taken from a competitor).

Bill of Activities. A listing of the activities required (and, optionally, the associated costs of the

resources consumed) by a product or other cost object.

Capacity. The output capability of a company when it fully utilizes its bottleneck resources to create

the maximum value for customers while generating the minimum waste.

*Conventional cost system. Any of the older, traditional cost systems that use direct material and/or

labor consumed as the primary means of apportioning overhead.
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Cost assignment. The tracing or allocation of resources to activities (stage one) or cost objects (stage

two).

Cost driver. Any factor that causes a change in the cost of an activity. For example, the quality of

parts received by an activity (e.g. the percent that are defective) is a determining factor in the

work required by that activity, because the quality of parts received affects the resources

required to perform the activity. An activity may have multiple cost drivers associated with it. 

In Green Accounting, the design of the product for disassembly or the packaging for disposal

would be a cost driver.

Cost object. Any customer, product, service, contract, project, or other work unit for which a separate

cost measurement is desired. In Green Accounting, environmental measures would not be

considered a cost object, but an attribute. However, output of an environmental report for

regulatory and stakeholder purposes would be considered a cost object.

Cost of Quality (COQ). All the resources expended for appraisal costs, prevention costs, and both

internal and external failure costs of activities and cost objects. In Green Accounting, the COQ

model can be applied to environmental COQ for objective setting and measuring. For example,

recycling activities can significantly reduce disposal costs.

Direct cost. A cost that is traced directly to an activity or a cost object. For example, the material

issued to a particular work order or the engineering time devoted to a specific product are direct

costs to the work orders or products. In Green Accounting, an example would be the use of

chemicals in production of a single product. However, it would be indirect in the production of

several products.
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Financial accounting. 1. The accounting for assets, liabilities, equities, revenues, and expenses as a

basis for reports to external parties. 2. A methodology that focuses on reporting financial

information primarily for use by owners, external organizations, and financial institutions. This

methodology is constrained by rule-making bodies such as the Financial Accounting Standards

Board (FASB), the Securities & Exchange Commission (SEC), and the American Institute of

Certified Public Accountants (AICPA).

Forcing. The act of allocating the costs of a sustaining activity to a cost object even though that cost

object may not clearly consume or causally relate to that activity. Allocating a plant-level

activity (such as heating) to product units using an activity driver such as direct labor hours, for

example, forces the cost of this activity to the product.
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Indirect cost. The cost that is allocated (as opposed to being traced) to an activity or a cost object. For

example, the costs of supervision or heat may be allocated to an activity on the basis of direct

labor hours. In Green Accounting, this includes allocating the cost of treating waste water to

total units of output.

*Investment management. The use of ABC to manage capacity for maximum profitability and to

direct capital spending to the most profitable improvement targets. In Green Accounting, this

includes pollution prevention and other equipment that minimizes the environmental impact and

risk exposure while reducing cost.

Life cycle costing (LCC). A costing concept that argues for including all the costs incurred for a

product, from its inception to abandonment, as part of its product cost. In Green Accounting,

this includes cost of extraction, intermediate manufacturing, manufacturing, transportation,

product recycling in take-back, disassembling, reverse distribution, restocking used material,

disposing of waste, etc.

Logistics. The process of planning, implementing, and controlling the efficient, cost-effective flow and

storage of raw materials, in-process inventory, finished goods, and related goods from the point

of origin to the point of consumption for the purpose of conforming to customer requirements. 

In Green Accounting, this can include packaging management, reverse distribution, recycling,

etc.

*Managerial accounting. Also known as Management accounting. An accounting methodology that

emphasizes data for managerial decisions in contrast to cost accounting which emphasizes

determination of inventory costs. It is the process of identifying, measuring, accumulating,

analyzing, preparing, interpreting and communicating financial information used by

management to plan, evaluate, and control to assure appropriate use of and accountability for its

resources.

.
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Non-valued-added activity. See also Value-added activity. An activity that is considered not to

contribute to customer value or to the organization's needs. The designation non-value-added

reflects a belief that the activity can be redesigned, reduced, or eliminated without reducing the

quantity, responsiveness, or quality of the output required by the customer or the organization.

*Performance management. The use of ABC to improve profitability. It includes searching for lowcost product designs, identifying cost reduction opportunities, guiding efforts to improve

quality, and measuring performance. In Green Accounting, this includes reducing

environmental impacts as well as improving profitability.

Performance measure. A financial or non financial indicator of the work performed on and the results

achieved from an activity, a process, or an organizational unit. An example of a performance

measure of an activity is the number of defective parts per million. An example of a

performance measure of an organizational unit is return on sales. In Green Accounting, this

includes reduction and elimination of certain chemicals and materials, increasing training and

other preventive activities, and buying environmentally preferred materials and services.

Performance measurement. A monitoring of absolute rate and trend rate at the operational, tactical,

and strategic levels of business.

Process. A series of activities that are linked to perform a specific objective. For example, the

assembly of a television set or the paying of a bill or claim entails several linked activities.

Product life cycle. The period that starts with the initial product specification and ends with the

withdrawal of the product from the marketplace. A product life cycle is characterized by
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certain defined stages, including research, development, introduction, maturity, decline, and

abandonment.

Resource cost assignment. The process by which cost is attached to activities. This process requires

the assignment of cost from general ledger accounts to activities using resource drivers. For

example, the chart of accounts may list information services at a plant level. It then becomes

necessary to trace (assuming that tracing is practical) or to allocate (when tracing is not

practical) the cost of information services to the activities that benefit from the information

services by means of appropriate resource drivers. It may be necessary to set up intermediate

activity cost pools to accumulate related costs from various resources before the assignment can

be made.

Resource driver. 1. A factor used to assign cost to activities. 2. A measure of the quantity of

resources consumed by an activity. An example of a resource driver is the percentage of total

square feet of space occupied by an activity. This factor is used to allocate a portion of the cost

of operating the facilities to the activity. In Green Accounting, the measure of time consumed

by all personnel in researching past years of data for compliance reporting drives the cost to

this activity.
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Supply chain management. 1. A management technique focusing on operations effectiveness. 2. A

strategic management approach to organizing, integrating, and operating business activities.

Support cost. A cost of activities not directly associated with production. Examples are the costs of

process engineering and purchasing.

Surrogate activity driver . An activity driver that is not descriptive of an activity, but that is closely

correlated to the performance of the activity. The use of a surrogate activity driver should

reduce measurement costs without significantly increasing the costing bias. The number of

production runs, for example, is not descriptive of the material disbursing activity, but the

number of production runs may be used as an activity driver if material disbursements coincide

with production runs.

Sustaining activity. An activity that benefits different parts of the organization (e.g., the company as a

whole or a division, plant, or department), but not any specific cost object. Examples of such

activities are preparation of financial statements, plant management, and the support of

community programs.
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Target cost. A cost calculated by subtracting a desired profit margin from an estimated (or a marketbased) price to arrive at a desired production, engineering, or marketing cost. The target cost

may not be the initial production cost, but instead the cost that is expected to be achieved during

the mature production stage.

Target costing. A method used in the analysis of product and process design that involves estimating a

target cost and designing the product to meet that cost (should be done throughout the life

cycle).

Technology cost. A category of cost associated with the development, acquisition, implementation,

and maintenance of technology assets. It can include costs such as the depreciation of research

equipment, tooling amortization, maintenance, and software development.

.

Total quality management (TQM). A set of activities whose purpose is continuous process

improvement, whose objective is total customer satisfaction, and whose core concepts include

standardization, the efficient use of materials, the critical role of management, design

specifications control, reduction of defect rates, SQC, and effective use of human resources.

Unit cost. The cost associated with a single unit of the product, including direct costs, indirect costs,

traced costs, and allocated costs.

Value-added activity. An activity that is judged to contribute to customer value or satisfy an

organizational need. The attribute "value added" reflects a belief that the activity cannot be

eliminated without reducing the quantity, responsiveness, or quality of output required by a

customer or organization. In Green Accounting, an example of a valued-added activity would

be minimizing waste.
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Value chain. 1. A cost-reduction and process improvement tool that utilizes information collected

about business processes and to identify candidates for improvement efforts. 2. Any linked set

of value-creating activities, from basic raw materials through the ultimate end-use product or

service delivered to the final consumers. 3. The set of activities required to design, procure,

produce, market, distribute, and service a product or service. In Green Accounting, the value

chain is redefined to include take-back, disassembly and reuse and disposal of materials.
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3

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3 etc.
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