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Forced internalization of external environmental cost: experience of a South African Company

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Abstract

While environmental regulations are designed to ensure that organizations comply with minimum environmental standards, organizations may be compelled to pay penalties if they exceed the set standard. This study provides explanations on the effectiveness of a forced internalization of external environmental cost in a brewery in South Africa. A review of relevant literature indicates the apathy of organizations to internalize environmental costs. To see whether this apathy still holds, this paper uses the contingency theory approach to management accounting to analyze a case study on the effectiveness of forced internalization of brewery wastewater treatment cost by a municipality in South Africa. Findings reveal that the policy forced brewery managers to develop a waste-reduction strategy to improve production efficiency while limiting the volume of brewery wastewater and chemical oxygen demand emissions discharged to municipal waste treatment plant. A significant implication of this study is the forced internalization of wastewater treatment cost and the use of resources more efficiently and sustainably in production by the brewery as a result of the municipality’s policy to demand extra fees when agreed minimum wastewater discharges are exceeded. The importance of this policy is that it brought about improvements to the environmental, social, and economic performances of the brewery. The study suggests that environmental regulators should look beyond mere regulatory and monitoring roles to formulate policies to ensure that organizations take responsibility for external environmental costs they have created.

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Acknowledgments

The author gratefully appreciates the support of the management of the South African Breweries Limited (SAB Ltd), Polokwane Plant, for allowing me access to their facilities during this study.

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Authors and Affiliations

  1. School of Accountancy, University of Limpopo, Polokwane, Limpopo, South Africa

    Michael Bamidele Fakoya

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  1. Michael Bamidele Fakoya
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Correspondence to Michael Bamidele Fakoya.

Appendix: Interview questions for SAB LTD officers

Appendix: Interview questions for SAB LTD officers

The interview questions are semi-structured. A video recording of the interview is used to provide explanations in this paper. Most of the interview questions were prompted during the discussions. This paper endeavored to make the most sense from the responses by categorizing it into relevant contingent areas for analysis.

Contingent category

Interview questions

The lack of brewery wastewater treatment plant

Since it is impossible not to generate waste such as wastewater in a brewing process which must also be treated before disposal, what are the brewery’s main wastewater treatment challenges? What are the main challenges to building your own wastewater treatment plant? How has the non-availability of your own wastewater treatment plant affected your waste disposal process? How do you intend to sustain your reliance on the municipality wastewater treatment plant to process and dispose your wastewater? Considering the volume of wastewater generated in this brewery, will the municipal wastewater treatment plant be able to cope with your discharges and those of households and other industries within the municipality at the same time?

Relationship with the municipality

You have an understanding with the Polokwane Municipality to accept and treat your brewery’s wastewater for eventual disposal, what type of understanding or partnership exists between both organizations? Is there a limit to the amount of wastewater discharges from the brewery that can be processed by the municipal wastewater treatment plant? Please explain the acceptable limit and how you handle excess discharges. How is the amount of beer loss in wastewater calculated? What is the effect on extra charges for exceeding the agreed limit on production?

Strategy to internalize environmental costs

What is the strategy to ensure that your brewery do not exceed the agreed limit? How does your brewery account for the wastewater treatment costs? What effect does this report have on efficiency?

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Fakoya, M.B. Forced internalization of external environmental cost: experience of a South African Company. Environ Dev Sustain 16, 797–807 (2014). https://doi.org/10.1007/s10668-013-9498-1

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  • DOI: https://doi.org/10.1007/s10668-013-9498-1

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