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    Environmental Management Accounting

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    Kelvin Kenneth Valmonte
    Environmental management accounting (EMA) involves collecting and analyzing both physical and monetary data related to environmental impacts and resource use within a company. This allows companies to more accurately track, manage, and reduce environmental costs, leading to improved decision-making, environmental performance, and potentially greater profitability. EMA was developed in recognition that conventional accounting practices often fail to account for all environmental costs. Proper implementation of EMA provides multiple benefits to both industry and government.

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    Environmental Management Accounting

    Uploaded by

    Kelvin Kenneth Valmonte
    155 views28 pages
    Environmental management accounting (EMA) involves collecting and analyzing both physical and monetary data related to environmental impacts and resource use within a company. This allows companies to more accurately track, manage, and reduce environmental costs, leading to improved decision-making, environmental performance, and potentially greater profitability. EMA was developed in recognition that conventional accounting practices often fail to account for all environmental costs. Proper implementation of EMA provides multiple benefits to both industry and government.

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    Environmental management accounting (EMA) involves collecting and analyzing both physical and monetary data related to environmental impacts and resource use within a company. This allows companies to more accurately track, manage, and reduce environmental costs, leading to improved decision-making, environmental performance, and potentially greater profitability. EMA was developed in recognition that conventional accounting practices often fail to account for all environmental costs. Proper implementation of EMA provides multiple benefits to both industry and government.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    155 views28 pages

    Environmental Management Accounting

    Uploaded by

    Kelvin Kenneth Valmonte
    Environmental management accounting (EMA) involves collecting and analyzing both physical and monetary data related to environmental impacts and resource use within a company. This allows companies to more accurately track, manage, and reduce environmental costs, leading to improved decision-making, environmental performance, and potentially greater profitability. EMA was developed in recognition that conventional accounting practices often fail to account for all environmental costs. Proper implementation of EMA provides multiple benefits to both industry and government.

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    Environmental Management Accounting

    (EMA)

    Definition
    There are many alternative definitions, but broadly defined EMA is the identification, collection, analysis, and use of two types of information for internal decisionmaking:
    Physical information on the use, flows, and fates of energy, water, and materials (including wastes) Monetary information on environment-related costs, earnings, and savings
    EMA Expert Working Group of the United Nations Division for Sustainable

    Development

    Definition
    EMA combines financial and physical data and calculates the environmental costs of companies Physical data on material and energy input, material flows, products, waste and emissions PEMA financial data on expenditures, costs, earnings, savings related to company activities with potential environmental aspects or impacts MEMA

    Why was EMA Developed?


    EMA was conceived in recognition of some of the limitations of conventional practices for informing environmental management decisions insufficient tracking of energy, materials, and wastes hiding of costs in overhead accounts and elsewhere in the accounting records lack of data on future and less tangible costs in the accounting records at all Insufficient communications between the accounting and other departments/staff, e.g., production, environmental, research

    PHYSICAL INFORMATION
    Flow of energy, water, materials and waste (MEFA) Physical Information
    Materials Inputs Product Outputs Non-Product Outputs (Waste and Emissions)

    Materials/Mass Balances

    Physical Environmental Performance Indicators

    MONETARY INFORMATION
    ENVIRONMENT-RELATED COSTS AND EARNINGS

    Cost Categories
    Waste & Emission Control Costs Prevention & Other Environmental Management Costs Research & Development Costs Materials Costs of Non-Product Outputs Materials Costs of Product Outputs Less Tangible Costs

    Monetary Environmental Performance Indicators


    Environment-related Earnings and Savings Distribution of Costs by Environmental Domain

    The Benefits of Ecoefficiency


    Ecoefficiency essentially maintains that organizations can produce more useful goods and services while simultaneously reducing negative environmental impacts, resource consumption, and costs.

    Customer Demand For Cleaner Products Cost Reduction and Competitive Advantage Better Employees and Greater Productivity

    ECOEFFICENCY

    Innovations and New Opportunities

    Lower Cost of Capital and Lower Insurance

    Significant Special Benefits Leading to Improved Image

    Environmental Quality Cost


    Environmental costs are costs that are incurred because poor environmental quality exists or may exist.
    Environmental costs can be classified in four categories: prevention costs, detection costs, internal failure costs, and external failure costs.

    Environmental Costs Are Often Underestimated


    Research Findings:
    For every dollar of waste cost that companies actually measure, another 2 to 3 dollars of cost are hidden in the accounting records, or are not on the books at all Companies typically underestimate how much waste really costs them, sometimes by several orders of magnitude This applies even to big, well-managed companies

    10

    The Cost of Waste Ink at the Southwire Company


    The cost of a drum of hazardous waste ink was estimated as $50 - the average disposal cost per drum Upon closer inspection, the true cost of waste was discovered to be $1300 per drum, including: $819 in lost raw materials (ink, thinner) $369 for corporate waste management activities $50 for disposal $47 for internal waste handling activities $16 to pay a hazardous waste tax

    11

    Environmental Costs At A Refinery


    (As a percentage of operating costs, excluding crude oil input)

    Original Estimate 3%

    Actual Situation
    22%

    97%

    78%

    Source: Green Ledgers: Case Studies in Corporate Environmental Accounting. World Resources Institute, May, 1995.

    12

    The Cost Iceberg


    Environmental costs can be like an iceberg, with only a small part of the cost visible

    THE HIDDEN COST

    Adapted from: Bierma, TJ., F.L. Waterstaraat, and J. Ostrosky. 1998. Chapter 13: Shared Savings and Environmental Management Accounting, from The Green Bottom Line. Greenleaf Publishing:England.

    13

    EMA End-uses
    EMA can provide the data needed for many environmental management initiatives Cleaner Production/Pollution Prevention/Green Productivity Design for Environment Environmentally Preferable Purchasing Environmental Supply Chain Management Extended Producer Responsibility Performance Meas. & Benchmarking Corporate Environmental Reporting etc.

    14

    EMA for Improved Capital Budgeting


    Better identification, allocation, and analysis of environmental costs improves the process by which the profitability of potential investment projects are assessed. Such investments include any capital project that has the major objective of controlling, reducing or preventing pollution.

    15

    Profitability Assessments of Proposed Sustainable Projects


    EMA can illustrate the potential profitability of projects that utilizes preventive management strategies by doing a better job of profitability assessment: Comprehensive inclusion of relevant and significant costs and savings Improved cost estimation and allocation Longer analysis time horizons Multiple profitability indicators

    16

    Comprehensive Inclusion of Relevant Costs and Savings (conventional and less tangible costs)
    The cost of lost manufacturing inputs lost materials, energy, labor, capital, etc. The cost of waste management waste handling, regulatory compliance, waste treatment & disposal, etc. Less tangible costs reduced production throughput, reduced product quality, negative company image, liability, etc.

    17

    Financial Data for White Water and Reuse Project


    Costs and Savings: Capital Costs Annual Savings company analysis $1,469,404 $ 350,670

    Fiber
    improved analysis
    *TCA

    $1,469,404 $ 911,240

    Financial Indicators:
    Payback Period Net Present Value Internal Rate of Return 4.2 years $ 47,696 17% 1.6 years $2,073,607 46%

    * Total Cost Assessment: Budgeting for Pollution Prevention, Tellus Institute, 1993
    18

    Financial Data for Quality Control Camera Project


    original analysis improved analysis $105,000 $ 38,463 $ 55,000

    Costs and Savings:


    Capital Costs Annual Savings 1-5 years Additional Savings Year 3 Financial Indicators: $105,000 $ 38,463

    Payback Period
    Net Present Value

    2.7 years
    -17,182

    2.7 years
    +18,981
    19

    EMA as Driver of Sustainable Investment


    EMA helps companies recognize and achieve the multiple benefits of Sustainable Investments
    Reduced costs
    increased profit margins lower product prices increased market share

    Reduced liability
    improved company image increased market share increased access to financing and customers contracts

    20

    Benefits of EMA to Industry


    The ability to more accurately track and manage the use and flows of energy and materials, including pollution/waste volumes, types and fate The ability to more accurately identify, estimate, allocate, and manage/reduce costs, particularly environmental types of costs More accurate and comprehensive information for the measurement of performance, thus improving company image with stakeholders such as customers, local communities, employees, government and financial providers

    21

    Benefits to Government of EMA Implementation by Industry


    The more that industry is able to justify environmental investments on the basis of financial self-interest, the lower the financial, political, and other burdens of environmental protection on government.

    Implementation of EMA by industry should strengthen the effectiveness of existing government policies/regulations by revealing to companies the true environmental costs and benefits resulting from government regulations.
    22

    EMA Development
    United Nations Division for Sustainable Developments Consultative Working Group on EMA EMA Workbooks:
    Environmental Management Accounting Procedures and Principles EMA-Links: Government, Management, and Stakeholders Policy Pathways for Promoting Environmental Management Accounting

    23

    UNDSD Expert Working Group on


    EMA

    UNDSD = United Nations Division for Sustainable Development EMA Working Group established in 1999 Core members are government representatives from 30+ countries Other members include invited representatives of accounting associations, academia, business, etc. Group has met 8 times, each time in a different country Group has discussed many international topics of debate surrounding EMA
    24

    EMA Education...
    Most initiatives to promote EMA around the world rely on voluntary adoption, with educational activities a core component:
    guidance documents case studies curriculum development & training software

    25

    EMA in North America Europe

    and

    Examples of initiatives in North America and Europe that promote EMA as a tool for many environmental programs
    US EPAs Environmental Accounting Project Environmental Canada-Quebec Regional Offices Private Sector P2 Initiative Graz (Austria) Department of Environmental Protections Eco Profit Initiative UK Environment Agencys EMA for Financial Accountants Project
    26

    EMA in Asia
    Examples of EMA and EMA-related projects and activities in Asia
    Philippine Training Course on EMA and CP supported the US-Asia Environmental Partnership (USAEP) Environmental Accounting Guideline published by the Ministry of Environment in Japan UNEPs CP Finances Profiting from CP Course in Vietnam Taiwan Environmental Management Associations EMA Training Project Thailand Environment Institutes Workshop on EMA

    27

    STOP GLOBAL WARMING

    - The End -

    28

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