Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles ecological advantages to be derived from such measures are not used. The people in charge are often not aware that producing waste and emissions is usually more expensive than disposing of them. Experience shows that the environmental manager barely has access to the actual cost accounting documents of the company and is only aware of a tiny fraction of aggregate environmental costs. On the other hand, the controller does have most of the information but is unable to separate the environmental part without further guidance. In addition, he or she is limited to thinking within the framework of existing accounts. Also, the two departments tend to have a severe language problem. Calculated or real costs? Companies are interested in their actual costs. Costs incurred elsewhere are of little interest for corporate decision-making. Therefore, the focus of this report is on actual company costs rather than on externalities and estimated future price changes. It is the task of governments, not of accountants, to ensure that prices reflect the real costs to society. All expenditure should refer to the same reporting period and be derived from the annual list of balances, which in the first round means a yearly monitoring of total annual environmental expenditure. This does not include external costs and envisaged future price changes, and the scheme for total annual environmental expenditure is not used for the calculation of investment options or project costs and cost savings. Chapter 8 deals with these issues separately. Environmental management accounting thus represents a combined approach which provides for the transition of data from financial accounting and cost accounting to increase material efficiency, reduce environmental impact and risk and reduce costs of environmental protection. For the following text, the term expenditure is always used where a precise distinction to implicit cost approaches is necessary. Otherwise, the term cost is used. For the different cost categories of the environmental cost scheme (see figure 11, presented in chapter 4 on annual corporate environmental expenditure), guidance is given on where to find them and how to deal with them when expenditures or costs are assessed. Environmental management accounting (EMA) is performed by private or public corporations, but not nations, and has a monetary as well as physical component. Accounting in Monetary Units Conventional Accounting Figure 3. Environmental Management Accounting MEMA Monetary EMA Accounting in Physical Units PEMA Physical EMA EMA combines monetary and physical data Other Assessment Tools -8-
Environmental Management Accounting Procedures and Principles Application fields for the use of EMA data are: • Assessment of annual environmental costs/expenditure; • Product pricing; • Budgeting; • Investment appraisal, calculating investment options; • Calculating costs, savings and benefits of environmental projects; • Design and implementation of environmental management systems; • Environmental performance evaluation, indicators and benchmarking; • Setting quantified performance targets; • Cleaner production, pollution prevention, supply chain management and design for environment projects; • External disclosure of environmental expenditures, investments and liabilities; • External environmental or sustainability reporting; • Other reporting of environmental data to statistical agencies and local authorities. EMA data and their application can be structured into past and future oriented tools. Environmental Management Accounting (EMA) Monetary EMA (MEMA) Physical EMA (PEMA) Past oriented tools Future oriented tools Past oriented tools Future oriented tools Annual environmental expenditure or costs, transition from bookkeeping and cost accounting Monetary environmental budgeting and investment appraisal Calculating costs, savings and benefits of projects Material, energy and water flow balances Environmental performance evaluation and indicators, benchmarking Physical environmental budgeting and investment appraisal Setting quantified performance targets External disclosure of environmental expenditures, investments and liabilities External environmental reporting and other reporting to agencies and authorities Design and implementation of environmental management systems, cleaner production, pollution prevention, design for environment, supply chain management, etc. Figure 4. Past and future oriented EMA tools Source: Adopted from S. Schaltegger, T. Hahn and R. Burrit, 2000. -9-
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