Environmental Management Accounting Procedures and Principles

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Environmental Management Accounting Procedures and Principles EMA was defined in the second and third meeting of the expert working group on “Improving the role of government in the promotion of EMA” of the United Nations Division for Sustainable Development to cover the issues in the two middle columns of the table. This report focuses on the bold internal part of EMA of figure 5 with data on the company, process and product level for business application. Accounting in Monetary Units Accounting in Physical Units Environmental Management Accounting Conventional Accounting Conventional bookkeeping MEMA PEMA Monetary EMA Physical EMA DATA ON THE CORPORATE LEVEL Transition of environmental part from bookkeeping and cost accounting Material flow balances on the corporate level for mass, energy and water flows Other Assessment Tools Production planning systems, stock accounting systems DATA ON THE PROCESS/COST CENTRE AND PRODUCT/COST CARRIER LEVELS Cost accounting Activity based material flow cost accounting Material flow balances on the process and product levels Other environmental assessments, measures and evaluation tools Internal use for statistics, indicators, calculating savings, budgeting and investment appraisal Internal use for statistics, indicators, calculating savings, budgeting and investment appraisal of environmental costs BUSINESS APPLICATION Internal use for environmental management systems and performance evaluation, benchmarking Other internal use for cleaner production projects and ecodesign External financial reporting External disclosure of environmental expenditures, investments and liabilities External reporting (EMAstatement, corporate environmental report, sustainability report) Other external reporting to statistical agencies, local governments, etc. National income accounting by statistical agency National accounting on investments and annual environmental costs of industry, externalities costing NATIONAL APPLICATION National resource accounting (material flow balances for countries, regions and sectors) Figure 5. What is EMA? -10-
Environmental Management Accounting Procedures and Principles 3. WHAT ARE ENVIRONMENTAL COSTS? From a macroeconomic perspective, the price of scarce raw materials, pollution and disposal do not reflect their true value and cost to society. Health hazards, repairs of contaminated sites etc. are environmental costs usually not borne by the polluter but by the general public. Environmental costs comprise both internal and external costs and relate to all costs occurred in relation to environmental damage and protection. Environmental protection costs include costs for prevention, disposal, planning, control, shifting actions and damage repair that can occur at companies and affect governments or people (VDI 2000 1 ). This book only deals with corporate environmental costs. External costs which result from corporate activities but are not internalized via regulations and prices are not considered. It is the role of governments to apply political instruments such as eco-taxes and emission control regulations in order to enforce the “polluter-pays” principle and thus to integrate external costs into corporate calculations. What then are corporate environmental costs? Costs incurred to deal with contaminated sites, effluent control technologies and waste disposal may first come to mind. Measures for environmental protection comprise all activities taken for legal compliance, compliance with own commitments or voluntarily. Economic effects are not criteria, but rather the effect on prevention or reduction of environmental impact (VDI 2000). Corporate environmental protection expenditure includes all expenditure for measures for environmental protection of a company or on its behalf to prevent, reduce, control and document environmental aspects, impacts and hazards, as well as disposal, treatment, sanitation and clean up expenditure. The amount of corporate environmental protection expenditure is not directly related to the environmental performance of a company (VDI 2000). Waste and emission treatment using end-of-pipe technologies is usually the first step on the environmental protection path. End-of-pipe investments are gradually implemented as the need for legal compliance increases. Policy debates focus on the internalization of external costs by raising prices for scarce raw materials, water and emissions, and some companies actually try to predict these price changes in their calculations. Public as well as corporate activities aimed at environmental management are still focusing on end-of-pipe technologies, which may in the short run appear to be a fast solution, but in the long run often actually amount to more consumption of material and energy, more capital expenditure and more work hours than if measures are taken at the source. 1 VDI, the German Association of Engineers, together with German industry representatives, have developed a guidance document on the definition of environmental protection costs and other terms of pollution prevention (VDI 2000). -11-
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