Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
treatment and cleaner technologies, estimates of related work hours and operating
materials as well as the distribution of total costs to the different environmental media.
In the methodology presented in this report, the environmental cost scheme is first used for the
assessment of annual corporate environmental expenditure of the previous year.
Subsequently, a break down of cost centres and processes can be performed, with guidance
to be found in chapter 6. The focus of EMA is not on disclosure of annual environmental costs,
but for further internal calculation, annual expenditure is the first step in a top down approach
of environmental cost management. Annual expenses are the best available data source; a
further distinction into cost centres, processes, products and material flow balances should be
done in a step-by-step procedure, gradually improving the information system. Calculating
savings, investment options or estimating future price changes requires consideration of future
costs and is dealt with separately in chapter 8.
The environmental cost/expenditure categories follow the historic development of awareness
for environmental cost categories.
The first block of environmental cost categories comprises conventional waste disposal and
emission treatment costs including related labour and maintenance materials. Insurance and
provisions for environmental liabilities also reflect the spirit of treatment instead of prevention.
The first section corresponds to the conventional definition of environmental costs comprising
all treatment, disposal and clean-up costs of existing waste and emissions (cycle 1 in figure
10).
The second block is termed prevention and environmental management and adds the
labour costs and external services for good housekeeping as well as the “environmental”
share and extra costs of cleaner technologies and green purchase, if significant. Prevention
activities are actually inherent to environmental management. Research and development for
environmental projects are part of pollution prevention. The main focus of the second block is
on annual costs for prevention of waste and emissions but without calculated cost savings.
They include higher pro rata costs for environment-friendly auxiliary and operating materials,
low-emission process technologies and the development of environmentally benign products
(cycle 2 in figure 10).
Conventionally, three production factors are distinguished: materials, capital (investments,
related annual depreciation and financing cost) and labour. The next two blocks consider the
costs of wasted material, capital and labour due to inefficient production, generating waste and
emissions.
In the third block, the wasted material purchase value is added. All non-product output is
assessed by a material flow balance. Wasted materials are evaluated with their material
purchase value or materials consumed value in case of stock management (cycle 3 in figure
10).
Lastly, the production costs of non-product output are added with the respective
production cost pro rata charges, which include labour hours, depreciation of machinery and
operating materials and financing costs. In activity-based costing and flow cost accounting the
-17-