- Cost Transformation
Environmental management accounting (EMA) is the identification, collection, analysis and use of two types of information for internal decision making. The first is physical information on the use, flows and rates of energy, water and materials (including wastes). The second is monetary information on environment-related costs, earnings and savings.
What is it?
EMA addresses the management information needs of managers for corporate activities that affect the environment, as well as environment-related impacts on the corporation. Depending on the type of organisation, environmental impacts could include production effluent, recycling, water and power consumption, and carbon footprint.
Management information could include:
- Identifying and estimating the costs of environment-related activities
- Identifying and monitoring the use and cost of resources such as water, electricity and fuel, so costs can be reduced
- Making sure environmental considerations form part of capital investment decisions
- Assessing the likelihood and impact of environmental risks
- Including environment-related indicators as part of routine performance monitoring
- Benchmarking activities against environmental best practice.
Environmental costs can be categorised as follows:
- Prevention costs: costs associated with preventing adverse environmental impacts.
- Appraisal costs: costs of assessing compliance with environmental policies.
- Internal failure costs: costs of eliminating environmental impacts that have been created by the organisation.
- External failure costs: costs incurred after environmental damage has been caused outside the organisation.
What benefits does the practice provide?
- Improving sales or reducing sales erosion: consumer awareness of products and services' environmental impact is increasingly influencing their preferences and buying behaviours.
- Reducing costs: reducing wasteful consumption of input resources has a direct positive impact on reducing costs. Also, improvements to processes can bear down on costs.
- Reducing the cost of failure: investing in processes that reduce the likelihood and cost impact of failure, such as the need to process waste or clean up environmental impacts.
- Improving the image of the organisation: this can enable it to attract better talent, reduce talent attrition and charge higher prices.
Implementing EMA? Questions to consider
Continuous improvement is a fundamental premise of EMA and relies heavily on across-the-board engagement of EMA initiatives and processes.
- Is there a demand for an environmental protection agency (EPA) at the top of the organisation? If the need to implement EMA isn't driven from top management, buy-in from the rest of the organisation will be doubtful.
- Have areas for improvement been identified and does the scope for improvement make a strong business case?
- Have measures of success been agreed for all the areas for improvement?
- Have base case results been established from which improvements can be assessed?
- Have targets been set, initiatives identified and resourced, and responsible individuals identified?
- Are systems and processes configurable so as to deploy and maintain EMA?
|Actions to take / Dos||Actions to avoid / Don'ts|
|Related and similar practices to consider||Further resources|