Environmental Management Accounting Notes
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Lecture 5: Environmental Management Accounting
Topics Key Points • Environmental management accounting • Why EMA • Environmental cost accounting • What is EMA • Life cycle costing • Private vs. societal costs • "Green" investment appraisal • Tracing environmental costs • Sustainable balanced scorecard • Environmental cost categories • Cost of full sustainability • Life cycle costing • Challenges for ema • Consumer product example (Apple) • Services example (Xerox) Environmental Management Accounting • Green investment appraisal • Sustainable balanced scorecard Why EMA? • Problems with SBSC ○ Important political debates: • Cost of full sustainability Bruntland 1987 • Landcare Research Ltd Rio 1992 • Challenges for EMA Copenhagen 2009 ○ Social and environmental reporting initiatives (e.g. CSR, GRI etc.) Definitions The process of communicating the social and environmental effects of organizations' economic • Balanced Scorecard = "A statement to translate an organisation's mission actions to particular interest groups (Gray et al. 1996) and strategy into a comprehensive set of performance measures that Extending the accountability of companies beyond provision of financial accounts to the owners of provides the framework for implementing its strategy" capital • Cost of full sustainability = Notional cost of restoring the environment, on The "triple bottom line" (Epstein 2004) a yearly basis ("stop the clock") □ "People, planet, profit" or "the three pillars" • EMA = IFAC (2005): "The management of environmental and economic □ An extended spectrum of values and criteria for measuring organizational success performance through the development and implementation of appropriate environment-related accounting systems and practices" What is EMA? • EMA = UN Expert Working Group on EMA (2001): "The identification, ○ The problem of externalities: collection, analysis and use of two types of information for internal Pollution, toxic waste, carbon emissions etc. didn't used to be taken into account decision making. (1) Physical information on the use, flows and destinies □ Seen as the side effects of economic activities of energy, water and materials (including wastes) and (2) monetary □ Remained external to decisions information on environment-related costs, earnings and savings" □ Negative externalities • Private costs = The cost of sustainability to businesses Many natural resources were seen as unlimited • SBSC = Integration of environmental performance measures (KPIs) in the □ Positive externalities BSC ○ EMA is about costing what was previously not accounted for • Societal costs =Cost of unsustainable business to the environment and ○ The depletion of non-renewable or slowly renewable natural resources is also a cause for concern society
Costs Private costs = The cost of sustainability to businesses □ Sustainability used to be seen only as a cost □ Now increasingly a source of competitive advantage □ Quality is also defined on environmental grounds e.g. ISO14000 on environmental management From cost to opportunity From compliance to performance Societal costs =Cost of unsustainable business to the environment and society □ Can it be calculated and monetized □ What is the relevant time horizon
○ EMA = IFAC (2005): "The management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices"
○ EMA = UN Expert Working Group on EMA (2001): "The identification, collection, analysis and use of two types of information for internal decision making. (1) Physical information on the use, flows and destinies of energy, water and materials (including wastes) and (2) monetary information on environment-related costs, earnings and savings" More distinctively highlights both the physical and monetary sides of EMA Uses two types of information for internal decision making: □ Physical information on the use, flows and destinies of energy, water and materials (inc. waste) □ Monetary information on environmental-related costs, earnings and savings United Nations Division for Sustainable Development, Environmental Management Accounting, Procedures and Principles, 2001
○ Simple adjustments to existing accounting systems to more integrated EMA practices that link conventional physical and monetary information systems ○ MA and EMA share many common goals
○ "resource use is judged effective if it optimizes value generation over the long run, with due regards to the externalities associated with organization's activities" - IFAC, Management Accounting Concepts
○ Narrow definition: Tries to capture the impact of environmental concerns □ On the part of consumers, government or firms Excludes externalities Private costs
○ Broad definition: Tries to capture the impact of economic activities on the environment Includes externalities Social costs
Main EMA techniques and their focus
Course Notes Page 21
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