Increase Your Profits With Environmental Management Accounting

GG374
Increase your profits with

environmental management
accounting
This Guide contains a
separate worked example GG374A

“Within the business world there is growing recognition that good environmental and social
performance, as well as financial results, is important for the long-term value
and success of a business. Using fewer resources and minimising waste will
deliver significant benefits not only to the environment, but also to business,
and point the way to a more sustainable economy in the future.”
ACCA (The Association of Chartered Certified Accountants)
“Written specifically for accountants, this Good Practice Guide highlights how they can
produce tangible bottom-line benefits by identifying and planning for environmental
factors and reducing their companies’ environmental impact.”
The Chartered Institute of Management Accountants (CIMA)
“Environmental management accounting can help companies to report publicly on their

environmental impacts and the action they are taking to reduce them and their associated
costs. This can lead to better relationships with key stakeholders such as environmental
regulators, financial institutions, customers and local
communities.”
Environment Agency
“There has been increasing international interest in environmental management

accounting in recent years. This has stimulated research by several innovative organisations
on its application. This Good Practice Guide translates this into practical actions that
organisations can adopt both to realise short-term economic and
environmental benefits, and to help ensure that their businesses are
sustainable in the long-term.”
Environmental Management Accounting Network - Europe (EMAN)
“Accountants are in a unique position to review business costs and highlight

opportunities to improve resource productivity - how to produce more goods
and services with fewer inputs of materials and utilities, and with less pollution
and waste. Improving resource productivity will increase business efficiency,
and hence profits.”
The Institute of Chartered Accountants in England and Wales (ICAEW)
“The key to achieving environmental performance is the ability to identify

costs and benefits and therefore measure success. This practical guide
shows how this can be done - and how accountants can play a major part
by helping companies to make better informed decisions.”
The Institute of Chartered Accountants of Scotland (ICAS)

Increase your profits with
environmental management
accounting
This Good Practice Guide was prepared by

Envirowise
Prepared with assistance from:
Atkins Environment
Environment Agency
Environmental Management Accounting Network - Europe (EMAN)
With thanks to Bovince Limited

Summary
The consumption of materials and utilities and the generation of wastes are significant
business costs that are paid for directly by companies. Environmental management
accounting focuses on these operating costs and involves identifying, analysing,
managing and reducing them in a way that can benefit both the business and the
environment.
Environmental management accounting can help businesses by:
■ improving resource productivity1 and thus generating more profits (typically equivalent to
1 - 3% of business turnover);
■ giving more control over the environmental costs of processes, products and services;
■ identifying the environmental factors affecting the business;
■ making it easier to comply with environmental legislation;
■ improving the company’s reputation with its stakeholders.
Environmental management accounting does not cover the financial reporting of environmental
issues such as environmental liabilities or external costs that arise partly because of business
activities.
This Good Practice Guide, which is applicable to all sizes and types of company, is intended to
help accountants (both management and financial accountants) and financial managers to use
environmental management accounting techniques to identify priority areas for cost-effective
environmental improvement and increased profitability. Some accountants may feel that
resource productivity is not part of their role, but there are many reasons why
accountants should get involved in reducing a business’s environmental costs. The Guide
describes the business benefits of environmental management accounting and explains how to:
■ use the general ledger to identify costs and potential savings;
■ account for the cost of wasted materials, energy and water;
■ allocate environmental costs to different processes and activities;
■ take the next steps to increasing profits by reducing waste, energy and water costs;
■ optimise information available from other management initiatives.
The Guide contains worksheets for environmental management accounting, an example

allocation of environmental costs, a worked example (see GG374A in the pocket at the back of
the Guide) and information about the free advice and publications available to accountants and
others through the Environment and Energy Helpline (freephone 0800 585794).
1 See Glossary.
Contents
Section Page
1 Introduction 1
1.1 Business benefits of environmental management accounting 1
1.2 Why should accountants be involved? 2
1.3 The purpose of this Guide 4
2 Initial identification of costs and potential savings 5

2.1 Estimating the potential savings 5
2.2 Starting from the general ledger 6
2.3 Improving data collection in the general ledger 9
3 Accounting for particular environmental costs 10

3.1 Typical cost savings 10
3.2 Wasted materials 10
3.3 Energy 12
3.4 Water 14
4 Accounting for processes and projects 16

4.1 Using process flow charts to allocate costs to activities 16
4.2 Investment appraisal of environmental projects 20
5 Next steps: setting targets to increase profits 22

5.1 Reducing waste costs 23
5.2 Reducing energy costs 26
5.3 Reducing water costs 27
6 Links to other initiatives 29

6.1 Environmental management systems 29
6.2 Environmental reporting 30
6.3 The role of accountants 31
7 Help from Envirowise and Action Energy 33

7.1 Environment and Energy Helpline 33
7.2 Free resource productivity review - FastTrack visit 33
7.3 Free energy efficiency review - Action Energy visit 34
7.4 Free publications 34
7.5 Waste minimisation clubs 36
Appendices
Appendix 1 Worksheets for environmental management accounting 37
Appendix 2 Glossary 42
Appendix 3 Contact details for professional bodies 43
Introduction 1
section
All businesses affect the environment by their use of materials and utilities and their
generation of products, wastes and, indirectly, greenhouse gases (from their use of
energy derived from fossil fuels). The consumption of materials and utilities and the
generation of wastes are significant business costs which are paid for directly by
companies - the larger the quantity, the bigger the cost and greater the impact on the
environment. Environmental management accounting focuses on these operating costs
and involves identifying, analysing, managing and reducing them in a way that can
benefit both the business and the environment.
1.1 Business benefits of environmental management

accounting
Environmental management accounting looks at the operating costs of consuming materials and
utilities, and generating wastes. It refers to these costs as environmental costs. Fig 1 summarises
the environmental costs associated with manufacturing and other business operations.
Fig 1 Environmental costs of business operations
INPUTS PROCESSES OUTPUTS
Materials Products/services
Packaging Packaging
Energy Wastes
Water Effluents
Air emissions
Improving resource productivity - producing more goods and services with fewer inputs of
materials and utilities, and with less pollution and waste - will increase business efficiency and
hence profits.
It is often easier to increase profits by reducing the environmental costs of processes,

products and services than it is to increase annual turnover.
Reducing environmental costs increases profits
The worked example (GG374A) in the pocket at the back of the Guide describes how
Bovince Limited (a screen printing company with 57 employees) achieved cost savings
of £181 000/year - 5% of its annual turnover - by reducing its consumption of
materials, utilities and generation of wastes. Despite increased competition, the
company’s profits before tax increased from 3.2% in 1995 to 4.5% in 2000.
Environmental management accounting can help businesses by:
■ Improving resource productivity and thus generating more profits or reducing operating costs
(typically equivalent to 1 - 3% of business turnover).
■ Giving more control over the environmental costs of processes, products and services.
1
1
section ■ Identifying the environmental factors affecting the business.
■ Making it easier to comply with environmental legislation.
■ Improving the company’s reputation with its stakeholders. Insurers, regulators, investors,
shareholders, employees, customers and neighbours will all react more positively to a
company that can demonstrate that it is aware of its impact on the environment and is taking
steps to improve its performance.
Reviewing the environmental costs of business operations will also help accountants identify
financial risks and opportunities inherent in the company’s consumption of materials and utilities
and generation of wastes. For example:
■ Environmental taxes to discourage poor environmental performance (eg the landfill tax and
Climate Change Levy) and tax breaks to reward good environmental practice (eg the Enhanced
Capital Allowance scheme for energy-efficient equipment) are likely to become more common.
■ Some materials have become more expensive or their use banned for environmental reasons.
For example, the proposed EC Directive on the Restriction of the Use of Certain Hazardous
Substances in Electrical and Electronic Equipment (ROHS)2 will require the phasing out of
lead, cadmium, mercury, chromium (VI) and brominated flame retardants in the manufacture
of certain types of electrical and electronic equipment by July 2006.
Using environmental management accounting to increase profits
A small company has an annual turnover of £5 million and operates at a pre-tax profit
of 10%. Materials, utilities and wastes account for 30% of business costs.
To increase its pre-tax profits by £50 000 would require the company to increase its
sales by £500 000. However, applying environmental management accounting
techniques could improve the company’s resource productivity by at least 1% and
deliver a profit increase of £50 000. Since the profit is now 11%, any increase in sales
would deliver even more profits.
Large industrial companies with significant environmental costs will make the greatest cost
savings by adopting environmental management accounting techniques. However, organisations
with moderate and small environmental costs (eg manufacturers with only 20 - 30 employees
and office-based service organisations) can also benefit from looking systematically at their
material, utility and waste costs.
Companies that are subject to environmental regulation or have an environmental management

system (EMS) (see section 6.1) may already have considerable environmental data. By using
these data and financial information from the company’s accounting systems, accountants can
apply environmental management accounting techniques to evaluate and implement
opportunities for environmental cost savings.
1.2 Why should accountants be involved?

Accountants are ideally placed to work with other business managers to apply environmental
management accounting techniques.
■ Accountants are in a unique position to review business costs when producing:
- the profit and loss account as part of the year-end financial reports;
- monthly and quarterly management accounts.
2 Contact the Environment and Energy Helpline on 0800 585794 for more information about this directive.
2
■ Accountants have a direct interest in controlling and reducing business costs and increasing
1
section
profits.
■ Accountants have the necessary skills and experience to:
- measure, allocate and control costs;
- identify and plan financial budgets for improvement projects.
■ The business advice provided by accountants is highly regarded.
■ Environmental management accounting is an opportunity for accountants to develop the

services they offer beyond the traditional core skills of accounts preparation, audit and tax.
Two accounting skills are particularly important for environmental management accounting:
■ Costing. It is essential that the environmental costs of products and services are understood and
allocated properly so that they can be managed and prices can be set at an appropriate level.
■ Investment appraisal of projects. Accountants have an important role to play in ensuring

that all relevant environmental costs are considered in project proposals.
Some accountants may feel that resource productivity is not within their remit, but an
understanding of how environmental costs arise is essential if companies are to
maintain their profits in today’s competitive world. A small number of products often
generate a large proportion of environmental costs. The problem with environmental costs is
that they frequently get hidden as overheads and allocated inappropriately. Treating
environmental costs as a general overhead rather than allocating them to individual products
leads to some products appearing to have higher costs than is actually the case, while other
products appear to be cheaper to produce than they really are. Accountants have the skills and
experience to determine the true value of environmental costs.
This problem also applies to many other types of cost. The technique of activity-based costing
(ABC) develops a detailed understanding of the actual cause-and-effect cost drivers and then
uses this information to recalculate the costs of products, processes and services. This approach
shares many similarities with the techniques described in this Good Practice Guide.
Many companies do not fully understand the implications of environmental factors on their
business operations - largely because the accountants, environmental managers and others with
the relevant information are seldom brought together to consider the matter. Applying
environmental management accounting techniques gives companies the opportunity to take a
more strategic view of how current and future environmental factors will affect the business’s
short-term profits and longer-term competitive advantage.
During the search for ways of delivering quality products and services to the customer using
fewer materials and utilities, companies may also find better design and distribution solutions
that result in cost savings and an improved reputation.
Financial reporting of environmental liabilities and external costs
Environmental management accounting does not cover:
■ financial reporting of other environmental issues such as provisions made for

environmental liabilities (eg contaminated land)3;
■ societal costs or other costs to the environment that are external to the business
but may arise partly because of business activities (eg acidification of lakes from
air pollution).
3 The treatment of environmental issues in financial reporting is addressed by the accounting standards
developed by the Accounting Standards Board.
3
1
section
1.3 The purpose of this Guide
This Guide aims to help accountants and financial managers in companies and their external
accountants and financial advisors to use environmental management accounting techniques to:
■ identify and analyse material, utility and waste costs to help the company:
- make informed decisions about operating costs;
- identify priority areas for cost-effective environmental improvement and increased

profitability;
■ allocate environmental costs to different processes to help stimulate process improvements

and cost-saving projects;
■ compare the environmental costs of different products and services to identify areas of the
business for future expansion and to stimulate cleaner design projects;
■ incorporate environmental considerations into decisions about investment in new technology

and equipment4;
■ enhance team-working between accountants and non-financial managers.
The techniques described in this Guide are applicable to all sizes and types of company.
The Guide includes:
■ worksheets for environmental management accounting (see appendix 1);
■ an example of the allocation of environmental costs at a fictitious company (see section 4);
■ a comprehensive worked example from a screen printing company (see GG374A in the
pocket at the back of the Guide) that can be used as a workbook or a training tool;
■ industry examples highlighting the benefits of environmental management accounting;
■ a short list of selected Envirowise and Action Energy publications (see section 7.4);
■ a glossary (see appendix 2);
■ contact details for the professional bodies involved in its preparation (see appendix 3).
Sections 2 - 4 of the Guide are intended to help accountants gain an understanding of the
process and where savings could be made. This will involve accountants asking questions and
talking to people around the site and within the company. Sections 5 and 6 are concerned with
implementing initiatives to reduce costs as part of an overall business strategy; some accountants
may choose to become involved in this stage of the process while others may not.
Section 7 outlines the free advice and guidance on environmental technologies and issues
available from Envirowise and Action Energy. For certain companies, this includes free site visits
to review resource productivity and energy efficiency respectively (see sections 7.2 and 7.3).
More information about these visits can be obtained from the Environment and Energy Helpline
on freephone 0800 585794 or from the appropriate websites (www.envirowise.gov.uk and
www.actionenergy.org.uk). The Helpline also offers free, up-to-date information on a wide
range of cost-saving measures and techniques and advice on how current and forthcoming
environmental legislation will affect business operations.
4 For example, businesses can claim a 100% first year capital allowance for investments in selected energy-
efficient technologies. For more information, contact the Environment and Energy Helpline on 0800 585794.
4
Initial identification of costs and 2
section
potential savings
2.1 Estimating the potential savings

Good environmental management is part of good general management. As with any business
expenditure, costs will tend to drift upwards if they are not reviewed periodically. Inefficiencies
and wasteful practices tend to creep into any system that is not monitored and controlled. Taking
a systematic look at environmental costs for the first time is therefore bound to identify
opportunities for improvements and cost savings.
Remember:
If you don’t measure it, you can’t manage it.
Adopting a structured approach to resource productivity can help companies achieve cost
savings of 1 - 3% of annual turnover, depending on the nature of their business operations. This
is backed up by the experiences of over 500 companies participating in waste minimisation clubs.
Over 60% of the cost-saving projects that these companies undertook were no-cost or low-cost.
■ Applying environmental management accounting techniques at companies where the cost of

materials, utilities and wastes account for about 80% of business costs can typically result in
cost savings of about 3% of annual turnover.
■ Companies where environmental costs account for about 30% of business costs can, on
average, save about 1% of annual turnover.
This relationship is shown in Fig 2, which will help a company to estimate the potential cost
savings it could achieve.
Fig 2 Typical potential cost savings as a percentage of annual turnover
3.5
Potential cost savings as a percentage
3.0
2.5
of annual turnover
2.0
1.5
1.0
0.5
0
10% 20% 30% 40% 50% 60% 70% 80% 90%
Cost of materials, utilities and wastes as a percentage of business costs
This relationship is used in the worked example (GG374A) in the pocket at the back
of the Guide to estimate the potential cost savings achievable by Bovince Limited, a
screen printing company.
5
2
section
2.2 Starting from the general ledger
The general ledger is a good starting point for accountants wishing to identify which
environmental costs to target for improvement. Reviewing the general ledger to identify where
the costs of materials, utilities and waste disposal are allocated will also help to find the largest
items. These are likely to represent the greatest opportunities for cost savings.
Most general ledgers are organised around the type of expenditure and often contain a large
number of line items, eg the chart of accounts for a medium-sized company may run to
hundreds of different items. Despite these detailed accounts, environmental cost data are often
aggregated too much for environmental management accounting. For example, a company may
employ waste contractors to collect different types of waste from the site (eg special waste,
plastic waste, paper and cardboard waste), but have only one line item for waste disposal costs
in its chart of accounts.
2.2.1 Gathering more detailed information
The next step is to consult business managers to:
■ gather more detailed information;
■ understand how large cost items break down across different products, processes and
services within the company.
Table 1 lists the business areas to consider, the data sources they can provide and how these will
help to apply environmental management accounting techniques.
Table 1 Business areas and data sources to consider when gathering more
detailed information to break down large environmental cost items
Business area Data source How it/these will help
Management Investment appraisal Gives information on acceptable payback

procedure periods (eg less than 18 months) and
available investment funds.
Organisation chart Identifies roles and responsibilities across the
company.
Finance Management accounts Provide information on planned and actual
and business plans costs for the business.
Cost accounting reports Provide historical information on materials
for processes, products and labour costs, and overhead allocation
and services for processes, products and services.
Bill of materials reports/ Estimate the materials and labour costs, and
job costing reports overhead allocation for each product or job.
Overhead account Provide a detailed breakdown of overhead
reports costs.
6
Table 1 Business areas and data sources to consider when gathering more detailed
2
section
information to break down large environmental cost items (continued)
Business area Data source How it/these will help
Purchasing Materials invoices and Show quantities and costs of materials
delivery records bought into the company.
Waste bills Show quantities and costs of different types
of waste collection, recycling and disposal.
Energy bills Show quantities and costs of different types
of fuel used (eg electricity, gas and fuel oil).
Water bills Show quantities and costs of water supplied
to the company.
Effluent bills Show quantities and costs of disposing of
wastewater generated by the company.
Business insurance costs Identify any additional premiums to cover
environmental risks on-site.
Operations Process flow charts/ Summarise the main activities carried out in
descriptions each process.
Production schedules/ Provide historical information on throughput
work orders/job sheets levels (eg number of units per week).
Materials data sheets Provide information on optimum use
conditions (eg handling information, mixing
rates and percentage recyclate additions).
Equipment operating Provide energy use ratings and
manuals manufacturers’ recommended settings (eg
for water use, compressed air and solvents).
Quality control Scrap/rework levels Allow analysis of data on rejects to identify
possible design/process improvements.
Sales and Invoices to customers Show quantities and prices of products/
marketing services sold to customers.
Product specifications/ May indicate opportunities to change
customer requirements/ product specifications while still meeting
market segmentation customer requirements.
Customer information May indicate which customers have an
interest in environmental issues.
Health, safety Controlled waste transfer Record quantities and descriptions of
and environment notes controlled waste (ie general waste) collections.
Special waste Record quantities and descriptions of
consignment notes special waste (ie hazardous waste) collections.
Effluent analysis Measures the effluent strength (chemical
oxygen demand (COD) and suspended solids
content). This determines the cost per m3 to
discharge the effluent.
Current regulatory Give costs and conditions of maintaining a
compliance costs regulatory permit (eg requirements for
pollution control equipment, periodic
monitoring of emissions, annual reporting).
Pollution control Involves capital and operating costs for air
equipment filtration units, effluent treatment plant,
waste compactor, etc.
Future regulatory Give estimated costs and conditions likely to
compliance costs arise from forthcoming legislation.
Environmental fines and Give information on previous incidents at
clean-up costs the site resulting in payment of fines or
clean-up costs.
7
2
section
2.2.2 Converting annual costs to physical quantities
Although the cost of some materials may be allocated against specific budgets, utilities and
waste costs are often paid as an overhead for the company as a whole and not recharged against
other budgets. To help break down these environmental costs, price information may be used to
convert financial costs into physical quantities (see Fig 3).
Fig 3 Example: converting financial costs into physical quantities using price information
Total annual Total annual

Item Cost/unit
cost quantity
General waste disposal £8 000 £40/skip 200 skips
Water use and effluent £42 000 £1.20/m3 35 000 m3

disposal (£0.75/m3 purchase cost
and £0.45/m3 disposal cost)
Electricity consumption £54 000 £0.07 per kWh 771 000 kWh
Business managers often have a better understanding of the physical quantities rather than
financial costs. It may therefore help to provide business managers with both types of data. For
example, a business manager may not know the annual cost of waste disposal from a particular
area but will know how long it takes to fill up a skip. Similarly, the manager may not know the
annual cost of water use and effluent disposal but can estimate how many litres of water the
process uses each day.
Physical data are also important when setting targets to reduce environmental costs. Managers
often find it easier to measure physical quantities when monitoring progress towards achieving
the targets.
The cost of any additional processing of solid wastes, effluents and other emissions prior to
disposal should be included in the environmental cost item. For example, a company may
operate an effluent treatment plant to reduce effluent discharge costs, use filtration equipment
to reduce air emissions or rent a compactor to reduce the volume of solid waste for disposal.
Operating and maintenance costs, together with the cost of rent or equipment depreciation,
should be included with the relevant effluent, air emission or waste costs.
2.2.3 Making use of existing data
Companies undertaking certain industrial processes are required to collect and report
environmental information to the environmental regulators under the Integrated Pollution
Prevention and Control (IPPC) regulations.
A company may already be gathering and monitoring environmental information as part of its
environmental management system (EMS) to meet ISO 14001 and EMAS requirements (see
section 6.1).
Drawing on these management systems and detailed environmental data for environmental
management accounting will help to avoid duplication of effort.
8
2.3 Improving data collection in the general ledger
2
section
Reclassifying cost data in the general ledger can be impossible and is always time-consuming and
expensive. It may, therefore, be worthwhile considering introducing additional line items and
requesting more detailed cost breakdowns from the company’s suppliers to ensure that
environmental cost data are entered separately.
It is important to ensure that changes to the general ledger do not reduce the quality of the
data currently being collected. For example, a business restructuring exercise at one company
resulted in previously separate line items for energy purchases (electricity, gas and fuel oil) being
collapsed into a single line item. As a result, the company lost the ability to track these
environmental costs separately.
9
3section Accounting for particular
environmental costs
Once the largest environmental costs have been identified from the general ledger, it is
probably necessary to analyse these to identify opportunities for improvement. At most
companies, the largest environmental costs will include:
■ materials;
■ energy and water consumption;
■ waste and effluent disposal.
Methods to analyse and benchmark waste, energy and water costs are discussed in this section,
while opportunities to reduce them are explored in section 5. Practical advice and guidance on
other significant environmental costs are available from the Environment and Energy Helpline on
freephone 0800 585794.
3.1 Typical cost savings

Table 2 summarises the typical percentage cost savings for materials, utilities and wastes
achieved by over 500 participants in waste minimisation clubs.
worksheet
1 andworksheet 4
Use worksheet 1 (see appendix 1) to apply these percentages to the costs of materials, utilities
wastes and thus estimate the potential cost savings.
Achievable savings will vary from company to company. Further investigation will help to identify
which resources have the highest wastage and therefore provide the greatest opportunity for
cost savings.
Table 2 Typical percentage cost savings for materials, utilities and wastes
worksheet
2 Item
worksheet
Materials
5 Typical percentage cost savings
First most used 1 - 5%

Second most used 1 - 5%
Third most used 1 - 5%
All other materials 1 - 5%
Packaging 10 - 90%
Ancillary materials 5 - 20%
worksheet
3 Consumables
worksheet
Energy
Electricity
6 10
5
-
-
30%
20%
Gas and fuel oil 10 - 30%
Water 10 - 60%
Trade effluent 10 - 60%
Solid and liquid wastes 10 - 50%
3.2 Wasted materials

3.2.1 The true cost of waste
Wasted materials are expensive - they cost UK industry at least £15 billion/year. Minimising the
amount of wasted material is an extremely effective way of improving resource productivity, yet
half of all companies do not know how much waste they dispose of each year.
10
When including the hidden costs of wasted materials such as energy, labour and other added
3
section
value costs, the true cost of wasted materials is typically between 5 and 20 times the waste
disposal costs.
On average, the true cost of wasted materials is about

ten times the cost of disposal.
Minimising waste in offices
Most offices find that they can reduce their waste costs by around 20% through no-
cost and low-cost measures. An office that adopts best practice produces less than
200 kg of waste per staff member per year - this is a useful guide when setting
targets. For example, the average office worker uses up to 100 sheets of paper per
day, of which half is wasted. This is equivalent to consuming over one and a half trees
per person per year. A best practice small office can use as little as 15 sheets per
person per day - that is only a quarter of a tree per person per year.
How much paper does the office use?
3.2.2 Mass balance
Accountants can play a vital role in helping a business collect and analyse data to:
■ identify the cost of wasted materials;
■ highlight opportunities to reduce them.
At companies that use materials (eg plastics, metals and glass) to produce products, comparing
the weight of materials bought into the company with the weight of materials that end up in
the final product (ie the product yield) will enable identification of how much material is wasted
in the process. This is known as a mass balance (see Fig 4 below).
To construct a mass balance, it is necessary to identify the amounts of materials purchased during
the year and balance these against the amounts leaving the company as product or waste, or
which are stored on site. The process of balancing mass inputs and outputs is similar to balancing
revenues and expenditures on a profit and loss account.
Fig 4 Mass balance of product materials
60%
product
Input
material
100%
20% scrap sold

for recycling
15% disposed
of as waste
5% not accounted for
11
3
section The company’s waste contractor may be able to supply accurate weights for the different types
of waste collections from the site. However, if a particular contractor does not weigh individual
collections, it may be worth making this a contractual obligation or to talk to other contractors
who could provide the information.
3.2.3 Duty of Care
The Environmental Protection Act 1990 places a Duty of Care on businesses to know what
wastes they produce and where they are taken for disposal or recycling. Businesses are required
to ensure that their waste is stored securely and can only transfer it to a registered waste
contractor. A transfer note, which includes a description of the waste, must be completed and
a copy kept by the company for two years5. These transfer notes provide a ready source of
information about the total amount of waste collected from the company.
3.3 Energy
Energy consumption is a significant business cost for most companies. Accountants can help
companies adopt a two-step approach to maximise both energy savings and their cost-
effectiveness. This approach consists of:
■ implementing a systematic approach to monitoring and controlling energy consumption (see

section 3.3.2);
■ targeted investment in energy-efficient equipment (see sections 3.3.3 and 5.2).
Monitoring and lighting controls cut energy bills
Reed Business Information, a publishing house in Sutton, reduced its energy

consumption substantially by implementing a number of energy-saving measures.
■ A building management system was installed to monitor air-conditioning, chiller

use and other plant to ensure they were operated only when needed.
■ A lighting control system schedules lights to go off at periods throughout the day
and when the offices are unoccupied. Lighting in overlit areas has been reduced.
■ Local lighting controls are used throughout the building and selected lights have
been replaced with compact fluorescent lamps and lower wattage bulbs.
Gas consumption has been reduced by 67% and electricity consumption by 15% as a
result of these changes in energy management.
How much money would these measures help to save?
3.3.1 Climate Change Levy
The Climate Change Levy (CCL), which was introduced in April 2001, has increased the price of
energy by about 15%. The CCL is applied to bills before VAT is added at the rates shown in
Table 3. There are some exemptions from the Levy, eg use of renewable energy and combined
heat and power (CHP) systems.
The Government’s intention is for the CCL to be repaid to industry by:
■ reducing employers’ National Insurance contributions by 0.3%;
5 A waste consignment note is required for special (hazardous) waste. This must be kept for three years.
12
■ allocating up to £50 million/year to provide advice and guidance6 to help industry use energy
3
section
more efficiently;
■ allocating up to £100 million/year for an Enhanced Capital Allowance (ECA) scheme to

encourage investment in energy-efficient equipment (see section 3.3.3).
Table 3 Climate Change Levy (September 2002)
Fuel Rate (pence/kWh)
Electricity 0.43
Gas 0.15
Coal 0.15
Liquefied petroleum gas (LPG) 0.07
Opportunities for improving energy efficiency are almost always cost-effective and the value of
energy savings at companies that take action is potentially much greater than the cost of the
CCL. Companies that invest in energy-efficient technologies may also qualify for help under the
Government’s ECA scheme (see section 3.3.3).
3.3.2 The importance of metering
The maxim ‘You can’t manage what you don’t measure’ is especially true for energy
management. In addition to monitoring the company’s energy bills, arranging for meter readings
to be taken at regular and frequent intervals will enable an accountant to:
■ check the bills to ensure that the company only pays for energy that it has actually used;
■ compare current costs with previous years;
■ identify exceptionally high consumption and attend to the causes quickly;
■ benchmark the company’s energy efficiency against best practice for similar businesses (see
section 5.2);
■ assess seasonal patterns in energy consumption, eg greater use of heating systems in winter
months.
Checking bills highlights error
When a South Wales company checked its electricity consumption against working
patterns, it found that the electricity meters had not been updated when it had sold
part of its premises to another company. As a result, it had been paying the other
company’s electricity bills for the past five years!
Frequency
The frequency of meter readings will depend on how much energy is used. As a general rule of
thumb, meters should be read monthly if invoicing is quarterly and be read weekly if invoicing is
monthly. It is important to take readings at the same time of day and the same day of the week
(particularly if the reading is weekly).
Recording and analysis

Meter readings can be recorded on worksheets or on a computer spreadsheet. Consumption can
then be displayed graphically; this is useful in detecting trends and warning of exceptionally high
consumption.
6 Contact the Environment and Energy Helpline on freephone 0800 585794 or visit the Action Energy website
(www.actionenergy.org.uk).
13
3
section Some electricity suppliers will supply, on request, a data file showing the company’s electricity
consumption at 20-minute intervals throughout the day. Drawing a graph of this information will:
■ provide a useful profile of how electricity consumption varies during the working day and
out-of-hours;
■ allow analysis of cost between usage and price.
Using lower-price electricity at off-peak times during the day will result in cost savings; reducing
consumption will both save money and provide environmental benefits.
Transport
The relatively high cost of transport fuel means that diesel or petrol consumption will form a high
proportion of the overall costs of the company’s transport fleet.
■ Provide each vehicle with a log to record fuel purchases, mileometer readings, dates of use,
other costs, and driver and servicing details.
■ Use these data to analyse the vehicle’s fuel efficiency and overall costs.
3.3.3 Enhanced Capital Allowance
The Government’s Enhanced Capital Allowance (ECA) scheme was launched in August 2001 to
encourage businesses to invest in energy-efficient equipment. The scheme enables businesses to
claim a 100% first-year capital allowance for investments in selected energy-efficient
technologies. The benefit to businesses is thus a cash flow boost resulting from the reduction in
a business’s tax bill for the year in which the investment was made.
Further details about the ECA scheme are available on the website (www.eca.gov.uk), together
with a list of eligible energy-efficient equipment in the following areas:
■ lighting;
■ motors;
■ boilers;
■ variable speed drives;
■ refrigeration;
■ combined heat and power;
■ pipework insulation;
■ thermal screens, eg for horticulture.
The ECA scheme will be extended in 2002/2003 to include investment in low emission road fuels
and vehicles, and equipment to reduce water consumption and improve water quality.
3.4 Water
Businesses pay for water twice - first to purchase it and secondly to dispose of it as effluent;
water and effluent bills can cost a company as much as 1 - 2% of its turnover.
An Envirowise survey carried out in 2000 found that water purchase costs varied between
46 pence/m3 and £1.34/m3. The cost of discharging effluent (trade effluent charges) can range
from 10 pence/m3 to more than £3.00/m3 (the level of suspended solids and dissolved chemicals
in the effluent will affect the charge). Moreover, these costs are increasing faster than inflation.
Implementation of EC directives to reduce pollution from sewage works outfalls will lead to
further increases in the trade effluent charges levied by water companies.
14
3.4.1 Measuring water use
3
section
It is possible to find out how much the company pays annually in water and effluent costs by
looking at recent water and effluent bills. Companies may also arrange for someone to read the
water meters fitted to the incoming supply each week or month to monitor any fluctuations in
consumption.
The next step is to measure how much and where water is consumed at the company. This will
allow the identification of:
■ areas that have the highest cost;
■ potential opportunities to reduce water use;
■ areas to prioritise for greatest potential for improvement and cost savings.
Accountant leads a water minimisation programme
As a result of an improvement programme led by the company’s management

accountant, F Smales and Sons (Fish Merchants) Ltd has reduced water consumption
at its site in Hull by 39% and achieved cost savings of around £27 000/year by
promoting water efficiency to its 200 employees and making low-cost changes to its
fish processing methods.
Following an audit of water consumption, meters were fitted at a cost of £870 to

measure the amounts of water used in fish cleaning and production processes. All
employees were invited to offer their suggestions for ways to reduce water
consumption and effluent generation, and the meter readings were used to set cost
targets for each part of the factory. Section managers were given responsibility for
meeting the cost targets, which now form part of their key performance indicators
within the annual staff appraisal process.
Meter readings are taken twice a day by engineering staff and water consumption
graphs are fed back to the section managers each week. The management
accountant highlights any significant anomalies and overall progress against cost
targets is reviewed at monthly management meetings.
As well as reducing the volume of water consumed, the company has also reduced
the strength of its effluent by taking steps to minimise the amount of waste materials
entering the drains.
15
4
section Accounting for processes and
projects
This section uses an example from a fictitious company to explain the techniques used to
allocate environmental costs to processes and activities. First, it is necessary to find out
about the company’s process to start identifying where savings could be made.
The worked example (GG374A) in the pocket at the back of the Guide indicates the
level of detail necessary to understand how environmental costs arise during a process.
4.1 Using process flow charts to allocate costs to

activities
When analysing and benchmarking the largest environmental costs, it may be useful to look at
the costs of the company’s main processes in more detail. This can be done by producing process
flow charts showing the main activities.
The flow chart should break down the process into enough detail to enable the estimation of
how much of the total environmental costs should be allocated to each of the main activities.
However, don’t be tempted to make the process flow chart unnecessarily detailed. In most cases,
80% of the potential cost savings from a particular process will result from improving only 20%
of the activities. It does not, therefore, make sense to break down a process to a level of detail
where individual activities represent less than 5% of the total environmental costs. Instead,
group related activities with low individual environmental costs into a summary activity to give a
reasonable level of environmental cost that is then worth managing.
4.1.1 Example process flow chart
Fig 5 shows an example process flow chart for Metalcutters Ltd, a fictitious company that carries
out machining operations on steel castings to produce parts for agricultural machinery. The
company drills holes for bolts to go through the castings and then mills7 flat surfaces onto the sides
of the castings. The castings are cleaned and painted before inspection, packaging and dispatch.
Fig 5 Process flow chart for producing metal parts at Metalcutters Ltd
Castings received
Castings unpacked
Drilling
Milling
Cleaning
Painting
Inspection
Packaging
Distribution
7 Milling involves traversing a rotating cutting tool across the casting.
16
Cutting fluids are used for the metal cutting processes (drilling and milling) to:
4
section
■ provide lubrication;
■ cool equipment and machined components;
■ remove the waste metal (known as swarf or fines) from the cutting process;
■ prolong the life of machine cutting tools.
Like many other machining companies, Metalcutters Ltd considers cutting fluid to be a low-cost
necessity and pays little attention to its purchase, management and disposal - and the resulting
costs. However, the costs of cutting fluid amount to about 16% of the manufacturing costs at
UK metal machining companies8. Waste cutting fluids contain a cocktail of chemicals that are
potentially hazardous to the environment; stricter legislative controls on the disposal of used
cutting fluids mean that disposal costs for spent fluids are increasing.
4.1.2 Identifying process inputs and outputs
The next task is to list the material and utility inputs and waste outputs for each of the activities
in the process flow chart and to estimate their costs. Fig 6 shows an example listing of the main
processes involved at Metalcutters Ltd based on part of the process flow chart (see section 4.1.1).
Fig 6 Identifying material, utility and waste costs
Wastes
eg paper,
Materials and
Castings unpacked cardboard,
utilities plastic
Wastes
Materials and
utilities
Drilling eg metalworking
fluids, swarf
worksheet
1
Wastes
Materials and Milling eg metal dust,
utilities rejects
Worksheet 2 in appendix 1 provides a blank process flow chart for use. This approach is similar
to that used by ISO 140419 to analyse inputs and outputs from processes as part of a product
life-cycle assessment.
worksheet
2
Staff working in the area will know more about their process than anyone else. It is worth
asking for their help to:
■ identify the material and utility inputs and waste outputs;
■ estimate how much of the total environmental costs (obtained from the general ledger) to
allocate to each of the main activities.
worksheet
3
The estimates obtained during these discussions are usually reasonably accurate. However, in
general it is possible to validate these estimates by checking them against data from other sources
eg purchasing records, process data, maintenance records, calibration checks. It may be possible
to find useful additional information that is being collected on an informal basis, eg by key
individuals across the company, in the form of notebooks, charts and computer spreadsheets.
8 Machinery and Production Engineering, p 14, 3 June 1994.

9 ISO 14041:1998 Environmental management - life cycle assessment - goal and scope definition and inventory
analysis.
17
42
worksheet
section
worksheet
5
4.1.3 Tabulating costs
To help analyse the data, consider tabulating the costs of materials, utilities and wastes for each
of the main activities, eg using a computer spreadsheet such as the one in Fig 7 drawn up by
Metalcutters Ltd.
worksheet
3 Worksheet
6
3 in appendix 1 provides a blank spreadsheet for use.
worksheet
Using a computer spreadsheet makes it much easier to produce graphs and charts to:
■ highlight and communicate key findings;
■ help gain agreement on the areas that should be targeted to reduce environmental costs
within the business.
4.1.4 Example allocation of environmental costs
Careful study is sometimes required to decide priorities for action.
For example, comparison of purchase prices at Metalcutters Ltd (see Fig 7) shows that cutting
tools have the highest unit cost (£300 each). This may suggest that one way of making cost
savings could be to extend the working life of the cutting tools by using more cutting fluid.
Cutting fluid is bought as a concentrate at £2.40/litre and then diluted 1:20 with water for use;
at a first glance, this appears to be a low-cost item. Waste cutting fluid is potentially hazardous
to the environment and, to comply with legal requirements, most companies pay a specialist
waste contractor to collect and dispose of the waste fluid safely. Metalcutters Ltd pays
8 pence/litre for waste fluid disposal; at a first glance, this again appears to be a low-cost item.
Table 4 Milling costs of cutting fluid (purchase and disposal) and cutting tools per casting
Item Proportion of Cost per casting Milling cost

environmental costs* machined*
Cutting fluid purchase 75% £0.48 £0.36
Waste cutting fluid disposal 75% £0.32 £0.24
Cutting tools 55% £0.29 £0.16
Total £0.76
* Data taken from Fig 7.
However, Table 4 shows that the cost of cutting fluid (purchase and disposal) per casting milled
(£0.60) is already nearly four times the cost of cutting tools per casting milled (£0.16). This
suggests that, to optimise milling costs, Metalcutters should use less cutting fluid and aim to
replace its tool bits more often.
18
Fig 7 Spreadsheet showing the allocation of environmental costs to each of the main activities at Metalcutters Ltd
Materials consumption Utilities consumption Wastes and effluents
Castings Cutting Hydraulic Cutting Elect- Water Vehicle Scrap Metal Waste Empty Waste Waste
Environmental costs cutting
fluid oil tools ricity miles castings swarf fluid drums boxes water
General ledger cost per year £1.75m £120,000 £22,800 £72,000 £160,000 £40,000 £60,000 £162,500 £1,500 £80,000 £1,000 £1,500 £23,400
Physical unit casting litre litre cutting kWh m3 mile casting kg litre drum box m3
tool
Price/unit £7.00 £2.40 £1.90 £300.00 £0.07 £0.75 £0.20 £13.00* (£0.03)** £0.08 £0.25 £0.05 £0.45
Quantity/year 250,000 50,000 12,000 240 2,286,000 53,000 300,000 12,500 50,000 1,000,000 4,000 30,000 52,000
Cost per casting machined £7.00 £0.48 £0.09 £0.29 £0.64 £0.16 £0.24 £0.65 (£0.07)** £0.32 £0.004 £0.006 £0.09
Percentage allocation of environmental Castings Cutting Hydraulic Cutting Elect- Water Vehicle Scrap Metal Waste Empty Waste Waste
cutting
costs allocated to activities fluid oil tools ricity miles castings swarf fluid drums boxes water
Castings received 100%

Castings unpacked 90%
Drilling 25% 30% 45% 30% 10% 55% 25% 15%
Milling 75% 70% 55% 60% 20% 45% 75% 30%
Cleaning 100% 10% 100%
Painting 10% 10% 45%
Inspection 60%
Packaging 10%
Distribution 100%
Values used in Tables 4 & 5 *Lost sales value of machined castings

**Revenue from recycling company
section
19
4
4
section
Table 5 Drilling costs of cutting fluid (purchase and disposal) and cutting tools per casting
Item Proportion of Cost/casting Drilling cost

environmental costs* machined*
Cutting fluid purchase 25% £0.48 £0.12
Waste cutting fluid disposal 25% £0.32 £0.08
Cutting tools 45% £0.29 £0.13
Total £0.33
* Data taken from Fig 7.
Closer inspection of the proportion of the total environmental costs allocated to drilling in Fig 7
shows that the cost of cutting fluid (purchase and disposal) per casting drilled (£0.20) is
significantly more that the cost of spent cutting tools per casting drilled (£0.13) - see Table 5.
This provides further evidence that Metalcutters should consider options to reduce the use of
cutting fluid. Before making any changes, however, it is essential for Metalcutters to check the
technical implications and to ensure that product quality is maintained.
4.2 Investment appraisal of environmental projects

Significant reductions in environmental costs can often be made through no-cost and low-cost
measures (see section 5). However, other improvement projects may require new technologies
and process adjustments with medium or high cost implications. These can include:
■ Designing cleaner products. Incorporating environmental considerations into a product’s

design can reduce material and utility consumption and increase product functionality.
■ Optimising processes. This involves making the process more efficient by changing the
process flow or reducing variability.
■ Using new technology. Cleaner technology can increase process efficiency, reduce material
and utility costs, reduce pollution and waste, and make the company more competitive.
■ Recovering and re-using materials. Segregating waste streams allows greater recovery,
re-use or recycling of materials and by-products.
As with all capital expenditure, appropriate financial justification needs to be made and options
need to be reviewed. Accountants are often involved in applying investment appraisal techniques
(eg net present value, discounted cash flow, return on investment or payback period) to make
commercial judgements.
For environmental projects, however, the costs and savings can arise from a wide range of
factors. If these are not considered, then the projects may appear less commercially attractive
than they really are. It is therefore important for accountants to help companies take a
comprehensive approach to assessing environmental costs during investment appraisal.
4.2.1 Key environmental costs and savings
When calculating payback, it is important to include the following environmental costs and savings:
■ utility costs, eg energy and water, required to run the process;
■ waste disposal costs (particularly for hazardous wastes which are more expensive to dispose of);
■ effluent treatment and/or disposal costs;
20
■ utility and material costs for ancillary activities such as cleaning and maintenance;
4
section
■ environmental taxes and tax incentives;
■ potential revenues from saleable by-products, eg solvents recovered by distillation or metal

recovery from effluents;
■ reduced environmental risk leading to lower insurance premiums or reduced potential liability
for future environmental damage;
■ cost of complying with current environmental legislation, eg training, monitoring and testing;
■ cost of complying with forthcoming environmental legislation.
The company can be encouraged to consider the positive impact that environmental projects can
have on a range of less tangible factors such as:
■ protecting or enhancing corporate image;
■ increasing employee commitment;
■ satisfying other stakeholders through improved environmental management.
Environmental cost assessment selects best long-term option
Revill Industrial Finishes Ltd in Exeter employs 25 people and specialises in surface
finishing of delicate components for the aerospace, electronics, telecommunications
and defence industries. When considering how to meet its regulatory obligations to
reduce solvent emissions under the Environmental Protection Act 1990, Revill
evaluated three options before deciding to install an enclosed degreasing system.
The option to retrofit a hood to the existing degreasing tank appeared initially to
provide the shortest payback period and could have been preferred for its short-term
benefits. In its investment appraisal, however, Revill also looked at:
■ the cost savings from reduced solvent consumption (easily identified savings);
■ the potential savings from a reduction in insurance premiums (harder to quantify

savings);
■ improved employee health and safety and reduced regulatory pressures

(intangible savings).
As a result, Revill chose an option with higher short-term costs but better long-term
benefits from greater efficiency, productivity gains, much lower solvent consumption
and reduced contingency costs associated with future regulatory compliance.
Bovince Limited drew up a list of priorities for action to reduce its environmental costs.
21
5
section Next steps: setting targets to
increase profits
By this stage, the accountant will have:
■ identified large environmental costs that could be reduced;
■ analysed how these costs break down across the company’s processes, products and services.
The accountant will now be in a position to work with other business managers to help set
targets, manage projects and measure improvements.
The accountant can play a role in raising awareness of environmental costs across the company by:
■ providing business managers with financial costs and physical quantities to help them set
targets;
■ estimating the target cost savings and payback period that could be achieved;
■ providing business managers with on-going data to help them measure progress against the
targets, track success and identify problems;
■ carrying out assessments when capital investment projects are completed to calculate the
actual cost savings and payback periods;
■ compiling periodic progress reports for senior management, eg by including additional

information into monthly management accounts and variance reports.
Accountants need not feel that they are acting alone. A team approach is generally best for
achieving cost-effective and long-term benefits. Free help and advice are also available from
Envirowise and Action Energy (see section 7).
■ Changes in environmental costs can simply result from an upturn or downturn in business,
rather than efficiency improvements. To be meaningful, environmental targets need to be
expressed as an efficiency ratio, eg electricity use per unit of production or other appropriate
measure of business throughput.
■ It may not be possible to follow up all opportunities for resource productivity. What is
important is to:
- determine which options are feasible;
- agree priorities for action;
- get started.
■ Within an overall programme, it is often possible to define discrete projects for which specific
targets for environmental cost savings can be set.
■ Make someone responsible for overseeing the implementation of the programme. Good
project management is necessary to ensure the projects deliver the desired cost savings and
environmental benefits.
■ Communicate progress against targets widely within the company to encourage everyone to
support the improvement programme. For example, use graphs and charts to summarise key
findings on notice-boards, in newsletters or in e-mail bulletins.
■ Brainstorming meetings provide an opportunity for all interested staff to offer their ideas.
Many successful and cost-effective environmental improvement projects have grown from
staff suggestions, enthusiasm and local knowledge.
22
■ Before making any changes, the implications on other aspects of business operations (eg
5
section
technical issues, quality, health and safety) must be assessed.
5.1 Reducing waste costs

5.1.1 Identifying waste amounts and costs
The simplest approach is to walk around the site looking at where materials are consumed and
wastes are being produced.
Use worksheet 4 (see appendix 1) to record estimates of material and waste amounts and costs.
worksheet
Fig 8, overleaf, shows part of an example worksheet completed by Metalcutters Ltd, the fictitious
company featured in the example in section 4.
1 worksheet
4
Most people will want to help reduce the amount of materials that are wasted. Talking to process
operators and others can reveal where and why the waste occurs. It may be useful to look at
Envirowise publication Finding hidden profit - 200 tips for reducing waste (EN30)10.
Photographs of waste and where it is being produced can also help to highlight problem areas,
convince others of the need for action and allow for future comparisons. worksheet 2 worksheet
5
Build up a more detailed picture of the quantities and costs of materials and wastes by measuring
the time taken to fill up containers from different areas across the company and weighing the
contents.
Useful information can be gained by arranging for a waste skip to be emptied before being
collected by the waste contractor and for the waste to be segregated into different categories
worksheet
(eg metals, plastics, wood, paper, packaging and empty drums). This allows
weighed and its source to be identified.
each category to be
3 worksheet
6
10 Available free of charge through the Environment and Energy Helpline on freephone 0800 585794 or via the
Envirowise website (www.envirowise.gov.uk).
23
section
24
5
Fig 8 Example worksheet to estimate quantities and costs of materials and wastes
Survey of materials and wastes

Name: B Green Date: 6 June 2002 Sheet: 1 of 1
Activity Materials and wastes Estimated amount per Estimated cost (including value Current waste reduction
week/month/year* added) per week/month/year* activities (if any)
Castings unpacked Cardboard boxes about 600 boxes/week £1 500/year Compacting for disposal
(30 000/year)
Drilling Cutting fluids 12 500 litres/year £30 000/year Cutting fluid is diluted and
re-used several times
Hydraulic oil 3 600 litres/year £6 800/year None
Cutting tools 110 tools/year £33 000/year None
Scrap castings 1 250/year £16 200/year (lost sales value Scrap castings are sold for
minus recycling revenue) recycling
Metal swarf 27 500 kg/year (£825/year) Metal swarf is segregated and
(recycling revenue) sold for recycling
Waste cutting fluid £20 000/year None
Empty drums £150/year None
Milling
Total annual cost £461 300

* Indicate timescale
5.1.2 Waste minimisation options
5
section
Eliminating and reducing the amount of materials that are wasted in the first place will deliver
the greatest cost savings. A variety of publications describing practical measures to reduce waste
from different industries and activities are available from Envirowise (see section 7).
Having taken steps to reduce the amounts of materials consumed and wastes generated, follow
the waste hierarchy to minimise the amount of waste sent for disposal (see Fig 9). The list below
ranks these options from the most cost-effective down to the least cost-effective.
Fig 9 The waste hierarchy
Start here
Material Product
1
Eliminate
2 WASTE
Avoid producing Reduce

3 ONLY
4
waste in the
first place Minimise Re-use
5
the amount
of waste you Use items as
do produce Recycle
many times as
possible Recycle what Dispose
you can only
after you Dispose of
have re-used it what’s left in a
responsible way
■ Eliminate the waste stream by changing procedures and/or processes.
■ Reduce the amounts of materials consumed and wastes generated.
■ Re-use. It is usually more cost-effective to reduce the amount of materials consumed and wastes
generated in the first place. However, re-use of waste materials can provide significant cost
savings and is an effective option for wastes such as packaging. Introducing re-usable packaging
to transport goods to customers can significantly reduce packaging costs. Similarly, asking
suppliers to take back empty packaging for re-use can significantly reduce waste disposal costs.
■ Recycle. Segregating waste streams (eg separate containers for cardboard, paper, plastics
and metals) can enable many of them to be collected by specialist recycling companies at a
considerably reduced cost. However, it is still better to reduce these wastes rather than
recycle. Contact the Environment and Energy Helpline on freephone 0800 585794 for details
of recycling companies operating locally.
■ Dispose. This is the most expensive option. The Government has set a target to reduce the
amount of industrial waste sent to landfill to 85% of 1998 levels by 2005 and is committed
to increasing the landfill tax by £1 per tonne per year until 2005. The landfill tax is paid on
top of the charges imposed by the landfill operator (these are also expected to increase with
the implementation of the landfill directive).
25
5
section
Bovince Limited (a screen printing company) achieved significant savings by taking
action to reduce its use of printing substrate, solvents and chemicals. For example,
the company reduced the number of sheets used per print job by 25% between 1996
and 2000 - saving an estimated £87 000/year. Solvent costs fell by over £61 000/year
during this period.
5.2 Reducing energy costs

5.2.1 Energy efficiency measures
Systematic monitoring of energy consumption will help to identify no-cost and low-cost
measures giving savings of 5 - 10% of energy consumption and having a payback period of less
than one year. For example:
■ Checking thermostat settings regularly. Each 1°C of overheating raises heating costs by
6 - 10%. Most people are comfortable at 19°C. Similarly, set the air conditioning threshold
at 24°C.
■ Heating costs can increase by 30% or more if boilers are poorly operated or maintained.
■ Turning off lights when they are not needed is one of the most effective ways of saving
money - lighting costs in the most efficient offices can be a third of the cost in a typical office.
■ Most people are unaware of the high cost of compressed air; as a power source, it costs
around ten times more than electricity. Carry out regular checks for leaks.
■ Poor driving technique can increase fuel consumption by 20%. Set up a system to monitor
the fuel efficiency of each employee and circulate the results as a league table to stimulate
competitiveness to improve.
Monitoring can also provide or improve vital information about the way the company uses energy.
This makes it possible to quickly and effectively focus attention on those activities where
investment in equipment would give the greatest energy savings. Typically, it is possible to reduce
energy consumption by a further 10 - 15% from projects with payback periods of up to two years.
Contact the Environment and Energy Helpline on 0800 585794 for free advice and guidance on
energy efficiency measures in the following areas:
■ lighting;
■ compressed air;
■ insulation;
■ advanced heat exchangers;
■ heating systems;
■ ventilation;
■ boilers;
■ motors and drives;
■ refrigeration;
■ drying;
■ transport;
■ CHP systems;
■ heat recovery;
26
■ furnaces;
5
section
■ monitoring techniques;
■ process instrumentation and control.
Alternatively, visit the Action Energy website (www.actionenergy.org.uk).
5.2.2 Fuel prices
Another way to reduce energy costs is to buy fuel at lower prices. For example, there are a
number of ways of paying less for each unit of electricity:
■ make maximum use of cheaper units (especially night-time units);
■ minimise the use of peak rate winter units;
■ reduce peak demand where possible;
■ check with the supplier that the load has no unusual characteristics (eg low power factor).
Consider looking at fuels or energy sources that can reduce liability to pay the Climate Change
Levy - renewable energy sources and, where sufficient demand exists, CHP systems.
Bovince Limited achieved significant savings by reducing its electricity consumption
by 30%.
5.3 Reducing water costs

Many companies can dramatically reduce their water costs by making simple changes in
operating practices or maintenance procedures.
Developing a water reduction programme can deliver substantial cost savings. This involves:
■ drawing up a water mass balance to identify water use and wastage;
■ allocating consumption to activities and processes;
■ identifying water-saving opportunities;
■ maintaining savings and reporting success.
Typical uses of water in business include:
■ domestic, eg for drinking water, washing and flushing toilets (a good practice office building
should be using no more than 7.7 m3 of water per person per year);
■ cleaning equipment, buildings and yard areas;
■ cooling processes, eg removing heat from machinery;
■ processing, eg diluting, mixing and separating;
■ rinsing, eg to avoid carryover of chemicals from one process to another;
■ steam raising, eg for process heating;
■ conveying materials, eg in the food and drink industries.
27
5
section Simple estimates made as a ‘one-off’ exercise provide a good starting point and can allow
ways of achieving initial savings through the introduction of good housekeeping measures to
be identified. This can be done by measuring flow rates (eg in litres per minute) and flow
duration (operating times in minutes per day or uses per day). Sites where there have been no
previous attempts to save water can usually reduce water and effluent costs by up to 20% at
little or no cost.
A regular measurement routine and a systematic approach to water reduction are necessary to
sustain and build on early savings. It may be worthwhile to install water meters on key parts of
the process. The cost of taking regular measurements is usually more than justified by the typical
20 - 30% decrease in water use achieved by such a programme.
Practical advice for different industries on ways to reduce water and effluent costs is available
from Envirowise (see section 7).
Bovince Limited achieved significant savings by reducing its water consumption by 21%.
28
Links to other initiatives 6
section
6.1 Environmental management systems
Companies can make significant cost savings from applying environmental management
accounting techniques without having implemented an environmental management system
(EMS). However, the power of these environmental management approaches to evaluate and
implement resource productivity improvements is considerably enhanced when environmental
management accounting techniques are applied within the framework provided by a good EMS.
Management systems help companies to take a systematic approach to managing business

issues. Best practice management systems are based on a four-stage cycle (see Fig 10).
Fig 10 Best practice model for management systems
Plan
Review Implement
Check
An EMS can be thought of as a communications framework of procedures and management

programmes which co-ordinates effective management of environmental issues at an
organisation. Both ISO 14001 and the EC’s Eco-Management and Audit Scheme (EMAS) (see
sections 6.1.1 and 6.1.2 respectively) require an EMS to manage:
■ compliance with relevant environmental legislation and other requirements to which the
organisation subscribes;
■ prevention of pollution;
■ continual improvement in resource productivity.
This involves:
■ identifying the environmental impacts of the company’s activities;
■ writing an environmental policy;
■ setting targets to reduce significant environmental impacts;
■ developing management programmes to allocate responsibilities, resources and timescales to

achieve the targets;
■ audits to check progress against targets;
■ management reviews to evaluate the overall effectiveness of the EMS.
If the company already has an EMS, it will have already gathered a lot of detailed environmental
information. Applying environmental management accounting techniques will help accountants
to use these data to develop resource productivity projects for management by the EMS. If the
29
6
section company is planning to implement an EMS, then it can adopt environmental management
accounting techniques at the same time.
For practical help and advice on implementing an EMS, contact the Environment and Energy
Helpline on freephone 0800 585794.
6.1.1 ISO 14001
The international standard ISO 14001 Environmental Management Systems - specification with
guidance for use and the associated guidelines ISO 14004 Environmental Management Systems -
general guidelines on principles, systems and supporting techniques provide a model for the
management system elements that should be addressed in an EMS. Copies can be purchased from
the British Standards Institution, Tel: 020 8966 7022 or visit the website (www.bsi-global.com).
6.1.2 EMAS
EMAS incorporates and builds on ISO 14001 by requiring an organisation to implement an EMS
and, in addition, to produce an annual environmental statement to publicise the improvements
in environmental performance achieved at the organisation’s site(s).
EMAS is administered in the UK by the Institute of Environmental Management and Assessment

(IEMA), Tel: 01522 540069, e-mail: emas@iema.net or visit the website (www.emas.org.uk).
6.2 Environmental reporting

Environmental management accounting techniques can also help a company to report publicly
on its environmental policy and performance by providing trend data on physical quantities and
costs. This can protect or improve a company’s reputation and aid communication with a wide
variety of stakeholders.
Demonstrating concern about environmental issues can differentiate the company from the
competition and attract customers and investors. Reporting can also enhance the company’s
reputation as a responsible employer, thus improving staff recruitment and supplier retention.
A company’s environmental performance can be reported by:
■ including an environmental section in the annual report and accounts;
■ producing a stand-alone paper-based report;
■ placing an electronic copy of the report on the company’s website.
Where possible, companies should include trend data to show how their performance has
changed with time.
6.2.1 Government guidelines
The Government’s General Guidelines on Environmental Reporting provides an introduction to

environmental reporting. The publication is intended to help all organisations to measure and
report on their main environmental impacts. The guidelines, which have been endorsed by the
Confederation of British Industry, recommend that all companies should aim to report on their
waste, water use and greenhouse gas emissions from energy consumption. The Government has
published more detailed guidelines containing specific information on how to report on these
environmental impacts:
■ Guidelines for Company Reporting on Waste;
30
■ Guidelines for Company Reporting on Water;
6
section
■ Guidelines for Company Reporting on Greenhouse Gas Emissions.
All four publications are available via the website (www.defra.gov.uk/environment/envrp/index.htm).
6.2.2 Disclosure of environmental issues in annual accounts and

annual reports
In June 2001, the European Commission adopted a Recommendation on the recognition,

measurement and disclosure of environmental issues in annual accounts and annual reports of
EU companies. The Recommendation describes how to treat environmental expenditure and
liabilities using the same definitions as in the Business Statistics Directive and the Government’s
Annual Survey of Environmental Protection Expenditure. It also recommends that environmental
issues should be disclosed to the extent that they are material to the company’s financial
performance or financial position. These issues include environmental policies, programmes and
improvement, and information on environmental performance including energy use, water use,
material use, emissions and waste disposal.
In 1998, the UK Government launched a three-year review of company law. In July 2002, the
Government published its response to this review in a White Paper, Modernising Company
Law11. This stated that, in future, the top 1 000 UK companies would be required to publish an
operating and financial review (OFR). Directors preparing an OFR will need to consider many
factors in deciding on which issues to report. However, the White Paper makes clear that
Government believes every company director needs to consider environmental issues as one, if
not the most, important factor. The White Paper recognises that such wider reporting is outside
the experience of some companies and that it can take time to gather and assess information
and implement the necessary processes. The Government has therefore decided to establish a
new independent group to provide guidance on how directors can assess whether an item
should be included in an OFR.
6.3 The role of accountants

Accountants have a valuable role to play in using environmental management accounting
techniques to support environmental management systems and environmental reporting
initiatives. Fig 11, over the page, summarises the links between environmental management
accounting to these initiatives. It also highlights how environmental management accounting
can help to:
■ deliver incremental improvements to minimise wasted materials, water and energy;
■ make step-change improvements by implementing cleaner technology.
11 Available on the DTI website (www.dti.gov.uk/companiesbill/).
31
6
section
Fig 11 Links between environmental management
accounting, EMS and environmental reporting
Environmental management system

• ISO 14001 and EMAS
• Policy commitments, objectives and targets
• Responsibilities, communication and training
• Procedures, audits and management reviews
Environmental reporting
• Government’s general guidelines
and guidelines for waste,
energy, water
NMENT
IRO A
TING ENV
• Identification
LM
and allocation of
environmental costs
ANAGE
• Targets for resource
productivity
• Measuring and
N
monitoring
M
U
progress
EN
T ACCO
Waste minimisation Cleaner technology

• Incremental improvements • Step-change improvements
(Doing it better) (Doing it differently)
Materials Energy Water Cleaner Process New Recovery

design optimisation technology and re-use
32
Help from Envirowise and 7
section
Action Energy
Accountants and business managers can obtain free advice and information on best
practice for resource productivity from Envirowise (waste and water) and Action Energy
(energy efficiency).
Envirowise is a Government programme dedicated to helping UK companies to become more

profitable by increasing their resource productivity. Its services include:
■ free advice from Envirowise experts through the Environment and Energy Helpline (see
section 7.1);
■ free guides, case studies, fact sheets and CD-ROMs to provide in-depth expert information
on resource productivity and environmental issues across a wide range of industry sectors;
■ free on-site resource productivity reviews by Envirowise experts to help smaller companies
identify and implement cost savings (FastTrack visits - see section 7.2);
■ contact details for waste minimisation clubs across the UK where local companies meet
regularly to share experiences and best practices in resource productivity;
■ best practice seminars and practical workshops to examine how resource productivity
techniques can be applied to companies.
These services are available through the Environment and Energy Helpline on freephone
0800 585794 or via the Envirowise website (www.envirowise.gov.uk).
Action Energy is a Government-backed initiative to help businesses and organisations cut their
energy costs through the provision of free, professional advice and assistance. Its services are
available through the Environment and Energy Helpline on freephone 0800 585794 or via the
Action Energy website (www.actionenergy.org.uk).
7.1 Environment and Energy Helpline

The Environment and Energy Helpline (0800 585794) provides free, up-to-date information on a
wide range of environmental issues including:
■ how to reduce material and waste costs;
■ how to reduce energy costs;
■ how to cut water and effluent bills;
■ how to control transport costs;
■ what cleaner and more efficient technologies should be considered;
■ current and forthcoming legislation and how it affects businesses in any industry sector.
7.2 Free resource productivity review - FastTrack visit

For small companies with fewer than 250 employees, Envirowise offers a free and confidential
resource productivity review - known as a FastTrack visit - to help the company identify
opportunities to reduce its material, utility and waste costs. The review is carried out by an
independent environmental expert, who will spend a full day at the site.
33
7
section The visit will provide valuable practical experience on how to use environmental management
accounting techniques to identify and analyse environmental costs in key areas of the business.
The expert aims to highlight immediate cost savings by identifying low-cost, high-value solutions.
The expert can also provide confidential advice to help with any specific concerns the company
may have, eg advice about environmental regulations. At the end of the visit, the company will
be provided with a report on the day’s findings and a suggested action plan.
To book a FastTrack visit phone the Environment and Energy Helpline (0800 585794) or fill in an
application form online at (www.envirowise.gov.uk).
7.3 Free energy efficiency review - Action Energy visit

Companies with an annual energy bill of between £10 000 and £500 000 can also request a free
energy efficiency review by calling the Environment and Energy Helpline (0800 585794).
Known as an Action Energy visit, this free site assessment looks at overall energy use and what
needs to be done - particularly in terms of management and basic energy services. For new
building projects or those involving major refurbishment, support is available on all aspects of
environmental design. To obtain this free service, the company will need to provide evidence of
its commitment to take action.
7.4 Free publications

The publications listed below represent only a small selection of the wide range of guides, case
studies, fact sheets and CD-ROMs available free of charge through the Environment and Energy
Helpline on freephone 0800 585794. They can also be downloaded as appropriate from the
Envirowise website at www.envirowise.gov.uk (waste materials and water) and the Action
Energy website at www.actionenergy.org.uk (energy).
Envirowise produces publications applicable to all businesses with advice on waste minimisation/
resource efficiency, water minimisation, cleaner technology, packaging minimisation and
reducing volatile organic compound (VOC) emissions associated with the use of organic solvents.
Envirowise also produces specific information for the following sectors:
■ ceramics;
■ speciality chemicals;
■ electronics;
■ engineering;
■ food and drink;
■ foundries;
■ furniture;
■ glass;
■ metal finishing;
■ paper and board;
■ plastics;
■ printing;
■ retail;
■ textiles.
34
Action Energy provides advice on energy efficiency in buildings, industry and business transport.
7
section
7.4.1 Wasted materials
■ WasteWise: increased profits at your fingertips (IT313) is an interactive CD-ROM that will help
you get started on waste minimisation.
■ Finding hidden profit - 200 tips for reducing waste (EN30)
■ Cutting costs by reducing waste: a self-help guide for growing businesses (GG38C) explains
how to use process flow charts to identify materials, utilities and wastes from activities and
includes blank forms for you to photocopy.
■ Finding cost savings: navigation for small businesses (GG350)
■ A fresh pair of eyes: identifying waste minimisation opportunities (V217) is a video with
tutored examples of how to identify materials, utilities and waste minimisation opportunities
for process activities.
■ Waste minimisation pays: five business reasons for reducing waste (GG125)
■ Green officiency: running a cost-effective, environmentally aware office (GG256)
■ Cleaner technology - an essential guide for industry (GG288)
■ Finding hidden profit for smaller companies (GG253)
7.4.2 Energy
■ The manager’s guide to reducing energy bills (FOCUS) highlights common areas for energy
savings with particular emphasis on no-cost and low-cost opportunities.
■ Is your energy use under control - a practical guide to assessment and action (GPG136)
provides practical advice and guidance on how to identify and assess energy consumption.
■ Energy efficiency in the workplace - a guide for managers and staff (GPG133) explains how
to set up a monitoring and targeting programme to manage energy efficiency improvements.
■ The Energy ManageMent Advisor (EMMA) is an interactive software package to help you
identify areas of potential cost reduction in your business.
■ Undertaking an industrial energy survey (GPG316)
■ Energy use in offices (ECON19)
■ Fuel-efficient fleet management (GPG218)
■ A travel plan resource pack for employers: an essential guide to developing, implementing
and monitoring a travel management strategy for your organisation (GD41)
7.4.3 Water and effluent
■ Tracking water use to cut costs (GG152)
■ Cost-effective water saving devices and practices (GG67)
■ Reduce your water use and collect the savings (EN339)
■ Developing a toolkit for effective effluent management (ET190)
■ Choosing cost-effective pollution control (GG109)
35
7
section
7.5 Waste minimisation clubs
Sharing experiences with other companies implementing resource productivity projects can help
a business to develop expertise in identifying and managing improvement opportunities. More
than 1 100 companies have joined regional and local waste minimisation clubs and are now
saving over £45 million every year. Visit the Envirowise website (www.envirowise.gov.uk) to
find out how to join a waste minimisation club.
36
Worksheets for environmental 1
appendix
management accounting
The following four worksheets are intended for you to photocopy and use as required
to implement environmental management accounting.
■ Worksheet 1: Estimating potential annual cost savings
■ Worksheet 2: Process flow chart
■ Worksheet 3: Allocating environmental costs
■ Worksheet 4: Material and waste survey
37
Worksheet 1
Estimating potential annual cost savings
Use this worksheet to calculate potential cost savings with regard to different environmental costs.
Item Annual cost (£) Scope to save Potential saving (£/year)
Materials
First most used
................................... 1 - 5%
Second most used
................................... 1 - 5%
Third most used
................................... 1 - 5%
All other materials 1 - 5%
Packaging 10 - 90%
Ancillary materials 5 - 20%
Consumables 10 - 30%
Energy
Electricity 5 - 20%
Gas and fuel oil 10 - 30%
Water 10 - 60%
Trade effluent 10 - 60%
Solid and liquid wastes 10 - 50%
Total
GG374 published by Envirowise Environment and Energy Helpline 0800 585794

Worksheet 2
Process flow chart

Use this worksheet to record material and utility inputs and waste outputs from major activities.
Material and Waste outputs

utility inputs
..................................... .....................................
Activity name
..................................... .....................................
..................................... ..................................... .....................................
..................................... .....................................
..................................... .....................................
Activity name
..................................... .....................................
..................................... ..................................... .....................................
..................................... .....................................
..................................... .....................................
Activity name
..................................... .....................................
..................................... ..................................... .....................................
..................................... .....................................
..................................... .....................................
Activity name
..................................... .....................................
..................................... ..................................... .....................................
..................................... .....................................
..................................... .....................................
Activity name
..................................... .....................................
..................................... ..................................... .....................................
..................................... .....................................
..................................... .....................................
Activity name
..................................... .....................................
..................................... ..................................... .....................................
..................................... .....................................
GG374 published by Envirowise Environment and Energy Helpline 0800 585794

Worksheet 3
Allocating environmental costs
Use this spreadsheet to identify how much of the total environmental costs should be allocated to each main activity.
Materials consumption Utilities consumption Wastes and effluents
GG374 published by Envirowise

Environmental costs
General ledger cost per year

Physical unit
Price/unit
Quantity/year
Cost/unit of output
Percentage allocation of
environmental costs to activities
Environment and Energy Helpline 0800 585794

Worksheet 4
Material and waste survey
Use this worksheet to help you estimate quantities and costs of materials and wastes.
Survey of materials and wastes
GG374 published by Envirowise

Name: Date: Sheet: of
Activity Materials and wastes Estimated amount per Estimated cost (including value Current waste reduction
week/month/year* added) per week/month/year* activities (if any)
Total annual cost
Environment and Energy Helpline 0800 585794

* Indicate timescale.
2
appendix Glossary
Climate Change Levy This tax, which was introduced in April 2001, is applied to
energy bills before VAT is added. Overall, the levy has
increased the price of energy by about 15%.
Enhanced Capital Allowance A Government initiative that enables businesses to claim a

(ECA) scheme 100% first-year capital allowance for investments in selected
energy-efficient technologies. For more information, visit the
website (www.eca.gov.uk).
Environmental costs In environmental management accounting, environmental

costs are defined as the operating costs that are paid for
directly by companies for consuming materials and utilities
and generating wastes for disposal.
Environmental management accounting does not cover

financial reporting of other environmental issues such as the
costs to repair environmental damage or provisions made for
environmental liabilities. (The treatment of environmental
issues in financial reporting is addressed by the accounting
standards developed by the Accounting Standards Board.) It
also does not deal with societal costs or other costs to the
environment which are external to the business but that may
arise partly as a result of its activities.
Environmental management Identification, analysis, management and reduction of

accounting environmental costs in a way that benefits both the business
and the environment.
Environmental management A communications framework of procedures and

system (EMS) management programmes based on the best practice model
for management systems (plan, implement, check, review) to
co-ordinate effective management of environmental issues at
a company.
Mass balance Comparison of the weight of materials bought into a

company with the weight of materials that end up in the final
product (ie product yield) to identify how much material is
wasted in the process. Construction of a mass balance
involves balancing the amounts of materials purchased
during the year against the amounts of materials stored on
site or leaving the company as product or waste.
Resource productivity Producing more goods and services with fewer inputs of
materials and utilities, and with less pollution and waste.
Can also be referred to as resource efficiency or waste
minimisation.
42
Contact details for professional 3
appendix
bodies
Contact details are given below for the members of organisations who helped with the
preparation of this Guide.
Rachel Jackson
Head of Social and Environmental Issues, ACCA,
29 Lincoln’s Inn Fields, London WC2A 3EE
Tel: 020 7396 5845

Fax: 020 7396 5730
e-mail: rachel.jackson@accaglobal.com
ACCA holds annual awards for sustainability reporting and, in March 2001, published An
introduction to environmental reporting. This was written for those new to reporting and
introduces the concepts behind sustainability reporting. Further information is available through
its website (www.accaglobal.com/sustainability).
Stathis Gould
Head of Technical Issues, CIMA,
26 Chapter Street, London SW1P 4NP
Tel: 020 8849 2379

Fax: 020 8849 2468
e-mail: stathis.gould@cimaglobal.com
CIMA’s publications on environmental management are available through its website

(www.cimaglobal.com).
Environment Agency
Howard Pearce
Head of Environmental Finance, Environment Agency,
Rio House, Waterside Drive, Aztec West, Almondsbury, Bristol BS32 4UD
Tel: 01454 624332

Fax: 01454 624031
e-mail: howard.pearce@environment-agency.gov.uk
Information about environmental accounting activities from the Environment Agency is available
through its website (www.environment-agency.gov.uk/environmentalaccounting).
43
3
appendix Environmental Management Accounting Network - Europe (EMAN)
Martin Bennett
Principal Lecturer, University of Gloucestershire Business School,
The Park, Cheltenham GL50 2QF
Tel: 01905 821574

e-mail: mbennett@glos.ac.uk
Information about conferences organised by EMAN is available on its website (www.eman-eu.net).
Desmond Wright
Technical Manager, ICAEW,
Chartered Accountants’ Hall, PO Box 433, London EC2P 2BJ
Tel: 020 7920 8527

Fax: 020 7638 6009
e-mail: desmond.wright@icaew.co.uk
Information about the activities of ICAEW’s Environmental Steering Group is available on its
website (www.icaew.co.uk).
Alasdair Young
Director, CA Member Services,
CA House, 21 Haymarket Yards, Edinburgh EH12 5BH
Tel: 0131 347 1253

Fax: 0131 347 0105
e-mail: ayoung@icas.org.uk
Information about ICAS’s environmental activities is available on its website (www.icas.org.uk).
44
Envirowise - Practical Environmental Advice for Business - is a Government programme
that offers free, independent and practical advice to UK businesses to reduce waste at
source and increase profits. It is managed by AEA Technology Environment and NPL
Management Limited.
Envirowise offers a range of free services including:
Free advice from Envirowise experts through the Environment and Energy
Helpline.
A variety of publications that provide up-to-date information on waste

minimisation issues, methods and successes.
Free, on-site waste reviews from Envirowise consultants, called FastTrack visits,
that help businesses identify and realise savings.
Guidance on waste minimisation clubs across the UK that provide a chance for
local companies to meet regularly and share best practices in waste minimisation.
Best practice seminars and practical workshops that offer an ideal way to
examine waste minimisation issues and discuss opportunities and methodologies.
For further information

please contact the
Practical Environmental Advice for Business

Environment
Harwell International Business Centre | Didcot | Oxfordshire | OX11 0QJ and Energy
E-mail: helpline@envirowise.gov.uk Internet: www.envirowise.gov.uk
Helpline
© Crown copyright. First printed December 2002. Printed on paper containing a minimum of 75% post-consumer waste.
This material may be freely reproduced in its original form except for sale or advertising purposes. 0800 585794

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GG374

Increase your profits with

This Guide contains a

separate worked example GG374A

ACCA (The Association of Chartered Certified Accountants)

The Chartered Institute of Management Accountants (CIMA)

“Environmental management accounting can help companies to report publicly on their

“There has been increasing international interest in environmental management

Environmental Management Accounting Network - Europe (EMAN)

“Accountants are in a unique position to review business costs and highlight

The Institute of Chartered Accountants in England and Wales (ICAEW)

“The key to achieving environmental performance is the ability to identify

The Institute of Chartered Accountants of Scotland (ICAS)

This Good Practice Guide was prepared by

Prepared with assistance from:

With thanks to Bovince Limited

Environmental management accounting can help businesses by:

■ identifying the environmental factors affecting the business;

■ making it easier to comply with environmental legislation;

■ improving the company’s reputation with its stakeholders.

■ use the general ledger to identify costs and potential savings;

■ account for the cost of wasted materials, energy and water;

■ allocate environmental costs to different processes and activities;

■ optimise information available from other management initiatives.

The Guide contains worksheets for environmental management accounting, an example

2 Initial identification of costs and potential savings 5

3 Accounting for particular environmental costs 10

4 Accounting for processes and projects 16

5 Next steps: setting targets to increase profits 22

6 Links to other initiatives 29

7 Help from Envirowise and Action Energy 33

1.1 Business benefits of environmental management

Fig 1 Environmental costs of business operations

INPUTS PROCESSES OUTPUTS

It is often easier to increase profits by reducing the environmental costs of processes,

Reducing environmental costs increases profits

Environmental management accounting can help businesses by:

■ Making it easier to comply with environmental legislation.

Using environmental management accounting to increase profits

Companies that are subject to environmental regulation or have an environmental management

1.2 Why should accountants be involved?

■ Accountants are in a unique position to review business costs when producing:

- monthly and quarterly management accounts.

■ Accountants have the necessary skills and experience to:

- measure, allocate and control costs;

- identify and plan financial budgets for improvement projects.

■ The business advice provided by accountants is highly regarded.

■ Environmental management accounting is an opportunity for accountants to develop the

■ Investment appraisal of projects. Accountants have an important role to play in ensuring

Financial reporting of environmental liabilities and external costs

Environmental management accounting does not cover:

■ financial reporting of other environmental issues such as provisions made for

- make informed decisions about operating costs;

- identify priority areas for cost-effective environmental improvement and increased

■ allocate environmental costs to different processes to help stimulate process improvements

■ incorporate environmental considerations into decisions about investment in new technology

■ enhance team-working between accountants and non-financial managers.

The Guide includes:

■ worksheets for environmental management accounting (see appendix 1);

■ industry examples highlighting the benefits of environmental management accounting;

■ a glossary (see appendix 2);

2.1 Estimating the potential savings