Environmental Management Accounting

Sustainability Accounting
Adilla Ikhsani (1610533041)
Annisa Ramadhani (1610531017)

Environmental Management Accounting (EMA) is the management of

environmental and economic performance through the development and
implementation of appropriate environment-related accounting systems and practices.
Environmental management accounting helps to identify and analyse the
environmental costs of a business.While this may include reporting and auditing in
some companies, environmental management accounting typically involves life-cycle
costing, full-cost accounting, benefits assessment, and strategic planning for
environmental management.
What benefits does the practice provide?
 Improving sales or reducing sales erosion: consumer awareness of products and
services' environmental impact is increasingly influencing their preferences and
buying behaviours.
 Reducing costs: reducing wasteful consumption of input resources has a direct
positive impact on reducing costs. Also, improvements to processes can bear
down on costs.
 Reducing the cost of failure: investing in processes that reduce the likelihood and
cost impact of failure, such as the need to process waste or clean up
environmental impacts.
 Improving the image of the organisation: this can enable it to attract better talent,
reduce talent attrition and charge higher prices.
EMA Challenges – Current Accounting Practices
 Communication/links between accounting and other departments often not well
developed
 Environment-related cost information is often “hidden” in overhead accounts
 Materials use, flow and cost information often is not tracked adequately
 Many types of environment-related cost information are not found in the
accounting records
 Investment decisions are often made on the basis of incomplete information
PHYSICAL INFORMATION
 Flow of energy, water, materials and waste (MEFA)
 Physical Information
 Materials Inputs
 Product Outputs
 Non-Product Outputs (Waste and Emissions)
 Materials/Mass Balances
 Physical Environmental Performance Indicators

Monetary Information: ENVIRONMENT-RELATED COSTS AND

EARNINGS
 Cost Categories
 Waste & Emission Control Costs
 Prevention & Other Environmental Management Costs
 Research & Development Costs
 Materials Costs of Non-Product Outputs
 Materials Costs of Product Outputs
 Less Tangible Costs Monetary Environmental
 Performance Indicators
 Environment-related Earnings and Savings
Distribution of Costs by Environmental Domain

The Benefits of Ecoefficiency

Ecoefficiency essentially maintains that organizations can produce more useful
goods and services while simultaneously reducing negative environmental impacts,
resource consumption, and costs. The benefits are:
 Customer Demand For Cleaner Products
 Cost Reduction and Competitive Advantage
 Lower Cost of Capital and Lower Insurance
 Innovations and New Opportunities
 Better Employees and Greater Productivity
 Significant Special Benefits Leading to Improved Image

Environmental Quality Cost Environmental costs are costs that are incurred
because poor environmental quality exists or may exist. Environmental costs can be
classified in four categories: prevention costs, detection costs, internal failure costs,
and external failure costs.
Environmental Costs Are Often Underestimated
Research Findings:
For every dollar of waste cost that companies actually measure, another 2 to 3
dollars of cost are” hidden” in the accounting records, or are not on the books at all.
Companies typically underestimate how much waste really costs them, sometimes by
several orders of magnitude. This applies even to big, well-managed companies
So, The Cost of Waste Ink at the Southwire Company The cost of a drum of
hazardous waste ink was estimated as $50the average disposal cost per drum
Upon closer inspection, the true cost of waste was discovered to be $1300 per drum,
including:
$819 in lost raw materials (ink, thinner)
$369 for corporate waste management activities
$50 for disposal
$47 for internal waste handling activities
$16 to pay a hazardous waste tax

The pros about EMA accounting techniques have been advantageous for a
company in various ways. The immediate benefits are the clear structuring of data and
files, useful metrics for the adequate and complete estimation of our company’s
physical flows, environmental costs, and its overall environmental performance. In
addition, EMA helps the strategic management accounting by providing useful
information concerning the reduction of environmental costs. The management’s
decisions have resulted in resource and energy efficient production processes.
Consequently, there are reductions of energy use of about 30%, reduced waste
production, and a reduced use of water and wood. We now pay fewer eco-related
taxes, and our production processes are more resource end energy efficient due to
constant monitoring. This has also reduced the product prices and improved their
eco-related image. Because of that, the company’s competitive position has improved
as well.
The negative points about EMA are its difficult implementation, some uncertain
environmental cost estimates, and the continuous check of the physical flows