Environmental Cost Management

 In many organizations, management of environmental costs is becoming a matter of high priority

for 2 reasons:
- Environemental regulations have increased significantly
- Environmental concern is become a significant competitive issues
 Environmental concern is a significant competitive issue
- Closely related to the concept of ecoefficiency
- Organization can produce more useful goods and service while simultaneously reducing
negative environmental impacts, resource consumption and cost
 The concept of ecoefficiency convey 3 messages
1. Improving ecological and economic performance can be and should be complementary
2. Improving environmental performance should no longer be viewed as a matter of charity and
goodwill
3. Ecoeffiency is complementary and supportive of sustainable development
o Sustainable development = Development that meets the needs of the present without
compromising the ability of future generations to meet their own needs
 Ecoefficiency implies that increased efficiency comes from improving environmental performance
 Incentives and cause of efficient have a number of sources
1. Customer demand for cleaner product
2. Better employes and greater productivity
3. Lower cost of capital and lower insurance
4. Significant social benefits leading to improved image
5. Innovation and new opportunities
6. Cost reduction and competitive advantage
 Effective management: Knowledge of environment cost and their causes lead to redesign process,
reduce the material uses and the pollutant emitted to the environment. Current and future costs
are reduced, then firms are more competitive
 Environmental cost
- Cost that incurred because poor environmental quality exist or may exist
- Environmental cost are associated with the: creation, detection, remediation, and prevention
of environmental degradation
- Can be classified into 4 caegories:
1. prevention cost
Cost activities carried out to prevent the production of contaminants and/or waste that
could damage the environment
2. detection cost
Cost of activities executed to determine if products, processes and other activities within
the firms are compliance with appropriate environmental standards
3. internal failure cost
4. external failure cost
 Reducing Environmental Cost
1. Investing more in prevention and detection activities
Environmental Cost Management

2. The lowest environmental costs are attainable at the zero-damage point

 Environmental Financial Report
- Ecoefficiecy suggest a possible modification to environmental cost reporting by reporting
environmental benefits
o Income
Revenue that flow into organization due to environmental actions
o Current Savings
Reduction in environmental cost achieved in the current year
o Cost Avoidance
Ongoing savings produced in prior years
- Environmental Financial Statement = Environmental Benefits + Environmental Costs
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