Environmental

Management
Accounting
Nabila Isbenny
Nurfikha Riani Qadhar
Puti Annisa Fauzi
Tomi Trimulya
VIDEO
 Definition
There are many alternative definitions,
but broadly defined
EMA is the identification, collection,
analysis, and use of two types of
information for internal decision-making:
Physical information on the use, flows, and
fates of energy, water, and materials (including
wastes)
Monetary information on environment-related
costs, earnings, and savings

EMA Expert Working Group of the

United Nations Division for Sustainable Development

 Definition
EMA combines financial and physical data and
calculates the environmental costs of companies

Physical data on material and energy input,

material flows, products, waste and emissions
PEMA
financial data on expenditures, costs, earnings,
savings related to company activities with
potential environmental aspects or impacts
MEMA
 Why was EMA Developed?
EMA was conceived in recognition of some of
the limitations of conventional practices for
informing environmental management decisions
insufficient tracking of energy, materials, and
wastes
hiding of costs in overhead accounts and
elsewhere in the accounting records
lack of data on future and less tangible costs
in the accounting records at all
Insufficient communications between the
accounting and other departments/staff, e.g.,
production, environmental, research
 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.

8
 Customer Demand
For Cleaner Products

Cost Reduction Better Employees

and Competitive and Greater
Advantage Productivity

ECOEFFICENCY

Innovations and Lower Cost of

New Capital and
Opportunities Lower Insurance

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
Environmental costs
costs can
can be
be classified
classified in
in
four
four categories:
categories: prevention
prevention costs,
costs,
detection
detection costs,
costs, internal
internal failure
failure costs,
costs, and
and
external
external failure
failure costs.
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
 The Cost of Waste Ink
at the Southwire Company

The cost of a drum of hazardous waste ink was

estimated as $50 - the 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
 Environmental Costs At A Refinery
(As a percentage of operating costs,
excluding crude oil input)

Original Actual Situation

Estimate

Source: Green Ledgers: Case Studies in Corporate

Environmental Accounting. World Resources Institute, May,
1995.
 The Cost Iceberg
Environmental costs can be like an iceberg, with only a small part
of the cost visible

THE HIDDEN COST

Adapted from: Bierma, TJ., F.L. Waterstaraat, and J. Ostrosky. 1998. Chapter 13: Shared Savings and Environmental Management
Accounting, from The Green Bottom Line. Greenleaf Publishing:England.
 EMA End-uses
EMA can provide the data needed for many
environmental management initiatives
Cleaner Production/Pollution
Prevention/Green Productivity
Design for Environment
Environmentally Preferable Purchasing
Environmental Supply Chain Management
Extended Producer Responsibility
Performance Meas. & Benchmarking
Corporate Environmental Reporting
etc.
 EMA for Improved
Capital Budgeting
Better identification, allocation, and
analysis of environmental costs
improves the process by which the
profitability of potential investment
projects are assessed.
Such investments include any capital
project that has the major objective of
controlling, reducing or preventing
pollution.
 Profitability Assessments of
Proposed Sustainable Projects
EMA can illustrate the potential profitability of
projects that utilizes preventive management
strategies by doing a better job of profitability
assessment:
Comprehensive inclusion of relevant and
significant costs and savings
Improved cost estimation and allocation
Longer analysis time horizons
Multiple profitability indicators
Comprehensive Inclusion of
Relevant Costs and Savings
(conventional and less tangible costs)

The cost of lost manufacturing inputs

lost materials, energy, labor, capital, etc.
The cost of waste management
waste handling, regulatory compliance,
waste treatment & disposal, etc.
Less tangible costs
reduced production throughput, reduced
product quality, negative company image,
liability, etc.
 Financial Data for White Water and
Fiber Reuse Project
company improved
analysis analysis
Costs and Savings: *TCA

Capital Costs $1,469,404 $1,469,404

Annual Savings $ 350,670 $ 911,240
Financial Indicators:
Payback Period 4.2 years 1.6 years
Net Present Value $ 47,696 $2,073,607
Internal Rate of Return 17% 46%

* Total Cost Assessment: Budgeting for Pollution Prevention, Tellus Institute, 1993
 Financial Data for
Quality Control Camera Project
original improved
analysis analysis
Costs and Savings:
Capital Costs $105,000 $105,000
Annual Savings 1-5 years $ 38,463 $ 38,463
Additional Savings Year 3 $ 55,000
Financial Indicators:
Payback Period 2.7 years 2.7 years
Net Present Value -17,182 +18,981
EMA as Driver of Sustainable
Investment
EMA helps companies recognize and
achieve the multiple benefits of Sustainable
Investments
Reduced costs
increased profit margins
lower product prices
increased market share
Reduced liability
improved company image
increased market share
increased access to financing and customers contracts
Benefits of EMA to Industry
The ability to more accurately track and
manage the use and flows of energy and
materials, including pollution/waste volumes,
types and fate
The ability to more accurately identify,
estimate, allocate, and manage/reduce costs,
particularly environmental types of costs
More accurate and comprehensive
information for the measurement of
performance, thus improving company image
with stakeholders such as customers, local
communities, employees, government and
financial providers
Benefits to Government of EMA
Implementation by Industry

The more that industry is able to justify

environmental investments on the basis of
financial self-interest, the lower the
financial, political, and other burdens of
environmental protection on government.

Implementation of EMA by industry should

strengthen the effectiveness of existing
government policies/regulations by
revealing to companies the true
environmental costs and benefits resulting
from government regulations.
 EMA Development
United Nations Division for
Sustainable Developments
Consultative Working Group on EMA
EMA Workbooks:
Environmental Management Accounting
Procedures and Principles
EMA-Links: Government, Management, and
Stakeholders
Policy Pathways for Promoting Environmental
Management Accounting
 UNDSD Expert Working

Group on EMA
UNDSD = United Nations Division for Sustainable
Development
EMA Working Group established in 1999
Core members are government representatives
from 30+ countries
Other members include invited representatives of
accounting associations, academia, business, etc.
Group has met 8 times, each time in a different
country
Group has discussed many international topics of
debate surrounding EMA
 EMA Education
Most initiatives to promote EMA around
the world rely on voluntary adoption, with
educational activities a core component:
guidance documents
case studies
curriculum development & training
software
EMA in North America
and Europe
Examples of initiatives in North
America and Europe that promote EMA
as a tool for many environmental
programs
US EPAs Environmental Accounting Project
Environmental Canada-Quebec Regional
Offices Private Sector P2 Initiative
Graz (Austria) Department of Environmental
Protections Eco Profit Initiative
UK Environment Agencys EMA for Financial
Accountants Project
 EMA in Asia
Examples of EMA and EMA-related
projects and activities in Asia
Philippine Training Course on EMA and CP
supported the US-Asia Environmental Partnership
(USAEP)
Environmental Accounting Guideline published by
the Ministry of Environment in Japan
UNEPs CP Finances Profiting from CP Course in
Vietnam
Taiwan Environmental Management Associations
EMA Training Project
Thailand Environment Institutes Workshop on EMA
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