Transcript Environmental Management Accounting (EMA):

Lecture 12
Environmental
Management Accounting
(EMA)
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Definition
There are many alternative definitions, but broadly
defined…
EMA is the identification, collection, analysis, and use
of two types of information for internal decisionmaking:
 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
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Development
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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
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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…
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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
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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
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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.
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Customer Demand
For Cleaner Products
Cost Reduction
and Competitive
Advantage
Better Employees
and Greater
Productivity
ECOEFFICENCY
Innovations and
New
Opportunities
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Lower Cost of
Capital and
Lower Insurance
Significant Special Benefits
Leading to Improved Image
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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.
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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
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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
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Environmental Costs At A Refinery
(As a percentage of operating costs,
excluding crude oil input)
Original
Estimate
3%
97%
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Actual Situation
22%
78%
Source: Green Ledgers: Case Studies in Corporate
Environmental Accounting. World Resources Institute, May, 1995.
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The Cost Iceberg
Environmental costs can be like an iceberg, with only a small part of the cost visible
THE HIDDEN COST
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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.
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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.
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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.
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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
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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.
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Financial Data for White Water and
Fiber Reuse Project
Costs and Savings:
company
analysis
improved
analysis
*TCA
Capital Costs
$1,469,404
$1,469,404
Annual Savings
$ 350,670
$ 911,240
4.2 years
1.6 years
$ 47,696
$2,073,607
Financial Indicators:
Payback Period
Net Present Value
Internal Rate of Return
17%
46%
* Total Cost Assessment: Budgeting for Pollution Prevention, Tellus Institute, 1993
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Financial Data for
Quality Control Camera Project
original
analysis
improved
analysis
Capital Costs
$105,000
$105,000
Annual Savings 1-5 years
$ 38,463
$ 38,463
Costs and Savings:
Additional Savings Year 3
$ 55,000
Financial Indicators:
Payback Period
2.7 years
2.7 years
Net Present Value
-17,182
+18,981
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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
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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
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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.
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EMA Development
• United Nations Division for Sustainable
Development’s 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
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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
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EMA Education...
Most initiatives to promote EMA around
the world rely on voluntary adoption, with
educational activities a core component:
–
–
–
–
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guidance documents
case studies
curriculum development & training
software
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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 EPA’s Environmental Accounting Project
– Environmental Canada-Quebec Regional Office’s
Private Sector P2 Initiative
– Graz (Austria) Department of Environmental
Protection’s Eco Profit Initiative
– UK Environment Agency’s EMA for Financial
Accountants Project
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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
– UNEP’s CP Finance’s Profiting from CP Course in
Vietnam
– Taiwan Environmental Management Association’s EMA
Training Project
– Thailand Environment Institute’s Workshop on EMA
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STOP GLOBAL WARMING
- The End -
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