Environmental Management Accounting (EMA) is a cover title used to describe different aspects of this burgeoning field of accounting. The focus of EMA is as a management accounting tool used to make internal business decisions, especially for proactive environmental management activities.
EMA was developed to recognize some limitations of conventional management accounting approaches to environmental costs, consequences, and impacts. For example, overhead accounts were the destination of many environmental costs in the past. Cost allocations were inaccurate and could not be traced back to processes, products, or process lines. Wasted raw materials were also inaccurately accounted for during production.
Each aspect of EMA has a general accounting type that serves as its foundation, according to the EMA international website. The following examples indicate the general accounting type followed by the environmental accounting parallel:
- Management Accounting (MA) entails the identification, collection, estimation, analysis, and use of cost, or other information used for organizational decision-making. Environmental Management Accounting (EMA) is Management Accounting with a focus on materials and energy flow information, with environmental cost information.
- Financial Accounting (FA) comprises the development and organizational reporting of financial information to external parties, such as stockholders and bankers. Environmental Financial Accounting (EFA) builds on Financial Accounting, focusing on the reporting of environmental liability costs with other significant environmental costs.
- National Accounting (NA) is the development of economic and other information used to describe national income and economic health. Environmental National Accounting (ENA) is National Accounting focusing on the stocks of natural resources, their physical flows, environmental costs, and externality costs.
EMA is a broad set of approaches and principles that provide views into the physical flows and costs critical to the successful completion of environmental management activities and increasingly, routine management activities, such as product and process design, capital budgeting, cost control and allocation, and product pricing, according to the EMA international website.
EMA offers potential benefits to industry, such as the capability track and managing the flows and use of materials and energy with greater accuracy. The EMA international website reports that accurate identification, estimation, allocation, and management or reduction of costs is important, too. Environmental performance can be supported and improved by using more accurate and complete information. This information will also improve the measurement and reporting of environmental information to the public.
Government can benefit from the application of these principles according to the EMA international website. The cost of environmental protection can be lowered on the basis of industries’ financial self-interest. Industry data can be used to estimate and report environmental performance metrics and financial and environmental and benefits to government stakeholders. These metrics can also be used to effectively affect future environmental policies and regulations.
Societal benefits exist also. With the implementation of these principles, energy, water, and other natural resources can be used more efficiently. The EMA international website reports these principles can help reduce external societal costs stemming from industrial pollution such as environmental control, monitoring, remediation, and public health costs.
The nation is divided into 10 Environmental Management System Regions by the U.S. Environmental Protection Agency. The United Nations Division for Sustainable Development promotes EMA. There are several U.S. schools that offer courses and degrees in EMA, including the Environmental Management Systems Institute at the University of Florida and California Polytechnic’s Orfalea College of Business at San Luis Obispo.
Looking internationally, the St. Andrews Centre for Social and Environmental Accounting Research, at the University of St. Andrews (Scotland), was established in 1991. The Australian National University offers EMA courses in its School of Business and Informational Management. Japan’s Osaka City University and the Chuo Graduate School of International Accounting offer graduate EMA courses. Kobe University, in Japan, offers undergraduate and graduate EMA courses.
EMA is an emerging facet of accounting with benefits for industry, government, and society globally. As more companies come to see the environmental impacts in their decision making, the value of EMA will continue to grow.