Environmental Management Accounting (EMA) for Organizational Change: An Eco Control Approach

ACC 4113
DECISION MAKING & CONTROL
SEM 1, 2022/2023
GROUP TERM PAPER
KEY ARTICLE:
“ENVIRONMENTAL MANAGEMENT ACCOUNTING (EMA) FOR
ENVIRONMENTAL MANAGEMENT AND ORGANIZATIONAL CHANGE
AN ECO CONTROL APPROACH”
SECTION 2 (GROUP 1)
LECTURER’S NAME : PROF. DR. NIK NAZLI BT NIK AHMAD
NO NAME MATRIC NUMBER
1 NURUL AIN HUSNA BINTI ALIAS 1910962
2 NUR SYUAIBA BINTI MOHAMAD SHUKOR 1913864
3 NOR AMIERAH BINTI MOHAMMAD RAFIQ MUBAN 1824456
4 SITI UMAIRAH BINTI AHMAD SUKI 1914004
5 SITI ZULAIKHA BINTI MOHD NOR 1914670

Table of Contents
No. Contents Page
1.0 Introduction 2-3
2.0 Overview Of EMA Techniques and the Case Company 4-5
3.0 Implementation of the EMA Technique at the Case Company 6-9
4.0 Benefits of Implementing EMA in the Case Company 10-11
5.0 Challenges of Implementing EMA in the Case Company 12
6.0 Evaluation of Implementation EMA in the Case Company 13-15
7.0 Recommendation for the Case Company 16-18
8.0 Conclusion 19
9.0 References 20
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1.0 Introduction
The issues of sustainability have become big issues in the industry which includes the
service industry. For organizations to maintain a competitive edge, meet rising stakeholder
expectations, and ensure operations into the future, sustainability is becoming significantly
crucial. Environmental problems and worries are a global reality. The overuse of non-renewable
resources and worldwide air pollution are two of the major environmental risks to the future of
humanity (Jones, 2010 as cited in Nyide and Lekhanya, 2016). Without a proper sustainability
plan, companies might put their business at risk.
Discussion regarding sustainable and environmental issues mostly related to the
manufacturing company but in fact, companies that provided services like hotels, hospitals,
restaurants and others were also exposed to the risk of sustainability. The hotel industry
consumes more natural resources and creates more pressure on the environment in order to
attract more customers. As a result, there will be more potential risk created. Fortunately, many
companies started to incorporate sustainability due to various factors such as increase in business
cost, enforcement of government regulation, competitors' action and expectation from customers
on firm’s responsibility towards sustainability.
Organizations have become more conscious of the environmental influence of their
operation, products and services. Environmental risk must be taken into consideration as they are
important factors that need to be considered to operate a successful business, alongside factors
like product development, marketing, and prudent financial management (ACCA Global, n.d.).
Therefore, EMA not only helps businesses manage costs more effectively but also provides a
green public profile. In order to assess the application of Environmental Management
Accounting in the hotel industry. We are interested in learning more about a paper that details the
creation and application of environmental management accounting (EMA) and environmental
management at the level of a firm in the hotel sector in Sri Lanka. The identified paper, titled
"Environmental Management Accounting (EMA) for environmental management and
organizational change An eco-control approach" was written by Nuwan Gunarathne and
Ki-Hoon Lee and published in 2015. According to the author of the selected article analysis, they
chose a hotel in Sigiriya, Sri Lanka next to the Lion Rock since it is the top-ranked green hotel in
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the nation and is listed as a UNESCO World Heritage site. The hotel employs roughly 280
people on a temporary and permanent basis. It is one of the top 100 brands in Sri Lanka and is
listed on the local stock exchange (Gunarathne & Lee, 2015).
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2.0 Overview Of EMA Techniques And The Case Company
The United Nations Division for Sustainable Development (UNDSD) proposed a
difference between two categories of information that has gained widespread acceptance. EMA
is the process of collection and analysis of the information related to environmental costs in
order to make internal decisions. The Environmental Management Agency (EMA) offers
physical and monetary data on the usage and flow of energy, water, and materials as well as
financial data on environmental costs, revenues, and savings. This results in the development of
the monetary EMA (MEMA) and physical EMA systems (PEMA). While PEMA focuses on a
company's physical influence on the environment, MEMA focuses on the environmental
elements of business operations reflected in monetary units (ACCA Global, n.d.). EMA
encourages managers to make a wise decision by educating managers about the environmental
effects of an organization outside of its limits and the environmental challenges that affect the
organization. This involves the causes and effects of environmental issues from an economic
perspective.
Besides, organizations might integrate financial and environmental performance
indicators for the benchmarking process by taking environmental concerns into account while
making business decisions. As a result, environmental management accounting provides
managers with information about the environmental cost to help decision-making processes that
improve environmental and financial performance of the organization. There are three primary
types of decision-making techniques which are Cost Analysis, Investment Appraisal, and
Performance Management. An organization can use these approaches to increase the efficiency
of the performance (Wahyuni, 2009). The three components of cost analysis are life cycle
assessment (LCA), activity-based costing (ABC), and material flow cost accounting. Whereas,
EMA tool for investment assessment is the Total Cost Assessment (TCA), which is essentially a
study based on capital budgeting and in terms of performance management or evaluation,
Balanced Scorecard is an approach where it allows the organizations to assist each aspect
thoroughly, including environmental considerations (Wahyuni, 2009).
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This hotel developed the goals and policies for its environmental management strategies
as the initial step in adopting an eco-control framework. In recent years, eco-control has emerged
as a specific application of management control systems (MCS) that is used to implement an
environmental policy across the organization. Organizations may assess, manage, and reveal
their environmental performance with the use of eco-control. They provide information to
decision-makers that will assist them in achieving environmental objectives and to present
compelling evidence in favor of the advantages of such activities. The hotel began its operations
around four decades ago. It had implemented certain conservation measures from the beginning
to protect the surrounding ecosystem.
However, these procedures had not been strictly adhered to until the company
encountered a serious crisis in 2007. This condition was mostly brought about by Sri Lanka's war
against terrorism, which significantly decreased the number of visitors by more than 11% in the
years 2007 and 2008 compared to the years before. In 2007 and 2008, the hotel's occupancy rate
hit record lows of 37% and 45%, respectively. Hence, the low occupancy combined with intense
price competition and rising operating costs resulted in a drop in revenues and profit. The top
and bottom lines were severely impacted in 2008, resulting in a fall of more than 20% in sales
and more than 200% in profit. Since 2007, the corporation has not been able to pay dividends to
its shareholders, which has had a negative impact on the share price (Gunarathne & Lee, 2015).
Therefore, the hotel's management was searching for a functional solution to minimize the
operational costs and to increase the revenue by offering favorable incentives for the hotel
industry. In addition to reducing costs and carbon footprint, sustainable development may also be
used to improve visitor experiences. Hence, the effectiveness and sustainability of a hotel have
an impact on customers' attitudes, feelings of security, relaxation, and contentment.
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