Exploring the Role and Impact of Environmental Management Accounting

Environmental Management Accounting (EMA) serves as an essential tool for businesses aiming to achieve sustainability. By systematically identifying, monitoring, and managing environmental costs, EMA enables companies to minimize waste, reduce expenses, and improve overall efficiency. This essay discusses the importance of integrating EMA practices into business operations, emphasizing how it supports sustainable development by aligning financial management with ecological responsibility. Through case studies and theoretical frameworks, the paper illustrates the benefits of EMA in fostering a culture of sustainability that not only meets regulatory requirements but also enhances corporate reputation and stakeholder value.

Management Accounting
Topic 2. Environmental Management Accounting
In 1998, the International Federation of Accountants (IFAC) (as cited by ACCA, 2017)
originally defined environmental management accounting as:
‘The management of environmental and economic performance, through the development and
implementation of appropriate environment-related accounting systems and practices. While
this may include reporting and auditing in some companies, environmental management
accounting typically involves lifecycle costing, full cost accounting, benefits assessment, and
strategic planning for environmental management’.
Critically discuss whether, in your opinion, “environmental management accounting” is
important within a business environment in order to ensure the long term sustainability of
a business.
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Table of Contents
Introduction......................................................................................................................................3
How environmental management accounting is useful?.................................................................3
Allocated Environmental Cost.........................................................................................................4
Conclusion.......................................................................................................................................7
References........................................................................................................................................8
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Introduction
The environmental management accounting is significant in a business environment for
ensuring long term sustainability in a business. The environmental management accounting
supports internal decision-making and provides the business with an opportunity of identifying
and reducing the ecological costs (Buccina, Chene and Gramlich, 2013). The decrease in
environment-linked capital investments or yearly environmental operating expenses can raise the
profit margins or allow lesser product pricing which can be used by business for retaining the
market share. Decrease in potential environmental liability can help in decreasing the legal
liability expenses and enhance their access to funding and client contracts. Therefore it can be
said that long term sustainability of a business can be attained by use of environmental
management accounting (Baboukardos, 2017).
The environmental management accounting information is definitely very important for the
management activities with particular college girl elements on management decisions with
important effects. This kind of accounting offers the cost data which is important for evaluating
the management ass and the physical flow of information like usage of raw materials and this
generation level. Such details can be useful in characterising the environmental effects.
How environmental management accounting is useful?
In the last five decades, the idea of sustainable development has become quite important. In the
long run, only the businesses which protect the environment are ones who make profit and
throughout the acts of business, measures are taken for reduction of harmful impacts on the
environment. The businesses are required to carry out their tasks on the basis of sustainability.
But to carry out such activities environmental aspects also have to be considered. Nowadays,
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assisting and managing the environmental costs which are the first items in the scope of
sustainability have huge significance for the businesses. Due to the environmental issues created
by industrialisation it is known that environment is of course a value which can be polluted and
can be exhausted with time. It is also known that by the use of environment there is a cost
attached and business has to incur that cost because it is using that source. Environmental
accounting is known as green accounting or natural resource accounting or environmental
management accounting or full cost accounting and similarly there are many other terms.
Allocated Environmental Cost
There are various problems linked with finding and allocating the environmental costs. When the
environmental costs are not sufficiently allocated then there is cross- subsidization among the
goods. In many case, diverse goods are created by diverse procedures and each procedure has a
tendency to possess differ rent environmental cost. Like in a facility if there are two procedures
namely process I and Process II. These two processes are supposed to utilize the same number of
direct labor hours for the Batch of product. Product I utilised hazardous chemicals however the
other one makes use of normal raw materials (Herbohn, 2015). The site spends environment
expenditures from the utilisation of hazardous chemicals in various manners:
 Explanation and procurement of chemicals which involves assessment of material safety
datasheets
 designing of the procedure for minimising employee exposure,
 shipping and expenses linked with transportation of hazardous chemicals,
 monitor, reported for meeting applicable laws
 Worker training for handling and emergency reactions,
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 storing and disposal expenses
 Liability for chemical from purchasing to grave
All these costs are combined together to be environment and Allocated to the procedures I and II.
Therefore this kind of accounting can be said to the business at considerable competitive
disadvantage. On the other hand, by further precisely allocation of please expenses, managers
can have better decision-making regarding product mix and with respect to cost saving
opportunities so that their companies can stay ahead of compete therefore this kind of accounting
can be said to the business at considerable competitive disadvantage (Uno and Bartelmus, 2011).
On the other hand, by further precisely allocation of days expenses, managers can have better
decision-making regarding product mix and with respect to cost saving opportunities so that their
companies can stay ahead of competition.
While the environmental accounting can lay stress on environmental management accounting
and financial accounting, the major advantages are seeing from applying than one mental
management accounting approaches. This kind of accounting lays stress on accumulating,
assisting and analysing the expenses linked with the usage of energy and physical matters such
as metal, cold and timber. The standard accounting activities which are likely to occur in the
series of overhead permit the accountants to relate activity based cost principles with different
projects (Jaggi and Freedman, 2009). Decision makers who can relate where these resources
have actually been utilised in the project can help in reduction of the waste materials
Environmental accounting is useful setting up of efficiency objectives by stating the past
information and pass trending regarding raw materials utilised for producing goods and services
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(Booth, 2014). This kind of accounting is useful for tracking the availability of raw materials
that are used by the business and the calculations are carried out for data mining suitable
materials have substitutes available. In case the substitutes can help in getting lower costs or can
be useful for having lesser environmental effects than those substitute can be utilised. The
environmental accounting can be used for carrying out the breakeven analysis of cost benefit
analysis so that additional energy systems can also be replaced with the substitutes such as the
replacement of wind turbines with latest solo shingle roof systems.
Organizations have turned out to be progressively mindful of the environmental impacts of their
operations, items and services. Environmental dangers can't be disregarded; they are presently as
much a piece of maintaining a fruitful business as item configuration, showcasing, and sound
budgetary management. Poor environmental conduct may have a genuine unfavourable effect on
the business and its accounts. Discipline incorporates fines, raised risk to environmental
expenses, loss in worth, damaging of brand images, and loss of sales, shopper blacklists, and loss
of protection cover, unforeseen liabilities, claims, and harm to corporate image.
Better management of environmental cost is usually great for community and industrial
Management. The environmental accounting helps in recognising opportunities for reducing the
costs and for supporting the initiatives for raising revenues and therefore there is better
management of resources. There are various costs which form part of environmental cost adds
this might include the disposal expenditures, investment expenditures and external expenditures
also (Crowther, 2012). Moreover lot of the costs are generally not traced in a systematic manner
and attributed to the responsible procedure is” but simply accumulated in general overhead. The
reality that environmental costs are not completely recorded generally causes just started
calculation is for better options. There is lack of experience and people are usually not aware of
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the cost linked with the wastes and raw materials. The environmental costs usually do not
account for the real animations and waste produced and usually the environmental manager is
not having access to the real cost accounting documents of the business
Conclusion
Firms have accountability to concern and perform towards its workers, stakeholders and
community at the same time as performing their acts because of its goals. Environment has a
significant place within the extent of these duties (Ajith Sankar R. N., 2015). As a prerequisite of
sustainability, businesses applying environment at the same time as carrying out the acts are
supposed to consider future generations while they fulfill the requirements of today's customers
and they should carry out their acts on this viewpoint. Environmental account is significant
because the existence of production factors is important for meeting continuity of business and
demands of customers. In the sustainability management, the environmental damage has to be
decreased to minimum level. The environmental management accounting is useful for
minimizing the potential environmental cost and needs proper planning (Carter and Ross, 2014).
For successful implementation of environmental management accounting, an independent
environmental department has to be sector which can effectively communicate with other
departments. Major accounts and subsidiary rounds have to be started for monitoring the
environmental expenses just like the marketing, research and development and other managerial
expenses (Hovardas and Poirazidis, 2007). The adequate information can be shown to the public
regarding the events that might come from non-financial environment that might impact the firm.
Therefore the public will have adequate information regarding the assessment of current and
future risks of the business environment.
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References
Ajith Sankar R. N. (2015). Environmental management. New Delhi: Oxford Univ. Press.
Baboukardos, D. (2017). The valuation relevance of environmental performance revisited: The
moderating role of environmental provisions. The British Accounting Review.
Booth, P. (2014). Commentary on: Some thoughts on social and environmental accounting
education. Accounting Education, 10(4), pp.357-359.
Buccina, S., Chene, D. and Gramlich, J. (2013). Accounting for the environmental impacts of
Texaco's operations in Ecuador: Chevron's contingent environmental liability
disclosures. Accounting Forum, 37(2), pp.110-123.
Carter, R. and Ross, H. (2014). Trends in environmental management through the lens of
theAustralasian Journal of Environmental Management. Australasian Journal of Environmental
Management, 21(2), pp.200-218.
Crowther, D. (2012). Social and environmental accounting. London: Financial Times/Prentice
Hall.
Herbohn, K. (2015). A full cost environmental accounting experiment. Accounting,
Organizations and Society, 30(6), pp.519-536.
Hovardas, T. and Poirazidis, K. (2007). Environmental Policy Beliefs of Stakeholders in
Protected Area Management. Environmental Management, 39(4), pp.515-525.
Hibbitt, C. and Bartolomeo, M. (2009). Environmental accounting and sustainable development.
Amsterdam: Limperg Instituut.
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Jaggi, B. and Freedman, M. (2009). Advances in environmental accounting and management.
Bingley: Emerald Group Publishing Limited.
Uno, K. and Bartelmus, P. (2011). Environmental accounting in theory and practice. Dordrecht:
Springer.
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