Environmental Management Accounting (EMA)

EMA is the generation and analysis of both financial and non-financial information in order to support internal environmental management processes.

The main points made by Mr Shane Johnson in the January 2004 edition of Student Accounts are as follows:


(a) Major incidents like the Bhopal chemical leak and the Exxon Vaidez oil spill have significantly raised the profile of environmental issues over the last 20 years or so.

(b) Poor environmental behaviour can result in “fines, increased liability to environmental taxes, loss in value of land, destruction of brand values, loss of sales, consumer boycotts, inability to secure finance, loss of insurance cover, contingent liabilities, law suits and damage to corporate image”.

(c) Environmental issues need to be managed before they can be reported externally, and so changes are needed to management accounting systems.

(d) Management accounting techniques tend to underestimate the cost of poor environmental behaviour, underestimate the benefits of improvements and can distort and misrepresent environmental issues, leading managers to make decisions that are bad for business and bad for the environment.

(e) Most conventional accounting systems are unable to apportion environmental costs to products, processes and services and so they are simply classes as general overheads. Consequently, managers are unaware of these costs, have no information with which to manage them and have no incentive to reduce them. “Environmental management accounting (EMA)”, on the other hand, attempts to make all relevant, significant costs visible so that they can be considered when making business decisions.

(f) Management accounting techniques which are useful for the identification and management of environmental costs include:

(i) Input/output analysis (records material flows with the idea that what comes in must go out – or to be stored).
(ii) Flow cost accounting (aims to reduce the qualities of materials, which leads to increased ecological efficiency)
(iii) ABC (distinguishes between the environment-related and environment-driven costs)
(iv) Life cycle costing (used to advantage by Xerox Limited for its logistic chain)

(g) The major areas for the application of EMA are in the assessment of annual environmental costs/expenditures. Product pricing, budgeting, investment appraisal, calculating costs and savings of environmental projects, or setting quantified performance targets”

(h) Good environmental management can be seen as a key component of TQM (objectives such as zero waste).

(i) Although various classifications have been suggested, “the most significant problem of EMA lies in the absence of a clear definition of environmental costs. This means that organizations are not monitoring and controlling such costs”.


(source: BPP Learning Media)



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