Environmental Management Accounting (EMA) Implementation in a Company: Motivation and Expected Results from a Business Perspective

It is no news that managers are interested in high profits, and when it comes to cost reductions, they miss no opportunity. Lately, the environmental performance of a company has gained importance not only due to increasing interest of internal and external stakeholders and pressures on the supply chain, or regulatory pressures. The environmental performance of a company is like to the overall business performance.

The idea of environmental performance is also a matter of costs incurred by a company. Optimizing the environmental performance is more and more views as a business optimization strategy in some industries.

Please note that for the purpose of this post I am aiming at companies that have a significant environmental impact, and that I not discussing the reputational aspect of the issue. The main focus is on the actual accounting practices that provide the necessary information for an informed decision making process.

Let’s start by reviewing the definition of EMA. I will provide here the definition given by the EMA Expert Working Group of the United Nations Division of Sustainable Development (UNSDS) focuses on both the physical and monetary nature of EMA:

“EMA is broadly defined as the identification, collection, estimation, analysis and use of physical flow information (i.e., materials, water, and energy flows), environmental cost information, and other monetary information for both conventional and environmental decision - making within an organization” (UNSD, 2001 p. 4)

Therefore, EMA should be viewed as a tool in the decision making process. Just like the classic management accounting is a tool for specific decisions regarding the inner workings on a company.

Therefore, as a tool, first of all, EMA needs to make business sense. This means strictly that the potential benefits of the implementation need to outweigh the costs (e.g. the financial and human resources, time involved).  The main benefit is that EMA implementation means that an organization becomes more efficient and more environmentally friendly at the same.  

The literature presents several categories of reasons for implementing EMA:

•       Eco-efficiency. EMA allows for the use of eco-efficiency indicators as it uses both physical and monetary information.  The calculation of these indicators should help to simultaneous reduce costs and environmental impacts via more efficient use of resources. 
•       Cost-effectiveness. Increasing internal efficiency by clearly identifying and allocating of environmental costs and implicitly adequate pricing of products.
•       Investment appraisal. EMA can be used for sound investment project decision making as it allows for better assessment of the economic impacts of the environmental performance of the business. 
•       Strategic positioning and compliance. EMA could very well serve as a cost-effective tool to aid with compliance with the environmental legislation and environmental reporting standards.

Companies with a significant environmental impact have multiple sound reasons to consider implementation of the appropriate tool such as EMA in order to achieve their business performance targets. 

References:
UNDSD (2001) – Environmental Management Accounting, Procedures and Principles – United Nations Division for Sustainable Development, Geneva 

For citing the article:
Munteanu, A.R., 2013. Environmental Management Accounting (EMA) Implementation: Motivation And Expected Results From A Business Perspective. Romanian Journal of Economics, 37(2 (46)), pp.164-173.