Environmental accounting and environmental management accounting
What is environmental accounting?
The term environmental accounting is frequently used within the accounting and environmental management literatures. Environmental accounting is a broader term that relates to the provision of environmental-performance-related information to stakeholders both within, and outside, an organisation.
According to the United States Environment Protection Agency (US EPA):
An important function of environmental accounting is to bring environmental costs to the attention of corporate stakeholders who may be able and motivated to identify ways of reducing or avoiding those costs while at the same time improving environmental quality.
While environmental accounting can be 'corporate-focussed', it should also be appreciated that environmental accounting can also be undertaken at a national or regional level.
What is environmental management accounting?
Environmental management accounting is a subset of environmental accounting. It is generally used to provide information for decision-making within an organisation, although the information generated could be ed for other purposes, such as for external reporting.
The view that environmental management accounting predominantly relates to proving information for internal decision-making is consistent with the definition provided by the US EPA (1995) which describes environmental management accounting as "the process of identifying, collecting and analysing information about environmental costs and performance to help an organisation's decision-making".
The International Federation of Accountants (1998) defines 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 life cycle costing, full cost accounting, benefits assessment, and strategic planning for environmental management.
The United Nations Division for Sustainable Development (UNDSD) (2001) provides a slightly different definition of environmental management accounting. It emphasises that environmental management accounting systems generate information for internal decision-making, where such information can be either physical or monetary in focus. As the UNDSD states:
The general use of environmental management accounting information is for internal organizational calculations and decision-making. EMA (environmental management accounting) procedures for internal decision-making include both physical procedures for material and energy consumption, flows and final disposal, and monetarized procedures for costs, savings and revenues related to activities with a potential environmental impact.
Environmental management accounting can therefore, depending on the system implemented, provide a broad range of information about financial and non-financial aspects of an organisation's environmental performance.
With the growing prevalence of environmental (and social) performance indicators being used as a basis for assessing an organisation and its managers (for example, in management remuneration plans) there is a need to have a mix of both financial and non-financial indicators to assess an organisation's environmental performance. For example, some managers might be rewarded in terms of dollar savings in waste costs (a financial measure), whereas other managers might be rewarded in terms of reduction in spillage rates (a non-financial measure).
According to definitions such as those provided above, environmental management accounting systems have the dual purpose of managing and improving the financial and environmental performance of an entity.
This can be contrasted to conventional management accounting systems typically in use within organisations. Such systems do not give separate recognition to environment-related costs or impacts, but instead focus on particular issues on the basis of their economic or financial decision-making relevance.
It should be appreciated that environmental management accounting can generate information about how the use of resources with environmentally-related impacts affects the financial position and performance of organisations. Environmental management accounting can also consider how organisational operations impact environmental systems.