Journal of Cleaner Production 14 (2006) 1190e1193www.elsevier.com/locate/jclepro

Editorial

Environmental management accounting (EMA) as the nextstep in the evolution of management accounting

Abstract

Why should organizations and accountants care about environmental issues? Environmental performance and disclosure pressures from thesupply chain, finance providers, regulatory agencies, and other stakeholders result in ever-increasing environment-related costs for organizations,but there is also an increasing recognition of the potential monetary benefits of improved environmental performance. There is also growingconsensus that traditional accounting practices do not adequately provide the information required for environmental management and thestrategic decisions related to it.

Environmental Management Accounting (EMA) has been promoted by the Working Group on EMA of the United Nations Division forSustainable Development UN DSD EMA WG and the publications commissioned by it [UNDESA/DSD, 2001. United Nations Division forSustainable Development. Environmental Management Accounting, Procedures and Principles. United Nations Publications, New York/Geneva,http://www.un.org/esa/sustdev/sdissues/technology/estema1.htm; UNDESA/DSD, 2002. United Nations Division for Sustainable Development.Environmental Management Accounting: Policies and Linkages. United Nations Publications, New York/Geneva, http://www.un.org/esa/sustdev/sdissues/technology/estema1.htm]. Recently, IFAC has published a guidance document on EMA [International Federation of Account-ants (IFAC), 2005. International Guidance Document of EMA. IFAC, New York, http://www.ifac.org] that will further promote its applicationamong accountants.

This special issue of the Journal of Cleaner Production on EMA focuses on this methodological background as well as upon experiences fromcase studies from Australia, Austria, Argentina, Canada, Japan and Lithuania.� 2005 Elsevier Ltd. All rights reserved.

1. Introduction to the JCP special issue on EMA

Environmental issues e along with the related costs, reve-nues and benefits e are of increasing concern to citizens, gov-ernmental personnel and corporate leaders in most countriesaround the world. But there is a growing consensus that conven-tional accounting practices simply do not provide adequateinformation for properly supporting decision-making in envi-ronmental management responsibilities. To fill in this gap,recently the emerging field of Environmental ManagementAccounting (EMA) has been receiving increasing attention.In the early 1990s, The US Environmental Protection Agencywas the first national agency to set up a formal program topromote the adoption of EMA. Since that time, organizationsin 30C countries have begun promoting and implementingEMA for many different types of environmentally-relatedmanagement initiatives [4]. Much of this interest was catalyzedby the Working Group on EMA of the United Nations Divisionfor Sustainable Development UN DSD EMA WG and thepublications commissioned by it [3,4].

0959-6526/$ - see front matter � 2005 Elsevier Ltd. All rights reserved.

doi:10.1016/j.jclepro.2005.08.006

The International Federation of Accountants (IFAC) decidedto commission the development of a guidance document onEMA based on the first two publications by the UN DSDEMA Working Group on EMA to bring together the best in-formation on EMA and, at the same time, to update it andadd to it as necessary [2]. This document is neither a standardwith defined requirements, nor a descriptive practitioner or re-search report. It is intended to be a guidance document thatprovides guidance information as a middle ground betweenregulatory requirements, standards and pure information. Assuch, its goal is to reduce some of the international confusionon this important topic by providing a general frameworkand set of definitions for EMA that is fairly comprehensiveand which is as consistent as possible with other existing,widely used environmental accounting frameworks withwhich EMA must co-function.

This special issue of the Journal of Cleaner Production onEMA, titled ‘‘Environmental management accounting EMAas the next step in the evolution of management accounting’’focuses on this methodological background as well as upon

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experiences from case studies from Australia, Austria, Argen-tina, Canada, Japan and Lithuania. Most of the contributors arealso members of the UN DSD Working Group on EMA. Theirwork has contributed greatly to the evolution and currentpractice of EMA.

The paper of Jasch on ‘‘How to perform an EMA costassessment in a day’’ provides definitions for EMA andpresents the basic framework for assessing annual corporateenvironmental costs as well as materials flows (includingenergy and water) and their costs. The paper is based on expe-riences gained from applying the UN DSD EMA framework incompany workshops and case studies, mainly in Austria. Itespecially describes how to check for data consistency withindifferent information systems, like the list of accounts, stockmanagement, production planning and process engineering.Common hurdles for obtaining data from different informationsystems are described and solutions for improving consistencyof data in an organization are presented. It provides a detailedexample of an assessment in a brewery in the excel tooldeveloped to assist in the application of the UN DSD EMAapproach.

A recent development of EMA is to also include socialaspects and to enlarge the focus from ‘‘Environment’’ to‘‘Sustainability.’’ The paper of Jasch and Lavicka refers toa project with the Styrian automobile cluster in Austria andwith selected supply chain companies. The environmentalmanagement costs, as well as costs for health and safety,risk management and other social issues were assessed. Lesstangible items and external effects were also addressed. Start-ing with the attempt to assess the financial effects of thesustainability performance indicators provided by the GlobalReporting Initiative (GRI) for Sustainability Reporting, theUN DSD EMA approach was enlarged by several other costcategories. The paper describes these and the experiencesfrom the pilot projects.

The last paper on methodology relating to the UN DSDEMA approach comes from Australia. Gale emphasizes theimportance of understanding the material purchase value ofwaste and emissions and related processing costs. Tracingthe costs according to the UN DSD EMA methodology shedsnew light on cleaner production initiatives for corporate sus-tainability. In this methodology, information on the first cate-gory of costs, wastes and emission treatment, is generally themost accurate. Information on the second category, preventionand environmental management costs, is more difficult to de-termine because this category overlaps with, or is confusedwith, the first category of costs. Data for the two novel and in-novative cost categories of the material purchase value ofwastes and emissions and related processing costs are evenharder to obtain. Frequently, the costs are either hidden inoverhead accounts or are not recorded because they are not re-quired in conventional accounting systems. The result is thatcompanies, even though they may profess otherwise, havevery little knowledge about their full environmental costs,cost-savings opportunities, or how best to achieve cleaner pro-duction initiatives to promote corporate sustainability. A moresystematic application of the UNDSD EMA methodology

would provide a better record of costs and could act asa catalyst in promoting cleaner production processes.

Gale goes on to describe the experiences of an EMA projectin a Canadian pulp and paper mill. The EMA framework wasapplied to the 2000 year-end financial report for the Macken-zie Paper Division (MPD) paper mill owned and operated byAbitibi-Consolidated Incorporated (ACI) of Montreal, Que-bec. A conventional reading of the obvious environmentalcosts from this financial report is $2,196,838. This figure isderived from an analysis of Effluent Treatment Costs and otherline item environmental costs. There is no ‘‘environmentalaccount’’ category that breaks out either costs or the massbalance of inputs and outputs. For the most part, environmen-tal costs are rolled up into overhead accounts such as admin-istration, infrastructure and materials accounts.

Application of the EMA framework was based on assigningenvironmental costs to one of four categories for which a ten-tative breakdown is as follows: (1) Waste and Emission Treat-ment Costs ($3,334,560), (2) Prevention and EnvironmentalManagement Costs ($270,109), (3) Material Purchase Valueof Non-Product Output Costs ($946,799) and (4) ProcessingCosts of Non-Product Output ($292,943). There is also a cate-gory called Environmental Revenues, of which none werereported. Conservative estimates thus, place the total environ-mental costs at $4,844,411. What is significant in this result isthat the environmental costs under EMA are at least twice asmuch as would normally be reported. This supports the viewthat environmental costs are much higher than generally con-sidered and makes it clear that many important environmentalcosts are ‘‘hidden’’ in other accounts and that such morecomplete cost accounting should be helpful in promoting thepreventative environmental management approaches of CleanerProduction.

Staniskis and Stasiskiene report on their experiences withcleaner production projects and related environmental costsand benefits in Lithuania. According to them, there is a grow-ing consensus among the Lithuanian policy makers, practi-tioners and industrialists that environmental policies mustevolve from being reactive to being proactive and to focusincreasingly on the longer term sustainable developmentapproach concepts and approaches. As a result, many companiesare increasingly interested in the application of economicincentives, at least as supplements or reinforcements of environ-mental standards. Their paper investigates the current state ofEMA practices in Lithuanian SMEs that already have orare implementing EMS and which have also implementedCP innovations.

The Institute of Environmental Engineering (EU Centre ofExcellence in Sustainable Industrial Development (APINI-SID)) in 1992e2003 has been involved in more than 200Cleaner Production innovations in more than 150 Lithuaniancompanies. Cost-savings at all levels, maximizing productivityand energy-saving are the key issues. APINI’s experienceshows that decision-makers at the company level often failto recognize the economic values of natural resources as assetsas well as the business and financial value of good environ-mental performance. Therefore, there is a need to upgrade

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the business decision-making process by including informa-tion on material flows and related costs to account for effortsof sustainable development. EMA is becoming increasinglyimportant not only for environmental management decisionsand development of environmental management systems(EMS), but also for all types of routine management activities,such as product and process design, cost allocation and con-trol, capital budgeting, purchasing, product pricing and perfor-mance evaluation. Companies, which use EMA as a part ofintegrated management system, are provided with accurateand comprehensive information for the measurement andreporting of environmental performance.

The paper of Burrit and Saka explores the links betweenEMA and measures of eco-efficiency in Japanese business.EMA is a relatively new environmental management tool ini-tially designed to trace and track environmental costs andphysical environmental flows. In the paper, first the recent de-velopment of EMA is considered; second, the links betweenEMA and eco-efficiency measurement are examined. Recentcase studies from Japan are used as a basis for analysis. It isconcluded from the analysis that the practice of linking eco-efficiency measurement with EMA information is underutil-ised, diverse and in need of further promotion if EMA is tohelp Japanese business move production processes and con-sumption of its products towards sustainability.

The paper of Scavone concentrates on the internal report-ing methods applied to Cleaner Production and EMA projectsin Argentina. The government of Argentina has been promot-ing and implementing cleaner production and business com-petitiveness programs since 2002, which provide modelsthat combine a better understanding of environmental qualitywith actions carried out to mitigate the pollution caused byprivate sector industries. In this way, Argentine companiesare discovering that proactive environmental programs makesignificant contributions to profitability and competitiveness.The success of communication initiatives, in particular, restsin both the environmental accounting messages and the abil-ity of the users to understand the information. From this per-spective, the worksheets included are considered an importanttool and are also related to an environmentally balancedscorecard.

Traditional Management Accounting has always focusedon both monetary and non-monetary information (e.g., costdrivers such as labor hours and quantities of raw materials pur-chased) that inform management decisions and activities suchas planning and budgeting, ensuring efficient use of resources,performance measurement, and formulation of business policyand strategy, the collective goal of which is to create, protect,and increase value for the organization’s stakeholders. Thus,MA activities include data collection as well as routine andmore strategic analysis of the data via a collection of techni-ques (e.g., capital investment appraisal) that are designed toaddress specific management needs.

The IFAC [1] Statement, Management AccountingConcepts, outlines how the field of MA has evolved overtime, in four recognizable stages with a different focusin each stage:

Stage 1 (prior to 1950) a focus on cost determination andfinancial control;

Stage 2 (by 1965) a focus on the provision of informa-tion for management planning andcontrol;

Stage 3 (by 1985) a focus on the reduction of waste inresources used in business processes;and

Stage 4 (by 1995) a focus on generation or creation ofvalue through the effective use ofresources.

Thus, according to the IFAC analysis, the leading-edge prac-tice of MA has shifted beyond information provision to focuson the reduction of waste (i.e., the reduction of resource loss)and the generation of value (i.e., the effective use of resour-ces). In other words, leading-edge MA centres around theuse of resources, which are defined as ‘‘monetary and physi-cal’’ resources as well as information itself, along with otherresources created and used by an organization, e.g., ‘‘workprocesses and systems, trained personnel, innovative capaci-ties, morale, flexible cultures, and even committed custom-ers’’. In organizations where actual MA practices have keptpace with these trends, the role of management accountantshas evolved accordingly e from information tracking tomore strategic roles in policy and planning.

Although EMA is a comparatively new tool, it has been usedfor all of the MA goals listed in the four stages shown above. Andthere is a clear parallel between the Stages 3 and 4 focus on re-source productivity and EMA’s focus in accounting for the flowsof natural resources, such as energy, water and other materials.There is a similar parallel in the Stages 3 and 4 focus and that ofEMA in accounting for the costs associated with the inefficientuse of materials in production or products themselves, throughthe generation of pollution and other forms of material waste.It should be noted, however, that for many organizations,EMA still has a strong focus on the Stages 1 and 2 goals ofcost determination, financial control and information provision.Nevertheless, EMA information and practices are continuing toevolve in the same direction as conventional MA e towards theresource productivity and value creation activities for whichEMA data are so well suited.

In principle, EMA should be an integral part of MA and nota parallel system. In the real world, EMA ranges from simpleadjustments to existing accounting systems to more integratedEMA practices that link conventional physical and monetaryinformation systems. But, regardless of structure and format,it is clear that both MA and EMA share many common goals.And it is to be hoped that EMA approaches eventually will sup-port the IFAC proposals in Management Accounting Conceptsthat, in leading-edge MA, ‘‘inattention to environmental orsocial concerns are likely to be judged ineffective’’, and that ‘‘re-source use is judged effective if it optimizes value generationover the long run, with due regards to the externalities associatedwith an organization’s activities’’.

Christine Jasch is accountant and director of the IOW.Together with Deborah Savage, Emaric, Boston she wrote

1193Editorial / Journal of Cleaner Production 14 (2006) 1190e1193

the papers for UN DSD and the IFAC guidance document onEMA cited in the references.

References

[1] International Federation of Accountants (IFAC). Management Accounting

Concepts. New York: IFAC; 1998.

[2] International Federation of Accountants (IFAC). International Guidance

Document of EMA. New York: IFAC; 2005 !http://www.ifac.orgO.

[3] UNDESA/DSD. United Nations Division for Sustainable Development.

Environmental Management Accounting, Procedures and Principles.

New York/Geneva: United Nations Publications; 2001 !http://www.un.

org/esa/sustdev/sdissues/technology/estema1.htmO.

[4] UNDESA/DSD. United Nations Division for Sustainable Development.

Environmental Management Accounting: Policies and Linkages.

New York/Geneva: United Nations Publications; 2002 !http://www.un.

org/esa/sustdev/sdissues/technology/estema1.htmO.

Christine JaschInstitute for Environmental Management and Economics,

IOW, Rechte Wienzeile 19/10,A 1040 Vienna, Austria

Tel.: C431 5872189; fax: C431 5876109.E-mail address: info@ioew.at

URL: http://www.ioew.at

Received 23 July 2005Available online 10 October 2005