What is Environmental Management Accounting?

All companies have some impact on the environment; historically, companies did not always account for the costs associated with environmental impact. Environmental management accounting allows a company to identify these costs within its operations, both management and accounting. As focuses change and companies look more at their environmental impact, the need for environmental management accounting increases. Common functions of environmental management accounting include evaluating environmental use, calculating costs associated with the company's processes, designing environmentally friendly processes, and monitoring future performance.

Some companies use environmental resources more than others. Raw material usage is often highest with companies in the manufacturing industry, and timber, rock, metal, and similar items are all natural resources used by manufacturing companies. Owners and managers must review their company's use of these items and account for the replacement cost of natural resources. Disposal costs for any waste may also factor into a company's environmental impact. Environmental management accounting will often require companies to include processes for measuring costs for the use and disposal of such resources.

Costs associated with environmental management accounting may be real or non-business. Real costs represent the actual costs paid for standard business operations. Accountants use standard tools, such as product pricing, budgeting, savings and benefit analysis, and net present value calculations found in standard management accounting. Applying these to tools on environmental activities allows for tracking the true costs of business processes.

In some cases, companies may fall into the trap of accounting for non-business costs. This occurs when the company comes under fire from outside forces, such as public opinion or government agencies. Covering costs not associated with the company's actual processes can represent a slippery slope as the company makes itself complicit for actions not their own.

Environmental management accounting also provides an opportunity for companies to find less expensive options for handling environmental issues. Companies often allocate funds to environmental protection as part of their normal business operations. For example, maintaining a park for general public use can help take the focus away from the company as it uses other natural resources. This also helps the company withstand negative feedback from individuals who claim the company uses too many resources. Reducing waste is another way companies can cut environmental accounting costs; the waste can go to secondary processes or be given to a charitable organization, reducing overall waste and improving the company's goodwill with consumers.