International Guidance on Environmental Management Accounting (EMA)

Background information for the EMFACT Advisory Committee Conference Call - 12/16/05

Deborah Savage, Ph.D.Director

EMA Research & Information Center (EMARIC)dsavage@emaric.org www.EMAwebsite.org

2

What is EMA?

There are many alternative definitions, but broadly defined…

EMA is the identification, collection, analysis, and use of two types of information for internal decision-making:

Physical information on the use, flows, and fates of energy, water, and materials (including wastes)

Monetary information on environment-related costs, earnings, and savings

EMA Expert Working Group of theUnited Nations Division for Sustainable Development

3

Why was EMA Developed?

EMA was conceived in recognition of some of the limitations of conventional practices for informing environmental management decisions

insufficient tracking of energy, materials, and wastes

“hiding” of costs in overhead accounts and elsewhere in the accounting records

lack of data on future and less tangible costs in the accounting records at all

Insufficient communications between the accounting and other departments/staff, e.g., production, environmental, research…

4

Potential Benefits of EMA…

Working with suppliers to design products &

services for “green” markets

Estimating the internal costs of likely future

regulations

More accurately tracking the flow of energy, water,

materials and wastes

Planning and implementing energy, water and materials efficiency projects

Planning and implementing pollution

control investments

Investigating and purchasing cost-effective

substitutes for toxic materials

Compliance Eco-EfficiencyStrategic Position

EMA supports the simultaneous reduction of costs and environmental

impacts via more efficient use of energy, water and materials in internal

operations and final products

EMA supports the evaluation and implementation of cost-effective and environmentally sensitive

programs for ensuring the organization’s long-term strategic

position

Reporting environmental waste and emissions to regulatory authorities

EMA supports environmental protection via cost-efficient

compliance with environmental regulation and self-imposed

environmental policies

Assessing the total annual return on

investment in eco-efficiency activities

Reporting to stakeholders such as customers, investors and local

communities

Examples… Examples… Examples…

5

The Globalization of EMA…

1992: US Environmental Protection Agency was first national government agency to establish a formal EMA program

1998: EMA Networks (EMAN) in Europe, Asia-Pacific, the Americas

1999: Expert Working Group on EMA convened by the United Nations Division for Sustainable Development (UNDSD)

2002: International EMA Website

2004: EMA activities in over 30 countries

2005: International Guidance Document

6

EMA Around the World…

THE AMERICAS

ArgentinaBrazil

CanadaColombia

GuatemalaNicaragua

PeruUSA

EUROPE

Austria Czech Rep. Finland Germany Italy Netherlands Portugal Spain

Slovak Rep. Sweden UK

ASIA-PACIFIC

AustraliaJapan

PhilippinesRep. of Korea

SingaporeTaiwan

ThailandVietnam

AFRICA

EgyptSouth Africa

TanzaniaZimbabweThese lists are not

comprehensive…

7

UNDSD Expert Working Group on EMA…

UNDSD = United Nations Divisionfor Sustainable Development

EMA Working Group established in 1999Core members are government representatives from

30+ countriesOther members include invited representatives of

accounting associations, academia, business, etc.Group has met 8 times, each time in a different countryGroup has discussed many international topics of

debate surrounding EMA

8

International Consensus (1)

What kind of information does EMA include? Only monetary information? Physical information also?

Growing international consensus – both It is difficult to do good cost accounting without doing good materials accounting first (especially in manufacturing)

9

International Consensus (2)

Which environment-related costs?

Growing international consensus – be

comprehensive Do not leave out any potentially significant

costs, earnings, or savings – especially the costs associated with wasted raw materials

10

International Consensus (3)

How can or should EMA information be used? Primarily for internal management?

For external reporting also?

Growing international consensus – both

EMA information can/does inform: Internal management decision-making (e.g.,

CP, SCEM, EMS, etc.) External reporting (e.g., financial,

environmental, sustainability, statistical)

11

International Consensus (4)

What are the best EMA implementation methodologies?

Growing international consensus – will

vary from case to case, but some best practices can probably be identified

12

EMA Guidance Document for the International Accounting Community…

Facilitator – UNDSD Expert Working GroupFunders – UNDSD as well as governments of

US, UK, Japan, Germany, Austria Authors – EMARIC (USA) and IOEW (Austria)Reviewers – nominated experts, the UNDSD

group, the public…Organizer of Public Review Process and

Publication – International Federation of Accountants (IFAC) Board of Directors

Published Aug 24, 2005

13

Why More Guidance Now?

Some of the existing guidance is• Focused on a particular national audience (with

national case studies)• Focused on a particular end-use of EMA

information (e.g., solid waste management, P2/CP, external reporting, supply chain management)

• Outdated (because the field is evolving so quickly)

Still considerable confusion on definitions and language

There are no international standards or guidance endorsed by an international accounting organization

14

Important to note…

An introductory guidance document, not a day-to-day implementation manual

Primary audience is accountants, but because EMA is so interdisciplinary, document was also written with other audiences in mind, e.g., technical experts, environmental managers, production supervisors, etc.

Manufacturing focus, because the most EMA experience to date available there, but also relevant to other sectors (e.g., service sector, government)

Written for an international audience (with varying practices and language)

15

Chapters 1 & 2

CHAPTER 1 – INTRODUCTION & CONTEXTWhy Care about Environmental Issues?Accounting Concepts and LanguageEnvironmental Accounting Context, Concepts, and

Language

CHAPTER 2 – EMA DEFINITION(S), USES, BENEFITS, AND CHALLENGES

What is EMA?Types of Information included under EMAUses and Benefits of EMAEMA Challenges - Current Accounting Practices

16

Chapter 3

PHYSICAL INFORMATION: FLOW OF ENERGY, WATER, MATERIALS, AND WASTES

Physical Information• Materials Inputs• Product Outputs• Non-Product Outputs (Waste and Emissions)

Materials/Mass Balances

Physical Environmental Performance Indicators

17

Chapter 4

MONETARY INFORMATION: ENVIRONMENT-RELATED COSTS AND EARNINGS

Cost Categories

• Waste & Emission Control Costs• Prevention & Other Environmental Management Costs• Research & Development Costs• Materials Costs of Non-Product Outputs• Materials Costs of Product Outputs• Less Tangible Costs

Monetary Environmental Performance Indicators Environment-related Earnings and Savings Distribution of Costs by Environmental Domain

18

Chapter 5

SELECTED EXAMPLES OF EMA APPLICATIONS FOR INTERNAL MANAGEMENT

Examples of Applications at• The Site & Organization Level• The Materials Level• The Project Level

Examples from Argentina, Austria, Germany, Japan, the Netherlands, the UK, and the USA.

Illustrate the use of EMA to support supply chain management, logistics management, investment appraisal, development of environmental performance indicators, environmental cost tracking, etc.

Illustrate the efficiency benefits of EMA for both business and government, and the links between physical and monetary information

19

Chapter 6

SELECTED EXAMPLES OF EMA APPLICATIONS AND LINKS TO OTHER TYPES OF ACCOUNTING AND REPORTING

Examples of Links to• National Accounting & Reporting• Financial Accounting & Reporting• Corporate Environmental Performance Reporting

Examples from Australia, Denmark, Japan, the UK, the European Commission, and the United Nations

Illustrate similarities and differences between the types of information collected under these schemes compared to EMA

illustrate the potential for EMA to inform these schemes, and vice-versa

20

For More Information…

The International Guidance Document on EMA is available on the IFAC website:

http://www.ifac.org/News/LastestReleases.tmpl?NID=1124902574170148

Introductory Brochures on EMA for business or government are available on the UN website:

http://www.un.org/esa/sustdev/publications/EMABusiness.pdfhttp://www.un.org/esa/sustdev/publications/EMAGovernment.pdf

Many other resources are available on the International EMA website:

http://www.EMAWebsite.org

21

EMA vs. GRI vs. FRP (1)

Differences in scope• GRI & FRP focus primarily on external reporting, while EMA

provides data for many internal management purposes as well as for external reporting

• GRI & FRP focus on organization-level and facility-level indicators, respectively. EMA data can be collected, analyzed and used at many different levels: organization, facility, material, product, process, etc.

• GRI & FRP focus on the sustainability triangle (economics, environment, and social), while EMA focuses on economics and environment only – there are no social indicators under EMA (although some researchers are starting to investigate “Sustainability Management Accounting”)

22

Comparing the Indicators (1)

Economic vs. Monetary Indicators• GRI & FRP economic indicators are very broad (e.g., total

payroll) compared to the monetary information under EMA, which focuses specifically on “environment-related” costs (e.g., labor costs for pollution control and prevention initiatives)

• There are a multitude of potential monetary indicators under EMA – many fewer under GRI & FRP as they currently stand

• In sum – there is really almost no useful overlap between the economic indicators of GRI & FRP and the monetary indicators of EMA

23

Comparing the Indicators (2)

Environmental vs. Physical Indicators• There is much more useful overlap between the

environmental indicators of GRI & FRP and the physical indicators under EMA

• The most overlap is in the measurement/reporting of materials, water, and energy used by organizations as well as waste and emissions generated.

• One major difference – GRI & FRP include indicators on actual environmental impacts (e.g., biodiversity impacts) – EMA (as defined in the IFAC guidance document) does not explicitly include such information, although such impacts are often considered in determining EMA data priorities.