International Activities and Trends in Environmental Management Accounting (EMA)

1. International Activities and Trends in Environmental Management Accounting (EMA) 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 the United 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. Strategic Position Compliance Eco-Efficiency EMA supports environmental protection via cost-efficient compliance with environmental regulation and self-imposed environmental policies EMA supports the evaluation and implementation of cost-effective and environmentally sensitive programs for ensuring the organization’s long-term strategic 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 Examples… Examples… Examples… Planning and implementing pollution control investments More accurately tracking the flow of energy, water, materials and wastes Working with suppliers to design products & services for “green” markets Investigating and purchasing cost-effective substitutes for toxic materials Planning and implementing energy, water and materials efficiency projects Estimating the internal costs of likely future regulations Reporting environmental waste and emissions to regulatory authorities Assessing the total annual return on investment in eco-efficiency activities Reporting to stakeholders such as customers, investors and local communities Potential Benefits of EMA…

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… EUROPE Austria Czech Rep. Finland Germany Italy Netherlands Portugal Spain Slovak Rep. Sweden UK THE AMERICAS Argentina Brazil Canada Colombia Guatemala Nicaragua Peru USA ASIA-PACIFIC Australia Japan Philippines Rep. of Korea Singapore Taiwan Thailand Vietnam AFRICA Egypt South Africa Tanzania Zimbabwe These lists are not comprehensive…

7. Example from North America… United States EMA for Supply Chain Management • Chemical Management Services (CMS) model • EMA used to track flow of chemicals & chemical wastes within the company, and estimate all associated costs • Information used to design and implement contracts with suppliers of chemical management services • Model is spreading in the US • 50 - 80% of the auto industry • 35% of the electronics industry • 20% of the metalworking industry • 10% of the aerospace industry

8. Example from Asia-Pacific… Philippines EMA for Cleaner Production (CP) • EMARIC + Philippine Institute of CPAs (PICPA) + other partners • Training course on Cleaner Production and “Environmental Cost Assessment” • For practicing accountants & their non-accounting colleagues • Course popularity led to incorporation of EMA into the academic accounting curriculum requirements

9. Example from Europe… Germany Materials Flow Cost Accounting • University of Augsburg and the Institute of Management & Environment • Map materials flows and information flows in an organization • Attach quantitative data on materials amounts and costs • Look for information mismatches, missing materials, opportunities to save money, etc. • Make information system improvements

10. UNDSD Expert Working Group on EMA… UNDSD = United Nations Division for Sustainable Development • EMA Working Group established in 1999 • Core members are government representatives from 30+ countries • Other members include invited representatives of accounting associations, academia, business, etc. • Group has met 8 times, each time in a different country • Group has discussed many international topics of debate surrounding EMA

11. 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)

12. 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

13. 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)

14. 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

15. EMA Guidance Document for the International Accounting Community… • Facilitator – UNDSD Expert Working Group • Funders – 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

16. 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

17. 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)

18. Chapters 1 & 2 • CHAPTER 1 – INTRODUCTION & CONTEXT • Why Care about Environmental Issues? • Accounting Concepts and Language • Environmental Accounting Context, Concepts, and Language • CHAPTER 2 – EMA DEFINITION(S), USES, BENEFITS, AND CHALLENGES • What is EMA? • Types of Information included under EMA • Uses and Benefits of EMA • EMA Challenges - Current Accounting Practices

19. 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

20. 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

21. 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

22. 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

23. 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.pdf http://www.un.org/esa/sustdev/publications/EMAGovernment.pdf Many other resources are available on the International EMA website: http://www.EMAWebsite.org