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Advances in Social Sciences Research Journal – Vol. 11, No. 9.2
Publication Date: September 25, 2024
DOI:10.14738/assrj.119.2.17399.
Kassim, C. K. H. C. K., Ariffin, A. R. M., & Muhmad, S. N. (2024). Environmental Management Accounting: A Tool for Better
Management Practice. Advances in Social Sciences Research Journal, 11(9.2). 55-63.
Services for Science and Education – United Kingdom
Environmental Management Accounting: A Tool for Better
Management Practice
Che Ku Hisam Che Ku Kassim
Faculty of Accountancy, Universiti Teknologi
MARA Cawangan Terengganu, Malaysia
Avylin Roziana Mohd Ariffin
Faculty of Economics and Muamalat,
Universiti Sains Islam Malaysia, Malaysia
Siti Nasuha Muhmad
Faculty of Accountancy, Universiti Teknologi
MARA Cawangan Terengganu, Malaysia
ABSTRACT
Over the years, there has been a growing emphasis among organisations on the
need to address environmental issues and develop management practices and tools
that are useful in improving environmental performance of the organisations. The
deficiency of conventional accounting practices has spurred the infusion of
environmental management accounting (EMA) and its adoption has been promoted
at international, national and local government levels. The main purpose of this
paper is to provide a general discussion on pertinent characteristics of EMA
including its supporting tools to enhance its applicability and potential benefits that
could be derived from its adoption. The discussion adds to the existing literature
and provides a platform for future research intending to examine the extent of EMA
development in an organisation.
Keywords: Environmental Management Accounting, Environmental Accounting,
Management Accounting, Material Flow Analysis, Environmental Costs.
INTRODUCTION
The field of accounting, mainly in the area of management accounting (MA) continues to evolve.
In the past, MA predominantly involves with routine exercise of planning, budgeting, efficient
utilisation of resources, performance assessment, and formulation of strategic business policy
and strategy. These MA activities are designed to tackle specific management needs. However,
there is an apparent shift of MA functions in recent decades and that MA has gone from
providing internal accounting information to focus on resources productivity, value creation
activities and including issues on sustainability and eco-efficiency [1]. These emerging concepts
and activities require innovative form of MA tool as conventional MA functions are arguably
having some apparent limitations. In the context of the role of MA in relation to the
environment, the:
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Advances in Social Sciences Research Journal (ASSRJ) Vol. 11, Issue 9.2, September-2024
Services for Science and Education – United Kingdom
“fundamental environmental criticism of conventional management accounting is
that it largely ignores separate identification, classification, measurement and
reporting of environmental information, especially environmental costs” [2, p. 14]
In further addressing the issue of a lack of recognition on environmental impacts, conventional
MA is criticised for treating environmental costs to be immaterial, failing to identify and tracing
some of environmental costs, placing indirect costs into overhead accounts, largely ignoring
environmental considerations in investment appraisals, and paying little attention on
accounting for externalities and sustainability issues [2]. Prior research attests to this
contention. For example, a study has discovered that under the conventional MA, certain
environmental costs particularly those related to emissions cannot be clearly identified [3].
Moreover, another evidence reports identical findings where it is found that of about one-fold
of environmental costs are kept hidden under the overhead accounts [4].
The limitations of conventional MA suggest that a shift to an innovative practice is desired. In
recent years, bowing the intense environmentally-linked pressures, an increasing number of
organisations are becoming interested in recognising the monetary consequences of
organisational environmental impacts to the prosperity of their entities [1, 2]. Though it is not
driven by statutory requirements, organisations appear to voluntary adopt EMA in an attempt
to reduce the environmental impacts (such as reducing penalties arising from non-compliance
of environmental laws) and lower the production and/or operational costs. The adoption of
EMA is further intensified through promotions made by international organisations such as the
prominent United Nations Division for Sustainable Development (UNDSD), United Nations
Environment Programme (UNEP), and Tellus Institute [5, 6] and government supports globally
[7].
The aim of this paper is to provide a discussion on a detailed description of EMA including its
required tools to enhance its applicability and potential benefits that could be derived from its
adoption. The paper intends to argue that the implementation of EMA serves as a better tool for
organisation to control the adversely environmental impacts on organisations and society while
at the same time bring favourable impacts on the organisations’ bottom line. The remaining
paper parts of the paper are structured in the following order. In the next section, a detailed
description of EMA is presented. This includes the types of information supplied by EMA.
Subsequently, a discussion on an array of EMA tools follows. These tools provide operational
support for EMA implementation. Then the four major key applications of EMA information are
briefly discussed. A conclusion ends the paper.
ENVIRONMENTAL MANAGEMENT ACCOUNTING
EMA is constantly being adopted to significantly improve an organisational environmental
performance. Studies have illustrated the potentials that EMA can provide in improving the
identification, measurement, and reporting of environmental information [4, 7]. This
information forms as a more accurate basis for assessing environmental performance [5]. Not
only that, EMA also aids organisations to unveil some costs savings opportunities that could
contribute to an increase in the economic performance of an organisation [8, 9]. An empirical
study has demonstrated the ability of EMA in helping organisations in terms of reducing
operational costs, increasing productivity, building better corporate image, and ameliorating
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Kassim, C. K. H. C. K., Ariffin, A. R. M., & Muhmad, S. N. (2024). Environmental Management Accounting: A Tool for Better Management Practice.
Advances in Social Sciences Research Journal, 11(9.2). 55-63.
URL: http://dx.doi.org/10.14738/assrj.119.2.17399
its position in the marketplace [7]. In the study, a company participated in the project manages
to reduce the following activities significantly; water consumption (23.6%), effluents (45%),
and energy usage (11.40%) which substantially trim down the production costs after three
years of implementing EMA and Cleaner Production programmes.
The Diverse Definitions of EMA
Although EMA has received reasonable consideration over the past few years or so, an absence
of a commonly accepted definition for EMA is observed in the literature [10, 11]. EMA
terminology and practices are relatively differed among organisations and countries, and EMA
is often generically referred to other terms such as environmental cost accounting (ECA), full
cost accounting (FCA), total cost assessment (TCA), to state some examples [3]. Table 1 shows
the different delineations given to EMA. These definitions suggest that as part of MA practice,
the core idea of EMA is often associated and directed towards internal costs as external costs,
such as costs to society or the environment in which an organisation is not held accountable,
are considered out of the scope of legal responsibilities of the organisation [8].
Table 1: Summary of EMA Definitions
Author (s) Definition
Burritt et al.
(2023) [1: p. 337]
“...as a broad set of different accounting tools providing information to support management in
improving the environmental and economic performance of the organisation, including its
effects beyond organisational boundaries”.
Burritt (2004) [2:
p.13]
“...is concerned with the accounting information needs of managers in relation to corporate
activities that affect the environment as well as environment-related impacts on the
corporation”.
Bartolomeo et al.
(2000) [3: p. 37]
“...the generation, analysis and use of financial and related non-financial in order to integrate
corporate environmental and economic policies, and build sustainable business”.
Jasch (2006) [5: p.
1194]
“...is management accounting with a focus on physical information on the flow of energy, water,
products and materials as well as monetary information on environmental costs and revenues
and projects related to environmental protection”.
Burritt and Saka
(2006) [6: p. 1262]
“...is relatively a new environmental management tool initially designed to trace and track
environmental costs and physical environmental flows”.
(Source: Compiled by author)
The need for EMA rises as an attempt to overcome the shortcomings of the conventional MA
practices particularly in respect of environmental costs and impacts [4, 5]. These shortcomings
pose many serious challenges for EMA, for example, the need to accurately disclose hidden
environmental costs by revising how costs are identified, measured and reported. Proper
scrutiny of environmental costs enables organisation to accurately calculate and manage those
costs and subsequently reflects to a better environmental performance [11]. Ideally EMA has a
crucial role to play as an effective mechanism to assist an organisation in managing the costs
while at the same time minimising the impact of organisational operations on the biological
environment.
Types of Information Provided by EMA
Information that falls under the jurisdiction of EMA can be classified into two main categories,
physical and financial information. Physical information comprises records on the use, flows
and the final disposal of energy, water and materials (including the corresponding waste) as