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    Environmental Cost Management

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    Sherri Bonquin
    Environmental cost management looks to control costs associated with an organization's environmental impact. There are two key reasons for doing so - to indirectly limit damaging activities which positively impacts the environment, and to potentially increase profits by reducing costs in certain areas. Environmental costs are classified into four categories: conventional, hidden, contingent, and image/relationship costs. Environmental management accounting examines environmental costs not traditionally considered, helping management identify and reduce these costs. An environmental management system provides an organizational framework to help set goals to reduce impacts and comply with regulations through review, evaluation, and continual improvement.

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    Environmental Cost Management

    Uploaded by

    Sherri Bonquin
    44 views2 pages
    Environmental cost management looks to control costs associated with an organization's environmental impact. There are two key reasons for doing so - to indirectly limit damaging activities which positively impacts the environment, and to potentially increase profits by reducing costs in certain areas. Environmental costs are classified into four categories: conventional, hidden, contingent, and image/relationship costs. Environmental management accounting examines environmental costs not traditionally considered, helping management identify and reduce these costs. An environmental management system provides an organizational framework to help set goals to reduce impacts and comply with regulations through review, evaluation, and continual improvement.

    Original Description:

    Cost Accounting

    Original Title

    MODULE 11

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    Environmental cost management looks to control costs associated with an organization's environmental impact. There are two key reasons for doing so - to indirectly limit damaging activities which positively impacts the environment, and to potentially increase profits by reducing costs in certain areas. Environmental costs are classified into four categories: conventional, hidden, contingent, and image/relationship costs. Environmental management accounting examines environmental costs not traditionally considered, helping management identify and reduce these costs. An environmental management system provides an organizational framework to help set goals to reduce impacts and comply with regulations through review, evaluation, and continual improvement.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    44 views2 pages

    Environmental Cost Management

    Uploaded by

    Sherri Bonquin
    Environmental cost management looks to control costs associated with an organization's environmental impact. There are two key reasons for doing so - to indirectly limit damaging activities which positively impacts the environment, and to potentially increase profits by reducing costs in certain areas. Environmental costs are classified into four categories: conventional, hidden, contingent, and image/relationship costs. Environmental management accounting examines environmental costs not traditionally considered, helping management identify and reduce these costs. An environmental management system provides an organizational framework to help set goals to reduce impacts and comply with regulations through review, evaluation, and continual improvement.

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    © All Rights Reserved
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    MODULE 11

    Environmental Cost Management

    Introduction

    Throughout the past decades, businesses have been giving attention to the conduct of business that focuses on
    sustainable development— which means business activity that produces the goods and services needed in the present
    without limiting the ability of future generations to meet their needs. One way of sustainable development is increasing
    production of goods and services while at the same time decreasing the deleterious effects on the environment of that
    production, also known as ecoefficiency.

    Environmental cost management looks to control the costs that are associated with the environmental impact the
    organization has through its operations. There are two central reasons for using environmental cost management. One is
    that controlling these costs will have a positive impact on the environment, by indirectly limiting damaging activities.
    Another reason is that it has the potential to increase profitability by reducing spend in certain areas, and even by helping
    to develop a positive brand image.

    Classifying Environmental Costs

    The following are environmental cost categories according to Environmental Protection Agency of United States

    • Conventional Costs are costs that have actually been incurred and are carried in the books of accounts of the
    company arising from machinery and equipment, raw materials and consumer goods.
    • Hidden costs represent the indirect environmental costs or the dependent costs which may occur in the future.
    Within the scope of hidden costs, environmental costs resulting from legal obligations and voluntary actions are
    included.
    • Contingent costs represent the costs may arise in the future depending on the environmental effects. For example,
    penalties to be paid for the oil spills as caused by various accidents and expenses related to the solution of
    environmental damage caused.
    • Image and relationship costs examples of these costs are the costs associated with annual environmental reports,
    relations with the local population and environmental activities carried out on a voluntary basis

    Environmental Management Accounting and System

    According to IFAC, Environmental management accounting is the management of the environmental and economic
    performance in the developing techniques for acceptable environmental accounting system and implementation process.

    The traditional accounting does not examine environmental costs arising from the business operations. Due to this,
    management are not able to manage, analyze, and reduce these costs. Through incorporating environmental
    management accounting, management are able to give attention to environmental costs. Environmental management
    accounting focuses on the process of measuring, verification, pricing and costing of consumption of the assets such as
    energy, raw materials, waste and so on. Accordingly, these assets are identified in accounting system and activities carried
    out to reduce the harm they give to the environment and costs it caused (Masanet and Llodra, 2006).

    An Environmental Management System (EMS) is a framework that helps an organization achieve its environmental goals
    through consistent review, evaluation, and improvement of its environmental performance.

    Basic Elements of an EMS include the following:


    • Reviewing the organization's environmental goals;
    • Analyzing its environmental impacts and legal requirements;
    • Setting environmental objectives and targets to reduce environmental impacts and comply with legal
    requirements;
    • Establishing programs to meet these objectives and targets;
    • Monitoring and measuring progress in achieving the objectives;
    • Ensuring employees' environmental awareness and competence; and,
    • Reviewing progress of the EMS and making improvements.

    Environmental Cost Strategies


    ➢ End-of-pipe strategy.

    Under this approach, companies produce the waste or pollutant, and then clean it up before it is discharged into the
    environment. Smokestack scrubbers, wastewater treatment, and carbon air filters are examples of end-of-pipe
    strategies.

    ➢ Process improvement strategy.

    Under this approach, companies modify products and production processes to produce little or no pollutants, or find
    ways to recycle wastes internally.

    ➢ Prevention strategy.

    “The ultimate strategy for maximizing the value of pollution-related activities involves . . . not producing any pollutants
    in the first place. With this strategy, companies avoid all problems with regulatory authorities and, in many cases,
    generate significant profit improvements.”

    Environmental Reporting

    There is no specific standard for environmental reporting. Environmental reports may be included in annual reports or be
    reported independently. Stakeholders, both internal and external, benefits from the environmental reporting as they are
    provided with more information about the company and its operations. Environmental reporting also acts as a key
    measure for encouraging the internal efficiency of operations. This is because it is necessary to establish a range of
    technical measurement systems to collect and process some of the information that comprises the environmental report.
    These systems and the knowledge they generate could then have the potential to save costs and increase operational
    efficiency, including reducing waste in a production process. All in all, environmental reporting provides a foundation to
    improve the environmental and financial performance of an organization.

    References used:

    • Hilton R., Managerial Accounting: Creating value in a Dynamic Business Environment, McGraw-Hill/Irwin
    • Duman H., et al. (April 2013), Environmental cost management within the sustainable business
    https://www.researchgate.net/publication/309511614_Environmental_cost_management_within_
    the_sustainable_business
    • El Gayar O. (May 2006), Environmental Management Information Systems (EMIS) for Sustainable
    Development: A Conceptual Overview
    https://www.researchgate.net/publication/237202278_Environmental_Management_Information
    _Systems_EMIS_for_Sustainable_Development_A_Conceptual_Overview

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