Environmental management accounting to reduce costs

Most business activities have environmental impacts. Almost all environmental impacts also have business costs, such as consuming raw materials, using utilities such as water and energy, and generating waste.

Environmental management accounting uses standard accountancy methods to identify, analyse, manage and reduce these costs in a way that can benefit both the business and the environment. In addition to financial costs, you can use environmental management accounting to identify other issues such as non-compliance, negative public relations and health and safety problems.

The process also enables you to identify which activities have the biggest environmental impacts and costs. This enables managers to set goals and priorities for managing these activities and reducing their impact.

Role of accountants and financial staff

There are several ways in which accountants and financial staff can adapt their existing skills and usual job responsibilities to help businesses deal with environmental issues.

Accountants have a direct interest in controlling and reducing business costs and increasing profits. They have the necessary skills and experience to:

• monitor, measure and control costs
• manage information systems so that the outputs are accurate and reliable
• identify and plan financial budgets for improvement projects
• help formulate and implement strategy
• provide highly regarded advice

Environmental management accounting offers an opportunity for accountants to develop the services they offer beyond the traditional core activities. Two accounting skills are particularly relevant:

• costing - it is essential that the environmental costs of products and services are understood and allocated properly so that they can be managed and prices set at an appropriate level
• investment appraisal of projects - accountants have an important role to play in ensuring that all relevant environmental costs are considered in project proposals