1. 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. 1 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. 2 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. 3 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-Efficiency 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 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…

5. 4 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. 5 EMA Around the World… THE AMERICAS Argentina Brazil Canada Colombia Guatemala Nicaragua Peru USA EUROPE Austria Czech Rep. Finland Germany Italy Netherlands Portugal Spain Slovak Rep. Sweden UK ASIA-PACIFIC Australia Japan Philippines Rep. of Korea Singapore Taiwan Thailand Vietnam AFRICA Egypt South Africa Tanzania Zimbabwe These lists are not comprehensive…

7. 6 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

8. 7 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. 8 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. 9 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. 10 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. 11 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

13. 12 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. 13 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. 14 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

16. 15 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. 16 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. 17 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. 18 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. 19 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

21. 20 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. 21 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. 22 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.