Environmental Management Accounting

Environmental Management Accounting -Incorporating environmental factors into business decision makingABSTRACTThe industrialised society saw the overexploitation of natural resources and careless discharge of pollutants. As a result, the environment has been degrading. Since 1970's,governments began interfering with the industry with control and market incentives, which are methods suggested by the environment economics. By the end of 1980's, people got a new understanding of the relationship among environment, economic and the society with the emerging of the concept of sustainable development. In his "Blueprints for a green economic", Pearce (1989) maintained the importance of incorporating environmental factors into policy setting and decision making for governments and industry. As awareness of environment protection rose, the expectation by stakeholders of the industry to take on environmental responsibility increase. Insurance companies expect industries to improve environment performance, so as to mitigate environment obligation. In the capital market, rating agencies appraise the sustainability opportunity and risk of companies, offering more choices for investors. Consumers try to be responsible for the environment by preferring green goods. Under such circumstance, environment factors became major influence in strategic and operational management of business. Business should go beyond compliance to consider current and future impact on the environment, to take into account the long term cost and benefit. Otherwise, huge loss can occur. In the case of Shell Oil as indicated in Part I, rather than choosing the eco-friendly option favoured by the stakeholders, the company chose the less costly option as permitted by the law. Products boycotted by the consumers, the loss of cash flows far exceeded the investment of the eco-option.As companies shift from shareholder governance to stakeholder governance, stakeholder value maximisation and sustainability, rather than shareholder value maximisation became the goal of business. To make this goal true, companies should incorporated environment considerations into their strategy, operation and accounting systems. Environmental Management Accounting, "theidentification, measurement and allocation of environmental costs, the integration of theses environmental costs into business decisions, and the subsequent communication of the information to a company's stakeholders"(SMA,1996),has various methods and techniques. With improved costing, managers are bettered informed of the categories and structure of environmental costs in their decision making. With improvement on the framework of traditional capital appraisal procedures, managers can take into account current and future impact the alternations have on their business and to appraise the feasibility of the proposals in more detail. By setting up comprehensive environmental performance evaluation systems, environmental performance can be measured and carry out of decision can be guaranteed. Considering environmental factors into decision making helps both environmental and financial goals. Having a better understanding of the source and drivers of environment cost, of the environmental impact, cost and benefit at different stage of the value chain, at different time of the life cycle, companies can better manage their business by redesigning products and procedures, activity-based management and total environmental quality management. With the impact on the environment lessened, the environment cost in the future cut down, the image of the companies improved, the competitiveness of products increased, the win-win of financial and environmental goals pushes the companies towards sustainability.There are four parts in this paper. Part I rReview of the evolution and development of environmental accounting. In chapter 1,1 analyse the nature of environmental issues with theory of environmental economics, which lays the foundation of conservation and environmental management accounting. Elaborating on...