What is Environmental Accounting?

environmental accountingTraditional accounting focuses specifically on the management of economic resources, but this conventional approach has proven incomplete as modern businesses and governments must also manage environmental resources. Environmental accounting, which has the formal title of Environmental Management Accounting (EMA), is an accounting field that seeks, according to Resources for the Future, to find a balance between the management of economic and environmental assets.

The Growing Need for EMA

EMA initially evolved naturally as recognition of the limitations that existed within the conventional accounting paradigm. Until recently, most companies and businesses did not have the methods necessary to determine and account for costs and consequences associated with the environment. As societies began to hold organizations accountable, it became common practice to use overhead accounts as a catch-all for these expenses. As accountants sought to make this process more efficient, EMA evolved, and as the issue became more fully defined, the industry became proactive about achieving a solution

The Core Aspects of EMA

EMA as a fully realized accounting science has three core specialties, and these management spheres use the core tenets of management accounting as their foundations. The EMA International website indicates the three spheres as Management Accounting, Financial Accounting and National Accounting. The following list includes a brief overview of each aspect, and a more in-depth review is available in An Intro to Environmental Accounting by the EPA.

• Management Accounting (MA) focuses on the identification, collection and analysis of data. EMA is MA with an emphasis on flow data related to energy and raw materials.

• Financial Accounting (FA) develops and reports structured financial information. EFA expands on FA by integrating the liability costs and other significant expenses related to the environment.

• National Accounting (NA) acquires and explains information related to overall economic health. ENA expands that field with the study of flow and costs related to national resource stocks.

The Disciplines of EMA

EMA in real-world usage is definable through its five essential subfields. EMA professionals will typically specialize in one of these domains:

• Environmental accountants focus on internal organizational strategy decisions.

• Environmental financial accountants explain the financial performance of an organization to its stakeholders.

• Corporate environmental accountants handle the cost structures related to the environmental performance of an organization.

• National environmental accountants create methods to manage environmental resources for a particular government.

• Global environmental accountants create methods to manage environmental resources at the world level.

The Benefits of EMA

EMA is a business mechanism, but it provides many benefits that affect the entire world. The world society requires companies and governments to use resources more efficiently and safely. However, there needs to be a set of methodologies that allows these organizations to achieve this need while also being productive for their core purpose, whether that be to turn a profit, support a cause or maintain the overall health and security of a nation.

The Future

Compared to traditional accounting, environmental accounting is relatively young, and the future is exciting. As companies and governments are better able to manage environmental assets due to EMA, society is able to place even greater responsibilities on them. Through this evolution, the civilized world will eventually be able to find balance with the natural world.