Environmental Management Accounting - Term Paper Example

Key Learning Objectives To understand the role of environment and ecology in the current business environment To elaborate upon the issues that has contributed towards the deterioration of the environment To understand the concept of environmental management accounting To analyze the implication of this concept on the current business environment To understand the possible benefits the concept of environmental management accounting To explain the current research that is conducted on the topic of environmental management accounting Introduction Environmental concerns have grown over the past few decades due to rapid industrialization in many developing countries. People all over the world are worried about the environment because their lives are directly affected by it. The world temperature is growing every year (Meehl, 2005). Ice bergs are melting and waters flowing in the rivers are increasing causing floods. Winters are also getting extremer every year. This is not good and the world has realized this. Environment is now a priority for many countries and United Nations has also taken many initiatives in this regard. The enormous amount of media coverage that environment crisis has attracted is the reason why the general public has also become aware of the situation. Global warming is a phenomenon which is very well known by all of us today due to extensive materials made available to general public all over the world. The business world has also been affected by these environmental concerns. Industries can no longer now ignore the environment around them and businesses need to take measures to prevent further damaging of natural habitat. There are many reasons why environment is now on the priority list of nearly all big organizations. The first reason involves the customers of today’s world. The awareness levels of consumers have risen significantly (ANPED, 2010) and this leaves manufacturers with no other option but to take into consideration the environment. Eco friendly ways are now used by organization in order to attract customers. This is one major impact environment issues have had on organizations in recent years. The other reason why companies are taking care with regards to the environment is mutual interest. Healthy environment will support the organization too as they are also part of the world. It will myopic of them to think that their use of harmful technologies will not harm them in future. Global warming and other issues are affecting everyone in the world so that’s why it is time to act and companies all over the world have realized this. Governments of different countries are also imposing taxes on companies who are polluting the environment. This approach has also forced organizations to think about their activities. They are now focusing on ecology more than ever due to these reasons. The cost of using environmental friendly technology is now being considered very important by the business sectors all over the world. These costs are now being given special attention when mangers are deciding about other costs. The role of environmental cost has now found a huge role in accounting. What is Environmental Management Accounting? Environmental accounting has been identified as a method by which environment can be given appropriate attention. Both businesses and common stakeholders can take advantage of this concept and can help save the environment. The purpose of Environmental accounting is to bring costs related to the environment in the notice of business leaders who then can take initiative in lowering these cost and in turn can help to save the environment from hazards (Environmental Protection Agency, 2010). It is a method through which organization can lower its cost and at the same time ecology can be preserved. Environmental Management accounting is a dimension of environmental accounting and is defined as a procedure in which information regarding environmental cost and performance is collected and analyzed in order to help organizations make decisions (Environmental Protection Agency, 2010). Environmental Management accounting involves life cycle costing and strategic planning for managing environment. Environment related costs were usually given under the overhead costs and because of this manager had no way of knowing the potential damage it caused. After introduction of environmental management accounting environment related cost were grouped separately and this gave managers an opportunity to lower these costs (United Nations 2001). By lowering these costs a manager can not only decrease overall cost but can also play a role in protecting environment. Environmental Management accounting is two folded, it can be corporate focused or environment focused. This makes this concept worthy of attention by the corporate sector. It was because of this concept that business found new and better ways in which they could protect the environment and at the same time lower costs. Recycling and other important techniques were introduced by managers in order to save their costs and increase profits. The concept of environmental management accounting is now very famous in organizations. It has opened a new door way for managers and has brought nature and technology on the same page. Why EMA was needed? The industrialization process began in the early 20th century and it brought with itself many changes. Along with economic wealth and prosperity it brought many dangers to the world. Disparity of wealth is one major problem that industrialization is found guilty of. But environmental hazards that it brought with itself can be regarded as the most dangerous effects of industrialization. The environment was badly polluted by industries and toxic wastes and other harmful chemicals were disposed in the sea waters. Air pollution was also increased dramatically by industries. All this damaged the environment of the world and affected the ozone layer that surrounds the earth. This increased the earth’s temperature by trapping green house gases. The gravity of the situation was realized by the world in 1990’s and massive movements started in order to protect the environment from further damage (McDaniel & Rylander, 1993). This made the world aware that environment is something that is important and it is high time to protect the world from the hazardous methods that destroy the environment. But it was not until the advent of internet that the whole world became aware of this problem. Internet revolutionized the distribution of information. It made possible for everyone to gather information on any topic anywhere in the world. Internet made a huge contribution in raising concerns of environment. The public awareness that was created was the main reason why organizations started to look into ways in order to protect the environment. Environmental groups raised voices against many companies that were not using eco friendly technology and this gave these companies bad reputation. In order to avoid this, companies started to give attention to environmental management accounting. The cost of environment was important for the organization as it had the potential to disgruntle customers. Environmental management accounting gave companies an opportunity to analyze the costs of environment separately and to come up with measures that can both boost consumer confidence and help sustain environment. It also gave managers an opportunity to come up with innovative ideas that could save costs in the long run. United Nations also played a vital role in making environmental management accounting ubiquitous. It began to unite with the civil society and the business world in order to bring their attention towards the issues regarding environment. United Nations collaborated with many companies in order to make sure that environmental issues were given due attention by these companies (United Nations Global Compact, 2010). After this much attention organizations were left with no option but to think about the environment and environmental management accounting helped organizations in this process. Stock holders are of vital importance to any business and in order to flourish they must be kept satisfied. This was also a reason why environmental management accounting became famous among organizations. Importance of EMA in today’s Business World The business world of today is very different from the business world of the 20th century. Technology has changed the market place and has educated the customers to a great extent. All aspects of business have changed dramatically from marketing, management to customer retention and consumer ethics. All these changes have made the life managers more difficult. Diversity is another factor that has changed businesses. Now clientele of a particular product is not limited by geographical area. Now manufacturers are targeting global markets. This diverse clientele is also very sophisticated with great information at their disposal. Environmental concerns have also reached customers and now they are very selective in choosing products (Drumwright, 1994). Any hazardous activity of the company regarding the environment can alter the demand of its product (Soutar, Ramaseshan & Molster, 1994). This situation has forced companies to invest in environmental management accounting. Companies now have to take into account the environment while manufacturing and distributing the product. This is necessary to sustain in today’s business world. Corporate social responsibility can be found on the websites of all multinational organization. The reason for this is the fact that all the companies are using this to enhance their brand image. They want to associate their name with good community works and this will in turn improve their perception in the eyes of the general public. Good image of the company and the product in the eyes of the customer is very important in order to sustain in today’s business world. This can also be used in order to achieve a competitive edge over the rivals. This is why environment is an important thing to consider in today’s business world. Companies are also using their efforts towards the environment to promote their name and their products. Eco friendly technology used by any organization is advertised heavily for the gaining customer attention. Environmental management accounting make companies more eco friendly and companies’ then use this as a marketing tool. This has become a significant trend in many industries. It is known as cause marketing. Efforts towards the environment are promoted heavily in order to gain customers. This strategy is very innovative and has good effect on the sales of the companies. Environmental management accounting is also used by companies in order to save costs. Companies now have to spend in order to protect the environment. This is a necessity in today’s business world so this can be used as an opportunity. By carefully allocating cost towards environment and using eco friendly ways costs can be reduced significantly (George Mason University, 2009). Many techniques are being employed by businesses like recycling and waste management. These techniques are actually helping the organization significantly and at the same time environment is also being protected from hazardous effects. Managers view environmental cost separately now and aim at lowering this cost. This helps the environment to prosper and at the same time internal costs can be reduced. Managers also view this as an opportunity to market their efforts regarding the environment and this enhances their brand image in the eyes of the stake holder. Environment friendly ways are now an obligation on organizations and environmental management accounting can help in reducing organizational cost. Present Research on Environmental Management Accounting There is a lot of research that is conducted with regards to the concept of environmental management accounting. The research has told many important facts regarding environmental management accounting. Environmental audits are now becoming common in many industries. The influence of these audits is great on the stakeholders of the company (Darnell et.al. 2008).Stakeholders feel satisfied after an environmental audit and sales increase. These audits were also found to have a relation with the management practices of the organization. Effectiveness of the disclosure of environment related information to the stakeholder is also different in different countries. Environmental management accounting has also found support from the accounting community who have given this concept attention. They have devised proper framework of the process and set up standards that are used by the managers to use this form of accounting to their advantage. There have also been identified many forms of environmental costs that help managers make decisions. Chapter Summary Environment has been seriously affected by the rapid industrialization. Industries have damaged the ecology of the world greatly. Since 1990’s environmental concerns have grown and with the advent of internet general public has been made aware of the problem. Environmental management accounting is an approach that helps managers analyzed environmental costs and encourages them to lower these costs. As a result the overall cost of the organization decrease and at the same time environment is preserved. Customers have also become very well aware of the products their use. This has increased the use of environmental management accounting even more important. Businesses have also realized that it is important to use eco friendly techniques in order to attract customers. Organization also uses their steps towards environment as a promotional tool. This helps them enhance their brand image. The concept of environmental management accounting is being used as a marketing tool by managers all over the world. The customers have become conscious about the environment so any effort that is towards the betterment of the ecology is marketed. Also the patterns of environmental management accounting are different in different industries and they also vary according to the management style of the organization. Key Terms to Learn Environmental Accounting Cause Marketing Environmental Management Accounting Corporate Social Responsibility Discussion Questions Q.no.1 how has environment changed the business practices of organizations in today’s world? Q.no.2 is environmental management accounting a burden on managers or an opportunity? Explain Qno.3 why do businesses have to comply with the norms set by United Nations? Q.no4 In what ways the whole process of environmental management accounting can be used to lower costs and increase profits? Further Reading Environmental management accounting: purpose and progress. By Martin Bennett, Páll M. Rikhardsson, Stefan Schaltegger. Environmental management accounting: Informational and institutional developments. By Martin Bennett, Jan Jaap Bouma, Teun Wolters. Implementing environmental management accounting: Status and challenges. By Páll M. Rikhardsson, Environmental Management Accounting Network, Martin Bennett. References About Us. (2010). The Northern Alliance for Sustainability (ANPED). Retrieved from http://www.anped.org/index.php?part=411 Corporations Can Profit from Being Environmentally Friendly, New George Mason University Study Shows. (2008). George Mason University Press Release. Retrieved from http://eagle.gmu.edu/newsroom/695/?print Darnell et.al. (2008). Perceived stakeholder influences and organizations’ use of environmental audits. Accounting, Organizations and Society, 34(2): 170-187. Drumwright, Minette. (1994). Socially Responsible Organizational Buying: Environmental Concern as a Non economic buying criterion. Journal of Marketing, 58(1): 1-19. Environmental Management Accounting Procedures and Principles. (2001). United Nations Publications. Retrieved from http://www.un.org/esa/sustdev/publications/proceduresandprinciples.pdf Environmental accounting and environmental management accounting. (2010). Environmental Protection Agency. Retrieved from http://www.epa.vic.gov.au/bus/accounting/whatisema.asp Meehl, Gerald A.et al. (2005). How Much More Global Warming and Sea Level Rise. Science 307 (5716): 1769–1772. Stephen, McDaniel, David, Rylander. (1993). Strategic green marketing. Journal of Consumer Marketing, 10(3):4 – 10. Soutar, Ramaseshan & Molster. (1994). Determinants of Pro-Environmental Consumer Purchase Behaviour: Some Australian Evidence, in Asia Pacific Advances in Consumer Research Volume 1, eds. Joseph A. Cote and Siew Meng Leong, Provo, UT : Association for Consumer Research, Pages: 28-35. The Ten Principles. (2010). Global Compact United Nations. Retrieved from http://www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html Word count= 2334 Read More