Reaction Paper of (PRO)

Environmental Management Accounting: Is It Necessary For The

Company?
M. Gabril Asade, Maulina Fitriani, M. Agung Zandra

Some modern industries are fully aware that environmental and social issues are
also an important part of the company in addition to profit making efforts. However, the
implementation of environmental management accounting, especially in developing
country like Indonesia, is still low. The company’s financial reporting has been primarily
concerned with transactions with economic matters and how the company able to survive
in the market by maximizing the profit. Thus, many companies do not give much attention
towards environmental accounting when compared to its financial accounts. For instance,
when the company is gaining something from the environment, it must also take into
account the cost of environment.

This causes a shifting paradigm in which the company is not only valued by the
company's performance (company profits) but is also judged by its environmental
performance, thus, encouraging the company to focus more on how the company's
operational activities can continue to run by paying attention to the preservation of nature,
public welfare and make a profit. One way to inform investors that a company has
participated in environmental responsibility is to voluntarily disclose it into financial
reports or sustainability reports. Although there are still no regulations governing
voluntary disclosure, the company believes that disclosing its environmental performance
will give a positive value to the company. Companies that focus on environmental
performance will improve the company's image in the future so that it will affect the
improvement of financial performance. In side of stakeholder’s perspective, the
application of environmental management accounting by the company is a positive thing
because the company has paid attention to the environmental impact of the surrounding
companies and the company is considered not only focused on increasing company
profits.
 Environmental management accounting (EMA) is the identification, collection,
analysis and use of two types of information for internal decision making. The first is
physical information on the use, flows and rates of energy, water and materials (including
wastes). The second is monetary information on environment-related costs, earnings and
savings.

EMA addresses the management information needs of managers for corporate

activities that affect the environment, as well as environment-related impacts on the
corporation. Depending on the type of organisation, environmental impacts could include
production effluent, recycling, water and power consumption, and carbon footprint.

Management information could include:

 Identifying and estimating the costs of environment-related activities

 Identifying and monitoring the use and cost of resources such as water, electricity and
fuel, so costs can be reduced

 Making sure environmental considerations form part of capital investment decisions

 Assessing the likelihood and impact of environmental risks

 Including environment-related indicators as part of routine performance monitoring

 Benchmarking activities against environmental best practice.

Environmental costs can be categorised as follows:

 Prevention costs: costs associated with preventing adverse environmental impacts.

 Appraisal costs: costs of assessing compliance with environmental policies.

 Internal failure costs: costs of eliminating environmental impacts that have been
created by the organisation.

 External failure costs: costs incurred after environmental damage has been caused
outside the organisation.
What benefits does the practice provide?

 Improving sales or reducing sales erosion: consumer awareness of products and

services' environmental impact is increasingly influencing their preferences and
buying behaviours.

 Reducing costs: reducing wasteful consumption of input resources has a direct positive
impact on reducing costs. Also, improvements to processes can bear down on costs.

 Reducing the cost of failure: investing in processes that reduce the likelihood and cost
impact of failure, such as the need to process waste or clean up environmental impacts.

 Improving the image of the organisation: this can enable it to attract better talent,
reduce talent attrition and charge higher prices.

In conclusion, I really agree that the company should also take into account the cost
of environment because of the company business operation. Implementing environmental
management accounting (EMA) will benefit a lot. The company meets social needs and
higher self-disclosure, can increase public trust while enhancing the company's image in
the eyes of people who will buy company products or invest in company operations. The
company is expected to gain social legitimacy, and maximize its financial strength in the
long run by implementing environmental management accounting.