Concern for environment, climate change and inclusive growth is at the heart of all economic planning and activities worldwide today The Management Accounting for environment has to become seriously an internal process for business activity, with linkages perhaps with external reporting.
The United Nations Commission on Sustainable Development constituted a working group way back in 1998 on “Improving the role of the governments in the promotion of environment management accounting (EMA).”
In the early part of this decade, the expert group submitted a Report on Policy Pathways for Promoting EMA. The recommendations of this working group has become very relevant for India today as the Ministry of Environment and Forests (MOEF) has launched a major initiative of integrating environment concerns with corporate strategies.
The initiative of MOEF in converging the EMA guidelines issued by the Institute of Cost and Works Accountants of India (India) with its environment policy will be a trend-setting development for the rest of the world. This article explores broadly the content of the Guidelines on EMA issued by ICWAI.
The premier body of cost and management accounting in India (ICWAI) issued two guidelines in 2009: Management Accounting Guidelines III for Managing Corporate Environment Strategies and Management Accounting Guidelines IV on Tools and Techniques for Environment Accounting.
These guidelines (MAG) were issued with technical support from the CMA Canada which is also the national body of cost and management accounting of Canada.
The MAG on Managing Corporate Environment Strategies advocates that the environment management focus in any corporate entity passes through three maturity levels.
The characteristics of each maturity level have been elaborately dealt with and the guidelines can help in self-assessment and benchmarking for any entity whose project is subject to environment clearances from MOEF.
A tool coupled with an assessment kit, this MAG can help prioritise the enforcement focus of the MOEF also, in adherence to its terms of reference.
Accounting tools
The MAG on environment accounting tools issued by ICWAI is a continuum of the earlier MAG explained and elaborately provides the principles of classification and the techniques for measuring environment costs.
These principles can also form the basis of internal reporting to the governing body as well as external reporting to stakeholders bringing out the maturity of the entity in environment management.
The operative part of this MAG on Tools and Techniques of Environment Accounting is structured in to three: Maturity levels of implementing corporate environment strategies which have been dealt with in the MAG explained earlier; definition of environment costs; and tools and techniques of accounting for environment in management reporting.
Definition part deals extensively with various perspectives of understanding environment costs and accounting.
The third part of this MAG IV sets out different approaches of management accounting of environment costs considering the different maturity level as below: A simple approach of transaction accounting and allocation of environment costs; the second approach makes a life cycle approach to environment costs.
The third approach creates a hierarchy of costs based on the comprehensiveness of the approach linked with the level of maturity in corporate environment strategy.
The fourth approach is based on the framework activity-based costing; approach based on accounting costs inside the organisation as well as costs incurred in the society because of a business model called as Full Cost approach.
(The author is the President of South Asian Federation of Accountants.)