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Environmental Management Accounting: How To Guide for Small Business

environmental management accounting: treat your impact like your taxesIn this article, we'll be discussing small businesses primarily in the manufacturing or industrial sectors. The advice below can also be applied to small retail or online businesses, but the references to specific permits or reports may not be applicable. 

When you're a small business manager every penny counts; you probably keep a very close eye on your margins, variable and fixed expenses, and revenue. In fact, one of the first upgrades your probably invested in for your business was training, a service, or software to help with your accounting. Managing any size facility is a challenge, as every material, employee, and process comes with a built-in cost. 

Now consider for a moment who you manage your business' finances from a systems perspective:

  1. How do you document and report on your finances?
  2. How long do you keep your records, how to you catalog them, and where do you store them?
  3. Do you manage financial records manually? With a software tool? Or through an accountant?
  4. Do you benchmark financial costs / revenue monthly? Quarterly? Annually?

As you scale your business, you'll probably invest more and more into systems that help you improve how you manage your finances, especially once the number crunching becomes a full-time job.

Environmental Management Accounting Definition

Now shift gears and think about how you handle your business' environmental impact. You can ask yourself the exact same questions above as we did for financial management. Were your answers the same? Do you invest the same quality of time and resources into your environmental management as you do your money management?

Most likely, your answer is no. That's the case for many small businesses who need to focus on perfecting their product and scaling up. In addition, environmental impact can be more difficult to quantify and the requirements can change depending on your size and the type of processes you employ. 

However, there's a critical shift in the market for environmentally responsible products that can now make environmental management part of your scaling up strategy. In fact, to eventually compete with larger businesses, small and medium businesses can use being a green alternative as a wedge into gaining market share. More and more, people are seeing the direct connection between environmental management and overall profitability, and are starting to treat environmental data management with the same respect as their dollars - after all, in our data-driven world, you can't claim to be green without the data to back it up.

That’s part of why we’re seeing the emergence of environmental management accounting as a new way of thinking about  business.

What is Environmental Management Accounting

Environmental accounting is all about monitoring and managing your environmental data, like material consumption or air emissions, so that you can use it to make better business decisions. It's keeping careful track of your environmental resources and impacts the same way you would track your revenue and costs. The calculations and raw data are different, but the fundamental principles are the same; what goes into your business versus what comes out. 

If you're large enough or your operations are impactful enough that you require an environmental permit (like Toxic Release Inventory, NPRI, Tier II, or a MACT) then it's laid out for you in black and white what you need to be tracking and reporting. This can make your job easier, especially if you don't have an environmental specialist on staff. If you aren't beholden to a specific environmental regulation, you'll probably want to still keep track of the most in-demand sustainability metrics, like:

  • Carbon footprint
  • Environmental and health toxicity
  • socially-responsible supply chain management
  • Landfill avoidance and waste reduction

We recommend referring to a standardized sustainability framework like the Global Reporting Initiative (GRI) to give you some structure to your own environmental management accounting program. They can give you some simple steps to guide your calculations and the types of things you measure. Another good option is ISO 14001 which lays out the structural components of an environmental management system (EMS) - a methodology for collecting and analyzing this environmental data. Essentially, an environmental management system is like an accounting software, just for air, water, and waste impacts. 

The Benefits of Environmental Management Accounting

Whether you're focusing on sustainability accounting or environmental compliance accounting, it's important to connect the dots between your environmental performance and your bottom line (both in terms of revenue and growth). Here's some basic ways that environmental accounting benefits your business in tangible ways:

  • Being able to demonstrate your product or business is sustainable translates into a more desirable product. In the manufacturing industry, being a preferred green supplier is an important differentiating feature to break into OEM supply chains.
  • Environmental management is really about material efficiency - the less a product or process emits as fugitive emissions, the more of that material is making it into your end product. Less waste means less resources need to be purchased. However, you can't measure the efficiency of your materials until you start accounting for your related emissions.
  • If you have a permit, environmental management accounting is your best bet for avoiding environmental compliance fines. Having notices of violation (NOVs) can also affect your market value since much of that information becomes publicly available through the EPA's website. 
  • Doing environmental accounting gives you insights into your business that you wouldn't otherwise have. It puts your focus on efficiencies, raw materials, and improving processes. 

All of these things have an undeniable impact on your bottom line, whether it’s because they determine if you’ll be paying noncompliance fines, finding alternative products that cost less, or encouraging consumer confidence. So it only makes sense to manage your environmental data the same way you would manage your actual money.

Environmental management accounting doesn't need to cost a lot or be a burden on your time. The complexity of your needs is based on your operating permits, sustainability goals, and in-house experience. We recommend that your accounting system adapts to your size and requirements - start small and simple and scale up your efforts as you grow. For example, manual accounting can work for a very small business, but most facilities will probably want to switch to an environmental management software relatively quickly.  

Want to learn more about environmental management systems and how they relate to your business growth? 

Download this free guide about what it means to build or implement an environmental management system (EMS) for your workplace. 

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This post was written by Alex Chamberlain

Alex Chamberlain is a writer for ERA Environmental Management Solutions.

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