In the recent years, Environmental Management Accounting (EMA) is considered as an essential part as EMA can be described as the effective management of environmental as well as economic performance of the firm through developing and implementing proper environment-related accounting system and practice (Christ and Burritt 2013). Since there has been major increase in the significance of environmental management and its part to manage and reduce environmental impacts, the development of an effective EMA system has started to gain greater attention and interests of the firms as this system can become majorly helpful for the managements of the firms to attain their organizational goals and objectives (Gunarathne and Lee 2015). At the same time, the companies are facing certain types of challenges and barriers at the time to develop and implement the EMA. The main aim of this report is the analysis and evaluation of various aspects of EMA such as challenges, barriers, development opportunities, use, usefulness and others.
Challenges and Barriers for the Future Development of EMA
In spite of the presence of many benefits of EMA, business organizations have to face certain challenges in the form of barriers for the future development of EMA. They are institutional barriers, management barriers, financial barriers, information barrier and cultural barrier; these are discussed below.
Institutional Barrier: Most of the companies face this barrier as a prime barrier while for the development and implementation of EMA. Institutional barrier in EMA is the lack of institutional pressure, lack of the power of shareholders and the lack of the power of other key stakeholders. At the same time, the companies also face the pressure from the government in the development and implementation of EMA. Hence, the managements of the companies have to face major challenge in the development of EMA when these barriers are present (Jamil et al. 2015).
Management Barrier: Management barrier is considered as another crucial challenge for the companies in the development and implementation of EMA. Management barriers in EMA come in the form of lack of incentive for the managers for effective management of environmental cost, lack of responsibility for environment, managements’ accountability, absence of effective integration of the environmental strategies with the organizational strategic planning and the absence of support of the managements in various environmental issues. All these barriers create major challenge for the firms in the implementation of EMA (Chang 2013).
Financial Barrier: Financial barrier is considered as the greatest challenge for the companies in the development and implementation of EMA. The total process of the development and implementation of EMA needs huge funds for the companies and the absence of this required fund creates major challenge for the companies in the development and implementation of EMA. In this aspect, it is needed for the companies to ensure whether the overall cost for the developing and implementing EMA overweight its benefits. Thus, the increased cost and investment of EMA is a major challenge for the companies (Tsui 2014).
Information Barrier: Business organizations must acquire the needed information on the environmental issues in order to develop and implement EMA in accordance with the acquired information. Thus, the absence of this needed environmental information is a major challenge for the companies (Mokhtar, Jusoh and Zulkifli 2016).
Cultural Barrier: It needs to be mentioned that the cultural factors in which the companies operate affects the goals and objectives of EMA. For this reason, inability of the companies in coping with these cultural factors can be considered as another major challenge in EMA development and implementation (Derchi, Burkert and Oyon 2013).
Opportunities for the Future Development of EMA
Apart from barriers and challenges, there are certain opportunities for the companies for the future development of EMA. It is needed for the companies to determine the extent to which the companies are ready for the development and implementation of EMA. For this, it is needed to explore the potential of EMA. In this context, it needs to be mentioned that there is still substantial scope for the improved use of EMA as a mean to inform the managers of the firms about corporate environmental impact and opportunities. In current practice, most of the companies do not use EMA systematically for the identification of costs of environment in various accounts (Schaltegger, Gibassier and Zvezdov 2013). For this, the companies overlook the long-run opportunities for the reduction of the negative impact of their business on the environment. In the discussion about the potential or opportunity of EMA development in the companies, it needs to be mentioned that there are several factors that drive the development of EMA within the firms. It can be seen that intense regulatory as well as high economic pressure have encouraged the managers of the heavy manufacturing companies for changing and preparing for the development and implementation of EMA, especially, in relation to the efficacy along with the material and flows of energy. In addition, EMA has the potential to create pressure on the firms for re-examining their current environmental practices with the aim to modify them in a better manner (Christ, Burritt and Varsei 2016).
At the same time, it needs to be mentioned that in spite of the presence of many advantages of EMA in the companies, the normative business organizations play a restraining part that reduces the positive impact of EMA on the companies. For this reason, the managements of the firms need to diminish the barriers or challenges of EMA in order to embrace the benefits of EMA (Johnstone 2018). For this reason, the firms are needed to consider certain issues like discretion of policies, long-standing problems related to regulatory power, cultural relationship and others. Hence, in order to grab the opportunity for the future development of EMA, the policy-makers and managements of the firms are needed to provide confidence about the steadiness of environmental regulation and enforcement in the implementation of regulation. At the same time, the managements of the firms are needed to ensure developing the necessary awareness about the benefits of developing and implementing the EMA within the organizations (Muza and Magadi 2014).
Use and Effectiveness of EMA in the Asia-Pacific Region
It needs to be mentioned that there are companies all over the world that have developed and implemented EMA and many companies in the Asia-Pacific region have also adopted the same. Some of the countries in the Asia-Pacific region are Australia, Japan, Korea and others. When considering Australia, it needs to be mentioned that most of the Australian companies have adopted EMA, but EMA in Australia is not as advanced as in USA or Europe; and certain reasons for this are lack of well-developed voluntary disclosure of the environmental information, lack of awareness as well as concern about the environmental issues and others (Lee and Herold 2018). However, Australia have been taking certain direct as well as indirect initiatives for increasing the use and usefulness of EMA; such as self-assessment for the firms, EMA projects, introduction of Public Environmental Reporting, mandatory disclosure, petroleum refining capacity, Greening Local Government and others. It is believed that these direct and indirect initiatives will increase the overall use and usefulness of EMA in Australia (Lee and Herold 2018).
However, the situation is different in case of Japanese companies as the number of Japanese companies adopting EMA is continuously increasing. In Japan, it is voluntary for the companies to adopt environmental accounting practice. When discussing about the use and usefulness of EMA in Japan, it needs to be mentioned that the Ministry of Environment (MOE) of Japan has developed an Environmental Accounting System. Three main guidelines of this are EMA, environmental conservation cost and environmental conservation effects and economic effects. In addition, in the use of EMA, it is the obligation on the Japanese companies to disclose the environmental cost, environmental conservation effects and the economic effects. Hence, more use and usefulness of EMA can be seen in Japan (Gunarathne and Alahakoon 2016).
Almost the same aspect can be seen in case of the Korean companies as many of the leading companies of Korea are positively adopting EMA for this accounting and environmental operations. It needs to be mentioned that a wide range of stakeholders like shareholders, government, financial institutions and communities have major interest in the environmental performance of the firms along with their disclosure. For this reason, the Korean companies have aligned their environmental initiatives with decision-making of the management at different level. However, it needs to be mentioned that the practice of EMA is still in the early stages in Korea (Gunarathne and Alahakoon 2016). Hence, based on the above discussion, it can be said that the countries in Asia-Pacific region are adopting the practice of EMA in slow pace with the aim to increase the use and usefulness of EMA for their business operations. The EMA initiatives taken by the companies of these countries are crucial for increasing the use and usefulness of EMA.
Firm Specific Characteristics on the Use and Effectiveness of EMA
It needs to be mentioned that there are certain firm-specific characteristics having impact on the use and usefulness of EMA and these are discussed below.
Environmental Sensitivity of Industry: Sensitivity of industry has considerable impact on the use and usefulness of EMA as the implementation of EMA is linked with the issues like orientation of customers, public expectations and regulations and others. For this, environmental sensitivity of the industries plays a crucial role in ensuring the use and usefulness of EMA. Environmentally sensitive industries are those business activities having the capability to easily affect the environment directly or indirectly (Mokhtar, Zulkifli and Jusoh 2014).
Size of Company: The size of the companies have large impact on the use and usefulness of EMA. The ability of the companies to generate more resources provides the large companies with the opportunity for the adoption of sophisticated EMA with the integration of the financial and non-financial information. For this, companies with large size get the advantage for the effective implementation of EMA (Marelli 2015).
Status of Ownership: The ownership structure of the companies affects the use and usefulness of EMA. For example, the public listed companies owned by the government, known as the government-linked companies, have more effective tendency to disclose about the environmental information and EMA adoption. It implies that the government-owned companies are more efficient and interested in the development and implementation of EMA as compared to the other companies (Debnath 2014).
Adoption of Environmental Management System: While it is not essential for the firms to get an accreditation for the EMA, getting the EMA system accredited assists the companies to develop an effective EMA system. As such, the aim of the companies in implementing EMA and have it accredited with the aim to meet their goals and objectives of green efforts (Marelli 2015).
Proportion of Non-Executive Directors: The inclusion of independent non-executive directors who signifies the interests of the key stakeholders on the board may be a major help in improvising the responsiveness of the companies to the social and environmental issues. Since one major task of these non-executive directors is to protect the corporate image of the companies, they will ensure the adoption of EMA with the aim to protect the corporate image as it is an essential corporate image indicator of the companies (Debnath 2014).
It can be seen from the above discussion that the management accountants of the companies have to consider certain challenges and barriers for the development of EMA such as institutional barriers, management barriers, financial barriers, information barrier and cultural barrier. At the same time, it can also be seen that the companies can get certain opportunities for the development of EMA like the disclosure of environment related information and others. The above study also shows that the countries under Asia-Pacific region like Australia, Korea and Japan are considering the adoption of EMA in a slow pace with the aim to align their environmental initiatives with strategic planning process. At the same time, the companies are needed to consider certain firm-specific characteristics for the use and usefulness of EMA like ownership status, size of the company and others.
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