Environmental management accounting to reduce costs
Identify opportunities to cut environmental costs
Once you identify environmental costs to your business, you should analyse them to see where they can be reduced or eliminated.
Types of environmental costs
The largest environmental costs are likely to include:
- waste and effluent disposal
- water consumption
- consumables and raw materials
Waste environmental cost saving
Waste production offers significant opportunities for savings because of its effect on:
- costs of unused raw materials and disposal
- costs of transport, storage and handling
- possible penalties for compliance failures such as pollution
- taxes for landfill
In addition, waste has environmental costs in the loss of land resources and the generation of methane, a potent greenhouse gas.
You can identify how much material is wasted in production of products by comparing the weight of materials bought with the product yield. This is known as a 'mass balance', and is a valuable tool to identify areas for cost saving.
Businesses pay for water twice - first to buy it and then to dispose of it. As mains supply, sewerage and trade effluent charges rise, controlling water use offers several opportunities to make cost savings. To make the most of these opportunities, you need to identify clearly where water is used, and where you can reduce consumption. Find out how to monitor your water consumption in our guide on how to monitor your water use. Find advice on saving water in our guides on how to save water at commercial premises and save water at industrial premises.
Energy is a significant expense for most businesses, but usage can often be reduced at little or no cost. In addition, the benefits can be increased by government initiatives and grants which encourage businesses to be more energy efficient such as enhanced capital allowances. See our guide on tax breaks and finance for your business.
Environmental management accounts will help you identify inefficiencies and wasteful practices, and thus opportunities for improvements and cost savings. See our guide on how to save money by using energy more efficiently.
Transport and travel
Reducing the environmental impact of both business travel and the transport of goods and materials can have significant cost benefits. Using public transport rather than company cars, investing in more fuel-efficient vehicles and better journey planning will reduce fuel, maintenance and other costs. See our guides on workplace travel planning and reducing your vehicle emissions.
Consumables and raw materials
The cost of raw materials and consumables needed to make products or deliver services can be readily identified, and discussions with senior managers will show where savings can be made. For example, the use of recycled or sustainable products can reduce costs as well as having environmental benefits.
You should encourage suppliers to participate and be involved in the process. Consider a 'servicised' contract where your suppliers are paid for their service performance and not for the volume of supply. This should provide suppliers with an incentive to look for ways to minimise rather than maximise the quantities of products consumed. In the long-run, suppliers also have an incentive to look for ways to redevelop or reformulate what they are supplying, even substituting it with a different technology.
For more information, see our guide on how to supply chain efficiency and environmental impact.
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