A note on sustainable management accounting (SMA) for advanced management accounting study

A note on sustainable management accounting (SMA) for advanced management accounting study

 

Describe 5 main ideas on the topic of sustainable management accounting and then briefly describe how the topic has evolved over the last 15 years. Also suggest 3 main academic theories employed to study this topic (with references in Harvard reference format). Lastly, briefly discuss the different evolutionary paths of sustainable management accounting practices in the geographical regions of North America, Continental Europe and South East Asia.

Five Main Ideas in Sustainable Management Accounting

Sustainable management accounting (SMA) extends traditional cost and decision-making tools by embedding environmental and social impacts alongside financial performance.

• Triple bottom line integration: SMA tracks economic, environmental, and social performance together, rather than treating financial results as the sole measure of success.
• Full cost / sustainable cost accounting: this approach attaches monetary values to externalities such as waste, emissions, and resource depletion, so hidden environmental costs become visible in decision-making.
• Non-financial and integrated disclosure: SMA feeds into sustainability and integrated reporting, combining financial statements with narrative and quantitative environmental/social indicators for external stakeholders.
• Decision-support for strategy: SMA techniques (e.g. life-cycle costing, material flow cost accounting, environmental performance indicators) are used internally to guide investment appraisal, pricing, and process redesign.
• Data and measurement complexity: a recurring theme is the difficulty of collecting reliable environmental and social data compared with financial data, which limits comparability and standardisation.

How the Topic Has Evolved Over 15 Years

Fifteen years ago, sustainability accounting and environmental accounting were largely used interchangeably as an emerging, loosely defined field. Over time, the two strands have separated: sustainability accounting has moved closer to formal reporting frameworks and regulatory compliance (driven by standards such as GRI and, more recently, IFRS Sustainability/ISSB standards), while environmental accounting has become a more technical specialism addressing carbon accounting, biodiversity, and ecological measurement. This reflects a broader shift from voluntary, image-driven disclosure toward institutionalised, regulation-driven practice.

Three Main Academic Theories

Three theories dominate this research area, and they are often treated as complementary rather than competing lenses:

1.    Legitimacy theory – firms disclose sustainability information to maintain a "social license to operate," justifying activities against societal norms and expectations (Suchman, 1995; Deegan, 2019).
Suchman, M.C. (1995) Managing legitimacy: strategic and institutional approaches. Academy of Management Review, 20(3), pp.571–610.

2.    Stakeholder theory – organisations must account for the interests of a broad range of stakeholders, not just shareholders, which drives transparency and engagement in sustainability reporting (Freeman, 1984).
Freeman, R.E. (1984) Strategic management: a stakeholder approach. Boston: Pitman.

3.    Institutional theory – adoption of SMA practices is shaped by regulatory pressure, industry norms, and isomorphism across organisations (DiMaggio and Powell, 1983).
DiMaggio, P.J. and Powell, W.W. (1983) The iron cage revisited: institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), pp.147–160.

Regional Evolutionary Paths

Region	Evolutionary path
Region		Evolutionary path
North America		Historically driven by voluntary, market-based and litigation-risk disclosure; legitimacy-theory dynamics are prominent since firms respond to shareholder and reputational pressure rather than strong mandatory regulation pure.
Continental Europe		Stronger institutional and regulatory push (EU directives, stakeholder-oriented governance traditions), so institutional theory explains adoption patterns better, with sustainability accounting more embedded in mandatory reporting regimes.
South East Asia		Adoption often linked to global supply-chain pressure and institutional isomorphism from multinational buyers and international standards, with legitimacy-seeking behaviour common among firms operating in emerging-economy institutional contexts.

 

 

Provide a simple illustrative example with calculation on sustainable management accounting practice.

Illustrative example: reducing packaging waste

A beverage company produces 100,000 bottles each year. It is considering switching from a heavier plastic bottle to a lighter recyclable bottle. Sustainable management accounting captures both the usual financial cost and environmental-cost information, including material losses and waste disposal.

Step 1: Current practice

Item	Calculation	Annual cost
Plastic purchased	100,000×$0.30	$30,000
Production waste: 10%	10,000×$0.30	$3,000
Waste-disposal cost	10,000×$0.05	$500
Energy for production	100,000×$0.08	$8,000
Total relevant annual cost		$41,500

The key insight is that defective plastic is not merely a disposal issue: the firm also loses the original purchase cost of the plastic, which conventional accounting may bury within general production costs.

Step 2: Sustainable alternative

The lighter bottle raises the material price but reduces waste and energy use.

Item	Calculation	Annual cost
Plastic purchased	100,000×$0.32	$32,000
Production waste: 3%	3,000×$0.32	$960
Waste-disposal cost	3,000×$0.05	$150
Energy for production	100,000×$0.06	$6,000
Total relevant annual cost		$39,110

Step 3: Decision-relevant result

Annual saving

=$41,500−$39,110=$2,390

Although the sustainable bottle costs more per unit, its lower waste and energy consumption produce an annual cost saving of $2,390. The waste quantity also falls from 10,000 to 3,000 bottles:

Waste reduction rate

=((10,000−3,000)/10,000)×100%=70%

This is a simple application of material-flow cost accounting: managers trace physical inputs, product output, and non-product output (waste), then attach costs to each flow to support a financially and environmentally informed decision.

 

Are sustainable management accounting and environmental management accounting the same topic?

Short answer

No. They overlap, but they are not exactly the same topic. Environmental management accounting (EMA) is usually narrower: it supplies internal managers with monetary and physical information on environmental matters such as energy, water, materials, waste, emissions, and related costs.

Sustainable management accounting (SMA) is broader. It extends the environmental and economic focus of EMA to include social impacts and wider sustainability objectives, often framed through economic, environmental, and social performance.

Aspect	Environmental management accounting	Sustainable management accounting
Main focus	Environmental and economic performance	Economic, environmental and social performance
Typical measures	Energy use, material flows, waste cost, carbon emissions	EMA measures plus labour conditions, community impact, diversity, health and safety, and (Sustainable Development Goal) SDG-related measures
Main purpose	Improve environmental decisions and resource efficiency	Support organisational decisions that contribute to broader sustainability
Relationship	A specialised field and important foundation	A broader umbrella that can incorporate EMA

For example, calculating the material cost and disposal cost of plastic waste is EMA. Adding employee welfare, supplier labour standards, and community effects to the same investment appraisal makes it SMA. Some business literature uses the terms loosely or interchangeably, but academic research increasingly distinguishes them to avoid treating environmental issues as the whole of sustainability.

Highlight 5 main ideas on the topic of Material flow cost accounting?

Material Flow Cost Accounting (MFCA) is an environmental management accounting technique that traces material and energy flows in physical and monetary terms. Its purpose is to identify inefficiencies, reduce material losses, and improve both environmental and financial performance. It is associated with ISO 14051.

Five main ideas

1.    Trace material and energy flows MFCA follows materials and energy through each major stage of an operation, such as purchasing, storage, production, packaging, and waste treatment. These stages are often called quantity centres. The aim is to understand where inputs go and how they are transformed.

2.    Measure both products and material losses MFCA distinguishes between:

o   Positive outputs, such as finished products.

o   Negative outputs, such as scrap, defects, waste, emissions, rework, and material evaporation.

This is important because conventional accounting may treat waste as an overhead, whereas MFCA makes the quantity and location of the loss visible.

3.    Link physical data with monetary data Material flows are first measured in physical units, normally kilograms, tonnes, litres, or units. Costs are then attached to those flows. The analysis can include material costs, energy costs, processing or system costs, and waste-management costs.

4.    Assign the real cost of losses MFCA does not calculate only the purchase price of wasted materials. It also considers the processing, labour, energy, storage, and waste-treatment costs associated with those materials. Therefore, a small quantity of scrap may represent a much larger financial loss than its purchase price suggests.

5.    Support environmental and financial improvement The final objective is to identify improvement opportunities, such as reducing defects, improving production yields, redesigning products, changing materials, improving inventory control, or reducing energy use. MFCA supports decisions that can simultaneously reduce environmental impacts and operating costs.

Simple example

If a factory purchases 1,000 kg of material and produces 800 kg of saleable products, the remaining 200 kg is not merely “waste.” MFCA investigates where the 200 kg was lost and assigns to it the relevant material, energy, labour, processing, and disposal costs. Management can then determine whether reducing the loss would be financially worthwhile.

 

Provide 3 academic references on this topic (in Harvard reference format)

Harvard references

·        Guenther, E., Jasch, C., Schmidt, M., Wagner, B. and Ilg, P. (2015) ‘Material flow cost accounting—Looking back and ahead’, Journal of Cleaner Production, 108, pp. 1249–1254. doi: 10.1016/j.jclepro.2015.10.018.

·        Kokubu, K. and Kitada, H. (2015) ‘Material flow cost accounting and existing management perspectives’, Journal of Cleaner Production, 108, pp. 1279–1288. doi: 10.1016/j.jclepro.2014.08.037.

·        Wagner, B. (2015) ‘A report on the origins of Material Flow Cost Accounting (MFCA) research activities’, Journal of Cleaner Production, 108, pp. 1255–1261. doi: 10.1016/j.jclepro.2015.10.020.

These three articles provide complementary coverage: the development and future of MFCA, its relationship with management perspectives, and its historical origins.

** a relevant reading: what is SMA?

Article review of “organisational learning capability on the organisational use of SMA practices”

Article review of “organisational learning capability on the organisational use of SMA practices”

 

How to present this article in Harvard reference format?

Baird, K., Su, S. & Nuhu, N., 2024. The influence of organisational learning capability on the organisational use of SMA practices: The mediating role of employee creativity and empowerment. Accounting & Finance, 64(3), pp.2321–2343. https://doi.org/10.1111/acfi.13217

  

What are the key research issues the article wants to address?

The article addresses the following key research issues:

1.    Role of Organisational Learning Capability in Use of SMA Practices: The study aims to examine how organisational learning capability influences the organisational use of strategic management accounting (SMA) practices, extending the SMA and organisational learning literature.

2.    Mediating Role of Employee Behavioural Factors: It investigates the mediating roles of two individual employee-related behavioural factors – employee empowerment of SMA practices and employee creativity – in the relationship between organisational learning capability and the organisational use of SMA practices.

3.    Cross-Level Model Linking Organisational and Individual Factors: The study responds to calls for contingency-based research to develop models linking organisational-level variables (organisational learning capability) with individual outcomes (employee empowerment and creativity), which in turn affect organisational outcomes (use of SMA practices).

4.    Mechanisms of Change in SMA Adoption: It seeks to open the ‘black box’ by providing insights into the employee behavioural mechanisms through which organisational learning capability affects SMA practice use, focusing on how enhanced learning leads to empowerment and creativity among employees responsible for SMA.

These issues are addressed through surveying accountants, who are key employees involved in SMA adoption, and analyzing how their empowerment and creativity mediate the effect of organisational learning capability on SMA use in organisations.

  

Describe two main theories employed in this article.

The article primarily employs the following two main theories:

1.    Contingency Theory: The study uses contingency theory to examine the association between organisational learning capability and the organisational use of strategic management accounting (SMA) practices. Contingency theory emphasizes that organisational practices and outcomes depend on specific contextual factors and conditions. In this article, contingency theory provides a framework for understanding how organisational learning capability, as a contextual factor, influences SMA adoption and utilisation. The research also responds to calls for contingency theory to be more dynamic by exploring the mechanisms of change, specifically through employee-related mediators.

2.    Organisational Learning Theory: Organisational learning capability is central to the study, which draws on organisational learning theory to explain how organisations facilitate and enhance the acquisition, dissemination, and use of knowledge to improve performance. This theory underpins the investigation into how organisational learning capability fosters employee empowerment and creativity, which in turn affect the use of SMA practices. Organisational learning capability involves elements such as experimentation, risk-taking, dialogue, and interaction with the external environment, all of which enable knowledge development and behavioral change at the employee level.

These theories collectively support the development of a cross-level model linking organisational-level capabilities with individual employee behaviors (empowerment and creativity) that mediate the organisational use of SMA practices.

  

Highlight 2 main primary findings reported in this article.

 Two main primary findings reported in the article are:

1.    Direct and Indirect Influence of Organisational Learning Capability on the Use of SMA Practices: The study found that organisational learning capability has both a direct and an indirect effect on the organisational use of strategic management accounting (SMA) practices. The indirect effects occur through employee-related behavioral factors, specifically employee empowerment of SMA practices and employee creativity. This highlights that organisational learning capability not only directly facilitates SMA adoption but also operates through enhancing employee behaviors that support SMA implementation.

2.    Mediating Role of Employee Creativity and Empowerment: Employee creativity and empowerment significantly mediate the relationship between organisational learning capability and organisational use of SMA practices. Organisational learning capability positively influences employee creativity and empowerment, which in turn lead to higher organisational use of SMA practices. Moreover, employee empowerment of SMA practices also influences employee creativity, suggesting a sequential mediation effect where empowerment fosters creativity, ultimately improving SMA utilisation.

 

Describe 3 main claims of the article in terms of Toulmin's model of argument.

 Using Toulmin’s model of argument—which consists of Claim, Data (Evidence), and Warrant (the reasoning that connects the data to the claim)—here are three main claims from the article:

1.    Claim 1: Organisational learning capability positively influences the organisational use of SMA practices.

• Data: Survey data collected from 332 accountants in Australian organisations showed a significant association between organisational learning capability and SMA use.
• Warrant: Organisational learning capability enhances knowledge sharing, experimentation, risk-taking, communication, and participative decision making, which support the adoption and effective use of SMA practices.

2.    Claim 2: Employee empowerment of SMA practices mediates the relationship between organisational learning capability and organisational use of SMA practices.

• Data: Empirical analysis demonstrated that organisational learning capability facilitates employee empowerment (e.g., decision-making authority, collaboration, formal participation) in SMA practices, which in turn fosters greater organisational adoption of these practices.
• Warrant: Empowered employees have greater insight, authority, and motivation to adopt and implement SMA practices, thus acting as a behavioral mechanism that channels the effect of organisational learning capability into actual SMA use.

3.    Claim 3: Employee creativity also mediates the association between organisational learning capability and organisational use of SMA practices, including a sequential mediation effect via employee empowerment.

• Data: The data revealed significant positive effects of organisational learning capability on employee creativity, and employee creativity was positively associated with SMA use. Additionally, empowerment of SMA practices encourages creativity, creating a sequential pathway.
• Warrant: Creative employees generate new ideas and solutions that can enhance the strategic value of SMA practices, and when empowered, employees are more likely to express and apply their creativity to advance SMA adoption.

These claims collectively explain how organisational learning capability drives SMA use both directly and indirectly through employee behaviors, supported by the empirical findings of the study.                                                                                          

 

Describe 2 main research limitations of the study.

Two main research limitations of the study are:

1.    Sample Specificity and Generalizability: The study’s data were collected exclusively from accountants working in Australian organisations with more than 50 employees. This focus on a specific occupational group (accountants) and geographic region limits the generalizability of the findings to other employee groups, smaller organisations, or different cultural and national contexts. The study acknowledges that employees in their context refer specifically to accountants due to their involvement in SMA practices, which may not represent the broader workforce's behaviors or perspectives.

2.    Cross-sectional Research Design and Causality: The research design involved cross-sectional survey data, which restricts the ability to infer causal relationships among organisational learning capability, employee behaviours (empowerment and creativity), and organisational use of SMA practices. Although mediation analysis was conducted, the temporal ordering and causality are assumed rather than empirically demonstrated, and the possibility of reciprocal or reverse causality remains. Longitudinal or experimental studies would be needed to better establish causal mechanisms.

These limitations suggest caution in interpreting the findings and signal areas for future research to enhance robustness and applicability.