The Impact of Environmental Management Accounting on Environmental Performance and Financial Performance: Evidence from Saudi Arabia

Abstract

Environmental Management Accounting (EMA) is an essential instrument that incorporates both environmental and financial data to improve the sustainability performance. The conventional accounting does not consider the environmental cost and thus there is a need to know how EMA can bring about the ecological and economic results. This paper analyses how the implementation of EMA affects the environmental performance (EP) and financial performance (FP) in Saudi Arabia and investigate the mediating effect of the environmental performance (EP) between the two. Partial Least Squares Structural Equation Modelling (PLS-SEM) was employed to analyse a quantitative method to analyse survey data of 298 industrial firms. The findings reveal that EMA has a significant positive impact on EP and FP, and the positive impact on environmental outcomes (0.958, p < 0.001) and positive impact on financial outcomes (0.479, p < 0.001) are strong and moderate respectively. Another mediating variable in the EMA-FP relationship is EP indicating a positive relationship between better environmental efficiency and better financial outcomes. The research finds that EMA is a tactical tool of ensuring sustainability and competitiveness. It supports the topicality of environmental responsibility in the financial decision-making process and stimulates policymakers to enhance the use of EMA by providing training and favourable regulations in accordance with the Saudi Vision 2030.