Environmental Accounting Essay ⋆ Environment Essay Examples ⋆ EssayEmpire

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The first environmental accounts were constructed by Norway in the 1970s and were slowly adopted by other nations. At the firm level, companies are becoming progressively more aware of the environmental and social liabilities pertaining to their operations and products, with associated financial effects. Uncertainties in measuring these financial effects can be addressed by using environmental evaluation and accounting techniques. Environmental accounting can support national income accounting, financial accounting, or internal business managerial accounting. It is an effective tool for a company’s greener management practice. Moreover, the term environmental cost has at least two major dimensions: it can refer solely to costs that directly impact a company’s bottom line, or it can also encompass the costs to individuals, society, and the environment for which a company is not accountable. Government involvement is a critical factor for corporate accountability for the environment. Corporate environmental accounting is also a strategic management tool for the improvement of corporate policies and decision-making practices.

The principal goal of environmental accounting is the identification of decisions that will enhance profitability and lead to environmental improvements. There are several major problems that occur when identifying and measuring environmental costs. For example, while it is feasible to value a forest in terms of its possible source as wood, no calculation can be made for that tree as part of a rainforest in which it is home for a rich ecosystem. Environmental costs are one of the many different types of costs businesses incur as they provide goods and services to their customers. Some critics argue that modern environmental accounting models have been developed based on procedural liberal frameworks that limit the proposals for reforms, namely concerning the role of the companies and their impact on nature.

Smart Business Decisions

Many environmental costs can be considerably reduced or eliminated as a result of business decisions. Environmental costs (such as wasted raw materials) may provide no added value to a process, system, or product. Uncovering and recognizing environmental costs associated with a product, process, system, or facility is important for good management decisions, and requires paying attention to current, future, and potential environmental costs. How a company defines an environmental cost depends on how it intends to use the information (for example, in cost allocation, capital budgeting, and process/ product design). Moreover, it may not always be clear whether a cost is “environmental” or not: some costs fall into a gray zone or may be classified as partly environmental and partly not.

Whether or not a cost is “environmental” is not critical: the goal is to ensure that relevant costs receive appropriate attention. Costs incurred to comply with environmental laws are environmental costs. Costs of environmental remediation, pollution control equipment, and noncompliance penalties are all environmental costs. Other costs incurred for environmental safety are likewise clearly environmental costs, even if sometimes they are not explicitly required by regulations or go beyond regulatory compliance levels.

Environmental accounting can be applied at different scales of use and different scopes of coverage. Companies will likely want to assemble cross-functional teams to implement environmental accounting. Because environmental accounting is not solely an accounting issue, and the information needed is split up among all of these teams, open communication is necessary between teams. This can require, for example, pulling some environmental costs out of overhead and allocating those environmental costs to appropriate accounts. By allocating environmental costs to the products or processes that generate them, a company can motivate affected managers and employees to find pollution prevention alternatives that lower those costs and enhance the benefits. Proposals to integrate environmental costs and benefits into national accounts can also only be evaluated by considering them in the context of their likely policy use.

Economic Implications

Effective environmental management is based not only on an understanding of the volume of pollution and material use, but also on an understanding of the economic implications. Even if the value of the environment is immeasurable, a figure can be placed on the cost of environmental destruction. Therefore, it is possible to use accounting to help the environment. For example, the full cost of transportation systems should be assessed; not just the cost of building roads, but how trucks and cars impose a burden on the country’s environmental health (such as air pollution, loss of arable land, and runoff). Also, there should be an examination of how subsidies damage the environment. For example, with a shortage of water, should a country continue to grow agricultural products using water-intensive agriculture? Most often, the corporate goals of companies are fundamentally in conflict with sustainability. The value of an information framework, combined with an understanding of accounting’s role in corporate decision-making, highlights a set of considerations that guide the search for environmental accounting priorities.

Bibliography:

Patrick De Beer, “Environmental Accounting: A Management Tool for Enhancing Corporate Environmental and Economic Performance,” Ecological Economics (v.58/3, 2006);
Rob Gray, “Environmental Accounting, Managerialism and Sustainability: Is the Planet Safe in the Hands of Business and Accounting?,” Advances in Environmental Accounting and Management (v.1, 2000);
Glen Lehman, “Social and Environmental Accounting: Trends and Thoughts for the Future,” Accounting Forum (v.28/1, 2004);
A. Swanson, “A Systems View of the Environment and Environmental Accounting,” Advances in Environmental Accounting and Management (v.3, 2006).