There is a debate in business and society about the limits of business accountability. Put simply, this concerns two profound questions: for what should accounting actually account? and to whom is a business accountable? A common traditional belief is that businesses need only report upon those things that can be measured and that are required under laws, accounting standards or listing rules.
A range of other pressures has increased on businesses in recent years, however. Among these is the belief that business are citizens of society in that they benefit from society and so owe duties back to society in the same way that individual human citizens do. Many people no longer believe that businesses are able to take from society without also accounting back to society (and not just to shareholders), on how it has behaved with regard to its environmental impacts.
Environmental Accounting
a subset of accounting proper, its target being to incorporate both economic and environmental information. It can be conducted at the corporate level or at the level of a national economy through the National Accounts of Countries
a field that identifies resource use, measures and communicates costs of a companys or national economic impact on the environment. Costs include costs to clean up or remediate contaminated sites, environmental fines, penalties and taxes, purchase of pollution prevention technologies and waste management costs
it is the compilation of data relating to the environment and natural resources into an accounting framework organized in terms of stocks and flows, and the interpretation and reporting of these data
an environmental accounting system consists of environmentally differentiated conventional accounting and ecological accounting. Environmentally differentiated accounting measures effects of the natural environment on a company in monetary terms. Ecological accounting measures the influence a company has on the environment, but in physical measurements short for environmental and natural resource accounting (ENRA) and also known as green accounting, resource accounting, and integrated environmental and economic accounting
Why the need for environmental accounting?
If you are a business person, you may be asking yourself Why bother with environmental accounting? Or, if you are a consumer, you may want to know why businesses are starting to dedicate more time and money into it. It is a good question worth asking, because even though we would want to help and preserve our environment to thrive, the reality is, businesses and consumers sometimes have other priorities.
Environmental accounting is more than just to saving the earth. Here is the environmental accountings Big Four:
1) Save Money Measure your environmental impacts and take steps to reduce them.
An obvious benefit of managing carbon is that it often means understanding and reducing key costs for energy, logistics, fleets, refrigerant gases and business travel to name but a few. The familiar mantra reads, You cant manage what you dont measure, and its true. If your organization sets out on an environmental accounting adventure, youll have a much better idea of the areas where you can make changes that make relatively little difference to your day-to-day operations, but can have a big impact on your bottom line. Its not just a case of switching from plain to recycled paper and hoping that youre doing some good its more like collecting your electricity and gas usage, the amount of waste you throw away, and your water consumption, entering it into a top- class environmental accounting platform (like Our Impacts!) then identifying the areas that can be improved and taking steps to make it happen in a way that has proper, tangible, money-saving results.
For example, Company 1 reported on their business travel emissions (scope 3), part of which included taxi journeys around London. Through this reporting they found that they were not only responsible for hundreds of tons of taxi emissions; they were also spending around 100,000 a year on taxi expenses. As a result of this discovery, the company implemented a new policy that insisted their staff walk to meetings within a mile of the office, and that greater scrutiny would be applied to taxi expenses to eliminate unnecessary journeys where public transport could be used instead. As a result of this change, the company reduced its taxi bill by two-thirds (66,000) within a year as well as cutting out all those associated emissions.
2) Look Great Integrate your environmental management information into your marketing strategy
Fundamentally, most people whether individual consumers or business decision-makers would take steps to help the environment if it had little to no impact on their normal routine. One of the biggest barriers to behavior change is that word: change. No-one likes the bumpy road of change. However: your organization can help to smooth the path. By publicly reporting the steps youre taking to reduce your emissions and making it part of your marketing and advertising strategy, your customers and plenty of potential customers will form stronger associations with your brand. Most businesses would like to show that by using their goods and services customers are not indirectly causing environmental damage. This is an increasingly important part of the business-consumer relationship and the proliferation of green labels over the last few years is testament to this. Of course, you have to beware of greenwash changing your branding to imply green credentials that you dont actually have but there is clearly nothing wrong with reporting the facts, and explaining the steps youre taking to make things better. A great guide to doing this can be found on the Scottish Business Gateway website extremely useful for any business thats thinking of kicking off an outbound communications plan that focuses on environmental activities.
As well as bettering your reputation with customers, having a solid environmental policy that is properly communicated can help you to attract and retain talented staff. 2012 research into the subject, conducted by UBM, showed that 90% of respondents would rather work for a company with a dedicated CSR policy and nearly the same number agreed that when considering a new employer, the companys corporate sustainability values are a key factor.
Many employees feel motivated by working for companies that do more than just make money. Environmental accounting can be a useful tool to engage with staff on green issues and many companies are now offering household carbon calculators as part of their sustainability activities so that staff can see what their own carbon impacts are. This joins up a companys own environmental management activities with those of the staff, helping them feel more engaged with the process and the company.
And as if that wasnt enough, increasing your environmental communications is impressive to key investors, stakeholders, local communities, shareholders and suppliers too.
3) Make Money Correctly leveraging your advertising and marketing strategy will lead to more sales
If consumers have a choice between one of your products and a competitor product, but your strong environmental record is the differentiating factor, you can bet youre going to make more sales.
And there are statistics that agree. In a global poll taken in 2008, half the worlds consumers polled (51%) considered it very important that companies improve their environmental policies. In addition, 42% of consumers placed high importance on fostering other programs that contribute to improving society. The report also indicates that marketing ethical products could lead to economic benefit. Two in three (66%) global consumers said they would be interested in buying ethical products to support environmental and social causes. So clearly, corporate social responsibility is an increasingly important factor in the purchasing decisions made by consumers: and your organization can be right there in the mixer, simply by managing your environmental impacts and making sure you tell people about what youre doing.
Another way that managing your environmental impacts can help you make money is in the form of successful tender submissions. Its virtually impossible to complete a major tender submission for a large company or government department without being required to enter information on your companys carbon footprint. Whether you want to work for a local UK council, on a major government contract or become part of Wal-Marts supply chain, you are going to need to submit information on your carbon emissions. Having this information to hand in your environmental accounts means you can spend more time on the tender submission rather than trying to cobble together a carbon footprint assessment at the last minute. This approach makes you more competitive and opens more doors in the world of tendering.
4) Feel Great And all this time, youre helping the environment. You wonderful person!
As you can see, the business benefits of environmental accounting are far more than just saving the earth but the effect is that you do it anyway! Environmental accounting really is a game where everyone wins. By measuring your impacts, reducing your carbon, energy, waste and water consumption, therefore reducing your operating costs, marketing your new green credentials and driving towards an improved bottom line from better relationships with your customers and stakeholders, your organization will be in a much healthier state after a round of environmental accounting and so will the environment! Subfields
Environmental accounting is organized in three sub-disciplines: global, national, and corporate environmental accounting, respectively. Corporate environmental accounting can be further sub-divided into environmental management accounting and environmental financial accounting.
Global Environmental Accounting - an accounting terminology that deals areas including energetics, ecology and economics at a worldwide level
National Environmental Accounting - an accounting approach that deals with economics at a countrys level
Corporate Environmental Accounting - focuses on the cost structure and environmental performance of a company A. Environmental Management Accounting - focuses on making internal business strategy decisions. It can be defined as the identification, collection, analysis, and use of two types of information for internal decision making:
1. Physical information on the use, flows, fates of energy, water and materials (including wastes). Natural assets may be described in physical quantities using physical units of measurements (e.g. hectares, tons, etc.). The physical accounts include records of changes in quantity and, to some extent, changes in the quality of resources - indicators of depletion and degradation. Physical accounts can be used to show the efficiency (or inefficiency) of economies in using the resources available to them and how these resources have changed through production and consumption activities. When combined with other indicators, such as the contribution of a particular sector to the economy and other environmental indicators, a set of environmental-economic profiles and eco-efficiency tables can be developed. Moreover, the physical accounts serve as basis for the valuation of environmental goods and services.
2. Monetary information on environmentally related costs, earnings, and savings. The monetary asset accounts are derived by the application of monetary unit values, either market prices or estimated/imputed values, to the physical accounts. It records the value and the changes of the value of natural assets through time and the cost of environmental degradation. When the economic value of natural assets is compared with other indicators, such as produced capital, it can address various concerns regarding sustainability and diversity of a nations wealth.
B. Environmental Financial Accounting - used to provide information needed by external stakeholders on a companys financial performance. This type of accounting allows companies to prepare financial reports for investors, lenders and other interested parties
Where does environmental accounting occur?
Environmental reporting can occur in a range of media including in annual reports, in stand alone reports, on company websites, in advertising or in promotional media. To some extent, there has been social and environmental information in annual reports for many years. In more recent times, however, many companies and most large companies have produced a stand alone report dedicated just to environmental, and sometimes, social, issues. These are often expensive to produce, and contain varying levels of detail and information quality.
Companies use a range of names for these stand alone reports. Often linked to the companys marketing and public relations efforts, some companies include the word sustainability in the title (perhaps sustainability report), others include a range of social measures in addition to the environmental information (such as jobs created, skill levels in the workforce, charitable initiatives, etc). Some companies employ a wording in the title intended to gain attention and stimulate interest. Barclays, the UK bank, refers to its Citizenship report, for example, and GlaxoSmithKline, the pharmaceuticals company, produces a Corporate responsibility report. Others combine environmental reporting with social and governance reporting to produce an ESG (environment, social and governance) report.
Advantages and Purposes of Environmental Accounting
Because of the complex nature of business accountability, it is difficult to reduce the motivations for environmental reporting down to just a few main points. Different stakeholders can benefit from a companys environmental reporting, however, and it is capable of serving the information needs of a range of both internal and external stakeholders.
Some would argue that environmental reporting is a useful way in which reporting companies can help to discharge their accountabilities to society and to future generations (because the use of resources and the pollution of the environment can affect future generations). In addition, it may also serve to strengthen a companys accountability to its shareholders. By providing more information to shareholders, the companys is less able to conceal important information and this helps to reduce the agency gap between a companys directors and its shareholders.
Academic research has shown that companies have successfully used environmental reporting to demonstrate their responsiveness to certain issues that may threaten the perception of their ethics, competence or both. Companies that are considered to have a high environmental impact, such as oil, gas and petrochemicals companies, are amongst the highest environmental disclosers. Several companies have used their environmental reporting to respond to specific challenges or concerns, and to inform stakeholders of how these concerns are being dealt with and addressed.
One example of this is the use of environmental reporting to gain, maintain or restore the perception of legitimacy. When a company commits an environmental error or is involved in a high profile incident, many stakeholders seek reassurance that the company has learned lessons from the incident and so can then resume engagement with the company. For the company, some environmental incidents can threaten its license to operate or social contract. By using its environmental reporting to address concerns after an environmental incident, societys perception of its legitimacy can be managed.
In addition to these arguments based on accountability and stakeholder responsiveness, there are also two specific business case advantages. The first of these is that environmental reporting is capable of containing comment on a range of environmental risks. Many shareholders are concerned with the risks that face the companies they invest in and where environmental risks are potentially significant (such as travel companies, petrochemicals, etc) a detailed environmental report is a convenient place to disclose about the sources of these risks and the ways that they are being managed or mitigated.
The second is that it is thought that environmental reporting is a key measure for encouraging the internal efficiency of operations. This is because it is necessary to establish a range of technical measurement systems to collect and process some of the information that comprises the environmental report. These systems and the knowledge they generate could then have the potential to save costs and increase operational efficiency, including reducing waste in a production process.
In conclusion, then, environmental reporting has grown in recent years. Although voluntary in most countries, some guidelines such as the GRI have helped companies to frame their environmental reporting. It can take place in a range of media including in stand alone environmental reports, and there are a number of motivations and purposes for it including both accountability and business case motives.