Environmental and Sustainability Accounting Flashcards
Elkington (1994) Business and the Environment
- Anti industry, anti-profit and anti-growth orientation
- Businesses must play a central role in achieving the goals of sustainable development strategies
Sustainable definition
‘meet the needs of the present generations without compromising the ability of future generations to meet their own needs’
Accounting practices used for environmental pupose
Capital investment assessment methods Budgets Performance measures Incentive Systems ABC Balanced Scorecard Quality Costing Life Cycle Costing
Capital Investment Assessment methods
Environmental Costs and revenues can be considered when working out the revenues can be considered when working out the revenues from investments
Budgets
Targets for environmental costs and revenues can be set
Performance measures
Appropriate environmental performance indicators can be established to control environmental performance
Incentive Systems
Environmental performance targets can be connected to promotions and/or bonus system.
ABC
Can be used to identify environmental costs and charge it to products/service based on the activities demanded by these products/service and which caused the environmental costs to occur.
Balanced Scorecard
Can be extended to include an environmental dimension
Quality Costing
Differentiates between: failure cost , monitoring costs, prevention costs.
(Not so much)
Life Cycle Costing:
Considers all product/service cost across its whole life cycle. It accounts for BOTH operating environmental costs (e.g. energy usage, waste disposal, compliance cost) and future contingent environmental costs.
Lamberton (2005) Sustainability Accounting Practices
Sustainability Cost, Natural inventory accounting, Full cost accounting, Input Output analysis.
Sustainability Cost
Amount of money an organisation would have to spend at the end of an accounting period in order to place the biosphere back into the position it was in at the start of the accounting period.
Applying an accounting principle to natural rather than financial capital.
When sustainable cost > accounting profit, unsustainability is measured in monetary terms.
Full cost Accounting
Attempts to capture the total cost resulting from an organisations economic activity including social & environmental costs attempting to value these impacts in financial terms.
not necessarily the same as the sustainable cost method
It attempts to identify the total cost of an organisation’s economic activities including social and environmental costs.
Natural Capital Inventory Accounting
- Is to record the stock of natural capital over time where a change in the stock level indicates to the quality fo the stock
- Therefore, NCIA can be non-financial
- Examples of Natural Capital: Critical natural capital, Non-renewable/non-substitutable/substitutable/Renewable.
Input-Output Analysis
- Accounts for the physical flow of materials & energy inputs & product & waste outputs in physical units.
- Aims to measure all materials inputs into the process & output of finished goods, emissions, recycled materials & waste for disposal
Bennet and James (1997) Benefits from EMA and Sustainability Accounting
1) Reveal the impact of environmental related activities on balance sheets and income statements
2) Identify opportunities for cost reduction and improvements.
3) Help to prioritise environmental actions
4) Better product pricing decisions
5) Assess the sustainability of a company’s activities.
Triple Bottom Line
John Elkington (1994) first coined the phrase
Economic, Social and Environmental
Advantages of TBL
1) it encourages management to focus on a wider range of stakeholders
2) TBL assumes that by improving the amount of information reported about the organisation’s impact on society and environment, organisational changes towards sustainable behaviour will occur.
Limitations of TBL
- The 3 separate accounts can not easily be added up to evaluate performance
- This form of reporting is not obligatory and this raises questions regarding quality of information reported.
- Companies are less likely to collect and report sufficient information on the social and environmental aspects as they do on the economic aspect.
Global Reporting Initiative
Developed by US non profit organisations in 1997
it is a long term, multi stakeholder, globally applicable sustainable reporting guidelines.
GRI assumes that by improving the quality of information reported about the organisations impact on society and environment, organisation change toward sustainable behaviour will occur.
GRI Dimensions
Economic, Environmental, Social
Implementation Challenges of the GRI
Voluntary versus statutory compliance
The Auditing of sustainability reports by qualified and independent third parties
The cost of producing sustainability accounting information
GRI did not attempt to define sustainability and so doubt exists regarding its ability to promote sustainability among companies.
Circular Economy
Involves the decoupling economic growth from the extraction and consumption of scarce resources with negative footprints and making existing resources productive for as long as possible.
1) Recycle more and better
2) Rent goods
3) Lengthen the longevity of products
The role of Financial and Management Accountants (Medley 1997)
Financial Accountants - To understand environmental assets, liabilities and contingencies and to report them accurately.
Management Accountants
- to identify and manage environmental costs from both and operation and a product perspective.
- to develop reliable measures for environmental costs
- to report environmental impacts to managers, directors and the broad community.
- to identify, understand and report the costs of non-compliance.
