Environmental Management Accounting Procedures and Principles

Environmental Management Accounting
Procedures and Principles
2. Key envi ronment al cost s are cont ingent in nature; envir onment al accounti ng
systems must be desi gned to handle such cont ingenci es. Many “env ir onmental cos t s” are
c onti ngent , or pr obabi li s ti c, in nat ure. They ar e dr iv en by future condi ti ons or ev ent s wi t h
unc er tai n, but es ti mable, probabil it i es and cost outc omes. Fut ur e regul atory compli anc e c os ts
and liabil it y , pers onal or pr opert y damage are ex ampl es . Convent ional fi nanc ial acc ounti ng
pract ic es ar e not desi gned to handle cont ingent cos ts ; in fac t, cont ingenci es ar e gener al ly
avoided in fi nanc ial report ing and, where they do appear , ar e subjec t to st ri ct st andar ds for
est imat i on and di sc l os ur e. But such st andar ds have lit t le to do wi t h env ir onmental cos ts for
pur poses of i nt er nal deci si on- mak ing. Eff ec t iv e env ir onmental acc ounti ng requir es an
awarenes s of this cr it ic al di ff erenc e and a wi ll i ngness to ex peri ment wi t h di ff erent methods for
deali ng wi th cont ingent cos ts . Sc enari o analy si s and ac tuar i al -bas ed cos t es ti mat ion poi nt to
t wo appr oaches to handli ng the inevi t able uncert ainti es as soc iated wit h fut ur e env ir onmental
c os ts . Tool s suc h as these are an integr al part of any envi r onment all y consc ious cos t budgeti ng
s ys tem.
3. I mprovements cannot be achi eved by si mply inst al l ing new sof t ware. There is no
s epar at e sof t ware for env ir onmental acc ount i ng that sol v es al l pr obl ems. Those seek i ng suc h a
def init i ve, all -enc ompas s ing, st and- alone soluti on ar e lik el y to be di sappointed. Becaus e
env ir onmental cos t inf or mat ion ser ves so many di f ferent func t ions in the or gani z at ion, the
“ sy st em” is bet ter thought of as a set of adjust ments to cur r ent cos t- ac c ount ing sys t ems, al l wi t h
t he pur pos e of ident if yi ng, trac ki ng and repor ti ng envi r onmental inf or mat ion to shar pen
management deci si ons . Mor e ri gor ous process fl ow informati on, linked wit h all oc at i on of
overhead cos t s to the res pect iv e cos t c entr es and obj ec ts is vi tal. This amount s to not hi ng more
t han sound management and engineer ing pract i ces als o bei ng appl ied to env ir onmental
project s .
4. I mproved envi ronment al management account ing is sti ll not ful l account ing of al l
envir onmental cost. Internal cos ts are, by def init i on, limit ed to thos e wi t h measurabl e financ ial
c onsequenc es to the fi rm. They do not incl ude envi ronment al cost s that acc rue to ident if iable
t hi rd part ies or to soci ety as a whol e, suc h as the cos t of biodi ver si ty loss owing to unsus tainabl e
f or es t pract i ces or wetl ands los s, gl obal warming owi ng to carbon emis si ons , or fores t, crop or
bui lding damages li nked to ac id rain depos i ti on. Full cost ac count ing in it s broades t sens e would
enc ompas s suc h cost s . It is the task of gov ernments to ens ur e that these cost s are internal i zed
by appl y ing appropr i at e fis cal ins tr ument s. Whi l e the dir ec t ion of envi r onment al regul at ions and
i nt er nat ional acc or ds and standards is to ex tend the c or porat e c os t net out war d to inter nali ze
s uc h ex t er nal c os ts , f ew fi rms today ar e ant ic ipati ng t hem i n t heir calc ulati ons .
9. OUTLOOK
Si nc e the mi d-1980s, sever al forces hav e enc our aged the shif t to prevention- ori ent ed st rat egies ,
incl udi ng li abi lit y under the federal Superf und Ac t in the Unit ed St ates, publi c concer ns wi th
envi ronmental degr adati on worldwide, increas ingly st ringent pol lut ion cont rol requir ements in
Europe and widely publi ciz ed indus tr ial ac ci dents. As a res ult , fir ms hav e fac ed a ris ing tide of
publ ic demands for s hif ts to cl ean t echnol ogies and env ironment all y fri endly pr oduct s.
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