Environmental Accounting Essay

Environmental accounting essay

"Environmental accounting" – sometimes referred to as "green accounting", "resource accounting" or "integrated economic and environmental accounting" – refers to modification of the System of National Accounts to incorporate the use or depletion of natural resources.

The System of National Accounts (or SNA) is the set of accounts which national governments compile routinely to track the activity of their economies. SNA data are used to calculate major economic indicators including gross domestic product (GDP), gross national product (GNP), savings rates, and trade balance figures. The data underlying these aggregate indicators are also used for a wide range of less publicized but equally valuable policy analysis and economic monitoring purposes.

These economic accounts are calculated by all countries in a standard format, using a framework developed, supported, and disseminated by the United Nations Statistical Division (UNSTAT).

Environmental accounting, also known as "green accounting" or "resource accounting has a role to play in businesses and economies. Thus, environmental accounting is a useful tool for identifying and assessing past, present and future costs related to the environment.

Data obtained from environmental accounts is used to reflect the contribution of natural resources to quality of life, as well as the damaged imposed by resource depletion or degradation.

Environmental accounting helps to avoid high, but predictable fluctuations in revenue and expenditure. For example, in the oil industry, an environmental accountant could estimate the potential cost of a disastrous failure before a drilling accident occurs in an oil rig.

Some obvious benefits of cutting back on revenue expenditure and boosting profits often

Involves reducing costs for energy bills, transport costs, fleets and logistics just to name a few. An environmental accounting approach enables an organisation to have a much better idea of the areas where changes can be made to have a big impact on its bottom line. This can be achieved successfully with relative little changes to day-to-day operations. This goes beyond switching from buying ink cartridges to refills; it’s more to do with collecting data for energy and water consumption, then taking steps to improve and achieve money-saving results in the long run.

A fair amount of employees feel motivated working for companies that do more than just make money. Environmental accounting provides a platform for employers to engage with staff on green issues. This of course, allows companies to attract and retain talented staff. A research conducted by UBM ,( multinational media company, London) showed that 90% of respondents would rather work for a company with a dedicated CRS policy (social corporate responsibilities) and nearly the same number agreed that when considering a new employer, the company’s sustainability values are a key factor.(www.ubm.com)

Fundamentally, environmental accounting means change. This can prove to be a barrier as most people are reluctant to adapt to changes in their normal routines. However, organisations can make this process simple for consumers by publishing strategies to reduce emissions as part of marketing and advertising campaigns. Companies like to show their customers’ hat the products and services being offered does not indirectly affect the environment. This will help in retaining and attract potential customers, encouraging them to form an association with the organisations brand. Improving environmental communications through marketing is impressive to key investors, suppliers, shareholders and local communities. For example, big supermarket chains like Tesco run reward schemes where customer collect "green points" for reusing carrier bags or purchasing environmental friendly products. These points are later converted to shopping vouchers or coupons in order to obtain discounted shopping in stores.

Many tender submissions for a government department or large company would require a company to submit information detailing its carbon footprint. This usually applies to all major government contracts, local councils or even becoming part of a large company’s supply chain. With all the above factors combined, this could potentially translate into an increase in a company’s sales. Especially, if your environmental record is stronger than that of a competitor, this differentiating factor could help encourage customers to pay for your products and services instead of the other alternatives available to them.

Countries use SNAs (system of national accounts) to track the activities of their economies but these fail to account for the use of depletion of natural resources. Important elements missing from these accounts include environmental expenditures such as pollution control equipment purchased by factories, catalytic converters in cars, replacement of property destroyed in landslides. Implementing environmental accounting aims to incorporate the economic value of natural resources and the degradation of natural resources into SNAs, which can be a very valuable tool for countries

Environmental taxation, through duties and taxes, can encourage the promotion of green technology. This systems coupled with the use of an environmental fund, can be helpful in sustaining and developing projects relating to environmental protection to comply with current regulations. This model is adopted by countries like Romania, where series of regulations have been issued regarding the establishment and payment of environmental fund. These include contributions of 3% from revenues from ferrous and non-ferrous discard, tax for gas emissions, and 2% from costs of substances classed as dangerous ,to name a few.

Certain European countries have implemented environmental accounting systems, adopting different models that are applied to economic and environmental policy and decision making. For instance, Norway collects and computes accounts with focus purely based on air pollution and energy resources. This data is inputted into a macro-economic model to explore the environmental and economic feasibility of different growth strategies. Furthermore, the Netherlands compiles routine "National accounting matrix including environmental accounts" (NAMEA), this provides an extended form of national input/out matrix. This data enables them to track pollution emissions and natural resource use by economic sector, as well as tracking how far the country is from attaining it environmental projection objectives.