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Environmental Accounting

Chapter · January 2018

DOI: 10.1007/978-3-319-23514-1_215-1

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© Springer International Publishing AG 2018 
Deborah C Poff 
and  
Alex C. Michalos 
Encyclopedia of Business and Professional Ethics 
10.1007/978-3-319-23514-1_215-1 

Environmental Accounting 
Muhammad Azizul Islam1  
(1)Accounting Discipline, Business School, University of Aberdeen, Aberdeen, UK 
 
 
Muhammad Azizul Islam 
Email: azizul.islam@abdn.ac.uk 
 
Without Abstract 
 
 
Synonyms 
Accountability; CDM; Community; Corporation; EMA; Environment; Legitimacy; Performance;
Reporting; State; Sustainability 
 
 
Introduction 
Environmental accounting is a broad term which covers both national- and corporate-level
environmental performance activities and associated stakeholder interactions. It includes the
processing of both financial and nonfinancial information regarding environmental and ecological
impacts. At a corporate level, environmental accounting can be defined as a set of organizational
activities that deal with the measurement and analysis of the environmental performance of
corporations and the reporting of such results to concerned groups, both within and outside the
corporation. At a national or regional level, environmental accounting is that branch of accounting
dealing with activities, methods, recordings, analysis, and reporting of environmental and ecological
impacts of defined economic systems. 
The exact scope of environmental accounting remains contested, however, and definitions and
applications vary; environmental accounts usually include a mix of financial and nonfinancial terms
and can be prepared for internal and/or external use. Nevertheless, two major subsets of
environmental accounting can be identified: environmental management accounting (EMA) and
environmental reporting. 
 
 
Environmental Management Accounting (EMA) 
Environmental management accounting (EMA) is a comprehensive approach to management
accounting aimed at assisting internal organizational calculations and decision making regarding
environmental matters. EMA includes recording and analysis of both the physical processes for
material and energy consumption, flows and final disposal (including release of emissions), and the
monetized procedures for costs and benefits related to activities with potential environmental and
ecological impact. At the corporate level, EMA typically focuses on the cost and associated control
structure of environmental and ecological impacts of a company. At a national level, EMA (which can
be used for both internal and external purposes) records the flows of raw materials (such as water,
energy, minerals, and fossil fuels) from the environment to the economy while also recording shadow
prices for these materials and environment protection expenditures. EMA is, however, a flexible
approach, and there are substantial differences in the scope or boundary of its application. 
 
 
Environmental Reporting 
Environmental reporting deals with the disclosure of environmentally related information by an
organization. This can include (but is not limited to) contingent environmental liabilities/risks, asset
revaluations and capital projections as they relate to the environment, cost analysis in key areas (such
as energy, waste, and environmental protection), investment appraisal to include environmental and
climate change factors, carbon emission and related control measures, ecological impacts, levels of
support for community environmental projects, and levels of emission reduction support (such as the
Clean Development Mechanism) for developing countries. 
The disclosure of environmental information can be viewed as part of an organization’s responsibility
to its stakeholders and/or a response to stakeholder expectations. Environmental reporting, at both
national and corporate levels, is a voluntary activity, and organizations make use of a diverse range of
reporting media. These include annual reports, stand-alone sustainability reports, integrated reports,
special purpose reports, websites, and social media to communicate environmental information to the
wider community. 
 
 
Motivation for Environmental Accounting 
Both positivist and normative approaches have been suggested to explain the underlying motivations
for environmental accounting. Positivist approaches include agency theory and political cost theory,
legitimacy theory, stakeholder theory, and institutional theory. Normative approaches primarily
include accountability theory and critical theory. Each approach offers particular systematic
assumptions, preconceptions, and insights, and each has its limitations and critics. 
Agency theory and political cost theory suggest that organizations take environmental actions in order
to maximize managerial and shareholder interests, and these theories rely upon the economic-based
assumption that all action is driven by individual self-interest (tied to wealth maximization).
According to legitimacy theory, stakeholder theory, and institutional theory, however, environmental
accounting is a tool used to respond to stakeholder and community expectations and maintain
legitimacy. Unlike agency and political cost theory, stakeholder, institutional, and legitimacy theory
do not rely on the central assumption that all action must be driven by individual self-interest. 
The normative theories (accountability and critical theory) typically reject market-related solutions,
consider all stakeholders to be morally deserving, and argue that one stakeholder group (such as
shareholders) should not benefit at the expense of other stakeholders (such as the community or
employees). Accountability theory, in particular, suggests that an organization has a duty to provide
an account of the actions for which it is held responsible, with critical theory suggesting that
organizational actions should play a pivotal role in reducing social inequality and injustice. While
there are different branches of accountability theories and critical theories, they are helpful in
understanding the critical basis of environmental accounting. The Gaia hypothesis, for example, posits
that the effect of an organization’s activities upon externalities is the organization’s concern and hence
a proper concern for accounting; organizations are accordingly accountable for any environmental and
ecological impacts on the society in which they operate. As a critical theory, it thus represents a
radical departure from economic-based assumptions (that underlie agency theory for instance). 
Both accountability theory and critical theory are significant in regarding environmental accounting
practices as a moral discourse to satisfy a larger range of accountability relationships. However, as
these theories seek to prescribe how accounting should be practiced (or perhaps, should not be
practiced), empirical support is limited. 
 
 
Cross-References 
Accountability 
Corporate Social Responsibility 
Corporate Social Responsibility Assurance 
Environmental Assessment and Resource Extraction 
Environmental Ethics and Sustainability 
Ethics and Environment 
Sustainability Assurance 
Triple Bottom Line 
 
 
References 
Bennett M, James P (eds) (2000) The green bottom line: environmental accounting for management:
current practice and future trends, 2nd edn. Greenleaf Publishing, Sheffield 
 
 
Crowther D, Islam MA (eds) (2015) Sustainability after Rio, Developments in corporate governance
and responsibility. Emerald, London 
 
 
Deegan C (2003) Environmental management accounting: an introduction and case studies for
Australia. Institute of Chartered Accountants in Australia, Melbourne 
 
 
Gray R, Bebbington J (2001) Accounting for the environment, 2nd edn. SAGE, London 
 
 
Islam MA (2009) Social and environmental reporting practices of organisations operating in, or
sourcing products from, a developing country: evidence from Bangladesh. PhD thesis, RMIT 
 
 
Schaltegger S, Burritt R (2000) Contemporary environmental accounting: issues, concepts and
practice. Greenleaf Publishing, Sheffield 
  
 

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