Environmental Accounting

Dr. Geetanjali Kaushik

Environmental Costs
Are Often Underestimated
Research Findings:
For every dollar of waste cost that companies actually
measure, another 2 to 3 dollars of cost are” hidden” in
the accounting records, or are not on the books at all
Companies typically underestimate how much waste
really costs them, sometimes by several orders of
magnitude
This applies even to big, well-managed companies

Said Environmental Costs revealed are just the-

TIP OF ICEBERG
 Environmental Accounting
Environmental Resources constitute – natural capital.
Hence, damage to environment and depletion of natural
resources should be reflected in country’s economic
accounts though we do not have fool proof methods to
measure these changes in monetary terms.
Absence of natural and environmental aspects provides a
false economic performance.
Conventional GDP does not give an accurate indication of
sustainable economic growth.
We donot get a correct assessment of flow of goods
and services that an economy can generate without
reducing its future productive capacity.
Thus, conventional accounts are likely to send wrong signals
and may result in policy decisions which are non-sustainable
for country. Green Accounting is focused on addressing
such deficiencies in conventional accounts with respect to
environment.
Integrated environment and economic accounting
attempts at accounting for both socio-economic performance
and its environmental effects thereby integrating
environmental concerns into economic planning and
policies.
The absence of price is a handicap in environmental
accounting – price of pollution or clean air is not easily
available. Govt can levy tax on such a activity. Or the product
from this activity should be given higher price.
Benefits
Involves taking into account the social and
environmental impact of corporate activity when
making decisions
May increase profitability
Determine long-term survival
Communicated to stakeholders in annual reports,
environment reports, stakeholder impact reports,
• Reduction ofreports
social impact risk of and
current
socialand future
audit reports
activities
• More effective management of resources
• Improvements in competitiveness
– Greater attractiveness to customers
Environmental Costs
Analyzing Environmental Costs
Environmental costs can be analysed as relating to the
following activities
Prevention activities
Solve environmental problems before they occur, or turn
problems into opportunities
Costs of these activities are ‘investments’, as they reduce the
future outlays and provide long-term benefits
Appraisal activities
Monitor the levels of environmental impact
Measuring damage, inspecting processes and products,
auditing supplier performance
Internal failure activities
Correct breakdowns discovered in appraisal activities
Cost of cleaning the plant after spillage, cost of
occupational health and safety claims by employees
External failure activities
Occur when resolution and remediation efforts fall
outside of the organisation’s management
Cost of cleaning up polluted sites, fines for
environmental damage, lost profits associated with
damage to reputation
Improving supply chain management through
environmental and social accounting
• Organisations working with suppliers to adopt more
responsible environmental and societal practices, can lead
to cost reductions
An organisation can work with customers to reduce the
adverse environmental and social impact of products
 Recycling and disposal programs
 Substitution of materials
 Cost savings

Sometimes customers may be willing to pay more for a

more environmentally-friendly product
Measuring environmental and social
performance
ISO 14031 environmental performance indicators
Operational performance indicators include measures of waste levels and
energy consumption relative to sales or some other activity
Management performance indicators measure the efforts of management to
improve environmental performance
Environmental performance indicators measure the condition of the
environment at a local, national or global level
Measuring and reporting social values
Some organisations include these measures in their annual report to
shareholders, in triple bottom line reports or in specialised reports to
stakeholders
Social Audit -A formal process where organisations measure and report the
extent to which they have operated in accordance with their stated values and
objectives. Requires the involvement of many stakeholders. The outcomes of
the audit are subject to external verification
Objectives of Environmental Accounting
To incorporate impact of environment on balance
sheet of an organization.
To identify stages in LCA for cost reduction.
To allocate the environmental costs in process of
fixing prices.
To support sustainable practices in business.
 Environmental taxes
Environmental taxes (also called “Green taxes" or
“Pollution taxes") are taxes on environmental
pollutants or on goods whose use produces such
pollutants. Economic theory suggests that taxes on
polluting emissions will reduce environmental harm in
the least costly manner, by encouraging changes in
behavior by those firms and households that can reduce
their pollution at the lowest cost.
energy
transport
pollution
resource
Direct taxes on emissions are economically efficient because they
give polluters an incentive to reduce their pollution in the least
costly way.
Indirect taxes, such as taxes on related goods, or alternative
policies, such as mandated technology standards, may not reduce
pollution in the least costly way. For example, imposing a higher
gasoline tax to reduce the environmental damage from
automobile emissions gives drivers no incentive to maintain their cars'
pollution control equipment, and mandating pollution control
equipment provides no incentive to drive less.
Direct emissions taxes are also cost-effective because they ensure
that pollution reductions are undertaken by those who can do so most
cheaply. Firms that find pollution abatement costly will choose to
continue to pollute and pay more tax, while those who find it less
costly will cut their pollution rather than pay more tax.
Green Banking
Green Banking is like a normal bank, which considers all the social and
environmental factors; it is also called as an ethical or a sustainable
bank.
Green banking is like a normal bank, which considers all the social and
environmental/ecological factors with an aim to protect the
environment and conserve natural resources.
They are controlled by the same authorities but with an additional agenda
toward taking care of the Earth's environment / habitats / resources.
For banking professionals green banking involves the tenets of
sustainability, ethical lending, conservation and energy efficiency.
 There are many differences compared with normal banking, Green Banks
give more weight to environmental factors, their aim is to provide
good environmental and social business practice, they check all the
factors before lending a loan, whether the project is environmental
friendly and has any implications in the future, you will awarded a loan
only when you follow all the environmental safety standards.
Green Banking means promoting environmental – friendly practices and
reducing your carbon footprint from your banking activities. This comes in
many forms
1. Using online banking instead of branch banking.
2. Paying bills online instead of mailing them.
3. Opening up accounts at online banks, instead of large multi-branch banks
4. Finding the local bank in your area that is taking the biggest steps to
support local green initiatives.
Green banking can benefit the environment either by reducing the carbon
footprint of consumers or banks. Either a bank or a consumer can conserve
paper and benefit the environment. Ideally, a green banking initiative will
involve both. Online banking is an example of this. When a bank’s customer
goes online, the environmental benefits work both ways. Green banking
means combining operational improvements and technology, and changing
client habits.
Green Funding
It represents the financial backing of a business considered
environmentally sound and socially conscious.
Green funding can be in the form of equity, loans and
grants from banks, government agencies, private investors
or business entities. Building a business with green funds
means focusing on more than just the bottom line. It
means making a statement with your business about the
importance of safeguarding the Earth and being socially
conscious toward all of its inhabitants.
Green funding is sought by individuals, companies and
organizations who are producing goods and services
that are friendly to the environment, often by having a
smaller environmental impact or footprint than
alternative products or companies. Examples include
renewable energy companies, purchasers of renewable
energy generation, organic farms, makers of products
that contain few or no synthetic chemicals and clean
technology developers.