The accounting profession is often accused of being too concerned with the numbers and not concerned enough about the more intangible aspects of a company's operations. Environmental accounting, also called social accounting, is a type of accounting that attempts to measure both the social and environmental impacts of business decisions.
It wasn't until the energy crisis of the 1970s that environmental accounting started receiving any serious attention, With the 1980s, though, came a new era of economic prosperity as the energy crisis ended; environmental accounting moved to the back burner. An upswing in environmental protection activism in the 1990s brought environmental accounting back into the consciousness of both consumers and businesses. Gradually some standards for environmental accounting were implemented by prominent accounting organizations such as the Financial Accounting Standards Board and the Accounting Standards Executive Committee of the American Institute of CPAs.
Accounting for True Costs
Environmental accounting allows companies to take all costs, rather than just financial expenses, into account when making production and pricing decisions. The depletion of natural resources involves more costs than the monetary ones that appear on company financial statements. Examining our use of and affect on natural resources and the environment around us increases our awareness of the way in which we treat that environment. This awareness allows us to make decisions that will keep our drinking water cleaner, decrease air pollution and manage dwindling natural resources.
There are several relationships that can be examined using environmental accounting. Environmental accounting can be used to monitor our use of minerals and natural oil. We can also examine the costs of water and air pollution. Animal habitats and the farm land needed to produce food can also be examined to determine what impact our activities are having. Opportunity costs are another cost category which can be examined with an environmental and social accounting. Opportunity costs refer to what we do without in order to have something else. For example, the pieces of steel we use to make beams for building construction cannot also be used to make a new car. The health and happiness of employees and other stakeholders can also be weighed when making decisions.
Goals and Objectives
Environmental and social accounting have the potential to raise awareness about public concerns. This can help us substantially reduce pollution, protect wildlife habitats and save farmland from development. Environmental and social costing can also help companies to set product and service prices at levels that take into account the true costs. This means that consumers will have to pay more for a product whose production results in a lot of air pollution or whose manufacture required the development of manufacturing plant facilities on farm land. If prices are set in this manner, environmental accounting could possibly help make environmentally costly products more expensive to purchase and green products less so. The goal is to make damaging the environment more costly and thereby less profitable while increasing awareness about the environmental and social impacts of the products we produce and consume.
Although environmental accounting has many benefits and is a good idea in theory, it can be difficult to put into practice. When instituting environmental and social accounting practices, it is necessary to remember that many of the costs calculated in environmental accounting are intangible and difficult to measure. The company must make sure it applies the same standards and assigns the same values to resources across the organization. Some values are subjective and vary with individuals, so it can be difficult to come to a consensus on what to measure and how. Social accounting can also be challenging, as social values sometimes change quickly.