Environmental Accounting Systems

1
Environmental Accounting Systems

• Arturo A. Keller
• Bren School of Environmental Science Management
• University of California, Santa Barbara

ESM 595F
2
Environmental Accounting Systems

• You cant manage what you dont see - and with
  todays managerial accounting systems, managers
  dont see most environmental costs, from R. Todd
  (Greening of Industrial Ecosystems, 1994)

3
Objective of Env. Account. System

• Record monitor flow and disposition of all
  inputs
• waste disposal
• reprocessing
• recycling

4
Objective of Env. Account. System

• Processing costs involving environmental impact
• pretreatment
• emissions control costs
• air emissions
• water treatment
• solids reduction
• packaging disposal/return costs

5
Hidden costs

• Site remediation costs
• Product-related legal expenses
• Regulatory costs
• PR expenses
• Opportunity cost of clean technologies not
  adopted
• DfE, PP engineering costs

6
Institutional Impediments

• Traditional accounting doesnt capture
  engineering accounting data needed for decision
  making
• Data collected is aggregated in wrong format,
  losing environmental context
• Line managers not responsible for most
  environmental costs

7
How to present the information?

• Corporate level
• Facility level
• Product line
• By department or section

8
To Whom it May Concern...

• Internal accounting
• Financial reporting
• Regulatory agencies
• Others ?
• Bren School students doing GPs?

9
Managerial Information

• Detailed cost breakdown
• Joint costs
• expense of tracking costs on individual product
  line basis
• technical difficulties of measuring
  product-specific material flows and emissions
• negative incentive to collect detailed info

10
Unprofitable products?

• Internal External Costs gt Price
• Competitive market
• Market leader
• Large portion of current revenue

11
Dont Look, Dont Tell...

• Confidentiality of Sensitive Info
• Costly contingent liability
• Legal liability
• Public perception

12
Role of Mgmt Accounting Systems

• Direct managerial attention to problem areas
• Provide informational support for managerial
  decisions
• Promote harmonized goals throughout the
  organization

13
Traditional Env. Accounting
14
Traditional Env. Accounting
15
Enlightened Cost Accounting
16
Bottom Line

• Need to restructure incentive compensation system
  (multi-objective)
• Establish priorities
• Tailor to individual firm
• Adapt to changing social climate