Environmental Accounting

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Environmental Accounting

• Prof. Jan Bebbington
• j.bebbington_at_abdn.ac.uk

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When we will work together

• Lecture 18th 19th November (slides on web)
• 21st November keynote speaker, Jonathon Porritt
  KCCC at 130pm.
• Workshop in week 9 reporting back on doing an
  environmental audit (handout given on web)
• 17th December on a panel discussion (any
  questions?)

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Lecture outline

• 18th November
• What is accounting?
• Why is accounting important?
• What does environmental accounting seek to do?
• What activities take place within environmental
  accounting?

• 19th November
• Environmental auditing (link to workshop)
• Environmental SD reporting
• Accounting for SD (introduction)

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Accounting is

• Working out the costs of things, budgeting
  planning, controlling costs
• Keeping financial records, preparing accounts,
  helping run a business
• Insolvency, auditing, tax planning, consultancy
• A powerful technology which defines what is
  possible defines success/failure

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Accounting is also

• Production of medical breakthroughs, amount of
  oil gas exploration
• Democracy, accountability, transparency
  enhancing social welfare
• Language, witchcraft
• Environmental crisis, poverty, inequality, social
  conflict, exploitation of labour

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Accountings take on the world is that

• Accounting entities narrow boundaries
• Economic events not considering social and
  environmental events
• Financial description or doesnt exist
• For a set of users (usually owners finance
  providers) but not other people affected by the
  entity/stakeholders

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Role of accountants in organisations

• Describe what has gone on record keeping
• Provide information/systems to enable control to
  be exercised
• Provide information about the functioning of
  organisations to people outside of the
  organisation
• Create stories about the reality of
  organisations

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Environmental accounting by accounting subject
area

• Within conventional financial statements (
  audited)
• Within environmental management and management
  accounting
• Within new forms of reporting and disclosure
  (environmental reporting)
• Within the context of sustainable development

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Environmental accounting by functional aim

• Identify reduce negative environmental impact
  of conventional accounting
• Separately identify environmentally related costs
  revenues within conventional accounting
• Try to reconcile the conflict between
  conventional environmental criteria

• Devise new forms of financial non-financial
  accounting systems, information control systems
  to support more environmentally benign management
  decisions
• Develop new forms of performance appraisal for
  internal external purposes
• Operationalise sustainability

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19th November topics

• Environmental auditing
• Environmental/SD reporting
• Accounting for SD

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Definitions

• audit of a business to assess its impact on the
  environment
• management tool systematic, documented,
  periodic and objective evaluation safeguarding
  the environment by facilitating management
  control compliance with company policies
  meeting regulatory requirements and standards
• systematic examination of the interactions
  between any business operation and its
  surroundings

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Types of auditing

• Comprehensive environmental performance review
  (waste, energy issues audit)
• Compliance audit
• Environmental Impact Assessment
• Acquisition audits
• Supplier audits customer audits

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Doing an environmental audit of your lifestyle

• Key environmental impacts (including risk
  assessment)
• Systems to measure impact
• Objectives targets
• Systems to enable targets/objectives to be
  achieved
• Internal audit data requirements
• Reporting (internal)

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Use a systems perspective !
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Key environmental impacts

• Impact
• Risk (and risk management)
• Measurement systems
• Objectives
• Targets
• Achievement
• Audit
• Reporting (including env. performance indicators)

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Environmental reporting ( SD reporting)

• An agency framework
• Aim of reports is to discharge accountability
  relationships with regard to responsibilities
• Guidelines of best practice ACCA GRI
• Stakeholder engagement
• Obtain and read reports

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Accounting for SD/Full cost accounting

• FCA assumes that the current economics does not
  tell the truth
• Interested in externalities
• When the activities of one group of people have
  an impact on another group and when that impact
  is not fully accounted for by the first group

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More about externalities

• Not accounted for by originating organisation
  (financial costs/benefits accrue elsewhere or
  financial accounts never pick up the costs and
  benefits)
• Leads to wrong decisions
• So identify and internalise externalities
  (usually costs)

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Impetus for FCA

• ECs Fifth Action Programme, 1992
• the consumption use of environmental resources
  are accounted for as part of the full cost of
  production and reflected in market prices
• Same idea suggested in Agenda 21
• NB environment only but could apply equally to
  social costs

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Sustainability assessment model Modelling
economic, resource, environmental and social
flows of a project
Capital at the start
Capital at the end
Economic
Resources
Flows
Environmental
Social
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Some results for a typical oil gas
development
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Summary of lectures you need to know

• What accounting is about
• How environmental accounting differs
• Environmental auditing and practical experience
  of doing it
• Environmental/SD reporting look for self
• Accounting for SD full cost accounting