Discussion
• Environmental Accounting Overview
– What is environmental accounting – Why do environmental accounting – What is an environmental cost
• System Strategies
– Reactive, Proactive, Leadership
• Business Purpose and Application
– Example - Cost Allocation
Environmental Accounting Overview
What is environmental accounting?
– A flexible tool to provide information not
Goal
• Goal of environmental accounting is to
increase the amount of relevant data for
those who need or can use it.
Scale and Scope
• Applicable at different scales of use and
scopes (types) of coverage.
– Application at an individual process level (production line), a system, a product, a facility, or an entire company level.
– Coverage (focus) may include specific costs, avoidable costs, future costs and/or social
Scale and Scope
• Decisions on scale and scope of
application significantly impact ability to
assess and measure environmental costs
– Process vs Facility
Why do Environmental
Accounting ?
• Environmental cost can be significantly reduced or eliminated as a result of business decisions.
• Environmental costs may provide no added value to a process, system or product (i.e. waste raw
material )
• Environmental costs may be obscured in general overhead accounts and overlooked during the
Why do Environmental
Accounting ?
• Understanding environmental costs can lead to more accurate costing and pricing of products. • Competitive advantage with customers is
Environmental Costs
• Major challenge in application of
environmental accounting as a
management tool is identifying relevant
costs.
• Cost definition determined by intended use
of data (i.e. cost allocation, budgeting,
Environmental Costs
• Types of Environmental Costs
– Conventional: material, supplies, structure and capital costs
need to be examined for environmental impact on decisions.
– Potentially Hidden:
• Regulatory (fees, licenses, reporting, training, remediation)
• Upfront and back end (site prep, engineering, installation, closure and disposal)
• Voluntary (training, audits, monitoring and reporting)
– Contingent: penalties/fines, property liability, legal)
– Image: Relationship with employees, customers, suppliers,
Overview Summary
• Flexible tool to provide relevant data not ordinarily captured in traditional systems. • Successful application requires up-front
understanding of scale and scope of application. • Once identified, information needs to be
communicated/distributed to decision makers and considered as a component of management’s
System Strategies
• Environmental Accounting systems
typically fall into one of three categories:
Reactive Systems
• Typically spread costs (capital and expense) across various overhead categories.
• Environmental costs typically not assigned to specific line/process or activity.
• Reactive system fails to provide indication or quantification of environmental costs.
Proactive systems
• Costs are categorized and assigned to specific process and activities.
• Costs incurred can be identified, classified and quantified but are limited to discreet costs.
Leadership Systems
• Includes both financial and non-financial issues in the relevant data used in the business decision process.
• Systems are designed to include value chain perspectives.
Application
• Utilization of data generated from
application of environmental accounting
tool can be used for a variety of decision
classes including:
Cost Allocation
an example
• Goal - Bring environmental costs to
attention of corporate stakeholders.
• Four steps in environmental cost allocation:
– Determine scale and scope of the application – Identify environmental costs
– Quantify those costs
Traditional Cost System
Other
Overhead Toxic WasteProduct B
Product A
Allocated Overhead
Modified Allocation System
Other
Overhead Toxic WasteProduct B
Product A Allocated Overhead
Methodologies
Related Accounting Topics
• Application of Environmental Accounting
typically used in conjunction with:
– Activity Based Costing (ABC)