Abstract
National accountants have been confronting critical public scrutiny because traditional accounting models take for granted the cost of environmental damages. Supporters of environmental accounting argue that the complete consolidation of the economy and environment can merely be attained through calculation of the actual costs of the interplay between the economy and the environment. As revealed in the case studies, developing countries, like Ghana, have initiated massive attempts to determine the cost of damages or depletions to their natural resources. In contrast, highly developed countries, like France, Sweden, and the UK, appear to be satisfied with gathering environmental protection costs and physical markers of environmental outcomes. This paper critically analyses the importance of evidence from environmental accounting studies for the mitigation of adverse environmental effects that can potentially be brought about by economic activities. Several case studies have been used, both in private and public organizations.
Introduction
The importance of accounting for the economy and the environment in an integrated manner emerges due to the critical roles the environment plays in the promotion of human wellbeing and in economic outcomes. These roles involve waste management by environmental services and environmental media, and supply of natural resources (i.e. raw materials) for production processes. This mechanism is referred to as environmental accounting, which is a crucial activity that provides companies a way to integrate data/information/evidence with business operations. Environmental accounting is widely recognised as the study, distribution, and application of environmental cost data, physical flow findings, and other financial data for an organisation's traditional operations and environmental considerations (Hecht, 2012). Environmental accounting is specifically valuable for decisions and operations with environmental effects and focuses on finding out the environmental costs of doing business. This paper critically examines how evidence from environmental accounting studies can be used to minimize environmental change.
Environmental accounts are a beneficial, flexible information tool comprising a conceptual paradigm and diagrams which demonstrates the interconnectedness of the environment and the economy in a manner that is in agreement with the national data. They explain, for instance, the level of pollution generated by households and businesses and facilitate an evaluation of employments against the output value generated by these organizations, or with the resources spent by them to prevent adverse environmental changes (Hecht, 2012). Decision-makers can apply these data to accurately identify where it is most favourable to operate. Supporters of environmental accounting require that accounts incorporate measures of pollution-related costs and the worth of non-marketed environmental goods. They propose to apply this information in cost-benefit analyses of the compromises between the environmental and economic repercussions of planned activities. They also propose to employ accounting findings in 'strategic cost-benefit analysis', which takes into consideration environmental and economic compromises involved in macroeconomic policymaking (Uno & Bartelmus, 2013, p. 64). The scope of uses of environmental accounting involves sustainable production systems and consumption activities, decomposition analysis, and resource efficiency.
The Environmental Value of Evidence from Environmental Accounting Studies
A clear advantage of environmental accounting is that it usually implies identifying and curtailing business travel, logistics, energy costs, and so on in order to 'manage carbon'. If a company carries out an environmental accounting, it will have a much accurate and clearer picture of the areas it can reform without significantly affecting its daily operations, yet can considerably affect its performance and outcomes. Therefore, enhanced environmental accounting is viewed by environmental supporters and corporate executives alike as a crucial counterpart to enhanced environmental management in private and public organizations. Whether the objective is preventing or mitigating pollution, or some wider concept of business 'sustainability', there is a universal idea that more accurate evidence from environmental accounting studies will help organisations determine and execute financially favourable environmental programmes (Bennett, Bouma, & Wolters, 2006). Furthermore, environmental management is moving towards public regulations that depend to a larger extent on the identification, gathering, and dissemination of evidence from environmental accounting studies.
The study of Boyd (1998) provides an economic model of assessing how evidence from environmental accounting studies can be used to alleviate adverse environmental change. Drawing upon knowledge from organization theory, finance, and managerial economics, the importance of enhanced environmental accounting data is examined by Boyd (1998). The key objective is identifying priorities for more precise environmental accounting studies. Because of the costs and tough challenges related to carrying out new accounting techniques and the gathering and confirmation of findings, it is highly beneficial to determine circumstances wherein the advantages of more accurate evidence from environmental accounting studies is likely to be paramount. Boyd (1998) also explains that more accurate information is not consistently beneficial. Studies on the importance of evidence to corporate decision-making is a vital measure if regulators and managers in private and public organisations are to establish priorities for enhanced environmental accounting.
The study of Hua and Hua (2014) examines whether environmental accounting can boost energy conservation, better waste management, and cut down greenhouse gas (GHG) emissions. The case study focuses on the Hitachi group, a Japanese company that discloses environmental accounting information annually. Hitachi has been promoting environmental protection programmes since 1993. Hua and Hua (2014) reported that the release of environmental accounting data becomes an important activity for the company, because it mitigates adverse environmental effects. They also concluded that because Hitachi focuses on environmental accounting activities, it has generated positive outcomes in terms of environmental protection costs.
The above table shows the environmental expense and investment of Hitachi. As shown, the company keeps on cutting down environmental costs, with an emphasis on between environmental risk management. As shown in the data, expense and investment in pollution prevention, global environmental preservation, and resource recycling reached its peak in 2011. Nevertheless, it was in 2009 that the company has productively carried out energy reduction. Thus, environmental load reduction-- computed as the level of environmental load reduction divided by the amount required to carry out this reduction-- reveals clear efficiency in 2009, and not in 2011. This is shown in the table below:
The table illustrates the environmental load reduction efficiency of Hitachi in terms of waste index and energy reduction or, more specifically, the amount of energy used-- expressed in kilowatt hours (kWh/billion yen)-- and the efficiency of waste disposal-- shown in tonnes.
The study clearly reveals that Hitachi continues to push up its environmental protection costs. Consequently, in 2012, the company reached its peak in terms of environmental efficiency and environmental load index. In addition, the company continues to produce more sustainable and 'green' products and develop more effective reduction policy, particularly in the area of GHG emissions reduction, fossil fuel use reduction through recycling, waste reduction, and energy saving. Furthermore, the company keeps on upgrading its production systems and resource utilisation across the globe (Hua & Hua, 2014). For instance, a water conservation system was built in France and a solar powered distribution centre was installed in Europe (Hua & Hua, 2014). All of these environmental protection efforts were driven by environmental accounting data.
Baba (2012) substantiated such findings in her case study on ten companies in the city of Brasov, Rome. The study focuses on the importance and application of environmental accounting data in the development of environmental policies. Her findings show that environmental accounting data and cost-benefit analyses help corporate executives in Rome to make more appropriate environmental decisions, measure environmental costs, and initiate steps to mitigate adverse environmental changes. Gillet (2012), in her study of the sustainability verification in France, demonstrates how the environmental accounting information helps mitigate adverse environmental outcomes for an organization. From a managerial perspective, findings show the necessity of ensuring the accuracy of environmental accounts, which, consequently, could be a key motivator of change within the organisation. Recently, France has witnessed a remarkable development in sustainability reporting. Such practice has mostly been a response to the environmental implications of doing business in France.
Gillet (2012) examines how French companies carry out sustainability report assurance. She identifies the importance of the assurance of sustainability report in the development of appropriate environmental programmes, such as reduction of GHG emissions and better waste management. She uses assurance reports from CAC 40 companies in France to verify whether they regularly release a sustainability statement checked by a third party. What the findings show is that there are internal difficulties for a firm undergoing a verification process. In reality, verification of environmental accounting data is a way for firms involved in this process to govern their sustainability rules, and thus pinpoint its weaknesses in aligning its economic goals with environmental demands. Moreover, according to Gillet's (2012) findings, the French firms make sure that the environmental accounting data they release for public information are reliable and accurate, which is largely because of the greater demands from stakeholders for accuracy and transparency. Gillet (2012) claims that without these environmental accounting information, it would be impossible for both internal and external stakeholders in France to develop, promote, and implement environmental programmes aimed at reducing the unfavourable impact of business operations on the environment.
The French Institute for the Environment (IFEN) assumed full responsibility of France's environmental accounting project in 1992 (Steurer, 2000). According to Steurer (2000), IFEN used forest accounts to handle conflicts in local forest management. The organisation has also been involved in creating water accounts, which were used to identify locations with poor water quality. And, ultimately, IFEN is consolidating GHG emissions and energy use information so as to connect them to national accounts. Dragomir and Roxana (2010) examine the outcomes of environmental accounting processes of companies in France and the United Kingdom. As shown in their findings, numerous French and British companies use environmental accounting data to make environmental decisions. Some examples are as follows: Legrand uses environmental accounting data to enhance environmental awareness of its employees; Bouygues develops research and development projects that involve ecological energy use, improvement of the general lifecycle cost, and energy savings for old and new infrastructures; Alstrom also implements research and development projects for GHG absorption facilities; and, Aeroports de Paris makes use of environmental accounts to mitigate adverse environmental effects, clean up unsafe and non-hazardous waste, and treat surface runoff (Dragomir & Roxana (2010). These environmental programmes were based on the companies' recent environmental accounting data.
In the case of the UK, as explained by Harris (2000), the environmental accounts are currently a permanent section of national accounts. The three major domains included in the accounts are environmental protection expenditures, use of material resources (e.g. fossil fuel), and energy consumption and atmospheric emissions. Even though the environmental accounts in the UK include several major sustainable development measures, they can primarily be viewed as a detailed, systematic instrument with which to analyse and interpret earlier events and evaluate the possible outcomes of future events. As explained in the case study, the national accounts comprise the 1990-1998 energy use and atmospheric emissions, which are currently supporting national efforts to develop environmental taxation, environmental protection programmes, and sustainable oil and gas consumption (Harris, 2000). These environmental accounting data are continuously used to fully understand material resource utilisation, to create accounts of environmental protection expenditure, and to develop corrected financial statement for oil and gas inventory. These findings only show how important environmental accounting data are to the UK government's effort to mitigate environmental damages.
The study of Kurantin (2011) on the developing oil and gas economy of Ghana also demonstrates how environmental accounting data are used to promote efficient energy consumption and material use. Kurantin (2011) specifically examines the link between the economic growth processes and particularly, how Ghana—a developing oil and gas country-- could take advantage of environmental accounting information. More particularly, the environmental accounting paradigm offers strategies that could work as the key component in formulating and incorporating environmental accounting data into the developing oil and gas industry of Ghana. Fundamentally, Ghana's national accounts are based on environmental accounting data that support well-informed policy choices, environmental management processes, and efficient use of oil and gas reserves.
The same is true for Sweden. Steinbach (2015) explains that environmental accounting data have been used by government agencies, such as Eurostat, the National Institute of Economic Research, and The Swedish Environmental Protection Agency. Swedish environmental accounts primarily focus on six key areas, as shown in the diagram below (Steinbach, 2015, p. 8):
*image taken from Steinbach, 2015, p. 8
These environmental accounts are also a crucial tool for researchers, especially in terms of atmospheric emissions. After the approval of the United Nations (UN) of the new sustainable development objectives, environmental accounting data are now often required as a foundation for the suggested measures for sustainable development. Sweden is also experiencing a vigorous incentive for studies of the environmental consequences of material and energy consumption (Steinbach, 2015). Basically, Swedish environment accounts are used to identify environment-related activities and economic activities in the national accounts, including environmental tools and expenses for environmental conservation.
Conclusions
Evidence from environmental accounting studies or environmental accounts are definitely useful in reducing the adverse environmental effects of doing business or economic transactions. The case studies included in this paper demonstrate that environmental accounts are used by both private and public organisations to develop environmental programmes aimed at reducing unfavourable environmental outcomes of economic activities. The following are some of the key items included in the environmental accounts of various companies and governments across the globe: financial costs of environmental damage; financial worth of non-marketed products and/or services supplied by the environment; material flow data, which involve physical resource statements and GHG emission accounts; natural resources (e.g. land, energy, minerals) accounts; environmental taxation; pollutant emissions; and, contributions of the environmental conservation sector.
References
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*image taken from Steinbach, 2015, p. 8
