Environmental

Accounting

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

Methodologies

Environmental Accounting Overview

What is environmental accounting?
A flexible tool to provide information not
necessarily provided in traditional managerial
systems.

Goal
Goal of environmental accounting is to
increase the amount of relevant data for
those who need or can use it.
Relevant data depends on the scale
and scope of coverage

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
external costs

Scale and Scope

Decisions on scale and scope of
application significantly impact ability to
assess and measure environmental costs
Process vs Facility
Discreet costs vs Hidden vs Contingent vs
Image Costs

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
decision making process.

Why do Environmental
Accounting ?
Understanding environmental costs can lead to
more accurate costing and pricing of products.
Competitive advantage with customers is
possible where processes and products can be
shown as environmentally preferable.

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,
product/process design or other
management decision support).

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, regulators and shareholders

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 managements
decision making criteria

System Strategies
Environmental Accounting systems
typically fall into one of three categories:
Reactive
Proactive
Leadership

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.

As a result it fails to identify cost drivers and

minimizes opportunity to develop tactics to
reduce these 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.
Decisions typically focus on incremental
activities ( i.e. minimize waste, etc.).

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.
Both the process as well as the product are
evaluated for relationship between inputs and
overall value provided to minimize total costs.

Application
Utilization of data generated from
application of environmental accounting
tool can be used for a variety of decision
classes including:

Cost allocation
Capital budgeting
Product design

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
Allocate those costs to responsible product,
process or system

Traditional Cost System

Other
Overhead

Toxic Waste
Product B

Allocated
Overhead

Product A

Product B

Modified Allocation System

Other
Overhead

Toxic Waste
Product B

Allocated
Overhead

Product A

Product B

Methodologies
Related Accounting Topics

Application of Environmental Accounting

typically used in conjunction with:

Activity Based Costing (ABC)

Total Quality Management (TQM)
Business Process Re-engineering
Balanced Score Card