Leeds Metropolitan University

Enviromental Accounting

Master Thesis

by: Roland Urban
2005

Index

Enviromental accounting ...

Abstract ... 3

Abbreviations ... 4

Chapter 1: Introduction ... 4
1.1 What is environmental accounting? ... 4
1.2 Legalization ... 6
1.3 Why do companies and organizations do it? ... 8
1.4 Difficulties in carrying out ... 9
1.5 Nowadays Situation ... 11

Chapter2: Literature Review: ... 11
2.1 Usefulness of environmental accounting: ... 12
2.2 Influences brought by environmental accounting: ... 14
2.3 Environmental reporting ... 17
Life-cycle assessment ... 19
Ecological accounting ... 22
Chapter 3 Methodology ... 30
3.1 The “Global 100” ... 31
3.2 Reliability of the “global 100” ... 32
3.3 Ten companies from the “Global 100” ... 33

Chapter 4: Data Analysis ... 34
4.1 Retail industry ... 34
4.2 Food and soft drink manufacturing industry ... 44
4.3 Tobacco and Alcohol Beverage industry ... 50
4.4 Summary ... 54

Chapter 5: Conclusion and Recommendations ... 55
5.1 Benefits for the companies and organizations ... 55
5.2 Benefits for the public ... 56
5.3 Issues in carrying out environmental accounting ... 56
5.4 Recommendations ... 57

Bibliography: ... 58

Web resources: ... 61

Appendix ... 64

The Strategic Governance Assessment Criteria ... 66
The Human Capital Assessment Criteria ... 67
The Stakeholder Capital Assessment Criteria ... 67
The Environmental Assessment Criteria ... 69

Abstract

The growth in environmental accounting research and interest in the last few decades has experienced an optimistic time. Business is not an isolated island apart from the earth any more; the emergency of environmental accounting came from outside stakeholder at the end of 20th century. Following with the rising sense of environment conservation no matter from the public or the companies/organizations, environmental accounting has been pushed to a central stage of nowadays business. This paper firstly provides a brief view of the current development of environmental accounting. Addressed with some questions, it further gives a review of recent research in this area from other scholars and seeks to answer if environmental accounting benefits both the public and business, how to put it into practice for different industries by looking into ten successful companies from “the global 100 list”, which provides the first hundred most sustainable companies in the world wide. The ten companies that I pick up are mostly in the UK despite for one in Finland and another in the US and cover three main industries like the retail industry, food and soft drink manufacturing industry, and tobacco and alcohol industry. Finally the paper concludes with a positive view that it is really good a thing for both sides and also practical despite of the considerable cost. The companies/organizations could be benefit from improving their efficiency and getting better control. The public could get a better and more sustainable living circumstance. But the problem of environmental accounting is its expensive cost, which makes middle or small size companies/organizations not be able to do it. However, there is always something to expect that the improvement of environmental accounting in the future will hopefully solve this problem and cut the cost down.
 

Chapter 1: Introduction

1.1 What is environmental accounting?

On the same basis as all accounting systems, environmental accounting presents an objective picture of the present situation and changes in the natural heritage, interactions between the economy and the environment, expenditure on preventive measures, environmental protection and the repair of environmental damage. “Environmental accounting aims at achieving sustainable development, maintaining a favorable relationship with the community, and pursuing effective and efficient environmental conservation activities.”(Caves, 1992, p.34) These accounting procedures allow a company or an organization to identify the cost of environmental conservation generated during the normal process of business, identify the benefit gained from such activities. It covers two different contexts. Environmental accounting can be used to provide insight on the interaction between the environment and a nation, or can be target to the activities of a company or an organization. This paper is mainly focus on the second realm. Environmental accounting is aimed to identify, measure and disclose the activities of a company or an organization based on its environmental conservation cost or economic benefit associated from environmental conservation activities and the company’s financial performance. The financial performance is supposed to be expressed in a monetary value. While environmental conservation benefits and organization’s environmental performance should be stated in physical units.

When the whole world experiences a rapid growth of industry and economic, unfortunately, the natural environment is terribly damaged at the same time. Nowadays, with the increasing awareness of the importance of environment, accounting is no longer just for the economic aspect or financial aspect. For example, the Global Reporting Initiative Guidelines (GRIG) defined their framework for reporting on 3 parts: the economic, environmental and social performance of an organization. (www.env.go.jp/en/ssee/eag02) Similarly, it can be seen in Accountancy and Business journal (Stikich, 1997), in which high lights that there are three aspects of core values of a modern sustainable business, one of them is environmental responsibility. In fact, a number of companies begin to reflect on and revise their corporate environmental responsibilities, not only because of the pressure and activity coming from non-governmental organizations and the growing sense of environmental issues by the general population, but using it as a part of their management strategies to specify measures for dealing with environmental issues and to internally carry out environmental conservation activities.

Moreover, advocated by many organizations like the United Nations, the World Bank, the Organization for Economic Co-operation and Development (OECD) and the European Union, environmental accounting is widely recognized as an essential tool of a sustainable development, which does not harm the planet’s resources needed for the future generations and the development on the earth.
 

1.2 Legalization

Regulation of environmental issues is growing rapidly in all countries of the world and keeping up to date. And even national legislation is becoming a specialized field in itself. With specific reference to disclose environmental liabilities, accountants today are required to follow the guidance enacted by the Financial Accounting Standards Board (FASB). According to the accounting principle stated in FASB Statement of Financial Accounting Standards No. 5, “accounting for contingencies”, which is issued in 1975, the contingent liabilities “arising from environmental cleanup costs” are required to be accounted and disclosed. This statement requests that “provision for a loss contingency be accrued and a liability recognized on the face of the financial statements when both of the following conditions are met: It is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements; i.e., it is probable that a future event or events will occur confirming the fact of the loss; and the amount of the loss can be estimated reasonably.” It means that if the loss is reasonably possible and can be estimated reliably, the loss contingency must be reported, but only as a note to the financial statements. When there is only a tiny possibility of the occurrence of the future event, which might lead to loss; or the amount cannot be estimated reliably, there is no request of either an accrual or a note from FASB, but recommends a note in such circumstances. The FASB has also provided additional guidance regarding loss contingencies in FASB Interpretation No.14 “Reasonable Estimation of the Amount of a Loss”, in which it’s suggested that “the minimum amount of the range should be accrued, unless some amount within the range appears at the time to be a better estimate than any other amount within the range.”

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