Environmental accounting

Environmental Accounting Systems Arturo A Keller Bren School of Environmental Science & Management University of California, Santa Barbara ESM 595F Environmental Accounting Systems “You can’t manage what you don’t see - and with today’s managerial accounting systems, managers don’t see most environmental costs”, from R Todd (Greening of Industrial Ecosystems, 1994) Objective of Env Account System ❚ Record & monitor flow and disposition of all inputs ❙ waste disposal ❙ reprocessing ❙ recycling Objective of Env Account System ❚ Processing costs involving environmental impact ❙ pretreatment ❙ emissions control costs ❘ ❘ ❘ air emissions water treatment solids reduction ❙ packaging disposal/return costs “Hidden” costs ❚ ❚ ❚ ❚ ❚ ❚ Site remediation costs Product-related legal expenses Regulatory costs PR expenses Opportunity cost of clean technologies not adopted DfE, PP engineering costs Institutional Impediments ❙ Traditional accounting doesn’t capture engineering & accounting data needed for decision making ❙ Data collected is aggregated in “wrong” format, losing environmental context ❙ Line managers not responsible for most environmental costs How to present the information? ❚ ❚ ❚ ❚ Corporate level Facility level Product line By department or section To Whom it May Concern ❚ ❚ ❚ ❚ Internal accounting Financial reporting Regulatory agencies Others … ? ❙ Bren School students doing GPs? Managerial Information ❚ Detailed cost breakdown ❙ Joint costs ❙ expense of tracking costs on individual product line basis ❙ technical difficulties of measuring productspecific material flows and emissions ❙ negative incentive to collect detailed info Unprofitable products? ❚ ❚ ❚ ❚ Internal + External Costs > Price Competitive market Market leader Large portion of current revenue 10 Don’t Look, Don’t Tell ❚ ❚ ❚ ❚ Confidentiality of Sensitive Info Costly contingent liability Legal liability Public perception 11 Role of Mgmt Accounting Systems ❚ ❚ ❚ Direct managerial attention to problem areas Provide informational support for managerial decisions Promote harmonized goals throughout the organization 12 Traditional Env Accounting 13 Traditional Env Accounting 14 “Enlightened” Cost Accounting 15 Bottom Line… ❚ ❚ ❚ ❚ Need to restructure incentive compensation system (multiobjective) Establish priorities Tailor to individual firm Adapt to changing social climate 16 [...]... contingent liability Legal liability Public perception 11 Role of Mgmt Accounting Systems ❚ ❚ ❚ Direct managerial attention to problem areas Provide informational support for managerial decisions Promote harmonized goals throughout the organization 12 Traditional Env Accounting 13 Traditional Env Accounting 14 “Enlightened” Cost Accounting 15 Bottom Line… ❚ ❚ ❚ ❚ Need to restructure incentive compensation .. .Environmental Accounting Systems “You can’t manage what you don’t see - and with today’s managerial accounting systems, managers don’t see most environmental costs”, from... Impediments ❙ Traditional accounting doesn’t capture engineering & accounting data needed for decision making ❙ Data collected is aggregated in “wrong” format, losing environmental context ❙ Line... harmonized goals throughout the organization 12 Traditional Env Accounting 13 Traditional Env Accounting 14 “Enlightened” Cost Accounting 15 Bottom Line… ❚ ❚ ❚ ❚ Need to restructure incentive