Environmental Accounting

Table of Contents

EXECUTIVE SUMMARY 3

ENVIRONMENTAL ACCOUNTING 5

Hypothesis 6

Objectives 6

Overall Objective 6

Specific Objectives 6

LITERATURE REVIEW 7

Why Environmental Accounting 7

Environmental Expenditures 8

Accounting for Loss of Environmental Capacity 8

Accounting Aggregates Adjustment 9

Policy Modeling 9

Data Collection 9

ENVIRONMENTAL AND ECONOMIC ACCOUNTING INTEGRATION SYSTEM 10

Building Block Approach 11

Valuation of Natural Resources and Environmental Impacts 11

IMPLEMENTATION OF ECONOMIC ACCOUNTING INTEGRATION SYSTEM 12

POLICY APPLICATION 13

METHODOLOGY 13

GENERAL DISCUSSION, CONCLUSIONS, AND RECOMMENDATIONS 14

Executive Summary

The rationale for improved environmental accounting aligns the assessment, enumeration, and projection of natural resources with the need for environmental conservation and minimizing environmental degradation. The economic aspect has been observed to be suppressed with the lack of valuation of the respective natural resources in cost benefit analysis. Being that environmental accounting informs policymaking, the fiscal inclination remains fundamental. This paper seeks to investigate the exclusion effect of cost benefit analysis and valuation of natural resources on the outcome of environmental decision-making.

Environmental accounting provides necessary information for management of the environment, parallel with the various economic activities that are pursued. Through environmental accounting, the depletion of the environment through economic activities can be measured, controlled, and remedied. Environmental accounting also provides the necessary parameter for compensation of the negative effects caused on the environment as a result of economic activities. Environmental accounting is a succinct balance of economic activities with the environmental effects of the various activities.

This study is based on the hypothesis that exclusion of cost benefit analysis and valuation of natural resources compromise the fiscal assessment in environmental accounting. The objectives of the study are assessing the current implementation of the environmental accounting in the context of meeting the necessary fiscal considerations, rationalizing the need for cost benefit analysis and valuation of resources in the process of environmental accounting, and explicating cost benefit analysis and valuation of resources in the context of environmental accounting. The inquiry is based on an evaluation of the available literature on environmental accounting with the specific aim of assessing the subject from a global perspective. The study focuses on an accounting system that integrates both environmental and accounting systems with the aim of balancing the two.

The study finds that the role of environmental accounting is slowly becoming a central factor in organizational corporate social responsibility strategies. Based on analysis of various applied parameters and systems in a number of organizations, the study concludes that exclusion of cost benefit analysis and valuation of resources significantly compromises the fiscal assessment in environmental accounting. The study recommends for implementation of an appropriate system to manage the economic facets of an organization that is suited with environmental accounting objectives.

Environmental Accounting

Environmental accounting is a management, decision making and analysis tool that is used by organizations to evaluate the environmental impact of economic activities. Environmental accounting assesses the contribution the environment provides to economic development. Environmental accounting otherwise referred to as "green accounting" recognizes that the environment is depleted with some, if not all economic activities (Lal & Pierce, 1991), thus needing a parallel system of accountability, reconciling environmental and human economic development. Even as organizations are involved in various functional activities towards economic output, the role of the environment as a developmental platform is essential.

According to Kleiman and Lawrence (2010), The System of National Accounts (SNA) assists the progression of environmental accounting. Every country and region has an environmental management system. The accounting processes used in economic activities by environmental facilities are important in decision-making, management, and sustainability of business operations. In most cases, effects of economic development results in degradation of the environment and take a lot of effort and resources to correct (e.g., an activity such as deforestation). Preventive measures rather than corrective measures are the preferred ways of maintaining and preserving the environment.

Lal and Pierce (1991) assert environmental accounting is based on a process that considers natural resources data in assessing the general economy. Environmental accounting facilitates creation of long-term policies with specific consideration given to the role the environment plays in economic growth. Business and sustainable strategic management require consideration of environmental accounting in analysis and policy creation. The Intergovernmental Panel on Climate Change (1995) documents the process organizations can use to enumerate existing natural resources, assess consumption levels and project the effect of economic delivery on those resources.

The rationale for improved environmental accounting aligns the assessment, enumeration, and projection of natural resources with the need for environmental conservation and minimizing environmental degradation. The economic aspect has been observed to be suppressed with the lack of valuation of the respective natural resources in cost benefit analysis. Being that environmental accounting informs policymaking, the fiscal inclination remains fundamental. This paper seeks to investigate the exclusion effect of cost benefit analysis and valuation of natural resources on the outcome of environmental decision-making.

Hypothesis

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