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Environmental Accounting

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a) Briefly outline what you understand by environmental accounting and environmental reporting?

Throughout this essay the social accounting issue ‘environmental accounting’ will be discussed. Environmental accounting is ‘the practice of including the indirect costs and benefits of a product or activity, for example, its environmental effects on health and the economy, along with its direct costs when making business decisions.’ Also ‘the term environmental accounting is frequently used within the accounting and environmental management literatures. Environmental accounting is a broader term that relates to the provision of environmental-performance-related information to stakeholders both within, and outside, an organisation.’(epa.vic). There are many definitions for environmental accounting, however, there is no accepted single definition.
Environmental accounting is also connected to Green accounting. Green accounting is seen as one of the most important aspects of environmental accounting. ‘The term, green accounting, has been around since the 1980s, and is known as a management tool used for a variety of purposes, such as improving environmental performance, controlling costs, investing in “cleaner” technologies, developing “greener” processes and products, and forming decisions related to their business activities.’(articalbase). Being a ‘green’ company it has a positive impact and makes the company or business look good. It also measures ‘carbon footprint’, how sustainable a business is and if the business participates in recycling. Therefore being green avoids businesses being slandered by critics and puts them in a safety zone. Also according to the Environment Act 1995, it mentions that businesses are advised ‘to adopt management techniques that help reduce their environmental impacts and make cost savings to enhance the UK's competitive position.’(Environment agency). By following this Act businesses will be seen as legal and responsible.
There are many reasons as to why environmental accounting is implemented, according to the ‘environment agency’, the environmental account system makes clear business and financial sense. Also the ‘environment agency’ states that there are three clear main reasons as to why the environmental accounting system is implemented. One reason being is because it is cost saving, which means it will save businesses money, another reason being is because it improves the environmental performance, and the last reason being it minimizes environmental risk.
Environmental reporting is ‘public disclosure by a firm of its environmental performance information, similar to the publication of its financial performance information.’(Business dictionary). ‘An environmental report includes information on how you manage your business’s environmental performance. You may produce environmental reports for internal management purposes, or for external publication.’(netregs). Businesses producing environmental reports represent voluntary environmental efforts and also achieving social accountabilities.
Environmental reporting was also brought about by campaigners to encourage organizations into environmental reporting and to close off any excuses for non-reporting. (Accounting for the environment .p247).
Environmental reporting can be used for both internal and external purposes. External purposes include environmental communication between the public and the business/ organization. The functions of external reporting include, the discloser of information based on the social accountability of organisations, to provide information that is useful for decision making of interested parties, and to promote environmental activities by “a pledge and review” between organizations and the public. Internal purposes include the people in the business itself. The functions of internal reporting include the establishment or revise environmental policies, objectives and programs of organizations, to motivate the management and employees and to encourage environmental activities of them. ( Therefore environmental reporting is evidence of a business actually implementing environmental accounting strategies and it also provides relevant information for interested parties.

There are also other reasons as to why environmental reporting is done. Companies do so to comply with legal requirements, community expectations, to avoid threats to the organization, attract investment funds, to forestall onerous regulation and many others. b) Why do companies account for environmental impacts?

There is no single answer as to why companies account for environmental impacts, however there are many reasons as to why companies do. The article by Deegan 2002 brings forth reasons as to why companies take account for environmental impacts. Companies feel that if they are ‘green’ it makes them look good and is good for business. However critics are very critical of companies that do this because they merely believe that companies should be genuinely green rather than to ‘fake’ green. An example of a green company in the UK is co-op.

Another reason as to why companies account for environmental impacts is because they feel it is a sense of responsibility, in other words companies feel like they owe it to society to be green. Companies also take account for environmental impacts to comply with borrowing requirements, to comply with legal requirements. Also to comply with community expectations, because if a company does not respect the community it’s in it will be looked down upon not just by the community but by society as well, so it’s important that companies do not cause harm to the community. Also companies account for environmental impacts because of threats to the organization, in other words companies being environmentally friendly avoids rights to condemn the company. Also to manage particular stake holder groups and to attract investment funds.

By taking account for environmental impacts it can attract investment funds because companies and people would be proud to invest in a company that cares for the environment and it somewhat feels safer to invest in a company that is green, and some only invest in environmentally orientated companies. More reasons as to why companies may account for environmental impacts is because they may be complying with industry requirements, or trying to forestall onerous regulation, for example by being green voluntarily they may be avoiding government expenses and time consuming regulations. In addition if a company becomes green voluntarily then the governments have no reason to bring forth an Act or any regulations that may cost the business.

Another reason as to why companies take account for environmental impacts is because they may want to win awards for it. In society today there are a big number of awards going out to companies that are green. This may sound deceiving but there are many reasons as to why companies go green, some have good intentions and some are more for the benefit of their company and how the company’s image is portrayed. However the winners of 2010 Green Business Award went to Marks and Spencer’s. Marks and Spencer also charge 5p for a normal carrier bag and 10p for recyclable carrier bags, and the money they earn from these carrier bags goes to groundwork charity. The company plan to be ‘carbon neutral’ by 2012. (Green business awards).

Legislation is another reason companies taking account for environmental impacts. Because of the rapid growth in regulatory issues involving the environment all countries have to keep up with them. For example the Pollution Prevention and Control Act 1999 makes companies invest in pollution protection, invest in cleaner technologies, change processes and products, establish waste minimization programmes, review asset values and spend on waste treatment/ disposal.(accounting for the environment. p.5).
Legitimacy theory is another reason as to why companies take account for environmental impacts. Legitimacy theory is the desire to legitimate an organisations operation. ‘LEGITIMACY THEORY posits that businesses are bound by the social contract in which the firms agree to perform various socially desired actions in return for approval of its objectives and other rewards, and this ultimately guarantees its continued existence.’(ventureline). This can also be linked to the concept of the social contract which limits the rights and duties of people, and this this case a business has the right to do certain things.
Another reason as to why companies take account for environmental impacts may also be because of the institutional theory. The institutional theory is "A widely accepted theoretical posture that emphasizes rational myths, isomorphism, and legitimacy."(google). This emphasises that although the company can make their own decisions, they may feel it is a norm or part of morality to take account for environmental impacts.
Also taking account of environmental impacts could also be because companies are trying to catch up with competitors. Companies can change their structure in order to be on the same level as their competitors and to not be the ‘odd’ company that doesn’t want to save the planet.
On the other hand another reason as to why companies take account for environmental impacts is because of their stake holders. It is an organisations duty to look after and take into account the interest of their stakeholders, and if their stakeholders interest is to be ‘environmentally friendly’, or ‘green’, then the organisation has to take it into account and act on it.
Overall, there are many reasons as to why companies take account for environmental impacts, some positive some negative and some may be because they feel they have to do so. In addition there is no real answer to why companies take account for environmental impacts but there are some points which may support reasons as to why they would. c) Choosing one company, outline and critique its most recent web based environmental reporting.

Marks and spencer’s have a green plan called ‘Plan A’. Plan A has been going on for five years. Their eco and ethical plan was launched in 2007. Marks and Spencer’s Plan A involves both customers and employees to set themselves to be the most sustainable company by 2015. This is believeable because marks and spencer won 2010

Rob gray and jan bebbington (2001). accounting for the environment. 2nd ed. london: SAGE. P4-5.

Vic. (2006). Environmental accounting and environmental management accounting. Available: Last
Articalbase. (2009). Green Accounting: Environmental Accounting?. Available: Last accessed

Available: Last accessed 2011.

What is an environmental report?. Available: Last accessed 2011.

Environment agency. (2008). What is environmental accounting?. Available: Last accessed

Green business awards. (2010). winner of green business awards. Available:

n/a. (2010). legitimacy theory definition. Available: Last accessed 2011.

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