Earth in the balance sheet
Click here for a graphical representation of the information.
Should the cost of using non-renewable natural resources and the cost of increasing atmospheric pollution be included in the price of goods we consume? Does the existing accounting model meet the needs of business and society in the 21st century?
The Accounting for Sustainability Project has carried out a review of accounting literature surrounding sustainability accounting issues. In its report published in December 2006, it identified that one of the major challenges facing sustainability accounting is the complexity and uncertainty of the subject matter. It also says current accounting practice does not require, or indeed allow, business to record the consequences of its actions on factors that are external to it.
It is time to challenge these paradigms and offer alternative models of development and business management.
Environmental Management Accounting (EMA) is a broad term used in a number of different contexts. In 2005, the International Federation of Accountants (IFAC) published a guidance document on EMA, defining it as the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices. While this may include reporting and auditing in some companies, environmental management accounting can involve life cycle costing, full cost accounting, benefits assessment, and strategic planning for environmental management.
Some of the elements of environmental accounting are:
- Measurement and disclosure of environment-related financial information in the context of financial accounting and reporting.
- Measurement and use of environment-related physical and monetary information in the context of Environmental Management Accounting (EMA).
- Estimation of external environmental impact and cost often referred to as Full Cost Accounting (FCA).
- Accounting for stocks and flows of natural resources in both physical and monetary terms, that is, Natural Resource Accounting (NRA).
- Aggregation and reporting of organisation-level accounting information, natural resource accounting information, and other information for national accounting purposes.
- Consideration of environment-related physical and monetary information in the broader context of sustainability accounting.
Organisations today face increasing environmental pressures. The most obvious is compliance with local environmental laws and regulations. Pressure can also arise from an organisation’s supply chain. For instance, more organisations are requiring their suppliers to comply with the Environmental Management System (EMS) standard of the International Standardisation Organisation (ISO). Further, some grocery companies are starting to require their suppliers to disclose their carbon footprint information on product labels.
