Corporate Environmental Accounting

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International Symposium on Green Technology


and Professional Cultivation



Environmental Accounting:

National and Corporate Perspectives



Speaker


Dr. Chang
-
Erh Chou

November 5, 2009

Contents

Introduction

The National Accounts

SNA

The 2003 SEEA

Corporate Environmental Accounting

Reasons for Developing Corporate Environmental
Accounting

Scope of Corporate Environmental Accounting

Linkage between National and Corporate Environmental
Accounting

Concluding Remarks

Introduction


In the past few decades, there were increasing
concerns about the sustainability of the
environment, and about the impact of the
economy on the environment.



Since then efforts have been made in integrating
the environmental and economic statistics at both
of macro
-

and micro
-

levels.

Introduction


Environmental accounts at macro level or national
level are also known as green national accounts.



Green national accounts are the information
systems that link environmental and economic
data at the national level.

Introduction


Despite of various terms for the environmental
accounts at the micro level or corporate level, it
has become common to refer to as the corporate
environmental management accounting (EMA).




Corporate level of environmental accounting can
help companies better track the costs and benefits
associated with their environmental performance.




Introduction


According to International Federation of Accountants,
EMA is “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 typically involves life
-
cycle costing, full
-
cost
accounting, benefits assessment, and strategic planning for
environmental management.”




The National Accounts


SNA


The national income accounts (the System of
National Accounts, SNA) are a system of
economic data to show the performance of the
economy as a whole.



Indicators such as gross domestic product (GDP),
national income (NI), personal income (PI) are
calculated in the SNA.

The National Accounts


SNA


In fact, GDP and other macroeconomic indicators
are measures of economic output, but they are
used as if they measured welfare.



Some believe that conventional macroeconomic
measures send incorrect signals because they do
not take into account the impacts of economic
activities on the environment (see the figure on
next page).

The National Accounts


SNA

Production

Consumption

The Economy

The Environment

Labor

Man
-
Made


Capital

Intermediate


Inputs

Products

Natural

Resources

Wastewater, Solid
Waste, Hazardous
Waste, etc.

Wastewater, Solid
Waste, Hazardous
Waste, etc.


Air Emissions

Air Emissions

The National Accounts
-

SNA


Some argue that the SNA should be modified so
that the importance of the environment to the
economy and the impact of the economy on the
environment can be clearly shown.




The National Accounts
-

SNA


Although, it is possible to develop environmental accounts
independent of the SNA. However, after many efforts,
economists found it will be easier to disaggregate
environment
-
related expenditures (for example,
environmental protection expenditures) within the
conventional national accounts system .



In doing so, an economy as a whole can calculate the
environmental protection cost, and make environmental
policy decisions base on these information.




The National Accounts
-

SNA


Other experts are more interested in the physical
data of the environment, instead of monetary data
of existing environmental activities. Thus external
satellite accounts are built in parallel with the
SNA.



The external satellite accounts can show the
physical quantities of natural resources used and
the quantities of pollution emitted in the economy.


The 2003 SEEA


Environmental accounts at the national level were
constructed by Norway in the 1970s, and were
adopted by other European countries such as
Netherlands, France.



Due to the concerns of their natural resources, the
early environmental accounts are developed to
track use of natural resources (forests, fisheries,
energy, and land).

The 2003 SEEA


Base on the concept discussed earlier, the
conventional national accounts have been
expanded to incorporate the environment. It is
known as “the System of Integrated
Environmental and Economic Accounting
(SEEA)”.



The 1993 SEEA was the first environmental
accounting work built from the outset consistency
with the SNA.

The 2003 SEEA


The 1993 SEEA was published due to the efforts
put by the United Nations Environment Program
(UNEP) and the World Bank.



Later the 1993 SEEA was revised by the London
Group, a technical body consisting of national
statisticians, and UN Statistical Commission. The
revised version is known as the 2003 SEEA.


The 2003 SEEA


The SEEA is a satellite account to the SNA.




The 2003 SEEA consists of two major account
systems, internal and external satellites.



The internal satellite accounts show the
transactions related to the environment, which are
covered by the existing SNA.

The 2003 SEEA


The internal satellite accounts particularly interested in
economic activities and products associated with the
environment.



The activities of interest specified in the internal satellites
are as follows:


Environmental protection activities


Natural resources management and exploitation activities


Environmentally beneficial activities


Minimization of natural hazards


The 2003 SEEA


The external satellite accounts are the main
components of green national accounts
representing and organizing the environmental
statistics.



The external satellite accounts go beyond the
current national accounting system by including
various flow and asset accounts for natural
resources and residuals (such as air pollutants,
water pollutants, solid wastes).

The 2003 SEEA


The first group of accounts in the external
satellites is the physical supply and use tables for
natural resources and residuals.



The external satellite accounts not only provide
the physical amount of natural resources and
residuals, but also provide the value of
environmental degradation, natural resources
depletion, and natural resources services.

The 2003 SEEA


One of the main uses of the external accounts is to
use these values to generate environmentally
adjusted aggregates.



In principle,



Green GDP = GDP
-

degradation
-

depletion


+ natural resource services

Corporate Environmental Accounting


Environmental awareness and regulation require firms
conducting more environmental protection activities.



In order to improve environmental performance and to
control costs, firms need more environmentally related
information to make decision.



Conventional accounting cannot provide the needed
information, thus the corporate environmental accounting
has been established since 1990s.

Reasons for Developing Corporate


Environmental Accounting


Many stakeholders are concerned about the
impact of corporate activities on the environment.


For example, internal stakeholders (employees and managers) might
be affected by pollution in the work place, or could affect the
company’s activities.



Another example, large companies require their supplier to comply
with international environmental regulation.




Reasons for Developing Corporate


Environmental Accounting


The environmental pressure is forcing companies
to look for cost
-
efficient methods to manage and
minimize environmental impacts.




Environmental compliance costs are large and are increasing for many
firms. In order to improve the environmental performance, firms need
information systems for tracking the associated costs.



Scope of Corporate Environmental Accounting


According to Japan Environmental Accounting
Guidelines (2005), elements considered in their
corporate environmental accounting are as follows:




1. Environmental Conservation Costs


2. Environmental Conservation Benefits.


3. Economic Benefit Associated with Environmental
Conservation Activities



Scope of Corporate Environmental Accounting

category

Content

Business area cost

Environmental conservation cost to control environmental impacts which
result from key business operations within the business area

Upstream/downstream
cost

Environmental conservation cost to control environmental impacts which
result from key business operations upstream or downstream

Administration cost

Environmental conservation cost stemming from administrative activities

R&D cost

Environmental conservation cost stemming from R&D activities

Social activity cost

Environmental conservation cost stemming from social activities

Environmental
remediation cost

Cost incurred for dealing with environmental degradation

Other cost

Other costs related to environmental conservation

Source: Environmental Accounting Guidelines 2005, Japan

Scope of Japan Corporate Environmental Costs

Scope of Corporate Environmental Accounting


Base on UN “Environmental Management Accounting
Procedures and Principles”, Environmental costs and
revenues are categorized as follows:




1. Waste and emission treatment (
depreciation for related
equipment, maintenance and operating materials and
services, related personnel, fees, taxes, charge, fines and
penalties, insurance for environmental liabilities,

provisions for clean up costs, remediation
)




Scope of Corporate Environmental Accounting


2. Prevention and environmental management (
external
services for environmental management, personnel for
general environmental management activities, research
and development, extra expenditure for cleaner
technologies, other environmental management costs
)

3. Material purchase value of non
-
product output (
raw
materials, packaging, auxiliary materials, operating
materials, energy, water
)

4. Processing costs of non
-
product output (
sum of different
environmental expenditures
)

5. Environmental revenues (
subsidies, awards, other earnings
)




Linkage between National and


Corporate Environmental Accounting

Environmental
Accounting

National
Level

Corporate
Level

Green National Income
Accounting

Corporate Environmental
Management Accounting

Corporate Environmental
Financial Accounting

Environmental
Protection Expenditure

Natural Resource
Management and
Exploitation Expenditure

Concluding Remarks


The internal satellite accounts of green national accounts
record the economic activities related to environment.
These statistics are provided by firms and households.
Firms need corporate environmental accounting to collect
accurate information.



The cost of natural resources management and exploitation
at firm level should be included into the corporate
environmental accounting. Thus the accounting system of
macro
-

and micro
-

levels can be consistent.




Thank You for Your Attention


Dr. Chang
-
Erh Chou

d9166@tier.org.tw