Environmental Management in Accounting Perspective

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Environmental Accounting
Financial Management, Apr 2007 by Martin, Bob

If a company's accounts fail to pay full consideration to the green issues affecting its business, can they actually show a true and fair view? Bob Martin investigates.

While green issues are hot news and public awareness of them is at an all-time high, the media tend to concentrate on climate change and carbon trading, which are often seen as beyond the scope of businesses to affect over and above the legal obligations imposed on them. Other press coverage focuses on the promises made by directors in corporate social responsibility reports to adopt more ecologically sustainable production methods and so forth pledges for which they can only be held accountable in future, perhaps on someone else's watch.. read more

Comment by SS

Environmental accounting has received increased attentions in the 1980s as an effort in promoting environmentally sound and sustainable socio-economic development. The publication of Handbook of National Accounting - Integrated Environment and Economic Accounting is a milestone for environmental accounting; published in responds to the request in Agenda 21 of the Earth Summit of Rio de Janeiro in 1992.

Environmental accounting practice, according to the handbook, incorporates environmental concerns including natural resource depletion, environmental quality degradation and environmental protection into national accounts by means of a system of integrated environmental and economic accounting (SEEA).

United Nations Commission on Sustainable Development (CSD) identifies the application of Environmental Management Accounting (EMA) in its publication Environmental Management Accounting Procedures and Principles. Application fields for the use of EMA data are

• Assessment of annual environmental costs/expenditure;
• Product pricing;
• Budgeting;
• Investment appraisal, calculating investment options;
• Calculating costs, savings and benefits of environmental projects;
• Design and implementation of environmental management systems;
• Environmental performance evaluation, indicators and benchmarking;
• Setting quantified performance targets;
• Cleaner production, pollution prevention, supply chain management and design for environment projects;
• External disclosure of environmental expenditures, investments and liabilities;
• External environmental or sustainability reporting;
• Other reporting of environmental data to statistical agencies and local authorities.

Environmental accounting is also applied as a tool by corporate bodies on the cost structure and environmental performance. Environmental accounting is most commonly undertaken as voluntary self-reporting by companies, third-party reports by government agencies, NGOs and other bodies. This would portrait the envisagement of such organizations on their environmental accountability.

Impacts on the environment may be accounted and reflected within a company’s financial statements, relating to liabilities, commitments and contingencies for the remediation of contaminated lands or other financial concerns arising from pollution. Environmental reports may also account for pollution emissions, resources used, or wildlife habitat damaged or re-established. These reports can be useful when dealing with environmental legislation, or not, as in the Bartoline v Royal & SunAlliance Insurance pic and Heath Lambert Limited judgment.

Engineering or technical principles is an essential component in EMA. Using the First and Second Laws of thermodynamics, an energy balance can be used to track energy through a system. This is a very useful tool for determining resource use and environmental impacts to determine how much energy is needed at each point in a system, and in what form that energy is a cost in various environmental issues. The energy accounting system keeps track of energy in, energy out, and non-useful energy versus work done, and transformations within the system.

The mitigation of climate change and global warming emphasizes on the economic incentives on the reduction for achieving reductions in the emissions of pollutants. Flexible Mechanisms includes Emissions Trading, Clean Development Mechanism and Joint Implementation defined under the Kyoto Protocol intended to lower the overall costs of achieving its emissions targets. EMA knowledge and expertise is key to such mechanisms. Some of the issues involving environmental accounting are related to credits cap, emission reduction, carbon trading, carbon taxes, Marginal Abatement Cost (MAP) and project validation.

Paradoxes in Palm Oil Issues

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New Britain Palm Oil to Open UK Refinery

• Angela Balakrishnan
  
• Monday August 04 2008 09:44 BST
  

New Britain Palm Oil is opening a refinery in the UK which it claims will allow shoppers to know exactly where the palm oil in their shopping basket comes from.

Papua New Guinea's largest palm oil producer said it will invest £18m to build a processing plant in the UK to produce refined palm oil aimed at satisfying growing demand from the European Union. The site will enable customers to buy goods with "fully traceable and sustainable" palm oil down to the tree from which the oil came from, it said.. read more

Comment by SS

All these while, Malaysia had been heavily condemned by developed countries due to its effort in promoting palm oil, mainly as a source of food. Being one of the top nation's commodity, which has span around 100 years in history, it is estimated that more than 11 million hectares of palm plantations had already replaced tropical rainforest. Despite the pros of palm oil, many studies highlight the negative impacts it has on environmental, social and cultural aspects.

Although we have to admit that palm oil production would have detrimental effects on human and the earth, as any other development would, some of the effects were being exaggeratedly magnified possibly due to some hidden agendas. Some may opt to view this as politically and economically motivated. The hidden objective behind the propaganda is to undermine the advantages of palm oil products that would create an unequal competition on existing goods such as soybean and corn derivations. The latter products are produced by developed countries and they are at the losing end of the competition. Another probable motive could be that western world envies the emergence of developing countries such as Malaysia for becoming the exporter of this valuable commodity.

But that was some issues in the past. Only the unsustainable approach in opening new plantations had been heavily criticized by environmentalists. The world's view on palm oil has taken 180 degree turn in the past decade. Other than negative impacts on the environment, health issues such as cardiovascular disease concerning palm oil consumptions had been silenced along with the increasing demand of its products. This would be evident by the ever growing demand especially from EU countries on palm oil. It is said that every 1 out of 10 goods on supermarket shelves in the EU, if not in the entire world, contains palm oil.

With the conceptualizing of biofuels and bioproducts to combat global warming, palm oil is experiencing high levels of demand for energy generation purposes. The Netherlands, the world's largest single importer of palm oil, had invested hundreds of millions of euros in making power plants compatible with palm oil.

The world is now on the verge of food crisis. Many human activist organizations are against the food-for-biofuels idea. This is a challenge for palm oil producers to withstand and balance between food and biofuels demand.

Greenhouse gas emissions would be a rhetoric in palm oil production. A study indicates that Indonesia, another palm oil producer champion besides Malaysia, produces 8% of anthropogenic CO2 and the third largest contributor to global warming. This is mainly due to the destruction of peatland through slash-and-burn activities. The atmospheric air quality would also be supremely reduced as a result of this. Deforestation would also affect water catchment areas hence taking the blame of now-commonly flash flood and landslide occurrences. The endangered wild animals such as orang utans, tigers and elephants would also get their share through the abolition of their biodiversity.

In spite the setbacks we use to perceive, palm oil production is not that bad after all. Through sustainable approach in managing land exploitations, the impacts on the environment could be minimized to an acceptable degree. The greenhouse gas emissions could be counterbalanced by palm trees "afforestation". The principal belief of environmentalists is plausible; growing plants that absorb CO2, burning their products which releases CO2 and planting new palm trees creates a closed cycle. The "forest" of palm trees would offset the rainforest it replaces, if not to equate them.

Malaysia would benefit from Clean Development Mechanism under Kyoto Protocol through palm oil. Much of the recent investment in new palm plantations for biofuel has been part-funded through carbon credit projects. However the reputational risk associated with unsustainable palm plantations in Indonesia has now made many funds wary of investing there.

The developed world could buy or lease rainforest in Malaysia and Indonesia, producing palm oil themselves instead of buying them. That would preserve rainforest from logging whilst also benefiting the climate and sustaining economic growth in their region. This idea squeezes Malaysian and Indonesian governments to be more careful and prudent in managing plantations to avoid mismanagement accusation. But in the end, it is rather the palm oil and timber demand of the developed countries that drives logging and the expansion of palm oil estates.