Abstract
In the era of ‘Reviving Green', sustainability is no longer a luxury; it has become a global necessity. The late 1990s saw the evolving concept of triple bottom line. The growing importance of the environmental agenda that ‘sustainability' had been mainly focused upon to that point led to the inclusion of the environment as one of the defining factors of ‘sustainability'. The new paradigm in the third millennium puts business in the driving seat. Consequently, their role and responsibility towards the environment is manifold. The tradeoff between economic growth and the environmental costs has become one of the major challenges for businesses. This chapter examines the traditional accounting practiced by organizations. The premise of internalizing environmental costs in the investment decision making is highlighted. The costs and benefits that arise through the environment protection and depletion of the existing capital have been held forth.
TopIntroduction
The oldest human civilizations date back to 3500 BC and so do their dependency on natural resources for the wide array of activities. Meandering across the rivers for their primal survival to a full-scale economy relying on the extraction of natural resources, the fixation has only increased. Along with the ever existing eureka realization of its finite, mankind gained the sense to preserve it. Since centuries, redeeming nature at the behest of sustainability has managed to be a predominant theme making headway towards tracking the natural resources employed by economic agents. The requisite to gauge the sustainability of current economic activity underpins the motivation to account for all expenses, incomes, assets, and liabilities derived from nature. “The great source of both the misery and disorders of human life seems to arise from over- rating the difference between one permanent situation and another” urges the distinct necessity to estimate the true cost incurred to attain our objectives and sustainability of the current income. The need to assess income arises from the understanding that it is the amount which limits their maximum consumption without causing eventual impoverishment (Hicks, 1946). The in-depth classification of accounting encompasses financial accounting, cost accounting and management accounting in its curriculum, with no formal mention of green accounting. In the absence of the structured techniques of green accounting, there is no mutually accepted definition. However, the continued edification has propelled different countries to maintain environmental accounts. The overarching macrocosm of green accounting, also referred as environmental accounting followed by different country includes:
- 1.
Recording emission of harmful gases by the economic sector.
- 2.
Accounting for actual expenditures incurred by the economic sector on environmental protection.
- 3.
Accounting for hypothetical expenditures to further reduce pollution.
- 4.
Recognizing natural resources like forests, energy sources, minerals, fish, land etc as physical assets.
- 5.
Monetary and physical flow accounts for natural resources along with the whereabouts of their use.
- 6.
Consistency of structure in monetary asset and physical asset account.
- 7.
Monetary valuation of the non-marketed environmental goods and services.
- 8.
Monetary valuation of the cost due to environmental degradation.
- 9.
Maintaining physical resource asset and flow account, physical input/output tables (PIOTS), physical pollutant emission accounts.
- 10.
Calculation of green GDP, sustainable national income, or genuine savings.
The shared purpose of accounting for these items aims to link the extensive role of environment in economic performance (Hecht, Joy E., 2000). Most production and consumption activities have some effect on the physical environment. The growing population and economy have increasingly put pressure on the physical environment. Conventional accounting techniques and national accounts have considered man-made assets like machineries and buildings as productive assets, while recording natural resource assets only partly. Environmental accounting reexamines the ways in which we assess our social responsibility towards our environment and future generations.
It lays the framework for recording the existing value and usage of environmental and natural resources assets pertaining to economic activity (WGEA,2010).
Key Terms in this Chapter
System of Environmental and Economic Accounts: It provides a framework to account for environmental information and systematically link it to economic data. The information presented in an account form helps to derive indicators for policymakers and researchers. It integrates economic information and environment statistics.
System of National Accounts: It is an overarching framework to account for all the economic activities of a country with an objective to prepare national accounting systems to promote comparability across nations.
Gross Domestic Product: It is the monetary value of goods and services produced by an economy in one accounting year.
Sustainable National Income: It considers environmental protection costs and degradation and depletion of natural resources, the consumption of natural capital like air, water, soil and so forth in the measurements of national income, which is not considered under system of national accounts.
Sustainability: It aims to achieve the needs of present generation without compromising the ability of future generations to meet their needs. It is inclusive of economic, environmental, and social factors.
National Accounts Matrix Including Environmental Accounts: Was developed to avoid the complete disruption of national income accounts. The framework of NAMEA is built on input/output substructure of national income accounts by introducing additional columns of physical data.