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Environmental accounting is the most popular aspect under social accounting which focuses on the cost structure and environmental performance of a company. It mainly describes the preparation, presentation, and communication of information which is related to an organization's natural environment. (Wikipedia, http://en.wikipedia.org/wiki/Social_accounting ) Environmental accounting is defined by the Society of Management Accounting and Accountants of Canada (Epstein, 1996) as: ''the identification, measurement and allocation of environmental costs, the integration of these environmental costs into business decisions, and the subsequent communication of the information to the company's stakeholders. Measurements might be quantified in physical units or monetized equivalents.'' (Week 10) In recent years there has been a substantial growth in the research of environmental accounting. Concerns about energy consumption and the degree to which national forests should be used for timber production or protected wilderness areas are examples of environmental issues. (Green Accounting: Issues and Challenges, pro quest) The government has regulated policies in order to reduce the concerns on the environment. For example where high level of energy is used, cost analysis can be used as it helps reduce costs using accounts. (Week 10, slide 3). Environmental accounting is found under the non-financial sections of the annual report or on a separate environmental report. Under this, companies may account for pollution emissions, Co2 emissions, wildlife habitat damaged or re-established, how they have been eco-efficient, energy reduction initiatives, cost of equipment recycling and many more. Organizations usually emphasis on eco-efficiency referring to reduced use of resources, energy and waste. Most organizations demonstrate success in eco-efficiency but their ecological footprint is what really impacts the environment. (Wikipedia)
Environmental accounting is a broad area which is still being researched as there are many areas to be researched. The research done includes:
What do companies report? (Ernst & Ernst 1970). Is the information useful in terms of comparison with other international and national companies? How does this affect other organizations in performing more ethically on their part?
Is environmental disclosure related to how companies perform? Or is it due other factors such as: culture or size? ( Newson and Deegan 2002)
How do stakeholders and accountants react to environmental disclosures? (Anderson and Frankle 1980). (Deegan, 2002) (pg 291)
Above are the reasons why environmental accounting is done so that environmental reporting can be done. This report is than disclosed to the general public which also allows companies to compare how ethically they have acted and can be a motivator to perform better n order to develop sustainability in the environment. Sustainable development is, ''development that meets the needs of the present without compromising the ability of future generations to meet their own need.'' (week 10, slide 5)
''Environmental reporting is a way to promote communication of organizations to fulfill its accountability regarding environmental efforts in their activities, and to provide useful information in the decision making of interested parties. Environmental reporting refers to systematic and holistic statements of environmental burden and environmental efforts in organizations' activities, such as environmental policies, objectives, programs and their outcomes, organizational structures and systems for the environmental activities, in accordance with general reporting principles of environmental reporting, and that is published and reported periodically to the general public.'' (Environmental Reporting Guidelines, pg 7). The purpose of environmental reporting is to provide a tool for environmental communication for an organizations' responsibility for the environmental burden. Therefore it is important to include certain information in the environmental reporting e.g., management policies, organizations culture which will help compare environmental issues with other organizations in order to improve their own environmental factors adopted by the company.
Environmental reporting is done so that companies are more accountable for their ethical, social and environmental impacts which lead to better performance.
Environmental reporting has to be done by companies in order to see what improvements are being made by companies to reduce environmental problems such as environmental pollution, reduction of the ozone layer and the threat of global warming. (Green Accounting: Issues and Challenges).
Why do companies account for environmental impacts?
Companies publish accounts and reports annually which states what they have done during the year i.e., programs that have shaped the business and what is likely to happen in the future. Increasingly, the reports of the largest companies include long sections discussing environmental and social issues, and the various initiatives companies have put in order to do right for the world by acting ethically. As mentioned above this information can even be presented on a different 'sustainability' reports. (Check again 'above'). (Companies put on notice to report environmental impact of their work).
Companies account for environmental impacts because it makes their company more aware and it is a way to show the general public what steps are being taken to improve the environment. Therefore to show how ethically they have acted.
If companies do not act in an ethical way towards the environment and reports are not true and balanced it could affect business returns in many ways since the company is not trying hard to prevent environmental issues which could cause financial damage to the company itself. BP's experiences this summer showed the financial damage that can be caused by careless practice that leads to environmental disaster. Change sentence
Companies are required to report annually on their business, including how they approach environmental and social issues. Yet many of these reports do little to show the risks hidden in environmental or social impacts or provide a balanced picture of how the company is affecting people and planet. In short, their reports would have you believe that their records are squeaky clean.Â
Observers will know and expect company reports to be full of greenwash. What they may not know is that UK law states that this must not be so. (Companies put on notice to report environmental impact of their work)
All the above has been copied and pasted.
Company transparency: an introduction
There is law that governs this process of reporting.Â There is law that is supposed to ensure that the information in these reports is fair, balanced and comprehensive.Â For shareholders and others to make informed judgements about companies, the information in these reports needs to be fair, balanced and comprehensive.
Unfortunately, greenwash is a reality: the law is not doing its job.Â Annual reports are used as promotional tools by companies, and the information contained in them regularly deviates in major ways from the realities reported by many from around the world.Â There is often a major gap between a company's policies and its practice, and there is a systemic lack of candour in company reporting.Â In practice, company reports rarely if ever provide a fair, balanced and comprehensive view of what the company is doing in practice.
There are motivators to encourage companies to account for environmental impacts. Motivators could allow companies to disclose social and environmental information. Some of motivators are listed below:
Economic rationality considerations - presenting social and environmental information might appear to be advantageous to the business by showing they are doing ''the right thing.'' (Deegan, 2002).
Borrowing requirements - lending institutions require the borrower's social and environmental information and performance as part of their own risk management policies. (Deegan, 2002).
To comply with industry requirements or codes of conduct example, obey the law, keep faith with customers, shareholders and employees and communicate honestly. (Week 8, Deegan, 2002).
Winning awards - social, environmental and sustainability awards are offered to organizations that put a great deal in acting ethically and play a role in improving the environment. Hence by achieving the award it would lead to positive implications for the reputation of the company. (Deegan, 2002).
The motivators listed above are not the only ones that make companies account for their environmental and social impact but there are many more motivators. In the recent times the motivation behind social and environmental disclosures is by legitimizing a company's operations. This is shown under the legitimacy theory. (Deegan, 2002).