Environmental Accounting

Environmental accounting (also known as green accounting) is a style of accounting that includes the indirect costs and benefits of economic activity—such as environmental effects and health consequences of business decisions and plans. It is increasingly used by green companies interested in sustainability, ecoeffectiveness, and ecoefficiency, along with direct and more obvious market tools in strategic management. Environmental accounting collects, analyzes, assesses, and prepares reports of both environmental and financial data with a view toward reducing environmental effects and costs. This form of accounting is central to many aspects of governmental policy as well. Consequently, environmental accounting has become a key aspect of green business and responsible economic development.

The link between the environment and the economy is an inarguable one. In recent decades, environmental accounting has been taken seriously in the incorporation of environmental impacts into management decisions and strategic planning as well as in the reporting of national accounts. It is important to understand national accounts to give environmental accounting the proper context in a governmental sense. National accounts present a complete conceptual framework for the economic activity of a country in a given time period, constructed with double-entry accounting. National accounts are concerned with economic factors such as production, expenditure, and household incomes, which are the frameworks from which measures like gross domestic product (GDP) and purchasing power parity are figured. National accounts are generally divided into stocks and flows (sometimes called levels and rates, especially in older texts), assets that are accumulated over time (inventory, stock shares, and money in a bank account), and the changes that occur to those assets (inflows like deposits, interest, and new purchases and outflows like withdrawals, fees, and sales). National income accounts are at the center of macroeconomic environmental accounting.

In the United States, national accounts have been maintained since 1947. Most of Europe adopted the practices around the same time, and, today, the United Nations System of National Accounts (UNSNA) provides a set of standards that many countries use for construction of their accounts. The United States is one of the countries that utilizes independent standards rather than accepting the UNSNA standards. In addition to the UNSNA, the United Nations’ Environmental-Economic Accounting Section works to standardize environmental accounting methodologies and practices. However, progress has been incremental and tentative. In 1993, it issued the Handbook of National Accounting: Integrated Environmental and Economic Accounting (SEEA) to stimulate discussion about environmental accounting and to focus the conversation at a time when some countries were starting to formulate their own policies on the matter. In 2003, the first revision, SEEA 2003, was released in the hope of harmonizing the environmental accounting methods then in use [Page 191]around the world. This provided additional guidance to companies in developing best practices. Three years later, the 37th session of the Statistical Commission endorsed the position to adopt SEEA 2003 as an international standard by 2010. The implications of these shifting international standards and comparisons for environmental accounting can be seen in the difficulty of changing a traditional paradigm to include new factors or considerations such as environmental effects.

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