From Guest Blogger Steven Clark: Green Accounting–What It Is and Its Importance

For centuries we have striven to reach prosperity by developing new solutions and ways of overcoming every obstacle. As a result, we live in a high-tech world where everything is possible and easily accessible. The bigger we get, the faster we grow and the more we need. Unfortunately, we can only last until our resources last. This is why the past few decades have been dedicated to raising awareness of the fact that we are globally running low on resources while smothering Mother Nature. This is where green accounting comes to place.

The definition

Green accounting goes by many names but it is best known as environmental accounting. This is a developing branch of accounting with an aim to include environmental costs into the GDP on a macro level, or a company’s financial results on a micro level. Instead of focusing on the manmade capital, green accounting factors in the losses made to natural capital such as water, wildlife, land, forests, plants as well as other resources and consequently human welfare.

The importance

With everything we have been doing to the plant and the damage we have created, the mankind has provoked climate change. The change will affect our quality of life and the economy. Natural disasters accompanied by rough weather conditions such as floods and droughts are the consequences which can affect the economy. This is why there is an increased interest in limiting the greenhouse gas emission, waste creation, water, and energy consumption and encouraging the use of renewable sources of energy and recycling.

The scope

The environmental accounting works on the corporate, national, and global level. It includes the investments made to minimize losses caused to the environment, that is, the investments made into efforts to reduce potential environmental losses by the use of different equipment and devices. Also, it is meant to measure losses to the environment caused by business operations such as pollution, depletion, and the loss of biodiversity. It has some controversy attached to it though, as certain industries such as extraction industries, already factor depletion into accounting.

The worldwide efforts

Developed countries worldwide are trying to develop accounting standards to measure and report sustainability. The countries such as India, France, Spain, the UK, the US, and Germany have gradually been adopting standards and passing regulations which have to be complied with by businesses. Australia has gone a step further by establishing the Australian Institute of Environmental accounting with a purpose to educate those who seek a profession in this field. They teach courses on sustainability, carbon and energy management, and environmental management.

Environmental financial reporting

It is the profession’s goal to find the best way of reporting factoring the environment into accounts. Generally, companies use green accountants to advise them on the impact that a business decision may cause to the environment and try to monetize it. This should be done by estimating asset retirement obligations (ARO) as well as environmental obligations and see it as a part of normal accounting. Referring to above-mentioned Australia, with the teaching system in place, there is a whole list of locations where you can find regular accountants as well as those who can help you with environmental accounting. A greater number of such institutions and set regulations in place could get us very far globally. The AROs include the following: remediation, capital spending, Closure obligations, Renewable energy, and compliance performance.

Having countries and corporations dedicated to prevent and redeem the damage made by their activities is a good way to start. Green accounting can help them understand how much they are spending on the efforts to fix what they have broken. With the awareness of what they are losing and how they are losing it, they may be a bit more reluctant to allow for the losses to happen and choose the processes which have less impact on the environment.