PDF Ebook Environmental accounting: A management tool for enhancing corporate environmental and economic performance
Industries are becoming progressively more aware of the environmental and social liabilities pertaining to their operations and products, with associated financial effects. Uncertainties in measuring these financial effects can be addressed by using environmental evaluation and accounting techniques. Environmental accounting assists in expressing environmental and social liabilities as environmental costs. While environmental accounting systems now form part of industrial decision making in first world countries, there is a lack of similar systems in South Africa. The EEGECOST model was developed to promote environmental accounting in South Africa. Implementation of the model will provide South African industries with the framework for corporate evaluation of alternative investments, projects and processes and for estimating economic and environmental performance at present and especially in the future. The model identifies, records and allocates internal and external environmental costs to five identified cost types, categorised into several environmental media groups.
It also assists in the capital budgeting process for alternative investments. Applicability of the model was tested in a case study conducted on the life cycle assessment of a functional unit of one million cigarettes. The model indicated that Type V costs (external costs, with Types I to IV being different internal cost types) contributed 12% of the total production costs of a functional unit of cigarettes. As Type V costs are subjective, it is recommended that further research be conducted to structure an objective framework to evaluate and determine cost factors involved in the development of Type V costs.
Industrial operations worldwide cause significant environmental liabilities; with its associated financial effects. Industries are therefore becoming progressively more aware of the social and environmental liabilities pertaining to their operations and products (Environmental Protection Agency, 2000). These liabilities include impacts on the natural environment; conveyed through the three principal media: air, water and soil. Financial effects are lately more often portrayed in corporate images and reporting (Goodstein, 2002). However, some companies still find it difficult to relate environmental liabilities to financial effects (Carter et al., 2001).
This is primarily due to inherent uncertainties in measuring these liabilities, and in ways of expressing them as part of corporate financial evaluations (Hayden, 1989).
Uncertainties in measuring environmental liabilities can be addressed by using environmental evaluation and accounting techniques, such as qualitative matrix evaluation and streamlined life cycle analysis methods (Labuschagne, 2002); and quantitative methods including quantitative life cycle analysis, life cycle costing and total cost assessment (Veefkind, 1998). Environmental accounting can be used to demonstrate the potential for environmentally beneficial investments to yield significant financial pay-offs, through the avoidance of environmental liabilities (Hayden, 1989). While environmental accounting now forms part of industrial decision making in first world countries, there is a lack of similar commitment to the environment in South Africa (Labuschagne, 2002).
The objective of this research is to evaluate environmental accounting systems currently available in the world market and to customise an environmental accounting model appropriate for South Africa. The results of an existing life cycle analysis for a chosen process, the production of cigarettes, will then be used to evaluate the model, especially to determine the impact of external costs on a company's production costs.
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