Accounting for the environment: Towards a theoretical perspective for environmental accounting and reporting

Abstract

This article develops a multilayered theoretical model to underpin environmental accounting and reporting (severe environmental dangers; corporate responsibility; new relationship between industry and environment; measure industry's impact, and disclose and report impact). This theoretical model has eight premises. It begins with the fundamental premise that environmental change puts the planet at risk. Given that industry has a great impact on the environment and that society legitimates industry it is argued that industry has a duty to act. As the present situation appears to put the planet in jeopardy, there is a need for a new relationship between industry and the environment. It is argued that, although there should be a long-term radical reorientation, in the immediate short-term sustainable development should be the target. There is a need for a measurement system to assess industry's impact, but current accounting is inadequate for a variety of reasons (e.g., monetary dependence, capitalist orientation, business focus, reliance on neoclassical economics, numerical quantification, and technical accounting practices). There is thus a need for a new holistic accounting which captures corporate environmental impacts. Finally, it is argued that companies because of their stewardship function should report their environmental accounting to their stakeholders. There are several implications from the acceptance of this theoretical model for organisations and accountants. First, at the general level, given the severity of the environmental problems which face us, it would seem prudent for managers and accountants to take immediate action to address these threats. Second, the traditional accounting paradigm with its narrow focus on accounting numbers does not capture the environmental consequences of organisational activity. Third, as part of innovation and experimentation there is a continued need to explore potential alternative monetary and non-monetary valuation systems. Finally, the theoretical framework implies that as part of their discharge of their stewardship function organisations should disclose their environmental performance to stakeholders.

Keywords:

• Accounting for natural resources
• Environmental accounting
• Natural inventories
• Environmental accounting and reporting
• Theoretical model

Acknowledgements

I would like to thank Jared Davies for his help on the operationalisation of Full Cost Accounting. I should also like to thank Jill Solomon and participants at Portsmouth Business School and at the BAA Conference in Portsmouth in April 2006. The comments of two external reviewers were also appreciated. Finally, I would like to thank Glen Lehman for his help and encouragement.

Notes

1 This concept is a relatively new theoretical perspective and is encapsulated in the thinking of writers such as Naess (1985), Rolston (1985).

2 Note, however, the creationalists, particularly in the US, who argue against such Darwinianism.

3 In a sense, animals (such as elephants cropping the Savannah) and natural events (such as volcanoes) also form and shape the environment. Human action is, however, more pervasive and deliberate.

4 Interested readers are referred to for example, Gray (1992), Owen (1992), Gray and Bebbington (1993), Gray, Bebbington, and Walters (1993).

5 As evidenced in the work of Jones and Matthews (2000), Jones (2003), Bebbington et al. (2001), Chambers and Lewis (2001), Baxter et al. (2003), Bebbington et al. (2007), and Howes (2003). In a sense, these initiatives pick up the earlier work by authors such as Beams and Fertig (1971), Dierkes and Preston (1977) and Ullman (1976).

6 There is not necessarily only one theoretical perspective. In a sense, therefore, this particular perspective is premised upon the author's personalistic ethics and value judgements. However, hopefully it will also resonate with many individual readers’ views and values, even if it does not capture them all. By environmental accounting the author means the development and operationalisation of an accounting system to measure the environment. By environmental reporting, the author means the reporting of environment accounting to external stakeholders.

7 The concern of this present paper is with environmental accounting and reporting, particularly external environmental reporting, rather than more generally with social and environmental accounting. Although environmental accounting and reporting can be purely qualitative this article focuses on its numerical and quantitative aspects.

8 Gray (1992) introduces the principles of the deep green position and investigates its implications for accounting. Environmental degradation is shown to be one part of the environmentalist agenda and the influence of systems theory is discussed. Gray (1992) also explores the potential of sustainability. Gray et al. (1995, 1996) theorise about the corporate social responsibility literature. These authors partially locate their literature in social and political theory studies (premised on political economy and legitimacy theories).

9 In this paper, there is an attempt to make value judgements more explicit. However, judgements are rarely, if ever, value free or socially neutral. Tinker, Merino, & Neimark (1982) show, for example, that ‘positivism’, often seen as an objective and non-partisan research technique, has normative origins.

10 This article is generally written from the perspective of the Western developed world. It is easier, for example, to consider the environment when one is rich rather than starving. However, it may have relevance to the developing world. In addition, although this article draws upon Christian values, environmental awareness is not exclusively Christian and other faiths also may share some of the values expressed here.

11 These literatures are not homogeneous, but very diverse in orientation.

12 Anecdotally, for example, accounting standard setters have been traditionally reluctant to get involved in environmental accounting issues. Accounting for carbon emissions has, however, now been the subject of IASB scrutiny.

13 Both of these viewpoints are, of course, human constructs. The non-anthropocentric view underpins many religions such as Buddhism, Christianity and Islam.

14 This view is, however, not universally accepted see, for example, McShane (2007b, 2008) who points to possible differences in the two views.

15 Accounting, in this sense, is used broadly as an overriding measurement system rather than as capturing the purely monetary aspects of a business.

16 Just v Marinette Co., 46, Wis. 2d 7, 201 N.W. 2d 761, 768 (1972), quoted in Sagoff (1989) Book Review of E.F. Paul, Property Rights and Eminent Domain, New Brunswick, New Jersey, Transaction Books, 1987.

17 Davies (2009a), for example, identifies 16 experimental studies which adopted a range of approaches such as avoidance/restoration costs, damage costs and balance sheet/other focus.

18 Many different valuation systems, such as willingness-to-pay, have been explored (e.g., Samples, Dixon, & Gowen, 1986; Stevens, Echeverria, Glass, Hager, & More, 1991), while Jones (1996), Jones and Matthews (2000), and Jones (2003) use amenity valuation combined with ecological gradings for non-critical habitats. Nijkamp, Vindigni, and Nunes (2008) show that a variety of different economic valuation methods are possible for biodiversity, each having their pros and cons and producing different valuations: travel costs, random utility, hedonic pricing, avertive expenditure, contingent valuation of choice modelling. However, as Milne (1991) in the accounting literature, and Parker (1990), Peterson and Peterson (1993), Pearce and Moran (1994), Douai (2009) show in the environmental economics literature, there is little consensus. Indeed, there has been an active debate on the pros (see, for example, Pearce, 1992, 1993) and cons (see, for example, Hamilton, 1994) of valuing the environment at all. Sagoff (2008, p. 252) revisiting the debate in relation to ecosystem services comments: “The attempt by economists to ‘value’ by pricing ecosystem services only creates confusion because price does not correlate with value, benefit or utility.” However, Asink, Hein, and Hasund (2008) do prefer monetary valuation arguing that valuations should be based on functions or services. Finally, Zendehdel et al. (2008) argue people cannot realistically estimate the amount they can pay because of limited ability and these researchers prefer a qualitative social intensity of wildlife diversity scale.

19 The research into the production of environmental reports has been prolific especially by the international accounting firms (e.g., see Deloitte Touche Tohmatsu International, 1993; Canadian Institute of Chartered Accountants, 1994; United Nations Environmental Programme, 1994, 1996a, 1996b; AccountAbility, 1999; KPMG/WIMM, 1999, cited in Hibbitt and KampRoelands, 2001; KPMG, 2005, 200-8).