Environmental Accounting

Environmental accounting principles and practices are mainly used by organizations to more accurately trace environmental costs back to specific activities. Government agencies, private businesses, local communities and individuals all take responsibility for conserving natural resources and operating sustainably in most developed nations. Governmental agencies and businesses are accountable to the public for setting environmentally related efficiency goals that lead to cost reductions and improved operational processes. These organizations are more likely to implement methods from environmental accounting which is a growing subset of traditional accounting. Here are some of the job duties of environmental accountants, the typical education and training needed to become an environmental accountant and the professional development certifications that position them to be competitive in the job market.

Practices and Benefits of Environmental Accounting

While environmental accounting can focus on environmental management accounting or financial accounting, the most prominent benefits come from the application of environmental management accounting methods. This type of accounting focuses on gathering, estimating and analyzing costs associated with the use of energy and physical materials like timber, metal or coal. Standard accounting practices tended to place these costs in the catch all category of overhead, but environmental management accounting allows accountants to apply activity based cost principles to more accurately associate these costs to various projects or events. Decision makers who can see exactly where these natural resources are used across various projects can locate areas of synergy that allow them to reduce the amount of wasted materials at the program or enterprise level.

Job Duties of Environmental Accountants

Environmental accountants help decision makers to establish energy efficiency goals by doing research on historical data and recent trends about the raw materials used to produce company goods or services. These accountants also keep track of the availability of the raw materials that are used in company goods and services. They conduct calculations to determine if appropriate raw material substitutes can produce lower lifecycle costs as well as reduce environmental impacts that are associated with their companies’ current practices. Environmental accountants are also the business professionals who conduct break even and cost benefit analyses for replacing traditional energy systems with alternative ones like wind turbines and the new solar shingle roofs.

Education and Training Required for Environmental Accountants

The niche field of environmental accounting has not yet matured, and there are only limited university level academic programs that focus directly on this accounting category. For example, Aquinas College in Michigan offers students a Bachelor of Science in Sustainable Business and Dalhousie University in Canada has a Natural Resources MBA. However, most environmental accountants earn traditional undergraduate degrees in accounting, and they usually return to school to gain graduate certificates in environmental science. Many environmental accountants earn specialized credentials like the Certified Environmental Auditor (CEA) designation that is administered through the National Registry of Environmental Professionals. Certifications like the CEA require environmental accountants to have undergraduate degrees from accredited universities, a minimum of four years of environmental auditing experience and successful completion of the CEA exam.

Methods of Environmental Accounting

Businesses use three generally accepted methods to implement environment accounting: financial accounting, managerial accounting and national income accounting. Financial accounting is the process of preparing financial reports, such as earning statements, for presentation to investors, lenders, governing bodies and other members of the public. In this instance, environmental accounting estimates are presented as part of the financial accounting reports.

Managerial accounting is used solely for internal decision making. In this capacity, department heads use environmental accounting to collect data used by senior management to make business-critical decisions, such as those surrounding procurement. Alternatively, environmental accounting is used by government agencies to calculate the nation’s gross domestic product and how business decisions affect the country’s economic wellbeing.

Rationale of Environmental Accounting

Environmental costs are defined by the Environmental Protection Agency as “the many different types of costs businesses incur as they provide goods and services to their customers.” An example of this is leftover manufacturing materials. In addition to allowing a business to operate in a “greener” fashion, environmental accounting management provides it with monetary benefits. For example, if an environmental accounting report indicates that a business consistently discards a large amount of excess material, a company can use this information to choose to purchase less material. While this allows the business to minimize the waste it dispenses in the environment, it is also allows it to save money by not purchasing excess.

Implementation of Environmental Accounting

Environmental accounting can be implemented by businesses of all sizes. Whether administered by a global corporation or a small business, elements need to be in place for success. The firm’s senior management team must support these practices. These leaders are instrumental in setting a positive tone when communicating the benefits of environmental accounting practices to the employee population. The senior management team would be best served by developing cross-functional teams to administer the process. Consisting of employees across all business lines, including finance, sales, manufacturing and procurement, these teams ensure that all environmental accounting policies and procedures are communicated and followed.

Improved management of environmental costs is often good for industry and society, and accountants are used to recognize opportunities for the reduction of environmental costs or to support environmental initiatives that create revenue streams. Subsequently, tracking more granular cost data often leads to better management of resources when it comes to environmental accounting.