Accounting and the environment

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Abstract

Introducing a discussion of some of the ways in which accounting and other calculative mechanisms are involved in environmental matters, the article focuses on a number of questions that emerge from accounting for carbon emission permits and corporate environmental reporting. Both are areas where there is already a need for more research and where that need will increase in the coming years. Identifying some of the interests and pressures that already influence approaches in the area, the case is made for the need for both critical and facilitative research.

Introduction

Accounting has already started to be implicated in the consideration of environmental issues and the probability is that its involvement will develop further over the coming years. As greater acknowledgement is given to the role of human agency in the environmental sphere, the need for different approaches to both conceiving and acting upon human and organizational interaction with the environment has started to be recognized, albeit still far too slowly. There are, as a consequence, more signs of an emerging awareness that many aspects of human life are likely to change, even including accounting and other calculative systems. As changes occur in our concepts and focus of accountability for the environment, the demands for different flows of information, accounting and otherwise, are also likely to grow.

Of course much could already be done to alleviate some of the major environmental difficulties if there was a will to act. But that will is only very weakly developed in most countries of the world and in most spheres of life. It certainly has been largely absent at the political and the corporate levels, both arenas were rhetoric has often been a long way ahead of action and were, as a result, remarkably little has been done in the majority of cases. All too often the desire to act has only found a verbal expression, action itself being more influenced by political infighting and corporate lobbying and influence. Even now, as the findings of environmentalists and scientists get ever more certain and disturbing, the vast majority of politicians still have difficulty in responding, continuing to put what they see as their short-term economic and political imperatives above the longer term interests of the human race.

However, although a strong will to act might result in less call on calculative devices, including accounting, to construct new patterns of incentives and visibility, I sense that the role of calculation would still not be minimal. Trade-offs would still have to be evaluated, interests would still diverge, thereby suggesting a role for incentives to engender change, intentions would still need to be checked against achievements, and there still would be areas where careful analyses of alternative approaches would need to guide action. The desirability of bio-fuels, for instance, certainly cannot be taken for granted given the complex patterns of interdependences that their production entails with that of food and the preservation of biodiversity and natural habitats and their wider environmental consequences (Scharlemann & Laurance, 2008). Current discussions over the desirability of otherwise of replacing old cars with more fuel efficient ones give rise to similar calculative complications (Monbiot, 2009, Van Wee et al., 2000). In both of these and a multitude of other areas quite complex assessments and calculations need to be involved in the appraisal of alternative ways of moving forward. Moreover curiosity alone could and most likely should result in an investment in greater transparency, particularly if social and environmental values are to function alongside economic ones. So a dream of a post-calculative society is certainly a very long way away and possibly should not even be entertained at all.

A case can therefore be made that calculation, including that of new forms of accounting, is likely to be a significant feature of a world not only conscious of environmental issues and constraints but also committed to achieving a more harmonious relationship between the human and natural worlds.

Of course accounting has already become involved with these issues, both consciously and otherwise. Not only this, but there are also signs that at least some degree of learning has taken place and is slowly, albeit perhaps too slowly, giving rise to the creation of new agendas in the accounting area. So whilst early initiatives in the area of corporate environmental reporting might have achieved very little, even on occasions creating a degree of corporate legitimacy that shielded what was really going on, there are now some signs of pressures for more extensive and transparent approaches. Although in many areas conventional approaches to accounting stand in stark contrast to emerging environmental considerations, the potential conflicts have also started to be recognized, again albeit slowly. Prevailing approaches to costing certainly ignore many of the indirect consequences of corporate actions on the environment, but this is something that is increasingly being acknowledged (for an early discussion see Gray, Bebbington, and Walters, 1993. Existing means of project appraisal also tend to favour short-term results and thereby often used to argue against more environmentally sustainable approaches, not least in the areas of energy and transportation. But here too, the dilemmas so created are slowly starting to be discussed, if not changed (Broome, 1992, Portney and Weyant, 1999, Weitzman, 1998 and Weitzman, 2001). At least there is now some recognition of the role of conventional discounting technologies in minimising the significance of future consequences and impacts, not least in the context of the influential Stern Report (2007) whose very findings and recommendations were dependent upon the application of an alternative approach to calculating the future, namely the application of a declining discount rate across time. In numerous other areas of current environmental and sustainability concern there are now some signs of an emerging interest in more careful analysis and calculation, often including economic and financial calculation. Rather than assuming the automatic superiority of certain approaches and solutions, at least some people are now trying to delve deeper into the assumptions involved and into the wider issues that might be at stake. Relative costs and the demands made on financial resources are becoming a more prevalent part of such exercises, in the process raising questions about the adequacy of prevailing understandings about costs and their association with very particular assumptions about the nature of organizations and their boundaries.

As the papers that follow illustrate, the creation of a market in carbon emissions is one arena in which accounting and the environment have become intertwined – for better or for worse. The result of an apparently simple abstract logic, the resulting implementation and operation of a market in emission rights has inevitably resulted in a series of issues that never entered into its original justification, suggesting that this is an area where there already are and will continue to be significant issues calling for serious research and inquiry.

Section snippets

Accounting and the creation of carbon markets

Emerging from economic understandings of the roles that pricing and the establishment of markets can play in influencing resource utilisation, the Kyoto Protocol Clean Development Mechanism and the subsequent establishment of the European Emissions Trading Scheme resulted in a huge new financial arena prior to the current economic crisis. In 2007 The Economist (2007, p. 10) reported that $30.4 billion of allowances had been traded in the previous year, with Europe making up 80% of the total

Corporate environmental reporting

It is such consequences that reinforce the need for corporate reporting of their environmental as well as financial performance. Such reporting has some potential to give a greater degree of visibility to corporate environmental activities and consequences, casting light on what is often invisible. But having said that, it is also important to recognize that visibility is not the only possible consequence of corporate reporting in this area (Milne & Gray, 2007). Indeed it is possible that such

The way forward

The articles that follow give a rich introduction to the issues at stake in the creation of a market in carbon emissions and the roles that accounting and calculative mechanisms can and cannot play in the environmental area. Together they open the door a little more on a domain that is in need of much more attention in the coming years. As such, they point to some of the problems that need further exploration, to the need for a questioning and critical approach, and to the importance of looking

Acknowledgements

I would like to acknowledge the helpful comments of Michael Bromwich, London School of Economics and Political Science, Chris Chapman, Imperial College, Eric Knight, Oxford University Centre for the Environment, Geoff Lye, SustainAbility and the Environmental Change Institute, University of Oxford, and especially Rob Gray, University of St. Andrews.

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