As business begins to face up to its environmental responsibilities there is an essential role for accounting. Accounting is the principle measure of corporate success but takes little, or no account of environmental impacts. Indeed, any organisation relying exclusively on its accounting systems to guide its progress would be maximising its environmental damage – not reducing it. Too often the signal provided by the environmental management system and by accounting – whether the bottom line on the profit and loss account or the information provided for management decisions – will point in opposite directions. Research by the Centre for Social and Environmental Accounting Research is now exposing this problem and beginning to offer solutions.

These solutions cover a range of possibilities. The most practical, from a business point of view are those which involve a ‘light greening’ of the accounting system. By, for example, recognising environmental liabilities and explicitly highlighting actual and potential environmental costs and opportunities, accounting can help the organisation seek out the most efficient possibilities that both reduce costs and reduce environmental impact. Working with – as opposed to against – the environmental management systems – accounting can contribute to reduction in waste, energy and emissions and encourage more environmentally-sensitive investment decisions. Other, but equally important, possibilities include the development of environmental reporting by corporations. This is one of the major success stories of the 1990s and looks set to become the norm in the new decade. Bringing the best standards of accounting to bear on the environmental reporting process has immeasurably improved the process.

More radical solutions are needed, however, if accounting is to help businesses address the difficult challenge of sustainability. The first step involves helping organisations develop social accounts – which, together with the environmental reports, take us towards the much-lauded ‘triple bottom line’ of sustainability. The second, and more major step, involves extending current research to identify ways in which the costs of sustainability can be incorporated into the profit and loss figure. Early research suggests that this is such a large figure that it would, in many cases, swamp the current profit of the business.

Research has shown that:

• current accounting systems encourage businesses to move away from sustainability
• imaginative use of existing accounting systems can contribute significantly to businesses developing more ecologically efficient practices
• the employment of more imaginative accounting systems together with the development of serious social and environmental reporting systems can have a major impact on the organisation and focus attention towards sustainability
• it is possible to begin to demonstrate what a company which internalised its environmental costs might look like.

In a little more than a decade, social and environmental accounting research has:

• risen from virtual obscurity to the point where it is recognised as a central element of accounting teaching, research and practice
• demonstrated that accounting can make a substantial contribution to the environmental practices of the organisation
• supported the increasing acceptance – and development – of parallel social and environmental reporting systems by organisations that can move the business towards less-unsustainable activities
• demonstrated that the costs of environmental sustainability can be estimated – even if the costs are greater than most organisations would wish them to be
• grown to be part of a world-wide network of practitioners, businesses, teachers and researchers supported through the activities of the Centre for Social and Environmental Accounting Research.

Source(s):
‘Accounting and accountability: changes and challenges in corporate social and environmental reporting’, Prentice Hall, London by R.H. Gray, D.L. Owen, and C. Adams (1996)
‘Factor four: doubling wealth, halving resource use’, Earthscan, London by E. Von Weizsacker, A.B.Lovins and L.H.Lovins (1997)
‘Accounting for the Environment’ Sage, London by R.H. Gray and K.J.Bebbington (forthcoming)

Funded by: UK Economic and Social Research Council Global Environmental Change Programme

id21 Research Highlight: 10 march 2000

Further Information:
Rob Gray
Centre for Social and Environmental Accounting Research
Department of Accounting and Finance
University of Glasgow
65-73 Southpark Avenue
Glasgow G12 8LE
Scotland

Tel: +44 (0)141 330 4809
Fax: +44 (0)141 300 4442
Contact the contributor: r.h.gray@accfin.gla.ac.uk

University of Glasgow

Other related links:
Global Environmental Change Programme Core Documents

ESRC Global Environmental Change Programme

Search Eldis for sources on social and environmental accounting