1. Environmental Accounting Systems Arturo A. Keller Bren School of Environmental Science & Management University of California, Santa Barbara ESM 595F

2. Bren School of Environmental Science & Management 2 Environmental Accounting Systems “You can’t manage what you don’t see - and with today’s managerial accounting systems, managers don’t see most environmental costs”, from R. Todd (Greening of Industrial Ecosystems, 1994) “You can’t manage what you don’t see - and with today’s managerial accounting systems, managers don’t see most environmental costs”, from R. Todd (Greening of Industrial Ecosystems, 1994)

3. Bren School of Environmental Science & Management 3 Objective of Env. Account. System z Record & monitor flow and disposition of all inputs ywaste disposal yreprocessing yrecycling

4. Bren School of Environmental Science & Management 4 Objective of Env. Account. System z Processing costs involving environmental impact ypretreatment yemissions control costs x air emissions x water treatment x solids reduction ypackaging disposal/return costs

5. Bren School of Environmental Science & Management 5 “Hidden” costs z Site remediation costs z Product-related legal expenses z Regulatory costs z PR expenses z Opportunity cost of clean technologies not adopted z DfE, PP engineering costs

6. Bren School of Environmental Science & Management 6 Institutional Impediments yTraditional accounting doesn’t capture engineering & accounting data needed for decision making yData collected is aggregated in “wrong” format, losing environmental context yLine managers not responsible for most environmental costs

7. Bren School of Environmental Science & Management 7 How to present the information? z Corporate level z Facility level z Product line z By department or section

8. Bren School of Environmental Science & Management 8 To Whom it May Concern... z Internal accounting z Financial reporting z Regulatory agencies z Others … ? yBren School students doing GPs?

9. Bren School of Environmental Science & Management 9 Managerial Information z Detailed cost breakdown yJoint costs yexpense of tracking costs on individual product line basis ytechnical difficulties of measuring product- specific material flows and emissions ynegative incentive to collect detailed info

10. Bren School of Environmental Science & Management 10 Unprofitable products? z Internal + External Costs > Price z Competitive market z Market leader z Large portion of current revenue

11. Bren School of Environmental Science & Management 11 Don’t Look, Don’t Tell... z Confidentiality of Sensitive Info z Costly contingent liability z Legal liability z Public perception

12. Bren School of Environmental Science & Management 12 Role of Mgmt Accounting Systems z Direct managerial attention to problem areas z Provide informational support for managerial decisions z Promote harmonized goals throughout the organization

13. Bren School of Environmental Science & Management 13 Traditional Env. Accounting

14. Bren School of Environmental Science & Management 14 Traditional Env. Accounting

15. Bren School of Environmental Science & Management 15 “Enlightened” Cost Accounting

16. Bren School of Environmental Science & Management 16 Bottom Line… z Need to restructure incentive compensation system (multi- objective) z Establish priorities z Tailor to individual firm z Adapt to changing social climate