The tendency to show environmental commitment in economic sciences has been growing during the last decades. Terms like green, ecological or environmental economics have been promoted, most famously in the first green wave, when the book “The Limits to Growth” in 1972 and the Brundtland Report “Our Common Future” in 1987, and more recently, when the Stern Review on the Economics of Climate Change in 2006 and the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC) in 2013, were published.
But how come the business world started to care about the environment in the past, without any comprehensive standard forcing them to do so legally on a national or global level? It has been felt that the financial accounting framework was not adequate to provide the information required by various internal and external stakeholders on environmental costs and liabilities, and steps taken by companies to mitigate global warming (Idowu et al. 2013, p. 1035). The endeavour was that the complete costs incurred by an enterprise including external, environmental costs like consumption of non-renewable resources, damages to the environment and degradation of nature, ought to be considered. These external costs, which are also called externalities or societal costs, are caused by the impact of organizational activities, products and services on natural environmental resources and society, but for which the organization doesn’t bear any financial liability. In other words, “external costs result from corporate activities but are not internalized through regulations and prices. The boundaries of these costs are not static.” (ibid. p. 1035).
Table of Contents
1. Introduction
1.1 Economics, business and externalities
1.2 Corporate considerations
1.3 Environmental accounting
1.4 Environmental management accounting
2. Business case PUMA
2.1 PUMA’s Environmental Profit & Loss account
2.2 PUMA’s environmental impacts and E P&L results
2.3 Critical review
3. Theoretical framework: The relationship between the corporation and society
3.1 Background theories
3.2 Legitimacy theory
3.3 Stakeholder theory
3.4 Critical review
4. Reflection
Objectives and Core Themes
This paper examines how businesses value natural assets and incorporate environmental impacts into their operations, specifically focusing on the role of management accounting. The primary research objective is to analyze the shift toward environmental accounting practices and determine whether the motivation for voluntary corporate environmental reporting is driven by a genuine commitment to sustainability or by strategic attempts to gain and repair legitimacy within society.
- The distinction between financial and management accounting in an environmental context.
- An in-depth analysis of PUMA's Environmental Profit & Loss (E P&L) account as an industry pioneer.
- The application of Legitimacy Theory and Stakeholder Theory to understand environmental disclosure motivations.
- The limitations of current accounting frameworks in addressing corporate environmental externalities.
Excerpt from the Book
1.2 Corporate considerations
The scope of tools corporations can fall back upon to take environmental issues into account, ranges from accounting over purchasing, human resources, R&D, production, marketing, sales to logistics. All of these entities and their processes may function and can be designed in a sustainable way. But to start from scratch, accounting has the privilege that it’s both, gathering data from all departments about the circular flow of income, and furthermore, that it’s planning business activities, thus playing a past- and future-oriented role as an information provider.
The closely related department of controlling supports the comprehension of accounting as a discipline which keeps an overview over what the rest of the corporate body is doing and how to steer the single parts into a certain direction.
“The major disadvantage resulting from following the conventional accounting model (with hidden environmental information) is that the organization is deprived of many opportunities to increase profits, to use materials more efficiently, and to protect the environment.” (Idowu et al. 2013, p. 1037)
Summary of Chapters
1. Introduction: This chapter introduces the shift in economic thought regarding environmental commitment and defines the transition from conventional accounting to environmental accounting.
2. Business case PUMA: This chapter analyzes PUMA's E P&L project as a case study for quantifying environmental externalities and discusses the results and implications of their corporate self-experiment.
3. Theoretical framework: The relationship between the corporation and society: This chapter explores Legitimacy and Stakeholder theories to provide a foundational understanding of why corporations engage in voluntary environmental reporting.
4. Reflection: This chapter synthesizes the findings, highlighting that while management accounting provides useful tools for planning, voluntary reporting is often used strategically for legitimacy rather than genuine environmental stewardship.
Keywords
Environmental accounting, Environmental management accounting, PUMA, E P&L, Legitimacy theory, Stakeholder theory, Corporate social responsibility, Externalities, Sustainability, Triple Bottom Line, Management accounting, Environmental performance, Disclosure, Accountability, Nature’s value.
Frequently Asked Questions
What is the central focus of this paper?
The paper explores the methodologies businesses use to account for environmental impacts, analyzing how corporations integrate these costs into their internal data and decision-making processes.
What are the primary themes discussed?
The work covers environmental accounting (EA), management accounting (MA), the business case of PUMA’s E P&L account, and the application of legitimacy and stakeholder theories in corporate sustainability reporting.
What is the core research objective?
The objective is to determine if voluntary sustainable reporting is motivated by a genuine commitment to the environment or if it serves as a strategic instrument for companies to gain or repair their societal legitimacy.
Which scientific methodology does the author use?
The author employs a theoretical analysis and a case study approach, evaluating existing economic theories alongside practical evidence from corporate reporting initiatives.
What topics are covered in the main section?
The main section investigates the distinction between financial and management accounting, the definition of environmental costs, and the theoretical underpinnings of why companies report their environmental impacts.
Which keywords define the work?
Key concepts include environmental management accounting, PUMA’s E P&L, legitimacy theory, stakeholder theory, and corporate externalities.
How does PUMA's E P&L account function as a pioneer model?
It acts as a tool to monetize the "economic invisibility of nature," attempting to assign monetary values to environmental impacts across the entire supply chain, which PUMA uses to inform its business strategy.
What is the conclusion regarding the motivation for environmental disclosure?
The author concludes that in the absence of strict legal frameworks, environmental reporting is frequently used by corporations as a reactive, strategic tool to satisfy public pressure and maintain their "license to operate" rather than as an outcome of intrinsic responsibility.
- Quote paper
- Annette Becker (Author), 2013, Corporate considerations for nature – the motivation behind environmental accounting, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/264163
