Green accounting is an evolving type of accounting that looks to factor environmental costs into the financial bottom line of operations. A better understanding of the costs and benefits of environmental impacts can help improve measurements of sustainable practices and strategies to protect the environment.
Green accounting aims to measure everything from environmental impacts to the actual cost of materials. However, there is no single methodology for green accounting, according to the U.S. Environmental Protection Agency, nor is there a standard system.
In addition to traditional accounting of “hard” costs such as material, labor or energy, green accounting tries to incorporate “soft” elements such as pollution costs, social impacts and the savings from new technology.
The “soft” costs can be challenging, but not impossible for accountants to quantify.
Green Accounting Considerations
It may be difficult to assign solid numbers to sustainability and green practices, but there are some measurements, according to an article by the Journal of Accountancy.
CPAs can look at taxes and rebates for construction that comply with green practices and environmentally friendly building. There are balances to measure between costs and savings of installing solar panels or equipment to reduce water consumption, for example.
Other measurements can include recycling, tax and energy rebates and even government incentives for construction on Superfund or brownfield sites, the article said.
Less measurable factors can include better employee morale and public perception. Some tenants may be willing to pay more for sustainable living spaces or offices.
Benefits and Limitations to Green Accounting
Incorporating green accounting into projections and balance sheets can produce benefits, but the process also has its limits.
Some benefits:
- Green accounting can help the environment. It betters environmental performance by stabilizing costs to promote sustainability and growth.
- Green accounting allows governments to make better choices now to benefit future generations.
- Companies can earn potential tax breaks and rebates.
- Green accounting can find ways to lower construction costs.
Some limitations:
- Green accounting is still a developing concept. There isn’t an exact science to it.
- There is no standard accounting method because this concept is being applied to so many different business models.
- Training is essential and comes with a cost for instructing staff and employees.
Anything affecting the financial bottom line of a business can be looked at from a green perspective. The idea is about reducing excess spending and waste. Currently, it can be a somewhat amorphous concept, but it can benefit companies by focusing on fiscal and environmental responsibility.