Accounting for Environmental Sustainability

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By James Fredrick Ochieng

The agricultural sector has embraced the concept of green accounting, alternatively called environmental
accounting much faster and better than the rest of the economy probably because the sector itself is so environmentally intertwined that it cannot ignore the source of its lifeline. Erratic climatic conditions and climate change has had a devastating effect on the agricultural sector more than any other sector. This explains the response of the sector towards green accounting and sustainable agricultural practices if only for the survival of the human race in matters food security.

According to a World Bank report released in January 2014, improved farming techniques was beneficial to small holder farmers in Western Kenya who were the first to benefit from the first carbon credits issued under the Sustainable Agricultural Land Management (SALM) carbon accounting methodology. A total of 60,000 farmers on a land mass of 45,000 hectares of land were involved with the support of the Kenya Agricultural Carbon Project (KACP).

According to the United States Environmental Protection Agency (EPA),

“environmental or green accounting is the use of physical or monetary units to refer to the nation’s natural resources, both renewable and non-renewable.”

Accordingly, environmental accounting is accounting for natural resources. The term green accounting and environmental accounting can be applied interchangeably depending on the context but they essentially mean the same thing in a broader sense.

Green accounting or environmental accounting therefore, involves identification, quantification, valuation and incorporation of environmental benefits, savings and costs into business decisions. This concept of accounting ensures an organization recognizes rebates, tax savings and any cost reductions associated with applying environmentally friendly business practices. Green accountants can develop a model for computing tax benefits and incentives provided by government and environmental agencies because of applying environmentally friendly business practices. Cost savings as a result of adoption of green technology can be quantified in real terms including customer benefits derived from goodwill and
product differentiation when customers identify with a company because of its green technology. The
move towards organic farming is an example of this practice with organic products fetching superior
prices than the counterpart inorganics. On the flip side, there are additional costs associated with
green production processes which can be quantified to generate a set of sustainability reports for decision
making.

Triple bottom line reporting then becomes a standard means of financial reporting where there is just as much focus on environmental and social reporting as there is in economic reporting. This mode of reporting helps a company and its stakeholders to appreciate the benefits and rewards of doing the
right thing as demonstrated in the organization’s bottom line.

A report by the Association of Chartered Certified Accountants (ACCA) of the UK titled Environmental, Social and Sustainability Reporting on the Wide World Web: A guide to Best Practice indicate that,

Public environmental, social and sustainability reporting is the main route through which corporate accountability and integrity can be demonstrated.

This demonstration of accountability and integrity is good for the organization. As an establishment existing within the larger society, demonstration of corporate citizen responsibility gives confidence to the surrounding.

Green accounting or environmental accounting therefore, involves identification, quantification, valuation and incorporation of environmental benefits, savings and costs into business decisions. This concept of accounting ensures an organization recognizes rebates, tax savings and any cost
reductions associated with applying environmentally friendly business practices. Green accountants can develop a model for computing tax benefits and incentives provided by government and environmental agencies because of applying environmentally friendly
business practices.

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