What Is Environmental Accounting?

Environmental accounting is a term used for any attempt to account for the way an environment is affected by business forces. This is in response to economic indicators such as Gross Domestic Product that are calculated without any regard for how consumption affects the environment in terms of natural resources, ecosystems, air quality, and so on. As such, environmental accounting attempts to put a value on those things either lost or gained in the environment as a price of doing business. Doing this gives environmental activists and government and industry leaders some concrete facts and numbers to bring to the table when discussing the environment.

Concerns about the degradation of the environment have come to the fore as indications about the severity of this problem have become more apparent. It is often hard to link specific aspects of business production to the actual effect they have on the environment. Since economies are often judged by statistics related to consumption — like the gross domestic product, or GDP — environmental leaders have attempted to judge their concerns in a similar fashion. This is the main idea behind environmental accounting.

To understand environmental accounting, imagine a shopping mall that is built after a large patch of forest has been cleared out. In terms of GDP, all of the business that comes from the construction of that mall is positive when it is included in the totals. There is no distinction made between the business being done and the environmental damage caused by the deforestation.

Those who practice environmental accounting would seek to remedy situations like that. Although the efforts to gauge environmental effects are varied, the main gist behind most of them involves adjusting economic statistics to reflect the realities of the environmental situation. It is important to note that these efforts are not always negative in nature. For example, environmentally-friendly business efforts or preservation projects would be taken into account in a positive fashion.

No matter the method of achieving it, environmental accounting is ultimately concerned with providing an accurate picture of the economy after environmental concerns are considered. A nation that registers huge amounts of consumption but does so in a matter that does extreme damage to natural resources or the overall quality of life is actually doing a disservice to its people. For that reason, judging the consequences of industrial progress is necessary. While it may be difficult to put an exact numerical amount on the monetary effect of environmental damage, even rough estimates can be effective in showing business leaders how environmental and economic concerns are closely linked.