There is a paradox: Improving environmental performance is often advocated as remedying defects in a company's assessment of its own self-interest.

This new role of accounting is embryonic. Several theoretical and practical issues need research and experimentation if its potential is to be realized. A new dimension—costs that represent environmental benefits (and vice versa)—needs to be recognized. The appropriate balance between the roles of physical and financial performance indicators is not yet established. Moreover, the fundamental relationship between accounting and management decision making has always been problematic. The nineteenth-century debates between engineers and accountants illustrate both the subjectivity of the nature of cost and the power effects of its construction as part of a new system of accountability. A reorientation of accountability to focus on environmental performance is the major challenge in the greening of accountancy.


I am grateful for the work of the ICAEW's Environment Research Group (Macve and Carey, 1992) and to Martin Bennett of the University of Wolverhampton and Peter James of Ashridge Management Center for their advice in connection with recent research into changes in management accounting systems. Responsibility for all inadequacies and errors in the paper is, however, entirely mine.



This paper draws in part on the report (Macve and Carey, 1992) of the Environment Research Group (ERG) of the ICAEW, which was chaired by the author. Group members included accountants, auditors, academics, business managers, investment analysts, economists, and civil servants.


In compiling its recommendation, the ERG of the ICAEW drew on reports, such as those of the International Chamber of Commerce, the U.K. "100 Group" of Finance Directors, the International Institute for Sustainable Development (IISD), the United Nations, the European Community Commission, and others such as Deloitte Touche Tohmatsu International/IISD/Sustainability (1993).


A major study currently under way in the United States on the measurement and reporting of corporate environmental performance (sponsored by the Institute of Management Accountants [Epstein, 1994]) may shed light on the extent of changes in internal systems and barriers to change.


Kreuze et al. (1991) and Bailey (1991) contain worked examples of TCA.


This should not be confused with the life cycle analysis of external environmental impacts. Analysis such as this may identify costs and benefits that may affect the company as regulations or fiscal incentives change in the future. (See, for example, Bailey, 1991.)


Similar failures of present cost and management accounting systems have also been identified in relation to nonenvironmental investment decisions that involve long-term benefits intangible benefits, or both—including improvements in cost and management accounting systems themselves. (See, for example, Tyson, 1994.)


Again, similar complexities arise in tracing costs to cost drivers in modern activity-based costing systems (Tyson, 1994).

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