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Green Accounting: A Primer

Article in International Journal Of Scientific Advances · January 2021

DOI: 10.51542/ijscia.v2i1.10

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 International Journal of Scientific Advances
ISSN: 2708-7972
Volume: 2 | Issue: 1 | Jan - Feb 2021 Available Online: www.ijscia.com
DOI: 10.51542/ijscia.v2i1.10

Green accounting: A Primer

Matthew N. O. Sadiku1, Tolulope J. Ashaolu2, Sunday S. Adekunte3, and Sarhan M. Musa1

1Roy G. Perry College of Engineering, Prairie View A&M University, Prairie View, TX 77446
2College of Food Science, Southwest University, Tiansheng, Beibei, Chongqing, China
3Community High School, Agada, Ogun State, Nigeria

E-mail: sadiku@ieee.org; ashaolut@gmail.com; ajayi-majebi@centralstate.edu; smmusa @pvamu.edu

*corresponding author details: Professor Matthew N. O. Sadiku; sadiku@ieee.org

ABSTRACT
Green or environmental accounting is a new branch of accounting that provides for accounting the
environmental impact. Unlike conventional accounting, green accounting accounts for the environment and its
well-being. It factors environmental costs into the financial results of operations. It accounts for long-run effects
of economic activity on the environment. This primer provides a brief introduction to green accounting.

Keywords: green accounting; environmental accounting; sustainable accounting

INTRODUCTION
Environmental changes are a global problem that requires a assessing the costs and benefits of projects considering their
global solution. Recognizing the importance that the environmental impact.
environment plays in our survival is compelling companies,
organizations, and governments to create awareness among The UN issued a handbook on a System for integrated
the masses about the importance of the environment and its Environmental and Economic Accounting (SEEA) in 1993.
well-being. Changes in the environment have a negative Green accounting uses SEEA, which focuses on depletion of
bearing on the environment and have the potential to slow scarce natural resources. Such GA standards translate
down the economic growth. Like every component of modern socially and environmentally responsible behavior into
business, accounting has not escaped the scrutiny of monetary terms.
environmentalists [1].
The objectives of green accounting system include [3]:
Green accounting (also known as sustainable accounting
or environmental accounting) has emerged as a measure 1. To identify that part of the gross domestic product that
of sustainable income level that can be secured without reflects the costs necessary to compensate for the
decreasing the stock of natural assets. Green accounting negative impacts of economic growth
(GA) refers to combined environmental and economic
accounting at national and corporate levels. It promotes a 2. To establish the linkage of physical resource accounts
sustainable future for businesses as it incorporates green with monetary environmental accounts
procurement and green R&D [2]. Green accounting is also
called environmental accounting, resource accounting or 3. To assess of environmental costs and benefits
integrated accounting.
4. To account for the maintenance of tangible resources
CONCEPT OF GREEN ACCOUNTING
Conventional national accounting ignores the exhaustion of 5. To measure the indicators of environmentally adjusted
environmental resources and the degradation of the product and income
environment. Critics have argued that gross domestic
product (GDP) (as a measure of national income) overlooks A green accounting system should be able to represent the
the environment factor and therefore needs to be revised to views of optimists, pessimists, and those in between. It
incorporate green accounting. Green accounting seeks to should be dynamic, flexible, and structured so that it can
correct the aggregated indicator of national accounting, the easily be updated as new information becomes available
GDP, from flaws that would otherwise make it a misleading [4]. Green accounting is a means of cutting down
policy tool. The result is known as “Green GDP,” which seeks environmental pollution as companies will be forced to
to overcome the weaknesses of GDP. place the costs related to environmental duty. Companies
that adopt green accounting focus on the triple bottom
The term “environmental accounting” was introduced by line: people, planet, and profit.
economist and Professor Peter Wood in the 1980s.
Environmental accounting or green accounting is an attempt Green accountants can advise clients on the impact that a
to broaden the scope of all accounting frameworks including business decision may have on the environment. They are
national accounts, financial accounting standards, and others to remedy and prevent the negative impact on the
used to assess economic performance. It is a major tool for environment and help in waste minimization.

Available Online at www.ijscia.com | Volume 2 | Issue 1 | Jan-Feb 2021 60

International Journal of Scientific Advances ISSN: 2708-7972

They may need to simply incorporate green accounting CHALLENGES

features to upgrade the existing accounting software. Although greening the national accounts has become
popular in affluent countries, adopting green accounting is
APPLICATIONS by no means easy. It is difficult to accurately measure the
Green accounting is the incorporation in the national pollution level of each industry since all industries do not
accounts of an explicit recognition of the contribution of the pollute the same amount. This makes it hard to set up a
environment to human wellbeing. It is an environmental fair set of policies and determine penalties for polluters.
policy that is relevant to all economic sectors. Green Most part of the world is still unaware of green accounting.
accounting helps all parts of the economic sectors to make Other challenges include [9]:
informed decisions that support long term sustainable
development. It involves saving resources, green products, 1. GA is an evolving science and still under study.
and environmental production.
2. There is no standard accounting method.
• Companies
Green accounting is a means of cutting down environmental 3. Comparison between two companies and two countries
pollution as companies will be forced to place the costs is not possible due to change in the method of
related to environmental duty. Every company is accounting.
responsible to make the fullest possible use of its resources.
An enterprise is a corporate citizen, who must be judged by 4. It mainly considers cost internal to the company and
its actions in relation to the environment and society [5]. excludes cost to society.
Companies in almost all business sectors can expect to
embrace green accounting within some years to come. 5. It is not possible to value every component of natural
capital and human capital in an accurate manner.
• Agriculture
This is a net contributor to the nation’s economy. It affects 6. For valuation of natural resources consumed like
the welfare generated by other sectors. Green accounts have decreasing forest cover, carbon gases emitted in the air,
been developed in countries with intensive agricultural unbiased and true data would be required.
production. This is designed to facilitate voluntary
improvements in farm environmental performance. While 7. It is not possible draw conclusion in an easy way as it
agriculture can enhance natural capital, it also causes is a long-term process.
depreciation of natural capital like other sectors [6].
8. The cost involved in training staffs and employees is
• Manufacturing high.
The manufacturing processes are direct sources of wastes,
which are often disposed of in the environment. The CONCLUSION
program for the protection of the environment avoids Green accounting is the term for environmental and
manufacturing of products at the expense of damage to the natural resource accounting. It is an accounting model that
environment [7]. takes into account environmental interests. It is enjoying
an unprecedented attention in both the academic and
BENEFITS professional accounting communities. Although GA is an
Going green accounting reduces social risk, environmental emerging field of study and practice; it is quickly gaining
risk, political risk, market risk, business risk, and financial relevance because of its importance.
risk. It enhances the reputation of a company, enhances
stakeholder appreciation, protects the company, and Green accounting is a policy that is relevant everywhere,
redeems the mistakes of corporations. The ultimate the government of each nation must proactively promote
objective of the go green movement is to: (1) lower costs environmental awareness and stress bringing green
and increase revenues, profits, equity and corporate accounting practices to the forefront of accounting. Green
assets, (2) support long-term business sustainability and accounting should be introduced in accounting curriculum
corporate profits; (3) increase prices or share value of [10]. It is the unavoidable trend. More information on
company; and (4) encourage sustainable growth of green accounting can be found in books in [11-16].
enterprise [8]. Other benefits include [9]:
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 International Journal of Scientific Advances ISSN: 2708-7972

[5] Manoj Yadav,” Green accounting a review paper,” ABOUT THE AUTHORS
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32_Green_Accounting_a_Review_Paper/download Matthew N.O. Sadiku is professor emeritus in the
Department of Electrical and Computer Engineering at
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