Protecting the physical environment by business organizations comes with costs that can be very significant to deal with. Notwithstanding, environmental protection will yield enormous long-term benefits for business organizations.
Required:
Explain TWO ways in which business and environmental benefits can be achieved. (4 marks)
View Solution
i. Integrating the environment into capital expenditure decisions (by considering environmental opposition to projects which could affect cash flows, for example).
ii. Understanding and managing environmental costs. Environmental costs are often ‘hidden’ in overheads and environmental and energy costs are often not allocated to the relevant budgets.
iii. Introducing waste minimisation schemes
iv. Understanding and managing life cycle costs. For many products, the greatest environmental impact occurs upstream (such as mining raw materials) or downstream from production (such as energy to operate equipment). This has led to producers being made responsible for dealing with the disposal of products such as cars, and government and third party measures to influence raw material choices. Organisations therefore need to identify, control and make provision for environmental life cycle costs and work with suppliers and customers to identify environmental cost reduction opportunities.
v. Measuring environmental performance. Business is under increasing pressure to measure all aspects of environmental performance, both for statutory disclosure reasons and due to demands for more environmental data from customers.
vi. Involving management accountants in a strategic approach to environment-related management accounting and performance evaluation.