Description
Introducing a discussion of some of the ways in which accounting and other calculative
mechanisms are involved in environmental matters, the article focuses on a number of
questions that emerge from accounting for carbon emission permits and corporate environmental
reporting. Both are areas where there is already a need for more research and
where that need will increase in the coming years. Identifying some of the interests and
pressures that already influence approaches in the area, the case is made for the need
for both critical and facilitative research
Accounting and the environment
Anthony G. Hopwood
*
University of Oxford, Saïd Business School, Park End Street, Oxford OX1 1HP, United Kingdom
a r t i c l e i n f o a b s t r a c t
Introducing a discussion of some of the ways in which accounting and other calculative
mechanisms are involved in environmental matters, the article focuses on a number of
questions that emerge from accounting for carbon emission permits and corporate envi-
ronmental reporting. Both are areas where there is already a need for more research and
where that need will increase in the coming years. Identifying some of the interests and
pressures that already in?uence approaches in the area, the case is made for the need
for both critical and facilitative research.
Ó 2009 Elsevier Ltd. All rights reserved.
Introduction
Accounting has already started to be implicated in the
consideration of environmental issues and the probability
is that its involvement will develop further over the com-
ing years. As greater acknowledgement is given to the role
of human agency in the environmental sphere, the need for
different approaches to both conceiving and acting upon
human and organizational interaction with the environ-
ment has started to be recognized, albeit still far too
slowly. There are, as a consequence, more signs of an
emerging awareness that many aspects of human life are
likely to change, even including accounting and other cal-
culative systems. As changes occur in our concepts and fo-
cus of accountability for the environment, the demands for
different ?ows of information, accounting and otherwise,
are also likely to grow.
Of course much could already be done to alleviate some
of the major environmental dif?culties if there was a will
to act. But that will is only very weakly developed in most
countries of the world and in most spheres of life. It cer-
tainly has been largely absent at the political and the cor-
porate levels, both arenas were rhetoric has often been a
long way ahead of action and were, as a result, remarkably
little has been done in the majority of cases. All too often
the desire to act has only found a verbal expression, action
itself being more in?uenced by political in?ghting and cor-
porate lobbying and in?uence. Even now, as the ?ndings of
environmentalists and scientists get ever more certain and
disturbing, the vast majority of politicians still have dif?-
culty in responding, continuing to put what they see as
their short-term economic and political imperatives above
the longer term interests of the human race.
However, although a strong will to act might result in
less call on calculative devices, including accounting, to
construct new patterns of incentives and visibility, I sense
that the role of calculation would still not be minimal.
Trade-offs would still have to be evaluated, interests would
still diverge, thereby suggesting a role for incentives to
engender change, intentions would still need to be checked
against achievements, and there still would be areas where
careful analyses of alternative approaches would need to
guide action. The desirability of bio-fuels, for instance, cer-
tainly cannot be taken for granted given the complex pat-
terns of interdependences that their production entails
with that of food and the preservation of biodiversity and
natural habitats and their wider environmental conse-
quences (Scharlemann & Laurance, 2008). Current discus-
sions over the desirability of otherwise of replacing old
cars with more fuel ef?cient ones give rise to similar calcu-
lative complications (Monbiot, 2009; van Wee, Moll, &
Dinks, 2000). In both of these and a multitude of other
areas quite complex assessments and calculations need
to be involved in the appraisal of alternative ways of mov-
ing forward. Moreover curiosity alone could and most
0361-3682/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2009.03.002
* Tel.: +44 1865 228 472; fax: +44 1865 288 651.
E-mail address: [email protected]
Accounting, Organizations and Society 34 (2009) 433–439
Contents lists available at ScienceDirect
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j our nal homepage: www. el sevi er. com/ l ocat e/ aos
likely should result in an investment in greater transpar-
ency, particularly if social and environmental values are
to function alongside economic ones. So a dream of a
post-calculative society is certainly a very long way away
and possibly should not even be entertained at all.
A case can therefore be made that calculation, including
that of new forms of accounting, is likely to be a signi?cant
feature of a world not only conscious of environmental is-
sues and constraints but also committed to achieving a
more harmonious relationship between the human and
natural worlds.
Of course accounting has already become involved with
these issues, both consciously and otherwise. Not only this,
but there are also signs that at least some degree of learn-
ing has taken place and is slowly, albeit perhaps too slowly,
giving rise to the creation of new agendas in the account-
ing area. So whilst early initiatives in the area of corporate
environmental reporting might have achieved very little,
even on occasions creating a degree of corporate legiti-
macy that shielded what was really going on, there are
now some signs of pressures for more extensive and trans-
parent approaches. Although in many areas conventional
approaches to accounting stand in stark contrast to emerg-
ing environmental considerations, the potential con?icts
have also started to be recognized, again albeit slowly. Pre-
vailing approaches to costing certainly ignore many of the
indirect consequences of corporate actions on the environ-
ment, but this is something that is increasingly being
acknowledged (for an early discussion see Gray, Bebbing-
ton, and Walters, 1993. Existing means of project appraisal
also tend to favour short-term results and thereby often
used to argue against more environmentally sustainable
approaches, not least in the areas of energy and transpor-
tation. But here too, the dilemmas so created are slowly
starting to be discussed, if not changed (Broome, 1992;
Portney & Weyant, 1999; Weitzman, 1998 and Weitzman,
2001). At least there is now some recognition of the role of
conventional discounting technologies in minimising the
signi?cance of future consequences and impacts, not least
in the context of the in?uential Stern Report (2007) whose
very ?ndings and recommendations were dependent upon
the application of an alternative approach to calculating
the future, namely the application of a declining discount
rate across time. In numerous other areas of current envi-
ronmental and sustainability concern there are now some
signs of an emerging interest in more careful analysis
and calculation, often including economic and ?nancial
calculation. Rather than assuming the automatic superior-
ity of certain approaches and solutions, at least some peo-
ple are now trying to delve deeper into the assumptions
involved and into the wider issues that might be at stake.
Relative costs and the demands made on ?nancial re-
sources are becoming a more prevalent part of such exer-
cises, in the process raising questions about the adequacy
of prevailing understandings about costs and their associa-
tion with very particular assumptions about the nature of
organizations and their boundaries.
As the papers that follow illustrate, the creation of a
market in carbon emissions is one arena in which account-
ing and the environment have become intertwined – for
better or for worse. The result of an apparently simple
abstract logic, the resulting implementation and operation
of a market in emission rights has inevitably resulted in a
series of issues that never entered into its original justi?ca-
tion, suggesting that this is an area where there already are
and will continue to be signi?cant issues calling for serious
research and inquiry.
Accounting and the creation of carbon markets
Emerging from economic understandings of the roles
that pricing and the establishment of markets can play in
in?uencing resource utilisation, the Kyoto Protocol Clean
Development Mechanism and the subsequent establish-
ment of the European Emissions Trading Scheme resulted
in a huge new ?nancial arena prior to the current economic
crisis. In 2007 The Economist (2007, p. 10) reported that
$30.4 billion of allowances had been traded in the previous
year, with Europe making up 80% of the total value, and the
carbon market analysis and consulting group, Carbon
Point, estimated that this ?gure was reached in only the
?rst 6 months of 2008 (Milner, 2008). The speed with
which ?nancial institutions moved into the area and ap-
plied both the simple and the more complex products of ?-
nance research to yet another area of human endeavour
was truly remarkable and itself something worthy of a
great deal of detailed and ?nely tuned research in the com-
ing years (see Knox-Hayes, 2008). Equally remarkable,
however, has been the speed of retreat during the current
recession. With many corporations having surplus carbon
permits in hand, their price has collapsed during 2009
(Glover, 2009), at least for the time being effectively elim-
inating their role in changing corporate practices and tech-
nologies, and possibly resulting in a questioning of the
longer term effectiveness of such approaches.
For this and other reasons it is most likely still far too
early to fully appreciate the consequences of the entwine-
ment of the values which resulted in the environmental
concerns that gave rise to a new market in carbon emis-
sions with those very different ones of the ?nancial institu-
tions that merely trade in the resultant products (Gibson,
1996). We already know that this is an arena in which
the likelihood of fraud, manipulation and a whole range
of unanticipated consequences is very real. Not only is
the off shoring of emissions an ever present possibility
but it is also increasingly known that many of the carbon
saving projects subsidised by the receipts from the sale
of emission rights would have been undertaken in any case
(Forelle, 2008; Wara & Victor, 2008), possibly with be-
tween one and two thirds of all clean development mech-
anism offsets now being seen as not representing actual
emission reductions. Questions are also being asked of
the likely speed with which such an approach can funda-
mentally change emission patterns even in times of eco-
nomic prosperity and growth, with some thinking that
worthy though the intentions might be, the market led
adjustments will be too slow and thereby too late (Prins
& Rayner, 2007).
As such questions imply, the consequences of such a
stark separation of trading from the underlying concerns
that gave rise to it are largely unknown at the present time.
434 A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439
Can, one wonders, the ethical considerations of the envi-
ronmentalists be transferred to the economic market
place? Or will the values of the market place overwhelm
those of the environmental sphere, introducing a totally
new set of unanticipated consequences and actions which
are likely to be to the longer term detriment of the original
concerns? For while the underlying abstract logic of the
cap and trade scheme appeared rational and clear, operat-
ing in the complex world of institutional in?uences intro-
duces a multitude of factors that did not enter into the
original justi?cation. Even a temporary collapse of the car-
bon market in the current recession only adds to such
worries.
All this suggests that this is an area where many re-
search questions remain, some of paramount importance
for evaluating the likely outcomes of such cap and trade
schemes, and for designing and evaluating alternative ap-
proaches to carbon reduction (also see Bebbington & Larri-
naga-González, 2008). The articles that follow are
suggestive of a number of the rich lines of investigation, to-
gether opening the door on an area of inquiry where
accounting has been involved but accounting research
has so far seemingly lagged behind that in the environ-
mental and social sciences.
An illustration of the need for more research into the
interface between accounting and environmental consid-
erations came to my attention through a recent incident
in the United Kingdom. In these relatively early days of
the European Emissions Trading Scheme companies are gi-
ven a speci?ed number of emission rights for free, thereaf-
ter having to buy any additional permits which they
require on the market, or pay a penalty. The idea behind
such an approach was to reduce corporate resistance to
the scheme and to provide a learning period during which
the new market could develop. In practice, however, at
least two dif?culties have emerged. First, many companies
in the majority of polluting sectors were given more emis-
sion permits than they required, thereby having the oppor-
tunity to either sell the spare permits, earning immediate
cash incomes, or bank them for use in the later phase of
the scheme when it is intended that all permits should
be bought. Either way, rather than polluters having to
pay, in many cases polluters have been paid! The distribu-
tion of permits was made by the relevant European gov-
ernments, of?cially on the basis of past experiences and
future plans but also, it would appear, on the basis of in-
tense corporate lobbying and governmental characterisa-
tions of their short-term national interest. So electricity
generators were systematically provided with appreciably
less permits than they needed, at least in the United King-
dom, the argument being that because ?rms in this sector
are not subject to international competition, they are in a
position to pass on to their customers the additional costs
of acquiring further permits. It certainly would appear that
corporate interests and fairly conventional short-term
nationalistic economics were given priority over environ-
mental considerations, despite the underlying rationale
for the scheme. And the second dif?culty stemmed from
this. While the cost of any additional permits purchased
on the market would enter into the normal costing struc-
ture of a ?rm, that indeed being the original intention of
a scheme designed to provide economic incentives to re-
duce carbon emissions, how were the free permits to be ac-
counted for?
In a paper that follows Allan Cook (2009) outlines the
discussions and debates about accounting for emission
rights that occurred in the International Accounting Stan-
dards Board. Those discussions are still ongoing, pointing
to both the politics and lobbying that surround the issue
as well as the conceptual and technical issues involved.
Not unrelated issues surrounded the attention given to
emission rights accounting in the United Kingdom where
sections of the press were interested in the fact that
although electricity generating ?rms had received some
of their emission permits for free, they nevertheless were
costing the free receipts at the prevailing market price
and using this enhanced cost base to justify price increases
to customers. The environmental policy thereby had not
insigni?cant, although clearly unanticipated, distributional
consequences, with customers loosing and the ?nancial
interests of capital and no doubt senior management gain-
ing. Moreover the regulatory authority, Ofgem, the Of?ce
of the Gas and Electricity Markets, not only sanctioned this
practice but also agreed with the conceptual basis articu-
lated for it, that of opportunity costing. The seeming logic
of economics was accepted without question. The press
seemed to have a different approach, however, taking what
might be seen as a more ethical stance in emphasising the
resultant windfall pro?ts. ‘‘Fuel ?rms set for £11bn wind-
fall in CO2 trading”, exclaimed one headline (The Guardian,
10 August 2008; ‘‘Polluters stand to make hundreds of mil-
lions from European carbon permit scheme”, declared an-
other (The Guardian, September 13, 2008). Observing the
operation of the European scheme from afar, others also
seemed to recognize the gap between the rationale built
into the scheme and the pro?t making corporate response
(see Williams-Derry & de Place, 2008), with the Market
Advisory Committee of the California Air Resources Board
(2007) rather gently noting that ‘‘The free allocation of
emission allowances generates rents – that is, pro?ts be-
yond the normal expected return to capital – to recipients
of the free allowances.”
For anyone who is not used to such corporate interest in
relatively obscure academic concepts, the speed with
which the concept of opportunity cost was utilised is not
without interest. Despite its articulation in many cost
and management accounting textbooks, the concept has
never appeared to be in frequent use in practice. Econo-
mists may propagate it but conventional costing almost
invariably overrules it. But in this instance, conventional
costing would have attributed a zero cost to a gift, with
?rms thereby not recognizing it as a cost in the determina-
tion of prices. Prices might thereby be lower, particularly in
a regulatory environment where justi?cations for price in-
creases might be required, and, as a result, the potential for
pro?t enhancement is sacri?ced. But corporate actions in
the United Kingdom and elsewhere (Sijm, Neuhoff, & Chen,
2006) suggested that pro?t enhancement was a dominant
concern, this seemingly providing a utility to even an ob-
scure concept. Indeed the subsequent literature on the
operation of the European Emission Trading Scheme is
impregnated with the language of opportunity cost.
A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439 435
The justi?cation for the inclusion of the opportunity cost
of the free emission permits was on the basis that the gen-
erators would only produce electricity if the price of the
electricity is high enough to compensate them for using,
rather than selling, their emission permits. As one would
expect, there is a presumption that the ?rms would com-
pare the pro?ts from the production of electricity using
the freely granted emission permits or selling the permits
directly at the prevailing market price, doing whichever
would give the highest pro?t. But only one option is avail-
able, so if the permits are used to gain the higher pro?t, they
cannot be sold, thereby suggesting that alternative uses dis-
appear after the decision to proceed with one course of ac-
tion rather than another. Such a logic might suggest the
basis for a rather different, albeit not pro?t enhancing, ap-
proach to thinking of the opportunity costs.
Indeed such an approach is not inconsistent with the
more critical analysis of opportunity costing offered by
the economist John Gould (1962, p. 218):
‘‘To assert that the true nature of costs is contained in
the opportunity cost theory, and that the de?nition of
cost is the value of the sacri?ced alternative, can be
dangerously misleading – because it might be taken to
advocate the rigid application of a rule rather than to
promote the better understanding of the nature of the
problems of decision-making.”
He went on to add:
‘‘. . . the opportunity cost doctrine is best viewed as a
method of approach to a class of problem, rather than
simply as an injunction to use a particular de?nition.”
And to further illustrate the dif?culties of using the con-
cept Gould (1962, pp. 228–229) went on to say:
‘‘Consider an accountant faced with the problem of
ranking six plans in order of pro?tability. To work out
the pro?t of each plan, he deducts from the revenue
the costs. If – as he may think he ought to do after hear-
ing economists speak of opportunity costs – he simply
substitutes for his own notion of cost the de?nition of
opportunity cost, he ?nds himself at an impasse. To
rank the plans, he must know the opportunity cost; to
know the opportunity cost, he must know the value of
the next best alternative plan; thus to ?nd the opportu-
nity cost, he must rank the plans.”
All too clearly Gould was not convinced by either the
utility or the conceptual clarity of the concept. To his mind
the role of the economist was not to advocate ‘‘a particular
de?nition of cost” but rather to create ‘‘an awareness that
decision problems involve choices between alternatives”
(Gould, 1962, p. 229), albeit informed ones.
That more than economics is at stake in the interest in
the concept of opportunity costs was suggested by an inci-
dent in my own institution. During a discussion one ?-
nance faculty member suggested the recalibration of the
calculation of overhead costs in the area of executive edu-
cation. Although ?nance faculty already received the high-
est salaries (despite the much greater supply of trained
doctorates in the area than in most other management
subjects) and some had also negotiated double the prevail-
ing rate for executive education teaching, refusing to teach
otherwise, the ?nance faculty were now interested in the
possibility of taking a share of the surplus generated on
executive education programmes on which they taught.
Faculty from other subjects had seen such surplus’s as
accruing to the institution as a whole and even when the
possibility of sharing was raised, they recognized the need
for the institution to be able to cover all the costs involved,
including so-called overhead costs, before calculating the
surplus. Not so for at least some of the ?nance faculty.
Not only were overhead costs seen as an institutional prob-
lem rather than an issues for an individual discipline but
also they had more of a notion of a contribution margin
in mind rather than a conventional calculation of surplus
after overheads. Yes, some indirect costs might be relevant
but calculated, they suggested, on the basis of their oppor-
tunity cost rather than any conventional overhead charge.
So spatial charges would only be attributed if there was a
competing use of the space involved and even then only
at the rate that would be gained from such an alternative
use. And similarly for other charges. All too clearly this
was a highly particular appeal to the use of opportunity
costs and one not unrelated to the example discussed
above. This was opportunity cost being appealed to in
the service of the maximisation of gains by a speci?c set
of interests.
Such examples suggest the possibility of a relationship
between particular calculative technologies and the value
culture of an organization, set of organizations or even,
as in the above example, a segment of an organization. In
the case of the discussions over the possible sharing of sur-
plus, the majority’s acceptance of the legitimacy of costing
technologies that distributed all the costs of an organiza-
tion or activity before attributing a surplus to either the
whole or a part of it was suggestive of a more communitar-
ian ethos. The concern with using opportunity costs to in-
crease a highly speci?c and segmental surplus was far from
communitarian in approach, being suggestive of the indi-
vidualism that is enshrined in so much economic thought.
The possibility of such an inter-relationship between cal-
culative approaches and value cultures is certainly an
intriguing area for further research.
Indeed I had wondered whether such differences might
be evident in different national tendencies in accounting
for the free allocation of emission rights under the Euro-
pean Scheme. Were there, one wondered, differences in re-
gimes of what might be seen as ?nancial and social capital.
But a study involving Germany and The Netherlands (Sijm
et al., 2006) found pricing patterns consistent with the
incorporation of the opportunity cost of the free permits
being fed into prices. Moreover, although another study
(IETA (International Emissions Trading Association),
2007) found variations in the accounting for emission per-
mits in the external reports of European ?rms, further in-
quires found that those differences were sectoral rather
than national, with all those accounting for the permits
at the market price being traders in the ?nancial sector
rather than users – none of whom at the time of the study
were externally accounting for the free allocations. So
436 A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439
interestingly, although opportunity costs entered into the
calculation of price and the justi?cation of any resultant in-
creases to the regulatory authorities, they did not enter
into the mainstream ?nancial accounts, something that
seems only to reinforce the fact that this is likely to be
an area of genuine research interest.
Perhaps it should be noted that at the national level only
Greece has forbidden the passing on the opportunity cost of
freely given permits in the price charged to the customer,
possibly suggesting a more communitarian rather than a
neo-liberal and business in?uenced approach (Knight,
2008). Such a ruling should increase the incentives to invest
in less polluting technologies, particularly in areas like elec-
tricity generation where off-shoring is more dif?cult. But in
those industrial sectors where moving production off-shore
is possible, the incentive might be to do just this, at the best
resulting in no reduction in carbon emissions and in the
worst case scenario, production in less environmental ef?-
cient circumstances. If nothing else, such responses suggest
the importance of investigating and understanding the
environmental pro?le of whole supply chains rather than
just pockets of national production.
Corporate environmental reporting
It is such consequences that reinforce the need for corpo-
ratereportingof their environmental as well as ?nancial per-
formance. Such reporting has some potential to give a
greater degree of visibilitytocorporate environmental activ-
ities and consequences, casting light on what is often invisi-
ble. But havingsaidthat, it is alsoimportant torecognizethat
visibility is not the only possible consequence of corporate
reporting in this area (Milne & Gray, 2007). Indeed it is pos-
sible that such reporting can even reduce what is known
about a company and its environmental activities. Compa-
nies are also interestedinthe possibilities for environmental
reportingtoincreasetheir legitimacyinthewider world. Not
only that, they canalso have an interest in using reporting to
facilitatetheconstructionof a newanddifferent image of the
company. To the extent that such strategies work, it is possi-
ble that fewer questions might be asked of the legitimated
organization and thereby less might be known of it. It is as
if the report serves as a corporate veil, simultaneously pro-
viding a new face to the outside world while protecting the
inner workings of the organizationfromexternal view. Done
with skill and a fair amount of planning and thought, it is
possible for some modes of reporting to thicken that veil
such that even less is known of the corporation despite the
apparent openness of its reporting. Once again this suggests
an area in urgent need of more research.
Admittedly such legitimating rationales rarely enter
into corporate let alone public policy discussions of the
roles and potential of enhanced environmental disclosures
(although there is a developing research literature on the
theme, for an overview of which see Deegan (2007)). How-
ever their relevance for understanding the approaches
within the corporate sector was once again brought to
my attention at a recent Association of Chartered Certi?ed
Accountants’ ceremony for the 2008 United Kingdom
Awards for Sustainability Reporting.
The top award was given to BT Group plc, not least for
displaying ‘‘a strong integration of sustainability concerns
into the core business strategy” (ACCA, 2008, p. 8).
Whether the report was inclined towards legitimacy or a
more genuine interest in enhancing transparency was not
clear, although at the very least one would like to know
much more about whether those changes in strategy also
changed action. Often strategies have a complex and dif-
fuse relationship with the world of action. Despite this,
corporate and consultancy ?rms’ discussions of environ-
mental reporting still place far too much attention on
changing strategy and far too little on changing action!
More understandably the joint awards for the small and
medium sized enterprise sector went to Traidcraft, one of
the main British movers in the area of fair-trade, and Reap,
a local sustainable development organization in Scotland.
Interestingly for both of these organizations the judges pri-
marily made comments on what they were actually doing
and the reporting and assessment of it whereas for the
more corporate BT more emphasis was placed on ‘‘strat-
egy”, ‘‘target(s)”,”the future” and its developmental pro-
gramme. Compared with the action orientation for
Traidcraft and Reap, interestingly BT appeared to be resid-
ing more in the realms of reporting intentions.
Of the other short listed reports, the joint runners up
were The Co-operative Group and Unilever, the rest being
Anglo American plc, British American Tobacco plc, BHP
Billiton, BP plc, Camelot Group plc, GlaxoSmithKline, Royal
Dutch Shell plc, Vodafone Group plc and Xstrata plc. Some
of these do indeed suggest that this is an area where fur-
ther investigation into rationales for environmental and
sustainability reporting might well be illuminating.
Just consider the oil companies, BP and Royal Dutch
Shell. In the United Kingdom BP has invested in an enor-
mous green advertising programme outlining its practices
and intentions in a tiny percentage of its overall business.
Moreover that campaign has been refreshed at the very
time when even its modest moves into renewable and
more environmentally friendly modes of energy produc-
tion have been cut back. BP has pulled out of renewables
projects in China, India and the United Kingdomand is only
keeping US investments in the area because of the more
favorable tax incentives which provide an acceptable eco-
nomic return. In contrast, it remains committed to its
involvement with the Canadian tar sands, an oil source
that involves three times as many carbon emissions as or-
dinary oil production and one which is already having dev-
astating effects on biodiversity (Jowit, 2009). The reality of
its environmental and sustainability performance is there-
fore an interesting one and some serious questions can be
and should be explored in relation to how its modes of
reporting relate to these. Perhaps some clues are given
by the fact that one of its senior of?cials in the area occu-
pied the post of Vice President of Corporate Responsibility,
Communications and External Affairs. At least such hon-
esty can be appreciated. Not dissimilar issues relate to Roy-
al Dutch Shell. Again investing in the Canadian tar sands
(Macalister & Wearden, 2009), Shell also has a complex
history of involvement in Nigeria, has withdrawn from
investing in renewable energy generation in the Thames
Estuary in the United Kingdom and is considering moving
A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439 437
towards a commitment to bio-fuels which, as has already
been mentioned, is a complex and potentially problematic
area from a sustainability point of view. Moreover the Car-
bon Disclosure Project reported that Shell has worldwide
carbon emissions of 743 million tones compared with
573 million for the whole of the United Kingdom, this ?g-
ure including the carbon impacts of product use and dis-
posal (Macalister, 2008). In more recent times Shell had
kept a quite low pro?le in the environmental arena, most
likely still all too conscious of the consequences of its
involvement with Brent Spar, but in the last year, despite
its positioning as presented here, it has joined BP in invest-
ing in a major green PR campaign in the national media in
the United Kingdom. Perhaps fortunately for the wider
public, the British Advertising Standards Authority inter-
vened in parts of this after Shell had claimed in an adver-
tisement in the Financial Times that its $10 billion
investment in Canadian tar sands was a contribution to a
sustainable energy future (Pearce, 2008). Shell had taken
advantage of the multiple de?nitions of sustainability to
imply a positive environmental aim when what it was
really doing was trying to maintain a sustainable ?ow of
fuel to its customers!
Even without commenting on the environmental pro?l-
ing of Anglo American Tobacco, it is clear that a variety of
motives may well be implicated in the production of envi-
ronmental and sustainability reports. Exploring these fur-
ther is likely to be a very complex task requiring the use
of both analytical and historical insights. Detailed internal
case studies could also be useful, as would deeper under-
standings of the interaction of such concerns with the rel-
evant regulatory authorities, the media and political
circles. However, the probability of such companies allow-
ing detailed probings can hardly be high when so much is
at stake for their image and reputation. But one hopes that
this does not prevent active members of the research com-
munity from at least trying.
Concerns with the current state of knowledge in the
area of corporate environmental reporting have already
started to emerge in the research community (see for
example Milne & Gray, 2007, and Gray, forthcoming) and
most certainly need further encouragement. There are gen-
uinely complex and very dif?cult issues to be confronted in
reporting on corporate actions in relation to the environ-
ment. Indeed they are such that it is very doubtful whether
any satisfactory approach will emerge. At best, environ-
mental accounting and reporting is likely to function
alongside a range of other regulatory and in?uencing
structures, and an enhanced investment in the informa-
tional and investigative activities of non-governmental
organizations and some sections of the media that have
the expertise and motivation to engage in a whole series
of speci?c ad hoc investigations and analyses (Hopwood,
1978). For that is how many existing understandings of
the environmental area have reached a wider public rather
than through the disclosure activities of the corporate sec-
tor, and such a balance in information sources is unlikely to
change in the coming years.
So rather than seeing reporting as ever being likely to
emerge as an adequate approach to corporate transparency
in the environmental sphere, we should instead focus on a
multitude of ways of enhancing the informational context
of corporate activities. But this will require not only new
knowledge and new institutional mechanisms but also a
shift in the relative balance of power. The ability to gain
information, let alone any changes in the more fundamen-
tal right to know, can never be separated from the locus of
power and changes in its distribution.
While certainly not addressing such fundamental is-
sues, a nevertheless interesting approach to the more
immediate task of trying to design an approach to corpo-
rate environmental reporting is emerging from The Prince
of Wales Accounting for Sustainability Forum (see http://
www.accountingforsustainability.org). Explicitly recogniz-
ing that there is unlikely to be any signi?cant shift in the
balance of power in the immediate future, the team work-
ing on the project has proposed an approach that they
think has some potential to engage the corporate commu-
nity whilst at the same time resulting in environmental
matters being seen as a more mainstream part of business.
The Connected Reporting Framework that has emerged
from the project is seen as a tangible step towards not only
a more holistic concept of reporting but also one that starts
to recognize that carbon and other environmental con-
straints are likely to become signi?cant factors in the
twenty ?rst century. It seeks to demonstrate howboth eco-
nomic and ?nancial and environmental and sustainability
information can and should be presented in a connected
way, showing the economic costs and bene?ts of more
environmental considerations. Rather than environmental
issues being seen as ‘‘out there”, at the boundary of mana-
gerial attention, as so often is the case, the aim is to con-
nect them to the consideration of economic and ?nancial
matters, hopefully thereby making them a more main-
stream part of business. For the way that environmental
matters are managed will be an increasing material factor
in many sectors of the economy in the years to come.
Rather than having the static aim of merely reporting,
the Connected Reporting Framework also has the explicit
intent to introduce a dynamic element into organizational
life, thereby striving to reposition the signi?cance of an
environmental and sustainability agenda (see also Bebb-
ington, 2007). Admittedly cautious in approach, seeking
to stretch the prevailing corporate policies and actions
rather than more radically change them in the shorter
term, the thought processes behind the Connected Report-
ing Framework are nevertheless interesting ones worthy of
further consideration. The framework seeks to integrate a
quite explicit consideration of organizational change pro-
cesses into the design of a reporting system.
The way forward
The articles that followgive a rich introduction to the is-
sues at stake in the creation of a market in carbon emissions
and the roles that accounting and calculative mechanisms
can and cannot play in the environmental area. Together
they open the door a little more on a domain that is in need
of much more attention in the coming years. As such, they
point to some of the problems that needfurther exploration,
to the need for a questioning and critical approach, and to
the importance of looking at actions and consequences as
438 A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439
well as just aims andintentions. Theresearchtraditions now
established in the area of the organizational and social anal-
ysis of accounting provide a good basis for looking beyond
abstract schemes for change and improvement to explore
the actuality of their functioning and operations, and to
use this knowledge for the more realistic design of ap-
proaches to changing both the signi?cance which environ-
mental and sustainability considerations play in the
corporate sphere and our ways of gaining insights into the
adequacy or otherwise of these. For this is an area where
bothfacilitativeandcritical researchare requiredandwhere
there are likely to be possibilities for the one to feed into the
other, albeit in most cases by different people.
Such considerations point to the very real potential of
research which seeks to explore the role and functioning
of accounting in the environmental and sustainability
spheres. Being at such an early stage of our understanding
of this area, both the opportunities and need for research
are very real. It is to be hoped that the examples of the pio-
neering researchers who have already sought to map out
some of the outlines of the area will be recognized, valued
and built upon (see Unerman, Bebbington, & O’Dwyer,
2007), thereby providing a more informed and systematic
knowledge base in an area of human endeavour that is
likely to have profound consequences for the human race.
Acknowledgements
I would like to acknowledge the helpful comments of
Michael Bromwich, London School of Economics and Polit-
ical Science, Chris Chapman, Imperial College, Eric Knight,
Oxford University Centre for the Environment, Geoff Lye,
SustainAbility and the Environmental Change Institute,
University of Oxford, and especially Rob Gray, University
of St. Andrews.
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doc_789035980.pdf
Introducing a discussion of some of the ways in which accounting and other calculative
mechanisms are involved in environmental matters, the article focuses on a number of
questions that emerge from accounting for carbon emission permits and corporate environmental
reporting. Both are areas where there is already a need for more research and
where that need will increase in the coming years. Identifying some of the interests and
pressures that already influence approaches in the area, the case is made for the need
for both critical and facilitative research
Accounting and the environment
Anthony G. Hopwood
*
University of Oxford, Saïd Business School, Park End Street, Oxford OX1 1HP, United Kingdom
a r t i c l e i n f o a b s t r a c t
Introducing a discussion of some of the ways in which accounting and other calculative
mechanisms are involved in environmental matters, the article focuses on a number of
questions that emerge from accounting for carbon emission permits and corporate envi-
ronmental reporting. Both are areas where there is already a need for more research and
where that need will increase in the coming years. Identifying some of the interests and
pressures that already in?uence approaches in the area, the case is made for the need
for both critical and facilitative research.
Ó 2009 Elsevier Ltd. All rights reserved.
Introduction
Accounting has already started to be implicated in the
consideration of environmental issues and the probability
is that its involvement will develop further over the com-
ing years. As greater acknowledgement is given to the role
of human agency in the environmental sphere, the need for
different approaches to both conceiving and acting upon
human and organizational interaction with the environ-
ment has started to be recognized, albeit still far too
slowly. There are, as a consequence, more signs of an
emerging awareness that many aspects of human life are
likely to change, even including accounting and other cal-
culative systems. As changes occur in our concepts and fo-
cus of accountability for the environment, the demands for
different ?ows of information, accounting and otherwise,
are also likely to grow.
Of course much could already be done to alleviate some
of the major environmental dif?culties if there was a will
to act. But that will is only very weakly developed in most
countries of the world and in most spheres of life. It cer-
tainly has been largely absent at the political and the cor-
porate levels, both arenas were rhetoric has often been a
long way ahead of action and were, as a result, remarkably
little has been done in the majority of cases. All too often
the desire to act has only found a verbal expression, action
itself being more in?uenced by political in?ghting and cor-
porate lobbying and in?uence. Even now, as the ?ndings of
environmentalists and scientists get ever more certain and
disturbing, the vast majority of politicians still have dif?-
culty in responding, continuing to put what they see as
their short-term economic and political imperatives above
the longer term interests of the human race.
However, although a strong will to act might result in
less call on calculative devices, including accounting, to
construct new patterns of incentives and visibility, I sense
that the role of calculation would still not be minimal.
Trade-offs would still have to be evaluated, interests would
still diverge, thereby suggesting a role for incentives to
engender change, intentions would still need to be checked
against achievements, and there still would be areas where
careful analyses of alternative approaches would need to
guide action. The desirability of bio-fuels, for instance, cer-
tainly cannot be taken for granted given the complex pat-
terns of interdependences that their production entails
with that of food and the preservation of biodiversity and
natural habitats and their wider environmental conse-
quences (Scharlemann & Laurance, 2008). Current discus-
sions over the desirability of otherwise of replacing old
cars with more fuel ef?cient ones give rise to similar calcu-
lative complications (Monbiot, 2009; van Wee, Moll, &
Dinks, 2000). In both of these and a multitude of other
areas quite complex assessments and calculations need
to be involved in the appraisal of alternative ways of mov-
ing forward. Moreover curiosity alone could and most
0361-3682/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2009.03.002
* Tel.: +44 1865 228 472; fax: +44 1865 288 651.
E-mail address: [email protected]
Accounting, Organizations and Society 34 (2009) 433–439
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
likely should result in an investment in greater transpar-
ency, particularly if social and environmental values are
to function alongside economic ones. So a dream of a
post-calculative society is certainly a very long way away
and possibly should not even be entertained at all.
A case can therefore be made that calculation, including
that of new forms of accounting, is likely to be a signi?cant
feature of a world not only conscious of environmental is-
sues and constraints but also committed to achieving a
more harmonious relationship between the human and
natural worlds.
Of course accounting has already become involved with
these issues, both consciously and otherwise. Not only this,
but there are also signs that at least some degree of learn-
ing has taken place and is slowly, albeit perhaps too slowly,
giving rise to the creation of new agendas in the account-
ing area. So whilst early initiatives in the area of corporate
environmental reporting might have achieved very little,
even on occasions creating a degree of corporate legiti-
macy that shielded what was really going on, there are
now some signs of pressures for more extensive and trans-
parent approaches. Although in many areas conventional
approaches to accounting stand in stark contrast to emerg-
ing environmental considerations, the potential con?icts
have also started to be recognized, again albeit slowly. Pre-
vailing approaches to costing certainly ignore many of the
indirect consequences of corporate actions on the environ-
ment, but this is something that is increasingly being
acknowledged (for an early discussion see Gray, Bebbing-
ton, and Walters, 1993. Existing means of project appraisal
also tend to favour short-term results and thereby often
used to argue against more environmentally sustainable
approaches, not least in the areas of energy and transpor-
tation. But here too, the dilemmas so created are slowly
starting to be discussed, if not changed (Broome, 1992;
Portney & Weyant, 1999; Weitzman, 1998 and Weitzman,
2001). At least there is now some recognition of the role of
conventional discounting technologies in minimising the
signi?cance of future consequences and impacts, not least
in the context of the in?uential Stern Report (2007) whose
very ?ndings and recommendations were dependent upon
the application of an alternative approach to calculating
the future, namely the application of a declining discount
rate across time. In numerous other areas of current envi-
ronmental and sustainability concern there are now some
signs of an emerging interest in more careful analysis
and calculation, often including economic and ?nancial
calculation. Rather than assuming the automatic superior-
ity of certain approaches and solutions, at least some peo-
ple are now trying to delve deeper into the assumptions
involved and into the wider issues that might be at stake.
Relative costs and the demands made on ?nancial re-
sources are becoming a more prevalent part of such exer-
cises, in the process raising questions about the adequacy
of prevailing understandings about costs and their associa-
tion with very particular assumptions about the nature of
organizations and their boundaries.
As the papers that follow illustrate, the creation of a
market in carbon emissions is one arena in which account-
ing and the environment have become intertwined – for
better or for worse. The result of an apparently simple
abstract logic, the resulting implementation and operation
of a market in emission rights has inevitably resulted in a
series of issues that never entered into its original justi?ca-
tion, suggesting that this is an area where there already are
and will continue to be signi?cant issues calling for serious
research and inquiry.
Accounting and the creation of carbon markets
Emerging from economic understandings of the roles
that pricing and the establishment of markets can play in
in?uencing resource utilisation, the Kyoto Protocol Clean
Development Mechanism and the subsequent establish-
ment of the European Emissions Trading Scheme resulted
in a huge new ?nancial arena prior to the current economic
crisis. In 2007 The Economist (2007, p. 10) reported that
$30.4 billion of allowances had been traded in the previous
year, with Europe making up 80% of the total value, and the
carbon market analysis and consulting group, Carbon
Point, estimated that this ?gure was reached in only the
?rst 6 months of 2008 (Milner, 2008). The speed with
which ?nancial institutions moved into the area and ap-
plied both the simple and the more complex products of ?-
nance research to yet another area of human endeavour
was truly remarkable and itself something worthy of a
great deal of detailed and ?nely tuned research in the com-
ing years (see Knox-Hayes, 2008). Equally remarkable,
however, has been the speed of retreat during the current
recession. With many corporations having surplus carbon
permits in hand, their price has collapsed during 2009
(Glover, 2009), at least for the time being effectively elim-
inating their role in changing corporate practices and tech-
nologies, and possibly resulting in a questioning of the
longer term effectiveness of such approaches.
For this and other reasons it is most likely still far too
early to fully appreciate the consequences of the entwine-
ment of the values which resulted in the environmental
concerns that gave rise to a new market in carbon emis-
sions with those very different ones of the ?nancial institu-
tions that merely trade in the resultant products (Gibson,
1996). We already know that this is an arena in which
the likelihood of fraud, manipulation and a whole range
of unanticipated consequences is very real. Not only is
the off shoring of emissions an ever present possibility
but it is also increasingly known that many of the carbon
saving projects subsidised by the receipts from the sale
of emission rights would have been undertaken in any case
(Forelle, 2008; Wara & Victor, 2008), possibly with be-
tween one and two thirds of all clean development mech-
anism offsets now being seen as not representing actual
emission reductions. Questions are also being asked of
the likely speed with which such an approach can funda-
mentally change emission patterns even in times of eco-
nomic prosperity and growth, with some thinking that
worthy though the intentions might be, the market led
adjustments will be too slow and thereby too late (Prins
& Rayner, 2007).
As such questions imply, the consequences of such a
stark separation of trading from the underlying concerns
that gave rise to it are largely unknown at the present time.
434 A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439
Can, one wonders, the ethical considerations of the envi-
ronmentalists be transferred to the economic market
place? Or will the values of the market place overwhelm
those of the environmental sphere, introducing a totally
new set of unanticipated consequences and actions which
are likely to be to the longer term detriment of the original
concerns? For while the underlying abstract logic of the
cap and trade scheme appeared rational and clear, operat-
ing in the complex world of institutional in?uences intro-
duces a multitude of factors that did not enter into the
original justi?cation. Even a temporary collapse of the car-
bon market in the current recession only adds to such
worries.
All this suggests that this is an area where many re-
search questions remain, some of paramount importance
for evaluating the likely outcomes of such cap and trade
schemes, and for designing and evaluating alternative ap-
proaches to carbon reduction (also see Bebbington & Larri-
naga-González, 2008). The articles that follow are
suggestive of a number of the rich lines of investigation, to-
gether opening the door on an area of inquiry where
accounting has been involved but accounting research
has so far seemingly lagged behind that in the environ-
mental and social sciences.
An illustration of the need for more research into the
interface between accounting and environmental consid-
erations came to my attention through a recent incident
in the United Kingdom. In these relatively early days of
the European Emissions Trading Scheme companies are gi-
ven a speci?ed number of emission rights for free, thereaf-
ter having to buy any additional permits which they
require on the market, or pay a penalty. The idea behind
such an approach was to reduce corporate resistance to
the scheme and to provide a learning period during which
the new market could develop. In practice, however, at
least two dif?culties have emerged. First, many companies
in the majority of polluting sectors were given more emis-
sion permits than they required, thereby having the oppor-
tunity to either sell the spare permits, earning immediate
cash incomes, or bank them for use in the later phase of
the scheme when it is intended that all permits should
be bought. Either way, rather than polluters having to
pay, in many cases polluters have been paid! The distribu-
tion of permits was made by the relevant European gov-
ernments, of?cially on the basis of past experiences and
future plans but also, it would appear, on the basis of in-
tense corporate lobbying and governmental characterisa-
tions of their short-term national interest. So electricity
generators were systematically provided with appreciably
less permits than they needed, at least in the United King-
dom, the argument being that because ?rms in this sector
are not subject to international competition, they are in a
position to pass on to their customers the additional costs
of acquiring further permits. It certainly would appear that
corporate interests and fairly conventional short-term
nationalistic economics were given priority over environ-
mental considerations, despite the underlying rationale
for the scheme. And the second dif?culty stemmed from
this. While the cost of any additional permits purchased
on the market would enter into the normal costing struc-
ture of a ?rm, that indeed being the original intention of
a scheme designed to provide economic incentives to re-
duce carbon emissions, how were the free permits to be ac-
counted for?
In a paper that follows Allan Cook (2009) outlines the
discussions and debates about accounting for emission
rights that occurred in the International Accounting Stan-
dards Board. Those discussions are still ongoing, pointing
to both the politics and lobbying that surround the issue
as well as the conceptual and technical issues involved.
Not unrelated issues surrounded the attention given to
emission rights accounting in the United Kingdom where
sections of the press were interested in the fact that
although electricity generating ?rms had received some
of their emission permits for free, they nevertheless were
costing the free receipts at the prevailing market price
and using this enhanced cost base to justify price increases
to customers. The environmental policy thereby had not
insigni?cant, although clearly unanticipated, distributional
consequences, with customers loosing and the ?nancial
interests of capital and no doubt senior management gain-
ing. Moreover the regulatory authority, Ofgem, the Of?ce
of the Gas and Electricity Markets, not only sanctioned this
practice but also agreed with the conceptual basis articu-
lated for it, that of opportunity costing. The seeming logic
of economics was accepted without question. The press
seemed to have a different approach, however, taking what
might be seen as a more ethical stance in emphasising the
resultant windfall pro?ts. ‘‘Fuel ?rms set for £11bn wind-
fall in CO2 trading”, exclaimed one headline (The Guardian,
10 August 2008; ‘‘Polluters stand to make hundreds of mil-
lions from European carbon permit scheme”, declared an-
other (The Guardian, September 13, 2008). Observing the
operation of the European scheme from afar, others also
seemed to recognize the gap between the rationale built
into the scheme and the pro?t making corporate response
(see Williams-Derry & de Place, 2008), with the Market
Advisory Committee of the California Air Resources Board
(2007) rather gently noting that ‘‘The free allocation of
emission allowances generates rents – that is, pro?ts be-
yond the normal expected return to capital – to recipients
of the free allowances.”
For anyone who is not used to such corporate interest in
relatively obscure academic concepts, the speed with
which the concept of opportunity cost was utilised is not
without interest. Despite its articulation in many cost
and management accounting textbooks, the concept has
never appeared to be in frequent use in practice. Econo-
mists may propagate it but conventional costing almost
invariably overrules it. But in this instance, conventional
costing would have attributed a zero cost to a gift, with
?rms thereby not recognizing it as a cost in the determina-
tion of prices. Prices might thereby be lower, particularly in
a regulatory environment where justi?cations for price in-
creases might be required, and, as a result, the potential for
pro?t enhancement is sacri?ced. But corporate actions in
the United Kingdom and elsewhere (Sijm, Neuhoff, & Chen,
2006) suggested that pro?t enhancement was a dominant
concern, this seemingly providing a utility to even an ob-
scure concept. Indeed the subsequent literature on the
operation of the European Emission Trading Scheme is
impregnated with the language of opportunity cost.
A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439 435
The justi?cation for the inclusion of the opportunity cost
of the free emission permits was on the basis that the gen-
erators would only produce electricity if the price of the
electricity is high enough to compensate them for using,
rather than selling, their emission permits. As one would
expect, there is a presumption that the ?rms would com-
pare the pro?ts from the production of electricity using
the freely granted emission permits or selling the permits
directly at the prevailing market price, doing whichever
would give the highest pro?t. But only one option is avail-
able, so if the permits are used to gain the higher pro?t, they
cannot be sold, thereby suggesting that alternative uses dis-
appear after the decision to proceed with one course of ac-
tion rather than another. Such a logic might suggest the
basis for a rather different, albeit not pro?t enhancing, ap-
proach to thinking of the opportunity costs.
Indeed such an approach is not inconsistent with the
more critical analysis of opportunity costing offered by
the economist John Gould (1962, p. 218):
‘‘To assert that the true nature of costs is contained in
the opportunity cost theory, and that the de?nition of
cost is the value of the sacri?ced alternative, can be
dangerously misleading – because it might be taken to
advocate the rigid application of a rule rather than to
promote the better understanding of the nature of the
problems of decision-making.”
He went on to add:
‘‘. . . the opportunity cost doctrine is best viewed as a
method of approach to a class of problem, rather than
simply as an injunction to use a particular de?nition.”
And to further illustrate the dif?culties of using the con-
cept Gould (1962, pp. 228–229) went on to say:
‘‘Consider an accountant faced with the problem of
ranking six plans in order of pro?tability. To work out
the pro?t of each plan, he deducts from the revenue
the costs. If – as he may think he ought to do after hear-
ing economists speak of opportunity costs – he simply
substitutes for his own notion of cost the de?nition of
opportunity cost, he ?nds himself at an impasse. To
rank the plans, he must know the opportunity cost; to
know the opportunity cost, he must know the value of
the next best alternative plan; thus to ?nd the opportu-
nity cost, he must rank the plans.”
All too clearly Gould was not convinced by either the
utility or the conceptual clarity of the concept. To his mind
the role of the economist was not to advocate ‘‘a particular
de?nition of cost” but rather to create ‘‘an awareness that
decision problems involve choices between alternatives”
(Gould, 1962, p. 229), albeit informed ones.
That more than economics is at stake in the interest in
the concept of opportunity costs was suggested by an inci-
dent in my own institution. During a discussion one ?-
nance faculty member suggested the recalibration of the
calculation of overhead costs in the area of executive edu-
cation. Although ?nance faculty already received the high-
est salaries (despite the much greater supply of trained
doctorates in the area than in most other management
subjects) and some had also negotiated double the prevail-
ing rate for executive education teaching, refusing to teach
otherwise, the ?nance faculty were now interested in the
possibility of taking a share of the surplus generated on
executive education programmes on which they taught.
Faculty from other subjects had seen such surplus’s as
accruing to the institution as a whole and even when the
possibility of sharing was raised, they recognized the need
for the institution to be able to cover all the costs involved,
including so-called overhead costs, before calculating the
surplus. Not so for at least some of the ?nance faculty.
Not only were overhead costs seen as an institutional prob-
lem rather than an issues for an individual discipline but
also they had more of a notion of a contribution margin
in mind rather than a conventional calculation of surplus
after overheads. Yes, some indirect costs might be relevant
but calculated, they suggested, on the basis of their oppor-
tunity cost rather than any conventional overhead charge.
So spatial charges would only be attributed if there was a
competing use of the space involved and even then only
at the rate that would be gained from such an alternative
use. And similarly for other charges. All too clearly this
was a highly particular appeal to the use of opportunity
costs and one not unrelated to the example discussed
above. This was opportunity cost being appealed to in
the service of the maximisation of gains by a speci?c set
of interests.
Such examples suggest the possibility of a relationship
between particular calculative technologies and the value
culture of an organization, set of organizations or even,
as in the above example, a segment of an organization. In
the case of the discussions over the possible sharing of sur-
plus, the majority’s acceptance of the legitimacy of costing
technologies that distributed all the costs of an organiza-
tion or activity before attributing a surplus to either the
whole or a part of it was suggestive of a more communitar-
ian ethos. The concern with using opportunity costs to in-
crease a highly speci?c and segmental surplus was far from
communitarian in approach, being suggestive of the indi-
vidualism that is enshrined in so much economic thought.
The possibility of such an inter-relationship between cal-
culative approaches and value cultures is certainly an
intriguing area for further research.
Indeed I had wondered whether such differences might
be evident in different national tendencies in accounting
for the free allocation of emission rights under the Euro-
pean Scheme. Were there, one wondered, differences in re-
gimes of what might be seen as ?nancial and social capital.
But a study involving Germany and The Netherlands (Sijm
et al., 2006) found pricing patterns consistent with the
incorporation of the opportunity cost of the free permits
being fed into prices. Moreover, although another study
(IETA (International Emissions Trading Association),
2007) found variations in the accounting for emission per-
mits in the external reports of European ?rms, further in-
quires found that those differences were sectoral rather
than national, with all those accounting for the permits
at the market price being traders in the ?nancial sector
rather than users – none of whom at the time of the study
were externally accounting for the free allocations. So
436 A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439
interestingly, although opportunity costs entered into the
calculation of price and the justi?cation of any resultant in-
creases to the regulatory authorities, they did not enter
into the mainstream ?nancial accounts, something that
seems only to reinforce the fact that this is likely to be
an area of genuine research interest.
Perhaps it should be noted that at the national level only
Greece has forbidden the passing on the opportunity cost of
freely given permits in the price charged to the customer,
possibly suggesting a more communitarian rather than a
neo-liberal and business in?uenced approach (Knight,
2008). Such a ruling should increase the incentives to invest
in less polluting technologies, particularly in areas like elec-
tricity generation where off-shoring is more dif?cult. But in
those industrial sectors where moving production off-shore
is possible, the incentive might be to do just this, at the best
resulting in no reduction in carbon emissions and in the
worst case scenario, production in less environmental ef?-
cient circumstances. If nothing else, such responses suggest
the importance of investigating and understanding the
environmental pro?le of whole supply chains rather than
just pockets of national production.
Corporate environmental reporting
It is such consequences that reinforce the need for corpo-
ratereportingof their environmental as well as ?nancial per-
formance. Such reporting has some potential to give a
greater degree of visibilitytocorporate environmental activ-
ities and consequences, casting light on what is often invisi-
ble. But havingsaidthat, it is alsoimportant torecognizethat
visibility is not the only possible consequence of corporate
reporting in this area (Milne & Gray, 2007). Indeed it is pos-
sible that such reporting can even reduce what is known
about a company and its environmental activities. Compa-
nies are also interestedinthe possibilities for environmental
reportingtoincreasetheir legitimacyinthewider world. Not
only that, they canalso have an interest in using reporting to
facilitatetheconstructionof a newanddifferent image of the
company. To the extent that such strategies work, it is possi-
ble that fewer questions might be asked of the legitimated
organization and thereby less might be known of it. It is as
if the report serves as a corporate veil, simultaneously pro-
viding a new face to the outside world while protecting the
inner workings of the organizationfromexternal view. Done
with skill and a fair amount of planning and thought, it is
possible for some modes of reporting to thicken that veil
such that even less is known of the corporation despite the
apparent openness of its reporting. Once again this suggests
an area in urgent need of more research.
Admittedly such legitimating rationales rarely enter
into corporate let alone public policy discussions of the
roles and potential of enhanced environmental disclosures
(although there is a developing research literature on the
theme, for an overview of which see Deegan (2007)). How-
ever their relevance for understanding the approaches
within the corporate sector was once again brought to
my attention at a recent Association of Chartered Certi?ed
Accountants’ ceremony for the 2008 United Kingdom
Awards for Sustainability Reporting.
The top award was given to BT Group plc, not least for
displaying ‘‘a strong integration of sustainability concerns
into the core business strategy” (ACCA, 2008, p. 8).
Whether the report was inclined towards legitimacy or a
more genuine interest in enhancing transparency was not
clear, although at the very least one would like to know
much more about whether those changes in strategy also
changed action. Often strategies have a complex and dif-
fuse relationship with the world of action. Despite this,
corporate and consultancy ?rms’ discussions of environ-
mental reporting still place far too much attention on
changing strategy and far too little on changing action!
More understandably the joint awards for the small and
medium sized enterprise sector went to Traidcraft, one of
the main British movers in the area of fair-trade, and Reap,
a local sustainable development organization in Scotland.
Interestingly for both of these organizations the judges pri-
marily made comments on what they were actually doing
and the reporting and assessment of it whereas for the
more corporate BT more emphasis was placed on ‘‘strat-
egy”, ‘‘target(s)”,”the future” and its developmental pro-
gramme. Compared with the action orientation for
Traidcraft and Reap, interestingly BT appeared to be resid-
ing more in the realms of reporting intentions.
Of the other short listed reports, the joint runners up
were The Co-operative Group and Unilever, the rest being
Anglo American plc, British American Tobacco plc, BHP
Billiton, BP plc, Camelot Group plc, GlaxoSmithKline, Royal
Dutch Shell plc, Vodafone Group plc and Xstrata plc. Some
of these do indeed suggest that this is an area where fur-
ther investigation into rationales for environmental and
sustainability reporting might well be illuminating.
Just consider the oil companies, BP and Royal Dutch
Shell. In the United Kingdom BP has invested in an enor-
mous green advertising programme outlining its practices
and intentions in a tiny percentage of its overall business.
Moreover that campaign has been refreshed at the very
time when even its modest moves into renewable and
more environmentally friendly modes of energy produc-
tion have been cut back. BP has pulled out of renewables
projects in China, India and the United Kingdomand is only
keeping US investments in the area because of the more
favorable tax incentives which provide an acceptable eco-
nomic return. In contrast, it remains committed to its
involvement with the Canadian tar sands, an oil source
that involves three times as many carbon emissions as or-
dinary oil production and one which is already having dev-
astating effects on biodiversity (Jowit, 2009). The reality of
its environmental and sustainability performance is there-
fore an interesting one and some serious questions can be
and should be explored in relation to how its modes of
reporting relate to these. Perhaps some clues are given
by the fact that one of its senior of?cials in the area occu-
pied the post of Vice President of Corporate Responsibility,
Communications and External Affairs. At least such hon-
esty can be appreciated. Not dissimilar issues relate to Roy-
al Dutch Shell. Again investing in the Canadian tar sands
(Macalister & Wearden, 2009), Shell also has a complex
history of involvement in Nigeria, has withdrawn from
investing in renewable energy generation in the Thames
Estuary in the United Kingdom and is considering moving
A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439 437
towards a commitment to bio-fuels which, as has already
been mentioned, is a complex and potentially problematic
area from a sustainability point of view. Moreover the Car-
bon Disclosure Project reported that Shell has worldwide
carbon emissions of 743 million tones compared with
573 million for the whole of the United Kingdom, this ?g-
ure including the carbon impacts of product use and dis-
posal (Macalister, 2008). In more recent times Shell had
kept a quite low pro?le in the environmental arena, most
likely still all too conscious of the consequences of its
involvement with Brent Spar, but in the last year, despite
its positioning as presented here, it has joined BP in invest-
ing in a major green PR campaign in the national media in
the United Kingdom. Perhaps fortunately for the wider
public, the British Advertising Standards Authority inter-
vened in parts of this after Shell had claimed in an adver-
tisement in the Financial Times that its $10 billion
investment in Canadian tar sands was a contribution to a
sustainable energy future (Pearce, 2008). Shell had taken
advantage of the multiple de?nitions of sustainability to
imply a positive environmental aim when what it was
really doing was trying to maintain a sustainable ?ow of
fuel to its customers!
Even without commenting on the environmental pro?l-
ing of Anglo American Tobacco, it is clear that a variety of
motives may well be implicated in the production of envi-
ronmental and sustainability reports. Exploring these fur-
ther is likely to be a very complex task requiring the use
of both analytical and historical insights. Detailed internal
case studies could also be useful, as would deeper under-
standings of the interaction of such concerns with the rel-
evant regulatory authorities, the media and political
circles. However, the probability of such companies allow-
ing detailed probings can hardly be high when so much is
at stake for their image and reputation. But one hopes that
this does not prevent active members of the research com-
munity from at least trying.
Concerns with the current state of knowledge in the
area of corporate environmental reporting have already
started to emerge in the research community (see for
example Milne & Gray, 2007, and Gray, forthcoming) and
most certainly need further encouragement. There are gen-
uinely complex and very dif?cult issues to be confronted in
reporting on corporate actions in relation to the environ-
ment. Indeed they are such that it is very doubtful whether
any satisfactory approach will emerge. At best, environ-
mental accounting and reporting is likely to function
alongside a range of other regulatory and in?uencing
structures, and an enhanced investment in the informa-
tional and investigative activities of non-governmental
organizations and some sections of the media that have
the expertise and motivation to engage in a whole series
of speci?c ad hoc investigations and analyses (Hopwood,
1978). For that is how many existing understandings of
the environmental area have reached a wider public rather
than through the disclosure activities of the corporate sec-
tor, and such a balance in information sources is unlikely to
change in the coming years.
So rather than seeing reporting as ever being likely to
emerge as an adequate approach to corporate transparency
in the environmental sphere, we should instead focus on a
multitude of ways of enhancing the informational context
of corporate activities. But this will require not only new
knowledge and new institutional mechanisms but also a
shift in the relative balance of power. The ability to gain
information, let alone any changes in the more fundamen-
tal right to know, can never be separated from the locus of
power and changes in its distribution.
While certainly not addressing such fundamental is-
sues, a nevertheless interesting approach to the more
immediate task of trying to design an approach to corpo-
rate environmental reporting is emerging from The Prince
of Wales Accounting for Sustainability Forum (see http://
www.accountingforsustainability.org). Explicitly recogniz-
ing that there is unlikely to be any signi?cant shift in the
balance of power in the immediate future, the team work-
ing on the project has proposed an approach that they
think has some potential to engage the corporate commu-
nity whilst at the same time resulting in environmental
matters being seen as a more mainstream part of business.
The Connected Reporting Framework that has emerged
from the project is seen as a tangible step towards not only
a more holistic concept of reporting but also one that starts
to recognize that carbon and other environmental con-
straints are likely to become signi?cant factors in the
twenty ?rst century. It seeks to demonstrate howboth eco-
nomic and ?nancial and environmental and sustainability
information can and should be presented in a connected
way, showing the economic costs and bene?ts of more
environmental considerations. Rather than environmental
issues being seen as ‘‘out there”, at the boundary of mana-
gerial attention, as so often is the case, the aim is to con-
nect them to the consideration of economic and ?nancial
matters, hopefully thereby making them a more main-
stream part of business. For the way that environmental
matters are managed will be an increasing material factor
in many sectors of the economy in the years to come.
Rather than having the static aim of merely reporting,
the Connected Reporting Framework also has the explicit
intent to introduce a dynamic element into organizational
life, thereby striving to reposition the signi?cance of an
environmental and sustainability agenda (see also Bebb-
ington, 2007). Admittedly cautious in approach, seeking
to stretch the prevailing corporate policies and actions
rather than more radically change them in the shorter
term, the thought processes behind the Connected Report-
ing Framework are nevertheless interesting ones worthy of
further consideration. The framework seeks to integrate a
quite explicit consideration of organizational change pro-
cesses into the design of a reporting system.
The way forward
The articles that followgive a rich introduction to the is-
sues at stake in the creation of a market in carbon emissions
and the roles that accounting and calculative mechanisms
can and cannot play in the environmental area. Together
they open the door a little more on a domain that is in need
of much more attention in the coming years. As such, they
point to some of the problems that needfurther exploration,
to the need for a questioning and critical approach, and to
the importance of looking at actions and consequences as
438 A.G. Hopwood/ Accounting, Organizations and Society 34 (2009) 433–439
well as just aims andintentions. Theresearchtraditions now
established in the area of the organizational and social anal-
ysis of accounting provide a good basis for looking beyond
abstract schemes for change and improvement to explore
the actuality of their functioning and operations, and to
use this knowledge for the more realistic design of ap-
proaches to changing both the signi?cance which environ-
mental and sustainability considerations play in the
corporate sphere and our ways of gaining insights into the
adequacy or otherwise of these. For this is an area where
bothfacilitativeandcritical researchare requiredandwhere
there are likely to be possibilities for the one to feed into the
other, albeit in most cases by different people.
Such considerations point to the very real potential of
research which seeks to explore the role and functioning
of accounting in the environmental and sustainability
spheres. Being at such an early stage of our understanding
of this area, both the opportunities and need for research
are very real. It is to be hoped that the examples of the pio-
neering researchers who have already sought to map out
some of the outlines of the area will be recognized, valued
and built upon (see Unerman, Bebbington, & O’Dwyer,
2007), thereby providing a more informed and systematic
knowledge base in an area of human endeavour that is
likely to have profound consequences for the human race.
Acknowledgements
I would like to acknowledge the helpful comments of
Michael Bromwich, London School of Economics and Polit-
ical Science, Chris Chapman, Imperial College, Eric Knight,
Oxford University Centre for the Environment, Geoff Lye,
SustainAbility and the Environmental Change Institute,
University of Oxford, and especially Rob Gray, University
of St. Andrews.
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