The Applicability of cost accounting is so wide that it can create a healthy economy if used or implemented carefully and seriously. Unfortunately, it is saddening to observe that in a country like India, having vast opportunity and huge potentials with a thirst of becoming $ 5 trillion economy in the nearest future, neither the cost management nor the cost accountants are getting the importance they require, and in most cases, they are neglected. With the full-fledged introduction of the ESG concept, the role of a CMA needs to be revamped and utilized effectively. The use of Environmental Costing or Green Costing requires more attention in the current scenario and a Cost Accountant can generously contribute towards a healthy economy and sustainable environment.
ESG, Green Economy and Green Costing
The year 2023 brought in many changes for India as a country and as an economy. With the Presidency of India in the G-20 the scope and horizon of the economy has touched the sky. The year 2023 also marked with India becoming the 5th largest economy in terms of GDP and India overcoming China in terms of population. Various people are discussing the economical and political impact of the same on various floors. However, the real focus should be given to the future of Indian Economy as well as the environment and society in which it is grooming. A balance between all the three key concepts, that is, Environment, Society and Corporate Governance can bring much changes and development in the overall economic performance of the world as a whole. While all the three factors require proper attention, the Environmental factor needs to be addressed with utmost importance as the degradation of the same is going to cost the humankind the worst.
ESG – Environmental, Social and Governance
The survival of the economy depends on the survival of the business or the industry in it. In today’s world for businesses or industries to survive, it needs to have a clear idea about the environmental, social and governance concerns of the economy. ESG or Environmental, Social and Governance refers to the commitment of an organization, whether public or private towards the incorporation of issues related to environmental, social and governance into the organizational framework to create a long-term value for both organizational and society.
In today’s economy, firms and organizations can survive only if it show concern towards environmental and social impacts and with a great corporate governance in place. Considering the same the incorporation of ESG norms into the professional and personal aspects of everyone has become mandatory. In line with the ESG norms, the world economy and governance at various levels are shifting their focus towards an eco-friendlier, cost conscious and more socially committed structure.
Since the introduction of the concept of ESG in 2004, the ideas and suggestions that it put forward received wide acknowledgement and has grown from a corporate social responsibility initiative launched by the United Nations into a global phenomenon. It is observed that public or investors now days are more concerned about the ESG factors of the organization and is investing more in those organizations or enterprises which give more focus to the basic ideas and underlying principles of Economic, Social and Governance Concept.
Green Economy
The 2011 UNEP Green Economy Report argues, “To be green, an economy must not only be efficient, but also fair. Fairness implies recognizing global and country level equity dimensions, particularly in assuring a Just Transition to an economy that is low-carbon, resource efficient, and socially inclusive." Green Economy is the concept of developing the economy by focusing on sustaining the environment and ecological resources without over exploiting the same. The concept of green economy thus ensures that development at the cost of environmental downfall is only going to create further negative impact to the society as a whole and the businesses or organization existing in it.
Green Costing or Environmental Costing
Cost refers to as the value of money used by any organization, firm, or enterprise to produce some product or render some service. In business point of view, it refers to the investment the business has made to acquire certain asset to use. However, is it possible to put a price tag on the services rendered or products produced by the eco-system in which we are living? Is it possible to put a price tag on the investments made by the environment in the development of mankind?
The most accurate answer for the above questions will be a big ‘NO’. It is foolish to put a price to the biodiversity around us. Nevertheless, to understand the cost of the products produced, services rendered and the resources utilized is a much possible task and it should be addressed at the earliest. The development that we are seeing today which focuses on the profit or loss aspects of everything does not values the priceless contribution one does to us. Our perspectives these days focus on the market-derived outcomes only. A new, well-developed and systematic developmental plan is necessary for us to understand the value of the biodiversity we are destroying in the name of the so-called development.
The values allotted to the biodiversity can be broadly classified into two. Use Value and Non-Use Value. While the use value denotes the value derived from the direct or indirect use of the resources of the environment for the production or service sectors, while non-use value refers to the value of the biodiversity which we have to preserve and handover to our next generation for their use and well-being. A nexus between these two is also necessary for a developed economy with concerns for the environment.
In order to develop the nexus and to sustain the biodiversity and the economy as a whole the computation, ascertainment and allocation of cost of the values imparted by the biodiversity to the humans is necessary. This is where the role of a cost accountant comes in place. Green Costing or environmental costing is a technique of costing that traces direct costs and apportions the indirect costs by gathering and presenting information about probable environmental, social and economic cost and benefits. This method calculates the cost of detrimental effects that an organization generates on environment and supports to condense any negative environmental, health and safety problems at all phases of a products life cycle. It also warranties to save the money and keep pollution out of the environment. Every company/ organization/ enterprise whether involved in manufacturing or service industry needs to look into the cost it is incurring in terms of the ecological imbalances it is creating. The 6E Values of Biodiversity gives us a broad idea about where we have to focus and what is the cost at which we are destroying the environment and its beautiful biodiversity.
Economic Value – The Value of the goods and services that can be measured in terms of money.
Ecological Value – The Value of the services provided by various eco-systems like rain forest, desserts, Mangrove forests etc.
Evolutionary Value – The value of the ability of an animal to evolve in the biodiversity adapting to the changes in the environment without being endangered by the human race.
Esthetic Value – The value of joy being created by the biodiversity through the beauty it maintains
Emotional Value – The value derived from the personal and emotional attachment of human towards the place where he/she was born.
Ethical Value – The value derived from the understanding of the human race that all animals have the right to sustain and to live in the environment.
The environment, the society, the eco-system in which we are living, thriving and developing offers us all values of which we are unaware. It is well known to all of us that it is costing us a lot. Apart from the opportunity cost of the resources that we are exploitatively using for our own good, cost such as Historic Cost, Abnormal Cost, Conversion Cost, Implicit Cost, Explicit Cost and even Shutdown Cost are also being incurred in this never-ending hunger of profit making. Neglecting the cost and focusing on the profit with the idea that huge profit will ultimately reduce the cost is actually foolish. The corporates, manufacturing or non-manufacturing organizations need to evaluate where on the scale of 1-10 they are standing concerning the contribution to the environmental degradation. A proper costing and necessary actions at least once in a year should be carried out to eliminate the loss.
The usage of the right cost in the right context is extremely important for a sustainable growth of the business and the economy. From the very basic concept of the steady cost or correct cost for a product or service, the concept of cost has evolved into what we now know as the cost optimization or cost management. The ever-changing economy fuelled put into use by the new and advanced technologies requires a more in-depth focus on the cost concept and the same needs to be evaluated on a timely basis. Today’s cost concept should therefore be more adaptive and fit to cope with the changing requirements. Hence the need for and importance of a cost accountant in the business.
CMA Hrishikesh R Nampoothiri
Membership No. – M/53599
Phone: 7560938431
Mail ID – hyadu12345@gmail.com
No comments:
Post a Comment