Welcome, everyone. I am writing this article to continue some of the topics which I learned about in accounting coursework at Humboldt. We focused on several main topics, including how to explain why it can be much cheaper to deal with environmental issues when designing operations, what kinds of tools exist to keep track of possible environmental costs, and how to deal with keeping track of natural resources.
I am writing here today because I think there has not been enough focus yet on sustainability when keeping track of natural resources. The traditional accounting and costing systems do not always record the true costs of operations, especially when they include extraction and cleanup costs. Lately, some additional factors have entered the picture. The new SEC Press Release on climate change disclosure mentions a few major elements that are now necessary for a publically traded company to report.
For example, if the ocean rises and the coast is flooded, it can put a company’s offices underwater. Since this is a predictable risk and is likely to happen if people continue to use nonrenewable sources of energy, it should be recorded as a possible liability under generally accepted accounting practices. Similarly, if a company owns farmland in an area that is heating up and drying out, then it will soon find its farm has become a desert, which will drastically reduce its land value. Again, this is predictable, so it must be reported.
Four areas are specifically mentioned in this press release. Deloitte has offered some additional explanations for what this press release means. The effects of existing and pending legislation should be mentioned. This includes fines and penalties, and compliance costs, for not only the company but also its competitors. In addition, the effects of international accords should be disclosed. Many climate change treaties will have international effects and regulations in another country could materially affect profits in the USA. Indirect effects could also occur. The example that the SEC gives is that consumers who are following the climate change news might decide that they are more interested in buying products which produce less waste carbon during their lifecycle. This could definitely affect profits, in a good way or a bad way depending on how the company has designed its operations. Finally, a company must also report on the physical effects of climate change on its business. The examples of coastal flooding and desertification of farmland are two possible consequences of climate change which are predictable enough that a company should account for them.