Costing the earth.
| Author | Brabazon, Anthony |
Complying with environmental legislation doesn't have to be a financial burden. Anthony Brabazon and Samuel Idowu explain how lifecycle costing and schemes such as take-back can minimise waste and pollution, while controlling expenditure and improving your image
Green issues have never been high on the list of priorities for accountants and their professional bodies. However, as businesses deal with the impact of new legislation, they are increasingly having to take into account the costs of environmental regulation.
Many European initiatives have emerged over the past few years, covering everything from air and water pollution, to the amount of waste dumped in landfill sites. Scrapped TVs, refrigerators, PCs and packaging are just a few of the environmental horrors that end up in landfill sites. Each TV or PC monitor typically contains more than 2kg of lead, huge quantities of PVC plastics, and chemicals such as cadmium, so it is no surprise that environmental issues have moved rapidly up the agenda for both consumers and governments.
Pollution by a company is seen as imposing an external cost (externality) on the rest of society. Although some companies aim to minimise pollution as a matter of principle, there is often a natural conflict between this ideal and the goal of cutting costs. In the absence of controlling legislation, companies will usually "overproduce" pollution.
Concern about pollution has led to the formal recognition in many countries of the "polluter pays" principle: anyone causing pollution is expected to pay the clear-up costs. This has several implications -- manufacturers are responsible for the impact of pollution caused by their production processes and firms in the supply chain may be responsible for the environmental costs arising from disposal of packaging materials.
The objective behind the polluter pays principle is to force firms to"internalise" the costs of their pollution and, consequently, to encourage them to shift to more environmentally friendly means of production and packaging.
In most manufactured goods markets, the customer has traditionally been expected to assume responsibility for disposing of a product at the end of its life. However, an increasing number of manufacturers are already taking, or are being forced to take, responsibility for the safe disposal of their product. This has given rise to the idea of"product take-back" where a manufacturer takes back a product from a customer for disposal or salvage.
Product take-back is not a new concept. Voluntary schemes have existed in some...
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