Cost allocation: An active tool for environmental management accounting?

This chapter examines one element of environmental performance indicators: the process of cost allocation in the financial evaluation of environmental performance. It considers the reasons for cost allocationcontrasting information accuracy and behaviour-influencing views. The chapter also examines the areas where cost allocation may have an impact in corporate environmental performance measures. It assesses whether and how cost allocation can be used in a pro-environmentally-benign manner by some corporations. Japanese management practice is cited as using cost allocation to help achieve their long-term strategic corporate objectives. Management accounting is claimed to have a 'behaviour-influencing' role, rather than an 'information' role in the management process. Cost allocation schemes can be used in combination with non-financial environmental performance measures to influence corporate environmental behaviour in a pro-environmental manner consistent with ecologically sustainable development principles. Information about the depreciation of environmental components of capital is likely to be distorted and will distort resulting decisions.