Environmental Accounting: Measuring the True Cost of Business Operations

Abstract

In recent years, companies increasingly face pressure not only to deliver financial performance but also to account for environmental and social impacts of their operations. Traditional accounting systems generally capture direct, explicit costs, but often overlook the hidden costs borne by society, ecosystems and future generations. Environmental accounting (also referred to as full-cost accounting or true-cost accounting) aims to fill that gap by quantifying and internalizing environmental externalities so that business decisions reflect the “true” cost of operations. This paper explores how environmental accounting enables organizations to measure environmental costs, the enabling technologies, major use-cases (including life-cycle costing, natural-capital accounting and supply-chain impacts), the critical challenges and limitations (data availability, monetization, standardization), and future prospects for embedding environmental cost awareness into corporate decision-making. A table summarizes illustrative data on hidden environmental costs. The conclusion highlights how embracing environmental accounting supports sustainable value creation and risk management.