Environmental Management Accounting and the Opportunity Cost of Neglecting Environmental Protection

Reflections on how much voluntary expenditure a company should make on environ-mental-protection measures are dominated by the discussion of relevant direct internalcosts. Compulsory spending on environmental protection (e.g. expenditure forced byregulations) is not taken into account here, because compliance with environmentallaws and regulations is a minimum requirement in order to continue in operation. Whenmaking decisions on future investments, a comparison of the direct and indirect costsof corporate environmental protection with other potential commercial investments is,without doubt, economically highly relevant. However, from an economic point of view,a comparison based on opportunity costs is even more important (see, e.g., Hirshleifer,1980, p. 265; Kreps, 1990). Economists consider that the economic cost of undertakingany activity should be interpreted as being the cost of the best alternative opportunityforegone. This paper addresses the question of why environmental managementaccounting is anecessary foundation in order to obtain opportunity cost informationas a foundation for making an informed choice on whether a business should pursueor neglect environmental protection.