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«Published by the SIGMA Project, September 2003 SIGMA Project, 389 Chiswick High Road, London, W4 4AL SUSTAINABILITY ACCOUNTING GUIDE Contents ...»

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Appendix 7: Resources for Environmental Values Environmental Valuation Methods Most environmental valuation methods seek to measure the money value of environmental benefits or losses directly from the preferences of the stakeholders affected. This information may be obtained directly from actual or surrogate market information or indirectly through surveys or experiments.

The environmental value is based on willingness to pay (WTP) to obtain environmental benefits (e.g. improvement in local air quality) or willingness to accept (WTA) compensation to suffer an environmental loss (e.g. degradation in local air quality). Environmental valuation methods based on WTP or WTA are demand-side methods – they are based on estimating the demand for environmental resources based on stakeholder preferences. They are distinguished from supply side methods which are based on the costs of supplying environmental resources or services.

Examples of demand side methods:

Hedonic Pricing: This method uses information from a surrogate market to estimate the implicit value of an environmental good or service. For example, differential housing prices can be used to estimate how much extra people are willing to pay for residential property in areas free from traffic or industrial air pollution.

Travel Cost Method: This method uses a combination of surveys and surrogate markets to estimate the demand curve for an environmental resource. As its name implies, the travel cost method infers willingness to pay for environmental goods and services from the time and expense involved in travelling to them. Conventionally, the method is used to derive values for recreational sites.

Contingent Valuation Method: CVM elicits information on environmental preferences directly from the individual using surveys, questionnaires or experimental techniques. CVM is based on hypothetical behaviour inferred from surveys or experiments rather than on actual observed behaviour. It has wide application but is the most unreliable of the methods as it is subject to a number of inherent biases.

Examples of supply side methods

Supply side methods are based on the costs of preventing environmental damage or the costs of restoration or replacement once damage has been incurred. Supply side methods also include the impacts on productivity due to changes in environmental quality. These methods capture the costs to the organisation of improving environmental quality – they do not capture to the benefits to society of such improvement.

Productivity Approach: In this technique, environmental quality is viewed as a factor of production. Changes in environmental quality lead to changes in productivity and production costs, which in turn lead to changes in prices and output, which can be measured and observed. For example, improvements in soil conservation will feed through into changes in agricultural yields and prices. Hence, the costs of soil erosion can be evaluated using information obtained from agricultural markets.

Preventive Expenditure Method: This approach has much intuitive appeal in that it is based on actual expenditure incurred to prevent, eradicate or reduce adverse environmental effects.

Replacement Cost Method: This is an ex-post environmental valuation approach. In other words, it estimates replacement or restoration costs once environmental damage has taken place. Expenditures to neutralise soil and water acidity from agricultural run-off are examples of the costs incurred to restore damaged environmental assets to their original state.

Source: Richardson and Nurick (1999) Environmental Valuation: Theory, Techniques and Applications. Wye College, University of London.

Resources for Selected Environmental Values This section provides some examples of per unit monetary values for different types of environmental impacts. Environmental values are not static but change in response to changing market prices (eg. market price of abatement technology) and environmental preferences. They will also vary according to the different environmental valuation method used (ranging from abatement costs; damage costs and restoration values). For this reason, this section provides a resource of publications and web-sites which can be used to find and update environmental values.

General sources for information on environmental values are provided together with illustrative values for a range of specific environmental impacts.

General Sources:

Association of Chartered Certified Accountants (ACCA), (2001) Full Cost Accounting: An Agenda for Action. Provides sources for a range of environmental values used in different environmental accounting frameworks.

www.acca.co.uk CWRT Centre for Waste Reduction Technologies Concerted Action on Transport Pricing Research Integration: Valuation of Transport Externalities.



Costanza et al(1999) The Value of the World’s Ecosystem Services and Natural Capital. Nature 387, 253-260.

Chartered Institute of Management Accountants (CIMA), (2002) Environmental Cost Accounting: An Introduction and Practical Guide. Guide prepared for CIMA by Forum for the Future. Provides a range of environmental values based on costs of avoidance or restoration.

Envalue: The New South Wales Environment Protection Authority’s Envalue database (http://www.epa.nsw.gov.au/envalue/) is a searchable environmental valuation database.

EVRI: The best known database of Environmental Valuations is Canada’s EVRI (Environmental Valuation Resource Inventory) web-based database for environmental valuation studies – see http://www.evri.ec.gc.ca/EVRI/. Each study includes details of the estimated monetary values, the specific units of measure, and technical information on the methods that were used to arrive at the results.

A list of European Valuation studies is available at:

www.europa.eu.int/comm/environment/enveco/others/evripart2.pdf References to about 450 studies are included in the listing.

ExternE Project (http://externe.jrc.es/phaseIII.html). ExternE is an EU project with multiple objectives including research into the internalisation of externalities and the possible application of the accounting framework in policy making. External cost data is compiled in a readily accessible database.

The ExternE studies for transport and power plants are the most quoted damage estimates.

Navrud S(ed) (1992) Pricing the European Environment. Scandinavian University Press/Oxford University Press. This is the most complete review of European valuation studies done up until 1992.

Specific Sources:

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Endnotes i Throughout the guide we will be using the term ‘stock’ in the standard economic and accounting meaning, to refer to an amount of wealth or capital at any one moment in time. For instance, the Balance Sheet is a measure of the ‘stocks’ of an organisation by valuing the amount of assets and liabilities at a particular date. We are not using it in the sense of ‘equity’, such as ‘Stock Market’ or ‘stockbroker’.

ii For more information refer to the Economic Performance Indicators in the Sustainability Reporting Guidelines issued by the Global Reporting Initiative (www.globalreporting.org).

iii For example, the proposed EC Directive on the Restriction of Certain Hazardous Substances in Electrical and Electonic Equipment will require the use of lead, cadmium, mercury, chromium VI and bominated flame retardants to be phased out of the manufacture of certain types of electrical and electronic equipment by January 2007.

iv See http://www.co-operativebank.co.uk/ethics/partnership2001 for more detail on the ethical value analysis.

v See for example, CIMA and Forum for the Future (2002), and ACCA (2002) vi See EC (2001) vii The use of avoidance or restoration costs is in line with United Nations recommendations for environmental adjustments to the national accounts.

viii Costs are based on ‘real’ or market based prices. Although it is important to note that actual market prices are unlikely to reflect those price signals that would prevail in a more sustainable society.

ix For further information on the stakeholder contract model contact David Bent at Forum for the Future (d.bent@forumforthefuture.org.uk)

x The Institute of Chartered Accountants in England and Wales (1999): Internal Control:

Guidance for Directors on the Combined Code (The Turnbull Report) http://www.icaew.co.uk/cbp/index.cfm?aub=tb2I_6242 xi Department of Trade and Industry (2002): Modern Company Law: Final Report (Company Law Review) www.dti.gov.uk/could/review.htm xii xii Association of British Insurers (2001): Investing in Social Responsibility, Risks and Opportunities (www.abi.org.uk)

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The SIGMA Project - Sustainability Integrated Guidelines for Management was launched in 1999 with the support of the UK Department of Trade and

Industry (DTI) and is led by:

• British Standards Institution - the leading standards organisation

• Forum for the Future - a leading sustainability charity and think-tank

• AccountAbility - the international professional body for accountability.

The SIGMA project has developed the SIGMA Guidelines and a series of tools to provide clear, practical advice to organisations to enable them to make a meaningful contribution to sustainable development.

The SIGMA Guidelines consist of:

• a set of Guiding Principles that help organisations to understand sustainability and their contribution to it.

• a Management Framework that integrates sustainability issues into core processes and mainstream decision-making. It is structured into phases and sub-phases.

The SIGMA Toolkit, consists of targeted tools and approaches to help with specific management challenges, and case studies explaining how organisations have used the SIGMA Guidelines and Toolkit to tackle real issues.

More information including the full SIGMA Guidelines and the accompanying SIGMA Toolkit are available at: www.projectsigma.com.

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