Prof D Mukherjee
Despite global concerns about global warming, research on efficient processes for identifying and measuring carbon management costs is lacking. This is crucial for strategic issues such as objectives, marketing, product development, pricing, international business, promotion, supply chain management, finance, and risk. An integrative approach to measuring carbon costs is essential for an organization’s strategy focus. Rising greenhouse gas concentrations are causing rapid global climate warming, necessitating precautionary measures. Governments, businesses, and consumers are affected, requiring incorporation of precautionary measures into decision-making. Businesses should consider trading in carbon allowances, investing in low-CO2 technologies, and passing on carbon regulation costs to consumers. Consumers must decide on supporting CO2-neutral products to reduce emissions.
There is a noticeable gap in research on carbonization and its costs in strategic management accounting, despite growing concerns about global warming. Managing carbon emissions impacts various strategic areas like marketing, product development, and supply chain management. An integrated approach to measuring carbon costs is crucial and should be a key focus for businesses. Developing new tools and practices for carbon cost management is essential for the cost and management accounting profession to remain relevant in addressing global carbon challenges.
The presence of greenhouse gases has led to an imbalance in the greenhouse effect, causing rapid climate warming. This poses risks from climate change, urging policymakers to act. Businesses must address carbon trading, invest in low-CO2 tech, and account for regulation costs. These decisions affect strategic cost management in the “carbonomics” economy, requiring new costing techniques. Cost and management accounting must adapt to guide organizations and policymakers in climate cost management. Additionally, strategic management accounting systems will play a vital role in providing information for various business strategies and performance evaluation in this new economy. There is a need for a new thought process to develop and provide such strategic information, covering areas like business policy, human resource management, marketing, new product development, pricing, international business, and supply chain management. The shift towards carbonization is expected to create winners and losers in product and allowances markets globally. It is imperative for the cost and management accounting profession to re-position itself to thrive in this new economic landscape. This transformation is essential for the profession to maintain its relevance as a guiding light for organizations and policymakers in managing and reporting on climate-related costs.
Indian Himalayan states are of alarming concern due to unprecedented climate trajectories and Uttarakhand is the worst hit by recent forest fires, sinking soil tragedy and flash floods. In April itself, about 100 hectares of forests have been gutted by fire out of 250 hectares of forests remaining in the demonic laws forest fire. This state is reported to be the most vulnerable to earthquakes, landslides, flash floods. The memory of Kedernath flash floods 2013 having claimed more than 6000 lives clearly evidences the burning necessity for identifying and measuring cost for ecological balance and climate change disasters including rehabilitation of the victims. Year 2023 is witness of Joshi math land sinks episode having claimed more than 1000 lives and Nainital, Karnaprayag, Mussourie are frequently hit by these environmental disasters. Moreover, continual encroachment of wildlife sanctuaries and urbanization of forest land is rampant and commonly accepted phenomena inIndia. Cost accounting profession should come up aggressively with a handy tool for tracing and measuring the costs arising out of the consequences of climate change, global warming and carbon cost reporting approach for strategic management decisions in private sector and public sector organizations and governmental entities including defence and strategic sectors. In recent past, Dr. Justin S. Mankin, an Associate Professor at Dartmouth College, a private Ivy League research university situated in Hanover, New Hampshire, USA, established in 1769 by Eleazar Wheelock, came up with and acknowledged the contributions of cost accounting system for measuring the impact of global warming, measuring climate impact costs and reporting for strategic decision making. The researcher observed that rich nations contributed to causing adverse impact during 1992-2013 and the poor nations lost their GDP by 8% due to extreme heat creating havoc in the climate conditions and ecological imbalance world over.
Dartmouth College researchers aimed at exploring the impact of climate change for material well-being of people, food and water supply, infrastructure and healthcare services. The project comprises of futuristic strategy formulation for mitigating the consequences of climate change enveloping projections on the growth, carbon emissions and socioeconomic flight path. Additionally, the retrospective phenomenon on analysing the impact of climate change including global warming that have already been occurred and measuring the socioeconomic impact by applying the theories and principles of cost accounting.
The research team has been able to examine, with the cost accounting techniques, the impact of climate fluctuation and sea-change during 1992-2013 andthe consequent economic loss to the tune of $30 trillion across the globe has been quantified and measured having been occurred owing to extreme heat generated in the atmosphere. The Institute of Cost Accountants of India(ICMAI) , the dedicated statutory national as well as a global body of professional cost and management accountants should come forward and take this opportunity for guiding the policy makers and strategy formulators how to mitigate the challenges of vulnerable climate and global warming by developing handy tools for identifying , measuring and reporting the cost of disasters including rehabilitation of victims. Besides, ICMAI should collaborate with similar bodies of professional cost and management accountants, such as the Institute of Management Accountants, USA, the Institute of Certified Management Accountants of Australia and New Zealand, Chartered Institute of Management Accountants, UK and universities and research organizations such as Dartmouth College who have already made ground work in this domain besides environment scientists , geomorphologists and topography strategists.
As far as business policy making is concerned, it is to create a robust long-term sustainable value. Additionally, competitive advantage carbon efficiency being a significant marketing mix variable in product differentiation needs special attention. Further, efficient carbon management focus is certainly the part of cost leadership strategies pronounced by Michael Eugene Porter, a renowned Harvard University Professor of Strategy. Further, line of business on efficient carbon management appears to be a potential line of business.Finally, competition and industry structures adding a sixth force to Porter’s Five Forces Model- the impact on the industry of carbon regulation. Gap analysis strategies should close the gap between current emission levels and future emission targets. Risk management consideration of the impact on cash flows and reputation of the companyas a result of the carbon strategy positioning of the companyis important. Hundreds of cost accounting techniques are in place that can be of immense assistance to carbon impact costing and ascertaining effect of carbonization. Government of India is observed to be serious in making the environment free from carbon effect in time bound manner but correctly identifying, measuring and reliable and authentic reporting is a must for controlling adverse impact as Peter Ferdinand Drucker (1909-2005), known as the father of modern management says, ‘nothing measured cannot be controlled. In measuring a socioeconomic phenomenon, the role of cost accounting is enormous and government of India should acknowledge the fact in national interest and committing more fund to administering more exploratory researches and innovations in making the cost accountancy profession more vibrant and empowered keeping in view that cost is the common denominator of performance measurement, critical success factor and time tested tool for policy making and strategy formulation.
ICMAI should play a crucial role in guiding policy makers and strategy formulators in mitigating the challenges of climate change and global warming.
(The author is a Bangalore based Educationist and Management Scientist)
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