Accounting Trick Enhances Appeal of Green Infrastructure

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Thursday, April 10th, 2014
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The introduction of a simple change to standard accounting procedures could dramatically increase the appeal of green infrastructure projects for big companies.

Veteran environmental advocate Amy Larkin is advocating the introduction of a simple accounting procedure which will give greater incentive to large corporations to pursue greener solutions when investing in fixed assets and infrastructure.

Larkin, the director of Greenpeace Solutions from 2005 to 2011, said current accounting methodology discourages profit-minded actors from making investments in green infrastructure assets because they invariably entail a higher upfront cost to achieve major long-term savings.

The introduction of a simple accounting procedure referred to as accelerated depreciation could radically change the way green investments are viewed from a financial stand point.

Accelerated depreciation is an accounting method which permits greater deductions during the initial years of the life cycle of an asset. The solution could enable corporate accounts to better reflect the actual value of green investments, as well as significantly reduce their short-term tax obligations. 

The method has long enjoyed support from green advocates around the world on environmental grounds. The Property Council of Australia released a paper prepared by the Canberra and Sydney-based Centre for International Economics back in 2007, pushing for the accelerated depreciation of buildings that meet specified environmental standards, referring to the method as “green depreciation.”

“Green depreciation provides an incentive for the non-residential buildings sector to upgrade its existing building stock with energy efficient technologies to lower the sector’s level of GHG emissions,” the report said.

According to Larkin, the method could serve as a highly effective tool for motivating companies of all sizes around the world to implement greener infrastructure solutions as it appeals directly to their economic self-interest.

“We cannot depend on goodwill, young entrepreneur/founders or pioneer companies to make [things] right,” wrote Larkin in The Guardian. “Accounting rules are the basic guidelines for investment strategy and must begin to serve the laws and constraints of the natural world, as well as the bottom line.”

Larkin points out that one of the chief advantages of accelerated depreciation is its simplicity and ease of implementation compared to rival methods that provide accounting-based incentives to go green. Life cycle analysis,for example, requires teams of accountants to spend long periods of time making calculations based on benchmarks which can vary tremendously between industries and countries.

She further notes that the accounting method would be well-received in many parts of the corporate world, where companies including PepsiCo, Microsoft, Google, Facebook and Apple are already making a concerted push toward sustainable business and the de-carbonisation of their operations.

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