ABSTRACT
The purpose of this study is to develop a process to analyze environmental investment based on the classification of environmental costs proposed by Ansari et al (1997) who divide environmental costs into prevention costs, assessment costs, control costs and failure costs. Ansari et al’s framework is presented in Table 1. Failure costs can be divided into remediation costs, and damages and penalties costs. Prevention, assessment, and control costs adversely impact short-term profit but, ex post,
1 INTRODUCTION
Economic sustainability is the premise of a sustainable society. A sustainable economy requires efficient use of finite resources, and reduction in waste and emissions (Smith and Ball, 2012), which in turn require investment in processes and technologies that yield long-term benefits but lower short-term profits. Since these benefits and costs are not entirely captured in the traditional accounting system, many organizations do not foresee all the environmental costs until problems occur. For example, a manufacturer might choose cheaper materials that enhance short-term profitability but may prove costlier to dispose of because of toxicity. The additional disposal costs might exceed the cost savings of the cheaper materials over more expensive green materials. A good example was reported by Ansari et al. (1997) where Allied Signal’s engineers recommended spending $30,000 to replace disposal pipes in its Bendix plant for fear of PCB leaking. Allied Signal’s management overruled the engineers and later had to spend $287 million to clean up the contaminated site.
