ACCA Strategic Professional · Advanced Performance Management · Sustainability
Kestrel Paper wants to measure the full cost of its environmental impact, including cost it does not currently pay, such as the estimated damage from emissions to the local community. Which type of environmental cost is this?
This is an externality, also called a societal cost. It is damage caused by the company's emissions that is borne by the community rather than the company, so it does not appear in conventional accounting records and must be estimated separately.
- AConventional costs
- BContingent costs
- CRelationship costs
- DExternalities (societal costs)Correct
Explanation
Costs of damage imposed on society that the company does not bear, such as pollution harm to the community, are externalities or societal costs. Conventional costs are those already in the accounting records, such as materials and energy. Contingent costs are possible future costs such as remediation, and relationship costs relate to stakeholder communication.
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