<h2>If this continues, investors won’t know when to back out and switch to green businesses. R&D to find better energy resources shouldn’t be market driven AFTER non-renewable energy sources run out. They should be starting when investors realize that a long-term interest in oil companies is no longer financially prudent. ~ Justtotalk</h2>
<p>Business won’t cease current practices until practical (profitable) alternatives exist, which they don’t at this point. The R&D is already there, but there is currently no practical implementation.</p>
<p>I wouldn’t call myself an “Environmentalist”, because I don’t want to associate myself with all the nutjobs. However, I would call myself a bit of a Conservationist, but just saying I’m a nature lover is probably the most accurate.</p>
<p>But accounting standards today don’t even give investors information. They’re not even TRYING to estimate the long-term costs of running a business that’s not eco friendly. </p>
<p>As more and more consumers demand green products, businesses that aren’t keeping up will have to compete even more heavily on price. It means that the current profit margins aren’t sustainable for dirty businesses. Yet, the accounting profession ignores the long-term infeasibility of maintaining the current profits. In a sense, the balance sheet today isn’t predicting the cash flows of tomorrow.</p>
<p>Because of this, you’ve got over-investments in dirty businesses. The stock prices of such companies are like a pyramid scheme. Everyone knows the current dividend rates can’t be maintained, they just want to be the last person to sell the stock at a high price. And since no one has solid data on when the costs of dirty business will be too high (i.e. there’s no green accounting), the game continues. </p>
<p>This type of investing is just playing the markets. There’s no economic benefit. We’re wasting economic growth potential on dead ends because the accounting standards focus on short-term gains. </p>
<p>All we need to do is provide the information. The information will speak for itself: green businesses have a greater long-term potential and SHOULD be invested in. Quantify this potential and the necessary redirection of businesses to green solutions will occur. Actually finding alternative energy sources or new environmental sustainable practices is just the final step after the proper amount of investments are allocated from private sources.</p>
<p>Keep in mind that, like any financial information, investors have the right to ignore the green line items and recalculate income statements as they wish. They’ll only use the information if it’s useful, but I argue that including environmental costs is a far better predictor of future cash inflow for a company considering the current consumer movements.</p>
<p>I’m not reevaluating anything, nor am I trying to convince anyone of anything. I don’t care how I come off… this is an anonymous college forum. I wouldn’t use the same arguments IRL. -.-</p>
<h2>But accounting standards today don’t even give investors information. They’re not even TRYING to estimate the long-term costs of running a business that’s not eco friendly. ~ Justtotalk</h2>
<p>Are you sure you mean Accounting?</p>
<p>Because what you appear to be advocating sounds alot like Mark-To-Market Accounting, which can be very dangerous if used improperly, and would seem to be extremely irresponsible in this particular situation (including projected profits as earnings). </p>
<p>This is the exact cause of Enrons collapse.</p>
<p>IRL I do try to change people’s opinions. But I’ve been on here long enough to know that people are stuck in their ways, especially on this forum. It’s just how it is :/</p>
That is generally a sign that you shouldn’t make such arguments to begin with. If they aren’t suitable for “real life”, why are they relevant in this context?</p>
<p>@#88: One more stick in the mud doesn’t do much to move the others.</p>
<p>Explain. Enron’s collapse is a great example of what happens when information that should be available to investors is missing. When you have a major stake in SPE’s and don’t include them as consolidated financial statements in your annual report, then investors have no idea that your financial situation depends on them.</p>
<p>Likewise, investors have no idea what’s going with the costs of dirty business. How badly are oil companies’ (and others’) financial future dependent on the environment? We wouldn’t need to price current line items at fair value to answer this–I’m talking about items that are COMPLETELY missing from the financials today. </p>
<p>Costs of cleaning up water pollution. Of ozone depletion. Of contingent liabilities from future environmental legislation. The costs of doing dirty business. If companies aren’t being held accountable for these costs today, they will in the future. Investors should have the right to an estimate of what these costs will end up being.</p>
<p>We make oil companies estimate the costs of closing up wells and removing rigs in a clean manner. Why don’t we make them account for the other environmental costs?</p>
<p>If you think these costs are too variable to REPLACE an income statement, then include them in a separate income estimate. I understand that there’s an issue with including uncertain costs as if you know them for certain. But that doesn’t mean estimates shouldn’t be made available.</p>
<p>Remember, an income statement should be telling you about the FUTURE. The future depends on how we treat the environment. If you want to know about the actual expenses and revenue that a company incurred, just check their cash flows. We’re not trying to mislead investors, we’re trying to give them all the info they need to make the right decision.</p>
<p>Luckily for us, the right decision is investing in green business.</p>
<p>^^^ Well, if you want to learn about Enron and Mark-to-Market accounting, just google it.</p>
<p>However, your example falls short because you are including unknown variables into overall profits.</p>
<p>If you use Book Value Accounting, those costs are included as they occurr - hence, an accurate budget.</p>
<p>The problem is that you are assuming that only energy companies have inherent risk. Any business operation is at risk for uncalculated costs, so I’m not sure why we should require business to include these costs (which are unknown) into their accounting.</p>
<p>Basically, it just sounds like you don’t like energy companies and want to find away to make their profits look smaller to make “green technologies” (that don’t work) look better.</p>
<p>I mean - Walmart has slip and fall lawsuits nearly everyday, should Walmart start trying to assess those costs and incorporate them to shrink their projected profits?</p>
<p>I’m not talking specifically about alternative fuel companies. I’m talking about companies that minimize environmental impact in order to reduce their long-run costs of running a business so they are sustainable. I want to invest in a company that will be around in 20 years.</p>
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<p>You don’t invest in companies because they HAD high profits. You invest because you expect FUTURE profits. A company that has a long-run issue in maintaining its profits is worth less (it can’t issue as much dividends in the long run) as a company that doesn’t have these issue. </p>
<p>Income statements should be reflecting this. They’re supposed to show you sustainable net income–that’s why we separate out extraordinary items.</p>
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<p>Lawsuits are an ongoing concern. Any lawsuits that aren’t accounted for today WILL BE accounted when they ultimately are decided. We also include lawsuits in the notes and likely losses are expensed–so investors are aware of them.</p>
<p>Environmental concerns are not being accounted for today. The accounting profession is ignoring environmental issues until the environmental impact is so huge that only eco-friendly companies survive. This is unfair to investors who are trying to decide between dirty and clean businesses.</p>
<p>Risk in businesses are supposed to be estimated and included in annual reports.</p>
<p>Insurance companies don’t know exactly what losses they will sustain each period. So should they just recognize all their premiums as revenue and ignore the losses until they come knocking on their door? No, we account for them because they are a major part of the business.</p>
<p>Same thing with everything else. When there is revenue earned today, the cost of earning it should be expensed–whether that’s warranty costs, interest expense of debt, etc., We don’t disregard costs just because we can’t precisely measure them.</p>
<p>“he contingent valuation (CV) method questions people about their willingness to pay for hypothetical (or actual) policies that affect the allocation of resources. This approach is commonly used to estimate the value of changes in the condition of the natural environment where willingness-to-pay is used to gauge the potential economic benefits or opportunity costs (i.e., changes in stakeholder values) related to resource management decisions.”</p>
<p>Predicting Market Value Changes</p>
<p>“An economic impact analysis predicts the direction and magnitude of changes in key economic indicators such as employment and income, while fiscal impact analysis measures the related changes in tax revenues and disbursements. Both types of analysis help people to understand how a project such as our example of a new residential development on a filled wetland affects the local and regional economy.”</p>