The business relevance of eco-costs is that it is the financial risk of non-compliance with future governmental regulations.
The eco-costs reveal what are the true costs of a product and make it possible to do true cost accounting (TCA), which is the methodology of accounting that takes into account the full range of social and environmental costs associated with a product or service. These costs may not yet be reflected in the market price of the product or service, but can have significant impacts on society and the environment. Clever entrepreneurs are proactive and reduce the eco-costs of their products and services by innovation. They apply eco-efficient value creation that supports circular business models.
Companies that have a better grip on their value chain are able to faster respond to uncertain factors in their business. For example, reducing the number of kilometres of transport will result in lower transport costs and less exposure to fluctuating prices of transport fuels. The same accounts for reducing the footprint of raw materials. Materials with a large footprint are more exposed to regulations and public opinions like for example the discussion around PFAS and the “plastic soup”.
Businesses can conduct true cost accounting (TCA) for a variety of reasons, including:
Better decision-making: By accounting for the full range of social and environmental costs associated with a product or service, businesses can make more informed decisions about how to allocate resources and manage risks. This can help to ensure long-term sustainability and resilience.
Improved stakeholder relations: TCA can help businesses to identify and engage with stakeholders who are impacted by their operations, including local communities, customers, and suppliers. By understanding and addressing the full range of costs associated with their activities, businesses can build stronger relationships with these stakeholders and improve their reputation.
Regulatory compliance: Some regulations require businesses to account for and report on their social and environmental impacts. TCA can help businesses to comply with these regulations and avoid penalties or fines.
Cost savings: By identifying inefficiencies and waste in their operations, businesses can often reduce their costs and improve their profitability. TCA can help to identify these opportunities by providing a more complete picture of the costs associated with a product or service.
Innovation and competitiveness: TCA can help businesses to identify new markets and opportunities for innovation by identifying unmet social and environmental needs. By addressing these needs, businesses can differentiate themselves from competitors and improve their market position.
Overall, true cost accounting with eco-costs can help businesses to create more sustainable and responsible operations, while also improving their financial performance and competitiveness.