Purpose - The aim of this paper is to demonstrate that the application
of standard environmental accounting practices for estimating long-term
discount rates is likely to lead to the rejection of
biodiversity-sensitive projects that are in the greater societal good.
Design/methodology/approach - The authors combine estimates of marginal
ecosystem damages from two forestry case studies, one local, one global,
with ten different term structures of discount rates taken from both
the academic literature and policy choices to calculate present values.
Findings - Standard environmental accounting approaches for estimating
the long-term discount rate result in the under-valuation of projects
that are sensitive to biodiversity conservation. Research
limitations/implications - This paper is set within a full cost
accounting (FCA) framework, and therefore has the limitations that
generally follow from taking this approach to biodiversity problems.
Recommended extensions include looking at broader ranges of biodiversity
costs and benefits. Social implications - Unless environmental
accountants engage with environmental economists over the issue of
intergenerational discount rates, then it is likely that socially
responsible managers will reject projects that are in the greater
societal good. Originality/value - The paper introduces both normative
discount rates and declining discount rates to estimates of shadow
environmental provisions within FCA and contrasts these with current
environmental accounting practices. It also provides two detailed case
studies that demonstrate the extent to which biodiversity-sensitive
investment choices are likely to be undervalued by managers who follow
current accounting recommendations concerning the appropriate choice of
discount rate.