Why environmental costs go unclassified: Accounting practices and institutional gaps in South Papua, Indonesia

Type of the article: Research ArticleLarge-scale enterprises in developing economies routinely incur environmental expenditures, yet these costs frequently remain unclassified within formal accounting systems, limiting their utility for regulatory evaluation and public accountability. This study examines how environmental cost-recording practices in large-scale enterprises relate to the Environmental Agency’s financial control function in South Papua’s hazardous waste governance system. A qualitative design was employed, drawing on interviews with eleven informants from two environmental agencies and three large-scale enterprises in the Merauke region, supplemented by secondary hazardous waste data spanning 2017 to 2022. The study finds that both enterprises incur identifiable expenditures across all four environmental management accounting cost categories, covering prevention, detection, internal failure, and external failure, yet none are formally classified as environmental costs in their financial statements. Total hazardous and toxic waste stored reached 88,172.81 cubic meters over the study period, yet the financial footprint of this activity remains invisible within existing accountability structures. The Environmental Agency’s supervisory framework is confined to technical document compliance, with no mechanism for engaging enterprise financial cost data. The absence of a regulatory demand signal for environmental cost classification emerges as a recurring and consistent explanation across all informants, operating alongside enterprise-level capacity constraints and the absence of standardized cost classification frameworks. These findings suggest that supervisory framework design warrants greater attention in efforts to close the environmental cost classification gap, and point toward areas warranting further institutional exploration, including the potential role of pollution cost benchmarks and sustainability-linked supervisory performance indicators as directions for future policy development.