The Ministry of Environment and Forests has proposed that “Every company shall, in the Report of its
Board of Directors, disclose briefly the particulars of steps taken or proposed
to be taken towards the adoption of clean technologies for prevention of
pollution, waste minimization, waste recycling and utilization, pollution
control measures, investment on environmental protection and impact of these
measures on waste reduction, water and other resources conservation.”
often known as environmental accounting, is the accounting that permits
computation of income of the nation by taking into account the economic damage
and the depletion of natural resources. It motivates the adoption of methods
that do not hamper the environment, while balancing the performance.
includes environmental costs into the financial results of operations so that
not only the profits but also the environmental stock of assets are sustained.
The developing countries like India are facing the challenge
of promoting economic development without neglecting the environment. A
tradeoff between environmental protection and development is a great concern today.
The concept of environmental accounting was first adopted by
Norway in the early 1970s. In India, the application of environmental
accounting is limited to certain industries such as oil and petroleum, cement,
power and electronics, natural gas, steel, engineering and textile industries.
The concern of environmental responsibility and the
sustainable industrial development has given birth to a new branch of
accounting i.e. Environmental Accounting.
ACCOUNTING: A CONCEPTUAL FRAME WORK
Environmental accounting refers to the identification,
measurement and communication of the data on the environmentally responsible
performance of a business entity to facilitate economic decision-making.
identifies the resources used by a
business and measures and communicates costs of its impact on the
• The costs include costs to clean up or
remediate contaminated sites, environmental fines, penalties and taxes,
purchase of pollution prevention technologies and waste management costs.
Environmental accounting is all about making
environment related costs more transparent with the corporate accounting system
The objectives of environmental accounting and reporting are
1. To help in negotiation of the concept of environment and
to determine the enterprise’s relationship with the society as a whole and the
environmental pressure group in particular.
2. To segregate and collaborate all
environmental related flows and stocks of resources.
3. To minimize environmental impacts through
improved product and process design.
4. To estimate the total expenditure on
protection and enhancement of the environment.
5. To assess changes in the environment in terms of
costs and benefits.
6. To ensure effective and efficient management
of natural resources.
• The basic
advantage of undertaking the practice of environmental accounting is that the identification and increased awareness of
environment related cost gives the opportunity to find ways to trim down or
to completely avoid these costs whilst improving environmental performance.
• To be
more specific environmental accounting is an effective tool in order to place the environmental related issues
resolutely before the top management, to provide valuable data to inform
environmental and financial managers’ decision making process, and to
demonstrate environmental commitment of the company to its stake holders.
Benefits to an
organization that opts to disclose environmental issues in their financial
1. It enhances the image of the product and
the company which may have an impact on the sales and ultimately profitability.
2. It improves the safety of the workers, which in
turn will help increase productivity.
3. It provides a
competitive advantage as the
customers may prefer environmental friendly products and services.
4. It helps to build up trust and confidence in the
cost can be offset by generating
revenues through sale of waste or by products.
6. Better knowledge of environmental cost can
facilitate more accurate costing and pricing of products.
Environmental accounting can be classified under three
1. Environmental management accounting
management accounting focuses on material and energy from information as
well as environmental cost information. It can be studied under the following
(i) Segment environmental accounting: This
is an internal environmental accounting tool that facilitates the selection of
an investment activity, or a project which is environmental friendly from among
all processes of operations. It also helps in evaluating the environmental
effects of the project for a certain period.
(ii) Eco balance environmental accounting: This
is also an internal accounting tool to support the firm for sustainable
environmental management activities.
environmental accounting: This is a tool to inform the public of relevant
information compiled in accordance with the environmental accounting. It can be
called as corporate environmental reporting and it uses the cost and effect of
its environmental conservation activities.
2. Environmental Financial Accounting (EFA)
Environmental financial accounting refers to the financial
accounting practice with special reference to the reporting of environmental liability costs and other significant
3. Environmental National Accounting (ENA)
Environmental National Accounting focuses on natural resources stocks & flows,
environmental costs & externality costs etc.
Environmental costs and performance ought to have enough
management attention due to the following reasons:
1. Most of the
environmental costs can be effectively
reduced or avoided as a result of better business decisions, ranging from
base level to top level, to invest in
environmental costs such as the waste raw materials may provide no additional
value to the product or system. Thus, environmental
costs may be obscured in overhead accounts.
3. Better management
of environmental costs can result in improved environmental performance and
significant benefit to the society as a whole.
understanding of environmental costs and the performance of processes and
products may lead to more accurate costing and pricing which will aid the
organizations in developing more environmental friendly products and services
in the future.
5. It is
identified that environmental cost can be written
off by generating revenues through sale of waste by products or transferable
pollution allowances such as carbon credits.
for environmental costs supports a company’s development and facilitate an
overall environmental management system. Such
a system will facilitate the company to obtain international standards such as
ISO 14001 developed by International Organization for Standardization.
ENVIRONMENTAL ACCOUNTING AND REPORTING
for Environmental Accounting in India
The environmental clearance from various government
authorities has taken the centre of attraction with the abolishing of
industrial licensing for all practical purposes. India has a Union Ministry of
Environment with the motive of coordinating among the states and the various ministries,
the environmental protection and anti pollution measures. The country has also
passed various legislations to ensure the protection of environment. The latest
Companies Act, 2013 also incorporates a stress on green initiatives. The
various laws pertinent to environmental protection in the country are listed
below under two different heads:
related to the protection of environment
(Prevention and Control of Pollution) Act, 1974
(Prevention and Control of Pollution) Cess Act, 1977
(iii) Air (Prevention and Control of Pollution) Act, 1981
(iv) The Forest Conservation Act, 1980
(v) The Environment
(Protection) Act, 1986
related to the protection of environment
(i) The provision
in the Constitution (Article 51A)
(ii) The Factories
(iii) Hazardous Waste (Management and Handling) Rules, 1989
(iv) Public Liability Insurance Act, 1991
(v) The Motor
Vehicle Act, 1991
(vii) The National
Environment Tribunal Act, 1995
Fisheries Act, 1987
accounting Practices in Indian companies
Environmental accounting is at inception stage in India. In the context of requiring
environmental related disclosures from business units on a periodic basis, the
first public announcement was made by the Government of India in 1991,
immediately after adopting the financial reforms that liberalized the economic
policies of the country.
In 2011, the Securities and Exchange Board of
India mandates listed companies to report on Environmental, Social and
Governance (ESG) initiatives undertaken by them, according to the key
principles enunciated in the ‘National Voluntary Guidelines on Social,
Environmental and Economic Responsibilities of Business.’
The Companies act 2013 emphasizes on corporate
social responsibility that makes it mandatory for certain class of profitable
enterprises to spend money on social welfare activities.
mandatory for companies with net worth of more than Rs 500 crore, or turnover
of Rs 1,000 crore to adopt a CSR policy.
Also it provides that the companies are required
to give more disclosures besides Company’s general state of affair and
financial performance regarding conservation of energy and environmental
The Union Ministry of Environment and Forests
has issued various instructions in to prepare environment statements. It is
mandatory in the country to get an environmental clearance for all new projects
that concerns both the Union Ministry of Environment and Forests and the
corresponding State Government department of environment.
There are various guidelines in this regard and
all such projects are expected to obtain environmental and antipollution
clearance before they are actually set up.
It can be observed
through their accounts that mainly the following set of information is
What type of devices are installed to control
taken for energy conservation
taken for optimum utilization of resources
taken for decompose the waste water and production process waste
taken for improving the quality of product and services, production process
. In th environment statement, the concerned industry is
required to provide information on:
Water and raw material consumption
of pollution control measures on conservation of natural resources
of hazardous and solid wastes produced and disposal practices adopted
taken for environmental protection
taken to popularize the benefits of environmental accounting and reporting
among the corporate sector.
Environmental Accounting and Reporting
Even though the environmental accounting and reporting
practices are being attempted by many countries, the concept has certain
obstacles in implementation.
The major limitations are as follows:
accounting lacks economic value.
2. There is no standard method of estimating the social
value of environmental goods and services.
3. Social value
given to environmental goods and services are
changing so fast that the estimates are likely to be obsolete before they are available for use.
4. There is no accounting standard for environmental
5. It involves inapplicable assumptions
accounting is not a legal obligation except for few industries in India.
7. It lacks reliable industry data.
Environmental accounting is an important measure
for understanding the role played by
natural environment in the development of an economy.
data that contains the contribution of natural resources to economic well being
as well as the costs imposed by environmental pollution and resource
In India, the level of environmental related disclosures in the corporate annual
reports is poor.
Neither the latest
company law nor the accounting standards by ICAI prescribes the disclosure
norms for environmental related aspects in the corporate financial reports.
As the environmental disclosures are voluntary
in nature, except few industries for which environmental accounting is
mandatory such as oil and petroleum, natural gas, cement, steel, etc. the
companies hesitates to implement the practice in their books of accounts.
The poor environmental performance of the
company may also bind them to no-disclosure. The lack of awareness and
commitment on the part of company management about the social responsibility of
the firm also keeps the firms away from reporting environmental costs and
Thus, it can be concluded that the absence of a
standardized environmental accounting practice and disclosure norms at national
as well as international levels spur the corporates to be away from the
environmental accounting practices and to shut their eyes towards the
deterioration in the environment.
Green Accounting/ Environmental Accounting should promote
paperless reporting in the form of digital accounting
eg: e filing of taxes, Cloud computing to save energy, Calculation
of Environment Domestic Product rather than
National Domestic Product
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