Environmental Accounting

What is Mean by Environmental Accounting ? 

Corporate enterprises are facing the challenges to determine their true profits, which are environmentally sustainable ones. For this, companies need to account for the environment. They should take account of its most significant external environmental impacts and in effect, to determine what profit level would be left (if any) if they attempted to leave the planet in the same state at the end of the accounting period as it was in the beginning.

Contents :                             

  1. Meaning of Environmental Accounting.
  2. Forms of Environmental Accounting.
  3. Need of Environmental Accounting at Corporate Level.
  4. Scope of Environmental Accounting.
  5. Advantages and Limitations of Environmental Accounting.
  6. Accounting Requirements for Environmental Accounting.
  7. Legal Framework for Environmental Accounting in India.
  8. Practice of Environmental Accounting in India.
  9. Various Governmental Measures for Environmental Educations and Awareness.

Meaning Environmental Accounting :

The term environment includes everything in all its manifest forms. On the earth, beneath the earth and above the earth. All over the world there has been much concern regarding management of environment for ensuring sustainable economic developments. Sustainable economic environmental development may be defined as the development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. It refers to preserving Eco-system as well as maintaining long-term profitability of the firm. 
In order to be a good corporate citizen a firm has to adopt policies and take action that become environment friendly. The companies must develop strategies which translate actions into benefits, improve their environmental performance and meet the environment demands placed upon them by Government and shareholders.
The business activities of every enterprise are affected by a nation's natural resources, viz, water, air, minerals, forests, etc. or termed as environment in common parlance. 
Similarly, the functioning of an enterprise also affects the environment. Hence, it is necessary to maintain proper accounting records displaying the impact of a business enterprise on environmental and vice versa. Environmental accounting faithfully performs this function. It is a new concept and is gaining continuous popularity because of greater environmental awareness. It is a method of recording environmental events. It includes the evaluation or natural resources measuring the income therefrom, keeping a record of the cost relating to them, estimating their quantities and providing depreciation on them. It includes management of environmental costs effectively presenting and disclosing environmental information in a suitable form.

Explain the Forms, Need and Scope of Environmental Accounting.

Forms of Environmental Accounting :

1) Environmental Management Accounting (EMA) :
This is an accounting with a particular focus on material and energy flow information and environmental cost information.

Sub Systems :
This type of accounting can be further classified in the following sub Systems :

a) Segment Environmental Accounting (SEA) :
This is an internal environmental accounting tool to select an investment activity, or a project, related to environmental conservation from among all processes of operations, and to evaluate environmental effects for a certain period.

b) Eco Balance Environmental Accounting (EBEA) :
This is an internal environmental accounting tool to support PDCA for sustainable environmental management activities.

c) Corporate Environmental Accounting (CEA) :
This is a tool to inform the public of relevant information compiled in accordance with the Environmental Accounting. It should be called as Corporate Environmental Reporting..For this purpose the cost and effect (in quantity and monetary value) of its environmental conservation activities are used.

2) Environmental Financial Accounting (EFA) :
This is a financial accounting with a particular focus on reporting environmental liability costs and other significant environmental costs.

3) Environmental National Accounting (ENA) :
This is a national Level accounting with a particular focus on natural resources stocks and flows, environmental costs and externality costs etc.

Need of Environmental Accounting at Corporate Level :

It helps to know whether corporation has been discharging its responsibilities towards environment or not. Basically, a company has to fulfill following environmental responsibilities.

a) Regulatory Requirements :
Meeting regulatory requirements or exceeding that expectation.

b) Cleaning up Pollution :
Cleaning up pollution that already exists and properly disposing of the hazardous material.

c) Information :
Disclosing to the investors both potential and current, the amount and nature of the preventative measures taken by the management (disclosure required if the estimated liability is greater than a certain percent say 10 per cent of the companies net worth).

d) Operation :
Operating in a way that those environmental damages do not occur.

e) Promotion :
Promoting a company having wide environmental attitude.

f) Control Over Efficiency Gains :
Control over operational and material efficiency gains driven by the competitive global market.

g) Control Over Cost Increases :
Control over increases in costs for raw materials, waste management and potential liability.

Scope of Environmental Accounting :

The scope of Environmental Accounting is very wide. It includes corporate level. national and international level. The following aspects are included in environmental accounting

1) Internal Point of View :
From Internal point of view investment made by the corporate sector for minimization of losses to environment. It includes investment made into the environment saving equipment/ devices. This type of accounting is easy as money measurement is possible.

2) External Point of View
From external point of view all types of loss indirectly due to business operation activities. It mainly includes :
i) Degradation and destruction like soil erosion, loss of bio diversity, air pollution, water pollution, voice pollution, problem of solid waste, coastal and marine pollution.
ii) Depletion of non-renewable natural resources i.e. loss emerged due to Over exploitation of non-renewable natural resources like minerals, water, gas, etc.
iii) Deforestation and Land uses.
This type of accounting is not easy, as losses to environment cannot be measured exactly in monetary value. Further, it is very hard to decide that how much loss was caused to the environment due to a particular industry. For this purpose approximate idea can be given or other measurement or loss like quantity of non-renewable natural resources used, how much Sq meter area deforested and total area used for business purpose including residential quarters area for employees etc., how much solid waste produced by the factory, how much wasteful air pass through chimney in air and what types of elements are included in a standard quantity of wasteful air, type and degree of noise made by the factory, etc. can be used.

Explain the Advantages/Importance and Limitations of Environmental Accounting.

Responsibility towards environment has become one of the most crucial areas of social responsibility. Recent years have witnessed rising concern for environmental degradation which is taking place mainly in the form of pollution of various types. It is a worldwide phenomenon. It spoils human health, reduces economic productivity and leads to loss of amenities. So environmental accounting is gaining continuous popularity.

Advantages of Environmental Accounting :

i) Discloses Utilisation of Natural Resources :
Environmental accounting is helpful in presenting in a transparent manner, the utilisation of natural resources of the country, the costs incurred to use them and the income earned therefrom.

ii) Social Contribution by Corporates :
Environmental accounting helps in measuring the contribution made by various corporations or companies in fulfilling their social responsibilities.

iii) Environmental Protection :
A business enterprise does not live in isolation. In order to maximize wealth, it takes support of social and ecological systems. Environmental accounting helps in measuring the extent to which a corporate enterprise has utilised the environmental resources. In any case, it has to be seen that a business enterprise in the course of their business activities does not vitiate, pollute or endanger environment. As a matter of fact, a number of laws have been enacted in our country to protect the environment.

Limitations of Environmental Accounting :

The present format of national accounts does not provide a full economic value of environmental resources. The following are a few limitations :

i) Non-recognition of Environmental Expenditure :
Expenditure incurred to protect the environment or preventing it from degradation cannot be separated from the SNA data as per the present system of national accounts.

ii) Non-marketed Goods and Services :
Environment provides certain goods which are of high value but are not sold in the market. These may include firewood, building materials generated in the forests, medicinal plants, etc. Some countries do not incorporate these goods in their national accounts. However, they compute the marketable value of similar products and use it as a basis for valuing non-marketed goods and services.

iii) Consumption of Natural Capital :
The system of national accounts treats the gradual depletion of physical assets such as plant and equipment as depreciation. However, depletion of natural capital particularly the forest is treated as income. This seems to be an inconsistent approach. It will be appropriate to treat the depletion of natural capital, on the same pattern of that of depletion of physical assets.

Accounting Requirements For Environmental Accounting :

A) Gazette Notification :
A Gazette Notification on Environmental Audit issued by the Ministry of Environment and Forests in 1992 (amended vide notification GSR 386 (E), dt.22-04-1993), under the Environmental (Protection ) Act, 1986 has made it mandatory for all the industrial units to submit an environmental statement to the concerned State Pollution Control Boards while seeking consent to operate under the relevant environmental norms. The Environmental Statements enable the units to take a comprehensive look at the industrial operations, facilitate the understanding of material flows and help them to focus on areas where waste reduction and consequently saving in material cost, is possible.

B) Provisions in Indian Companies Act :
Indian Companies Act, 1956 requires to include in Director's report environment related policies/ problems and annexure showing details of energy consumption/ energy conservation.

C) Cost Accounting Record Rules :
Cost Accounting Record Rules for various industries made by the Central Government also require disclosing monetary and quantitative values in Cost Accounting.

Legal Framework for Environmental Accounting in India :

While industrial licensing has been abolished for all practical purposes, environmental clearance from various Government authorities has now taken the centre stage. With increasing global concern over the protection of the environment, India too has set up a Union Ministry of Environment with the object of co-ordinating among the states and the various ministries, the environmental protection and anti-pollution measures. Necessary legislation has also been passed. The various laws relevant to environmental protection are as under :

A) Directly Related to Environment Protection :
  1. Water (Prevention and Control of Pollution) Act, 1974.
  2. Water (Prevention and Control of Pollution) Cess Act, 1977.
  3. The Air (Prevention and Control of Pollution) Act, 1981.
  4. The Forest (Conservation) Act, 1980.
  5. The Environment (Protection) Act, 1986.

B) Indirectly Related to Environment Protection :
  1. Constitutional Provision (Article 51A).
  2. The Factories Act, 1948.
  3. Hazardous Waste (Management & Handling) Rules, 1989.
  4. Public Liability Insurance Act, 1991.
  5. Motor Vehicle Act, 1991.
  6. Indian Fisheries Act, 1987
  7. Merchant of shipping Act, 1958.
  8. Indian Port Act.
  9. Indian Penal Code.
  10. The National Environment Tribunal Act, 1995.

It is important to note that all new projects require environment clearance. This clearance concerns both the Union Ministry of Environment and Forests and the corresponding State Government department of environment. Guidelines have been issued and all such projects are expected to obtain environmental and anti-pollution clearance before they are actually set up. A Central Pollution Control Board (CPCB) has also been set up. 
Wherever cases of violating of standards of water or air pollution have been detected, show cause notices have been issued to industrial units and all such units are being kept under constant surveillance. According to the Annual Report of the Ministry 1997-98, out of 1551 large and medium industries identified in the 17 categories of highly polluting industries, 1261 have installed the requisite pollution control facilities and 165 units are in the process of installing such facilities. 
According to the Annual Report of the Ministry 1997-98, 125 units have been closed down. As a result of notices issued by the Central Board 2137 units which did not have requisite effluents treatment systems, 480 units have been closed down and 1457 units are about to be closed. 106 units have set up such systems and 94 units have been granted extension of time. 
During the year 1997-98 around 680 complaints regarding various types of pollution-air, water, noise and soil have been received and attended to. The concern of the Ministry for protecting the environment in the coastal waters and the coastal belt has led to the imposition of a no-construction belt of 300 meters beyond the high water tidal limit on the Indian coast line. This has affected the beach hotels and coastal resorts. Apart from the general concern for construction of the environment, the concern for the management of hazardous substances for the protection of the forest wealth and wild life and for preventing biological degradation have also brought about some restrictions which the existing industrial units and also entrepreneurs wishing to set up new plants and factories should keep in view.

Practice of Environmental Accounting in India :

1) Information :
Very few corporations give adequate information regarding environmental issue. If as per requirement of applicable law they have to prepare and submit any information relevant to environment they do so. The Environment Ministry has issued instruction in this regard to prepare environment statement. It can be observed through their accounts that mainly the following types of information are given :
i) What type of devices installed for pollution control.
ii) Steps taken for energy conservation.
iii) Steps taken for raw material conservation.
iv) Step taken for waste water and production process waste.
v) Step taken for improvement of quality of product and services, process of production, etc.

2) Environmental Reporting :
A study was conducted among 80 executives of different industries by Dr. B.B. Padhan and Dr. R.K. Bal which revealed that corporate world is fully aware of the requirements of environmental reporting. They are also aware of the environmental issue. The corporate executives have also expressed their views in favor of environment reporting by the industries. Despite their awareness and consent over environmental reporting by industries is it very poor. It is so inadequate that very little information is found in the annual report.

3) Research :
Research studies have examined the extent to which companies produce social
information, of which environmental information would be part. A number of general themes that emerge from this include the following :

i) The proportion of companies disclosing and extent of that disclosure are small and the quantity is low.
ii) There is some variety in disclosure over time, between countries and between industries. Social disclosure in general and environmental disclosure in particular reflects the changing business climate and social, economic and political environment in which they Occur. However, the total amount of voluntary disclosure stays fairly constant over time and what changes is the subject addresses in the disclosure.
iii) There is a very definite size effects in those larger companies are more likely to disclose than smaller companies.
iv) Very little disclosure would qualify as information under any normal criteria and very little of it indeed will contain numbers, financial or otherwise.

4) Reports of Companies :
Environmental reports as contained in the Directors Report of three Indian Companies are as under :

i) Asian Paints (lndia) Ltd., (1993-94) :
"Ecology and Safety: Samples of treated effluents are periodically checked for Compliance with standards".

ii) Goodiass Nerolac Paints Limited (1993-94) :
Pollution :
The company regularly monitors measures in force in accordance with the Pollution Control Act for the protection of environment and for ensuring industrial safety. The company carries out improvements regularly to ensure full compliance with the statutory requirements."

iii) Maruti Udyog Limited (1993-94) Environment:
Modification of the existing effluent treatment plant was undertaken to take care of additional effluents generated due to capacity expansion. Data on non-methane hydrocarbons in Paint Shop and Engine Testing shop, ambient air quality, stack emissions and effluents are being regularly monitored and the parameters are maintained well within prescribed limits. Development of green belt around gas turbine and R&D areas was further augmented by plantation of 3000 additional saplings.

5) Manner of Information :
It was also revealed that most of the companies disclose the environment information in descriptive manner rather than to financial type i.e. no account is made for the degradation of natural capital when calculating corporate profits.

What is Environmental Awareness? Describe the Various Governmental Measures for Environmental Educations and Awareness.

Environment includes all living and non-living objects. While meeting the ever growing needs, weput pressure on the environment. It creates a serious problem of environmental degradtion. Therefore there is a need to create awareness about environmental protection.

Meaning :

Environmental Awareness is an awareness and subsequent desire to preserve natural resources and the environment.

Various Governmental Measures For Environmental Educations and Awareness :

Environmental educations is increasingly a prominent part of primary, secondary and tertiary education in Asia. The formal education sector plays a vital role in environmental education and awareness by exposing the younger generation to the information, issues, analyses and interpretations on environment and development.

1) Roles of MoEF, MHRD and other Ministries :
While the principal responsibility for Environmental Education through the formal educational system is with the Ministry of Human Resource Development, the parallel responsibility of EE through non-formal efforts lies with the Ministry of Environment. But these efforts are by no means exclusive. There is a large amount of co-operation between the Ministries and with the institutions associated with them.

EOSE, most EE programmes are designed and implemented with National and State level perspectives, hence the full intent to environmental education will not be achieved because environmental concerns and problems may be locale specific and therefore do not include consideration of global solutions. Therefore, the Ministry of Human Resource Development (MHRD) supports a centrally sponsored scheme under its financial assistance is provided to government and voluntary organisations and other institutions working in the field of environmental education to develop locale specific programmes and materials. Under this scheme, CEE is one of the designated nodal agencies. To date approximately projects to support development of locale specific programmes and materials by NGOs have been facilitated.

3) Centres of Excellence :
One of the strategies of the Department was to establish "Centres of Excellence" for research, training and education which would play a pivotal role in strengthening the country's infrastructure and thereby its ability to deal with these issues. The Centre for Environment Education was set up in 1984 at Ahmedabad under this programme. A second Centre, the C.P.Ramaswamy Environmental Education Centre at Chennai was set up in 1988 under the same scheme. The main activities of both the Centres are the development of environmental resource materials, organisation of training programmes and creation of environmental awareness among teachers, students and the general community.

4) National Environmental Awareness Programme (NEAC) :
The Ministry of Environment and Forests (MOEF), Government of India started National Environment Awareness Campaign (NEAC) in 1986 with the aim of creating environmental awareness at all levels of society. Under NEAC, the Ministry provides financial assistance to selected non governmental organisations, education and training institutes, community organisations, etc. to create massive awareness among citizens of India. Diverse target groups ranging from students/youth/ teachers to rural and tribal population, women, professionals and the general public are covered under this campaign. The Campaign programmes are basically composed of a spectrum of short duration programmes.

5) Environmental Information System (ENVIS) :
The Ministry of Environment and Forests has set up ENVIS for different aspects of environment. The objective of this system are to provide national environmental information service to the users of originators, processors and disseminators to build up storage, retrieval and dissemination capabilities to promote support and assist education and personnel training programmes designed to enhance environmental information processing and utilising capabilities: to promote exchange of information amongst developing countries. CEE has been designated as the National ENVIS Centre for Environmental Education.

6) Museums of Natural History :
Setting up of Natural History of Museums as unique facilities to promote non-formal environmental education and to create environmental awareness among people is a strategy of the Ministry of Environment and Forests. The National Museum of Natural History is located at Delhi. Regional Museums are also being established at Mysore, Bhopal and Bhubaneshwar.

7) Eco-clubs in Schools :
A non-formal pro-active system of imparting environmental education to school children by involving them in various environmental activities through the scheme of Eco-clubs has been evolved by the Ministry of Environment and Forests.

8) Promoting Mass Media :
The Ministry provides financial assistance for the production of films, video-spots and other audio visuals on important environmental issues for creation of mass awareness. These are normally telecasted by our National Television (Door Darshan) Channels. There are slots in our National TV Channel especially for environment.

9) Partnerships with NGO's :
The areas and target groups requiring environmental education are enormous and cannot be handled by one single institution. CEE has, therefore, developed a strategy of working with others. Partnerships are utilising complementary strengths of other organisations to avoid duplication of effort and network effectively for synergistic convergence of ideas and goals. One example of such a partnership is school cluster programmes. Developing a sustainable model of partnerships between CEE, government and non-government institutions to sustain and invigorate this network was a key strategy adopted from the start. To this end CEE developed a model of close partnerships between the local schools, local NGOs, State Departments of Education across the country. Today, under the school-cluster programme supported by MoEF year-round programmes go on in schools through,55 NGO-school clusters covering all States. Over 1000 schools are part of this

10) Regional & International Approach :
Various international activities are carried out by the Centre. The activities include on-going training programmes, workshops in collaboration with other NGOs, Institutes etc. The activities/programmes include Workshops/Seminars/Specific Focus Meetings, Training Programmes, Subject Expertise, Collaborative Projects and Partnerships and Networking.

11) IT/ Web sites :
Information Technology (IT) advances in the last few years has thrown up an entirely new medium, which is fast and economical. The Internet has also provided everybody an equal opportunity to put information on any topic irrespective of which part of the world one is geographically located in. The Internet has given us the World Wide Web, the E-mail and the Internet Relay Chat amongst many others. CEE decided to look at this as a potential medium of the future for EE.