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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

ENVIRONMENTAL ACCOUNTING AND REPORTING: AN ESSENTIAL COMPONENT OF BUSINESS STRATEGY

DR. NASIR ZAMEER QURESHI*; DR. DHIRESH KULSHRESTHA**; SURYA BHUSHAN TIWARI***
*Associate Professor, Department of Commerce, Aligarh Muslim University, Aligarh, U.P. **Associate Professor & Head, Department of Management, Institute of Professional Studies, Gwalior, M.P. ***Ph.D. Research Scholar, Department of Commerce, Aligarh Muslim University, Aligarh, U.P.

ABSTRACT Environmental accounting is on an expansion path. With increasing social focus on the environment, accounting fills an expectation role, to measure environmental performance. Only stressing on the economic and industrial development unfortunately we, the Indian forget the importance of and the consequences of such forgetfulness gave birth to the remarkable incidence of the Bhopal chemical leak (1984), Tsunami in India (2004). Infect the industrial and business activity are directly or indirectly responsible for various environmental problems such as Global Warming, a rapid changes in climate, glacier meltdown, soil erosion, land degradation, deforestation, loss of biodiversity and pollution of all kinds such as water, air, marine, noise, light etc. A native American proverb states that, only when the last tree is cut, only when the last river is polluted, only when the last fish is caught only when they will realized that you cannot eat money. The issue of environmental responsibility and the sustainable industrial development has given to the birth of new branch of accounting, i.e. environmental accounting and reporting. Environmental accounting is relatively a recent entrant in the domain of accounting. It is the process of identification measurement and commutation of information in the environmental responsibility of the performance of an entity to permit economic decision. Environmental accounting first adopted by Norway in the 1970s and in India it is applied only the cements, oil and petroleum, power and electronics, steel, engineering and textile industries. For proper implementation of environmental accounting in India a large number of researches, discussion, accounting standard and regulatory frameworks is necessary. The status of environmental awareness provides a dynamic for business reporting its environmental performance. Examining the integration of environmental policy with business policy is the focus of this research. The business firms strategy includes responding to capital and operating

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

costs of pollution control equipment. This is caused by increasing public concerns over environmental issues, and by a recent government-led trend to incentive-based regulation. This paper describes the environmental component of the business strategy, producing the required performance reports and recognizing the multiple skills required to measure, compile and analyze the requisite data. Special emphasis of the research is on generation of reports and their standards, for the range of business and regulatory purposes. KEYWORDS: Environmental Accounting, Business Strategy, Environmental Reporting, Environmental policy. ______________________________________________________________________________ INTRODUCTION In general, environment refers to the surroundings of an object. Environmental accounting is an important tool for understanding the role played by the natural environment in the economy. Environmental accounts provide data which highlight both the contribution of natural resources to economic well-being and the costs imposed by pollution or resource degradation. Due to ignorance of environment Problems such as Global warming rapid changes in climate, glacier Meltdown, soil erosion, land degradation, deforestation, and loss of biodiversity and pollution of all kinds such as water, air, marine, noise. Light etc are commonly experiences in the present century for which both developed of developing nation may be held responsible. So in the 21st century we have an urgent need of protecting our environment, because the environment is responsible for the survival of human beings. A native American provost states that, Only when the last tree is cut, only when the last river is polluted only when the last fish is caught only then they will realize that you cannot eat money, the economic development without environmental considerations can cause various irreversible environmental damages, which in turn endangers the life of present as well as future generations. We know that there are limited resources available for the use of all species on the earth and the enormous damage is cadged to the environmental due to the activities of the business enterprises. In fact the industrial and business activities are directly or indirectly responsible for birth to the remarkable incidence of the Bhopal chemical leak (1984), Tsunami in India (2004). The issue of environmental responsibility and the sustainable industrial development has given birth to a new branch of accounting i.e. Environmental Accounting. It is relatively a recent entrant in the domains of accounting. Environmental Accounting is Process of identification measurement and communication of information on the environmentally responsible performance of a business entity to permit economic decisions. It is essential for an organization to implement the concept of sustainable development as it facilitates to take into account ecological activities of an organization in economic measurement. Environmental accounting first adopted by Norway in the 1970s and in

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

India it is applied only the cements, oil and petroleum, power and electronics, steel, engineering and textile industries. Environmental Reporting is the term now commonly used for environmentally related data, verified (audited) or not, regarding environmental risks, environmental impacts& policies. Corporate environmental protection should include environmental reporting initiatives taken by the enterprise, the adverse impact of its production process and products on the environment both in quantitative and qualitative terms and its initiatives in process and product innovations in order to achieve sustainable growth. Generally following information are disclosed by the companies in its annual report about environmental accounting and reporting Present and future costs for products as well as processes redesign. Present and future capital expenditures for pollution and control. Physical data related to the reduction of toxicity and waste. Estimates of future environmental costs and benefits. Accumulation of current environmental costs from current as well as past activities and products. Objectives of Environmental Accounting and Reporting As an Essential Component of Business Strategy JournalofAsianResearchConsortium87 http://www.aijsh.org There are following objectives of environmental accounting and Reporting: Segregating and collaboration all environment related flows and stocks of assets or resources. Taking the total stock of assets or reserves related to environmental issues, and changes, there in. Minimizing environmental impacts through improved product & process design. Estimation of the total expenditure on protection or enhancement of environment. Assessing changes of environment in terms of costs and benefits. To identify that part of Gross Domestic Product this reflects the costs necessary to compensate for the negative impact of economic growth. Reducing costs through resource cooperation &management. Realizing organizational accountability and increasing environmental transparency.

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

Elaboration and measurement of indicators, relating to environmentally adjusted product and income. Ensuring effective and efficient management of natural resources. Aiding strategic decision process regarding continuing or abandoning a particular product or process. Linking physical resource accounting with monetary accounting. Advantage of Environmental Accounting and Reporting As an Essential Component of Business Strategy: The organization that opts to disclose environmental issues in their statements get various benefits as given below: It improves image of the product or company which leads to improvement in sales and ultimately profitability. Possible competitive advantages as customers may prefer environmentally friendly products and services. Better borrowing access from the shareholders/bankers/creditors. Improvement in the health safety of the workers which will help increasing productivity. Lower labor turnover ratio, thereby reducing recruiting costs. JournalofAsianResearchConsortium88 http://www.aijsh.org Enhanced image with in the eyes of stake holders because the organization will get the special status. Build up trust and confidence within the community. Improved environmental performance which may have a positive impact on human health and business success. It is also helpful regarding pricing policy decision making since this accounting system supplies information regarding particular casts which are generally obscured by the management, a big lacuna on the part of management. Environmental accounting not only recognized or identifies environmental related costs but also tries to reduce those which in turn help every level of the organization. It provides results in more accurate costing or pricing of products and more eco-friendly processes.

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

FORMS OF ENVIRONMENTAL ACCOUNTING 1. Environmental Management Accounting (EMA): Management accounting with a particular focus on material and energy flow information and environmental cost information. This type of accounting can be further classified in the following subsystems: Segment Environmental Accounting: This is an internal environmental accounting tool to select an Investment activity, or project, related to environmental conservation from among all processes of operations, and to evaluate environmental effects for a certain period. Eco Balance Environmental Accounting: This is an internal environmental accounting tool to support PDCA for sustainable environmental management activities. Corporate Environmental Accounting: 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): Financial accounting with a particular focus on reporting environmental liability costs and other significant environmental costs. 3. Environmental National Accounting (ENA): National Level accounting with a particular focus on natural resources stocks & flows, environmental costs & externality costs etc. NEED OF ENVIRONMENTAL ACCOUNTING AT CORPORATE LEVEL JournalofAsianResearchConsortium89 http://www.aijsh.org It helps to know whether corporation has been discharging its responsibilities towards environment or not. Basically, a company has to fulfill following environmental responsibilities. Meeting regulatory requirements or exceeding that expectation. Cleaning up pollution that already exists and properly disposing of the hazardous material. Disclosing to the investors both potential & 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 percent of the companies net worth). Operating in a way that environmental damage does not occur. Promoting a company having wide environmental attitude. Control over operational & material efficiency gains driven by the competitive global market.

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

Control over increases in costs for raw materials, waste management and potential liability SCOPE OF ENVIRONMENT ACCOUNTING The scope of Environmental Accounting is very wide. It includes corporate level, national & international level. As far as this article is concerned the emphasis is given on the corporate level accounting. The following aspects are included in Environmental Accounting: 1. 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. From external point of view all types of loss r indirectly due to business operation/activities. It mainly includes: Degradation and destruction like soil erosion, loss of bio diversity, air pollution, water pollution, Voice pollution, problem of solid waste, coastal & marine pollution. b. Depletion of nonrenewable natural resources i.e. loss emerged due to over exploitation of nonrenewable natural resources like minerals, water, gas, etc. c. 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 occurred to the environment due to a particular industry. For this purpose approx idea can be given or other measurement of loss like quantity of non-renewable natural re-sources 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. RELEVANCE OF ENVIRONMENTAL ACCOUNTING Environmental costs are one of the many different types of costs businesses incur as they provide goods and services to their customers. Environmental performance is one of the many important measures of business success. Environmental costs and performance deserve management attention for the following reasons: (1) Many environmental costs can be significantly reduced or eliminated as a result of business decisions, ranging from operational and housekeeping changes, to investment in greener process .Technology, to redesign of processes/products. Many environmental costs (e.g., wasted raw materials) may provide no added value to a process, system, or product. (2) Environmental costs (and, thus, potential cost savings) may be obscured in overhead accounts or otherwise overlooked.

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

(3) Many companies have discovered that environmental costs can be offset by generating revenues through sale of waste by-products or transferable pollution allowances, or licensing of clean technologies, for example. (4) Better management of environmental costs can result in improved environmental performance and significant benefits to human health as well as business success. (5) Understanding the environmental costs and performance of processes and products can promote more accurate costing and pricing of products and can aid companies in the design of more environmentally preferable processes, products, and services for the future. (6) Competitive advantage with customers can result from processes, products, and services that can be demonstrated to be environmentally preferable. (7) Accounting for environmental costs and performance can support a companys development and operation of an overall environmental management system. Such a system will soon be a necessity for Companies engaged in international trade due to pending international consensus standard ISO 14001, developed by the International Organization for Standardization. APPLICATION OF ENVIRONMENTAL ACCOUNTING & REPORTING IN INDIAN COMPANIES Environmental Accounting is in preliminary stage in India. These are the following practices of environmental accounting & reporting: 1. The environment Ministry has issued instruction has in this regard to prepare environment statement. It can be observed through their accounts that mainly the following types of information are given: What types of devices installed for pollution control? Steps taken for energy conservation. Steps taken for raw material production conservation. Step taken for waste water and production process waste. Step taken for improvement of quality of product and services, process of production, etc.

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2. 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. 3. A study was conducted among executives of different industries which revealed that corporate world is fully aware of the requirements of environmental reporting. They are also aware of environmental issue. The corporate executives have also expressed their views in favors of environment reporting by the industries. Despite their awareness and consent over environmental

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

reporting industries is it very poor. It is so inadequate that very little information is found in the annual report. 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. Issues in Environmental Accounting and Reporting As an Essential Component of Business Strategy: There are a number of issues in environmental accounting and reporting, in its Environmental statement, the industries should provide information on its statement: Impact of pollution control measures on conservation of natural resources. Pollution generated. Nature of hazardous and solid wastes produced and disposal practices. Impact of pollution control measures on conservation of natural resources. Water and raw material consumption. Resource, allocation for environmental protection. Measures taken for environmental protection A comprehensive audit and following program meant for environmental protection. JournalofAsianResearchConsortium92 http://www.aijsh.org A general awareness evaluation about need and importance of environmental accounting and reporting. A compulsory and comprehensive disclosure program in corporate environmental protection report. Steps taken to popularize the benefits of Environmental reporting among the corporate sector. Obstacles of Environmental Accounting and Reporting As an Essential Component of Business Strategy: Though environmental accounting is being attempted by many countries, the concept is not without some limitations and obstacles. The major Obstacles of environmental accounting and reporting are as follows: Environmental accountings have no economic value.

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

The method of estimating the social value of environmental goods and services are imperfect, often misleading and construers. Estimated values for environmental goods quantified or qualified in terms which have no fixed conversion into money. On account of unrecorded environmental costs and difficulty in extracting and separating environmental cost the industry data is virally unreliable. Social value placed on environmental goods and services are changing so fast that the estimates are likely to be obsolete before they are available for use. Lack of accounting standards for environmental accounting Inapplicable assumption. Environmental accounting is not a legal obligation in most of the cases in India. Lack of reliable industry data. Estimated values for environmental goods quantified or qualified in terms which have no fixed conversion into money. CONCLUSION Environmental accounting is an important tool for understanding the role played by the natural environment in the economy. Environmental accounts provide data which highlight both the contribution of natural resources to economic well-being and the costs imposed by pollution or resource degradation Environment is a precious gift of the nature. Environment means every thing which surrounds us, environmental is an essential factor for survival of human beings. We are facing critical challenges in 21st century such as Global Warming a rapid changes responsibility and pollution of all kinds such as water, air, marine, noise, light etc. The industrialized nations must become more aware of the links between development of social justice and the protection of natural environment. The industries should focus and set aside a part of their funds for Environmental protection and ecological balance. Thus business organizations are expected to account for the use of substances which may damage the Environment. Environmental accounting is in preliminary stage in India and whatever shows in the accounts in this regard is more or less compliance of relevant rules and regulation in: the Act. Actually, unless common people of India are not made aware towards environmental safety, development of accounting in this regard is a little bit doubtful. It is then call of the time that corporate prepare a firm environmental policy, take steps for pollution control, comply with the related rules and regulations, mention adequate details t of environmental aspects in the annual statements. There are several challenges of environmental accounting and reporting such as environmental accounting method, social values in applicable assumptions, economic value and lack of reliable industrial data.

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AsianJournalofResearchinBankingandFinance Vol.2Issue4,April2012,ISSN22497323

To solve such challenges a large number of research accounting standard, various measures, rules, restriction and proper procedures for Environmental accounting and effectively implementation in corporate scenario is necessary. For sustainable development of country, a well-defined environmental policy as well as proper follow up and proper accounting procedure is a must. Actually, unless common people of India are not made aware towards environmental safety, development of accounting in this regard is a little bit doubtful. REFERENCES 1. 2. Avik Ranjan Roy Environmental Accounting & Accounting. In the management accountant June, 2008. Environment Management

Boyd, James. 1998. Searching for the Profit in Pollution Prevention: Case Studies in the Corporate Evaluation of Environmental Opportunities, Resources for the Future, Washington D.C., Discussion Paper 98-30, May. Banerjee, B. Accounting for corporate Environmental management in India, the management accountant December, 2002. Chadick, B. Rouse, R. W. and Surma, J (1993). Perspective on Environmental Accounting.: The CPA journal January, pp. 18-24. Eresi, K., Information disclosure in Annual Report the chartered accountant January, 1996. Gallhofer S, Haslam J. 1997. The direction of green accounting policy: critical reflections of Auditing, and Accountability Journal 10(2): 148174 Gibson K. 1997. Courses on environmental accounting. Accounting, and Accountability Journel 10 (4): 584593. Grinnell DJ, Hunt HG. 2000. Development of an integrated course in accounting: focus on environmental issues. Issues in Accounting Education 15(1): 1942. Gulch P. 2000. Costs of environmental errors. Greener Management International Autumn 31: 233 K.R. Sharma, op. cit. p.61. K.G. Dutta Environmental Accounting the management accountant ICWAI, October 1993, vol No. 10. p. 772. Mishra, K.K. Environmental Reporting in Business the management accountant June. 1999

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Mobus, J. (2005) Mandatory environmental disclosure in a legitimacy theory context. Accounting, Auditing & Accountability Journal. Mishra, B.K., Nweman, D.P., & Stinson, C.H. (1997). Environmental regulation and incentives for compliance audits, Journal of Accounting and Public Policy. Neetu Prakash, Environmental Accounting in India A survey of Indian companies the management accountant August, 2006. Quirke, B. J. (1991) Accounting for the Environment. Current Issues. European Environment. Vol 1 part 5 October, 1992. pp. 19-22. Rao, P. Mohana,: Environmental Accounting and Auditing a general view.: the management accounting June, 2000. Rahman, A., Lawrence, S., & Roper, J. (2004). Social and environmental reporting at the VRA: institutionalized legitimacy or legitimation crisis? Critical Perspectives on Accounting, 15 (1), 35-56. Sahu N.C. Sustainable development economic implication and indicators. Seghe, S.V. (1993): Accounting for the Environment An analysis of Issues: The Ohio CPA journal February, pp.33-41. Sarkar, S. (2004): valuation of natural resources,: the Indian Journal commerce. Vol. 57. No. pp. 106-111. The Chartered Accountant November 2005 United Nations (1997): Environmental financial accounting underlines Reports prepared for the UNCTAP Inter- governmental working group of experts on international standards of accounting and reporting New York. Websites:-http:/www.environmentagency,gov.UK/business, http://www.globalreporting.org/

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