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 the 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 in environmental protection and the
impact of these measures on waste reduction, water and conservation of other
Accounting, 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.
Accounting 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
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
The concern of environmental responsibility and the
sustainable industrial development has given birth to a new branch of
accounting i.e. Environmental Accounting.
ENVIRONMENTAL ACCOUNTING: A CONCEPTUAL
Environmental accounting refers to the
identification, measurement and communication of the data on the environmentally
responsible performance of a business entity to facilitate economic
identifies the resources used by a
business and measures and communicates costs of its impact on the
Environmental accounting is all about making
environment related costs more transparent with the corporate accounting system
Objectives of Environmental Accounting
The objectives of environmental accounting and
reporting are as follows:
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.
minimize environmental impacts
through improved product and process design.
4. To estimate the total expenditure
on the protection and enhancement of the environment.
assess changes in the environment in
terms of costs and benefits.
6. To ensure
effective and efficient management of natural resources.
basic advantage of undertaking the practice of environmental accounting is that
the identification and increased
awareness of environmental-related costs gives the opportunity to find ways
to trim down or to completely avoid these costs whilst improving environmental
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 stakeholders.
to an organization that opts to disclose environmental issues
in their financial statements
1. It enhances the image of the product and
the company which may have an impact on the sales and ultimately profitability.
improves the safety of the workers,
which in turn will help increase productivity.
provides a competitive advantage as
the customers may prefer environmental friendly products and services.
helps to build up trust, confidence and
goodwill in the society.
Environmental cost can be offset
by generating revenues through the sale of waste or byproducts.
knowledge of environmental cost can
facilitate more accurate costing and pricing of products.
Environmental accounting can be classified under
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 subclasses:
(i) Segment environmental accounting:
This is an internal environmental accounting tool that facilitates the
selection of an investment activity, or a project which is environment-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
Environmental financial accounting refers to the
financial accounting practice with special reference to the reporting of environmental liability costs
and other significant environmental costs.
3. Environmental National Accounting (ENA):
Environmental National Accounting focuses on natural resources stocks & flows,
environmental costs & externality costs etc.
Relevance of Environmental Accounting
Environmental costs and performance ought to have
enough management attention due to the following reasons:
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.
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.
Accounting 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
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:
Environmental accounting lacks
is no standard method of estimating the
social value of environmental goods and services.
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
Environmental accounting is not a
legal obligation except for a 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 contain 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
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.
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 firms keeps them away from reporting environmental costs and benefits.
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 companies 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.
E-filing of taxes, Cloud computing to save energy, calculation of Environment
Domestic Product (EDP) rather than
National Domestic Product (NDP).
of SEEA (System of Environmental-Economic Accounting) in Green Accounting:
The following table shows the basic structure of
SEEA or Green Accounting in the form of a matrix. It also explains the
derivation of SNA aggregates in columns and rows from 1 to 4.
Production side covering output, intermediate
consumption, consumption of fixed capital (CFC), net domestic product (NDP) and
use of non-produced natural assets in production.
Rest of the world (ROW) account includes exports
minus imports (X-M).
Final consumption (C).
Produced assets as a part of economic assets that
have come into existence as output from processes. This includes not only
tangible fixed assets but also intangible fixed assets such as mineral exploration.
It includes net accumulation of produced assets and other changes in the volume
of produced assets i.e., gross capital formation.
Non-produced economic assets are defined as
non-financial assets that have come into existence in ways other than the
process of production. This includes tangible non-produced assets like land and
sub-soil assets. Intangible non-produced assets like patented entities, leases,
and transferable contracts.
Records the effects of economic activities on
non-produced natural assets such as air, water and virgin forests that are not
included as economic assets in the stock of natural assets.
It records the entries of opening stock of produced
assets being the value of stocks of man-made capital produced and the value of
stocks of natural resources, such as oil, gas and cultivated forests etc.
It records total domestic production and the value
Economic uses including elements of intermediate
consumption, exports, final consumption expenditure and gross capital
Consumption of fixed capital (CFC) also appears as a
negative item. Therefore, Net Investment (I) = Gross Investment (Ig) -CFC.
Net domestic product (NDP) represents the elements
that define the national income accounts identity between net domestic product
(NDP) and expenditure categories:
Net Domestic Product (NDP) = Net exports (X-M) +
Final consumption expenditure (C) + Net capital accumulation or Investment (I)
It includes the elements for the use of non-produced
natural assets by depletion of economic natural assets and degradation of
non-economic natural assets.
It relates to accumulation of non-produced natural
assets which include change in stock of economic assets and reduction on
natural assets relating to environment.
It relates to environmentally adjusted aggregates in
monetary environmental accounting. These macro-economic aggregates of EDP = Net
exports (X—M) + Final consumption (C) + Net accumulation of produced economic
assets (NAp.ec) + Net accumulation of non-produced economic assets
(NAnp.ec)-Net accumulation of non-produced natural assets (NAnp.n).