Introduction

Accounting for environment helps in accurate assessment of costs and benefits of environmental
preservation measures of companies. It provides a common framework for organizations to
identify and account for past, present and future environmental costs to support managerial
decision-making, control and public disclosure. The severity of environmental problems as a
global phenomenon has its adverse impact on the quality of our life. Measures are being taken both
at the national and international level to reduce, prevent and mitigate its impact on social, economic
and political spheres. The emergence of corporate environmental reporting (CER) in India has
been an important development, both for better environmental management and overall corporate
governance. Global awareness of stakeholders on corporate environmental performance has
already made traditional reporting redundant. Corporate houses run into the risk of loss of faith of
their stakeholders, if in future, environmental performance information is not included in their
main stream reporting. Simple adherence to mandatory environmental reporting is insufficient to
meet the environmental disclosure expectation of stakeholders. Mandatory reporting is nothing but
a minimum prescribed reporting requirement.

Companies around the world aspire consciously for improved transparency in disclosure as their
core competence. Environmental disclosure through internet would be the future of scientific
reporting. A number of recent national and international surveys have identified increase in growth
of companies reporting on internet. Environmental reporting of Indian companies can be broadly
categorized into two types’ mandatory disclosure and voluntary disclosure.

Preliminary investigation of this study shows that Indian companies practice more of voluntary
environmental reporting in the form of satellite reporting, sustainability reporting, GRI reporting
and internet reporting. In year 2001, a country wide survey, the first of its kind, was carried out by
Business Today, a business magazine, and The Energy Research Institute (TERI, 2001) to
understand the environmental practices of corporate India. Findings of the survey revealed that
more than 75% of the sample had environmental policy; about 70% have environmental audit
system; 60% had an environment department; four out of every ten Indian Companies had formal
environment certification (ISO 14001) As per Indian Constitution, Article 51A of Directive
Principles “It shall be the duty of every citizen of India, to protect and improve the natural
environment including forests, lakes, rivers and wildlife and to have compassion for living
creatures.” The constitutional provisions are backed by a number of laws - acts, rules, and
notifications like Factories Act 1948; (Prevention and Control of Pollution) Act 1974; Forest
(Conservation) Act 1980; Air (Prevention and Control of Pollution) Act 1981; Water Biomedical
waste (Management and Handling) Rules 1998; Municipal Solid Wastes (Management and
Handling) Rules, 2000; Ozone Depleting Substances (Regulation and Control) Rules 2000; Noise
Pollution (Regulation and Control) (Amendment) Rules 2002; Biological Diversity Act 2002. The
Department of Environment was established in India in 1980 to ensure a healthy environment for
the country. This later became the Ministry of Environment and Forests (MOEF) in 1985. The
EPA (Environment Protection Act), 1986 came into force soon after the Bhopal Gas Tragedy and
is considered an umbrella legislation as it fills many gaps in the existing laws.

The Ministry of Environment & Forest, Government of India (GOI), has brought a number of
regulatory and non regulatory initiatives, in its efforts in harmonizing environmental protection
with economic development. In 1991 GOI has made its first public announcement about the need
for environmental disclosure in annual reports. In addition to the above requirement, companies
are required to prepare director's report as per director’s report rules, 1988. Further, the Companies'
Bill 1993 & 1997 had proposed the amendment of section 173 to disclose through its board of
directors report the measures taken for protection of environment. There is also a mandatory
requirement for Indian companies to1948; (Prevention and Control of Pollution) Act 1974; Forest
(Conservation) Act 1980; Air (Prevention and Control of Pollution) Act 1981; Water Biomedical
waste (Management and Handling) Rules 1998; Municipal Solid Wastes (Management and
Handling) Rules, 2000; Ozone Depleting Substances (Regulation and Control) Rules 2000; Noise
Pollution (Regulation and Control) (Amendment) Rules 2002; Biological Diversity Act 2002. The
Department of Environment was established in India in 1980 to ensure a healthy environment for
the country. This later became the Ministry of Environment and Forests (MOEF) in 1985. The
EPA (Environment Protection Act), 1986 came into force soon after the Bhopal Gas Tragedy and
is considered an umbrella legislation as it fills many gaps in the existing laws. The Ministry of
Environment & Forest, Government of India (GOI), has brought a number of regulatory and non
regulatory initiatives, in its efforts in harmonizing environmental protection with economic
development. In 1991 GOI has made its first public announcement about the need for
environmental disclosure in annual reports. In addition to the above requirement, companies are
required to prepare director's report as per director’s report rules, 1988. Further, the Companies'
Bill 1993 & 1997 had proposed the amendment of section 173 to disclose through its board of
directors report the measures taken for protection of environment. There is also a mandatory
requirement for Indian companies to report on conservation of energy, technology absorption, etc.
in accordance with the provisions of Section 217 (1) (e) of the Indian Companies Act 1956. In
India, financial accounting & reporting guidelines are issued and governed by the Institute of
Chartered Accountants of India (ICAI). Companies Act mandates the preparation of annual
accounts of companies in accordance with the accounting standards issued by ICAI (Chatterjee,
2005).

What is green accounting and its practices in India?

Green accounting

It is a type of accounting that attempts to factor environmental costs into the financial results of
operations. It has been argued that gross domestic product ignores the environment and therefore
policymakers need a revised model that incorporates green accounting. The major purpose
of green accounting is to help businesses understand and manage the potential quid pro
quo between traditional economics goals and environmental goals. It also increases the important
information available for analyzing policy issues, especially when those vital pieces of information
are often overlooked. Green accounting is said to only ensure weak sustainability, which should
be considered as a step toward ultimately a strong sustainability.

It is a controversial practice however, since depletion may be already factored into accounting for
the extraction industries and the accounting for externalities may be arbitrary. It is obvious
therefore that a standard practice would need to be established in order for it to gain both credibility
and use. Depletion is not the whole of environmental accounting however, with pollution being
but one factor of business that is almost never accounted for specifically. Julian Lincoln Simon, a
professor of business administration at the University of Maryland and a Senior Fellow at the Cato
Institute, argued that use of natural resources results in greater wealth, as evidenced by the falling
prices over time of virtually all nonrenewable resources.

Environmental responsibility is a potent issue among businesses in this modern age. It has become
necessary for corporation to formulate methods of promoting green causes for the present and the
future. Green accounting helps promote a sustainable future for businesses as it brings green public
procurement and green research and development into the big picture. Penalties for polluters and
incentives (such as tax breaks, polluting permits, etc.) are also a crucial part of this type of
accounting.

The System of National Accounts (SNA) defines Net Domestic Product (NDP) as:

NDP = Net Exports + Final Consumption (C) + Net Investment (I)

This is also a typical formula found in articles and texts about accounting.

Green Accounting, however, uses the System of Environmental Economic Accounting (SEEA),
which focuses on the depletion of scarce natural resources and measures the costs of environmental
degradation along with its prevention.

Thus, the NDP is newly defined as Green NDP, or also known as EDP. The green accounting
formula is:

EDP = Net Exports + C + NAp. ec + (NAnp.ec - NAnp.n)

Where:

EDP = Environmental Domestic Product,

C = Final Consumption,

NApec = Net Accumulation of Produced Economic Assets,

NAnp.ec = Net Accumulation of Non-produced Economic Assets,

NAnp.n = Net Accumulation of Non-produced Natural Assets.

Green accounting practices in India

1. 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. 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 favour 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. In the words of Jong Seo Choi, 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 is low.

ii. There is some variety in disclosure over time, between countries and between industries. Social
disclosure in general and environmental disclosure in particulars 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. Environmental reports as contained in the Directors Report of three Indian Companies are as
under:

i) Asian Paints (India) Ltd, (1993-94): “Ecology and Safety: Samples of treated effluents are
periodically checked for Compliance with standards”
ii) Goodlass 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. 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.

LITERATURE REVIEW
Over the past decade’s companies have recognized the benefits of environmental reporting. As a
result, there was dramatic increase in the number of companies reporting in numerous ways. Early
reporters are quick to realize that environmental disclosure is more of a governance and strategic
issue than a simple reporting tool (Roome, 1992; Parker, 1997; Parker, 2000a). Regardless of the
medium of reporting, companies are bound to satisfy country specific/ international reporting
standards and requirements. It is important to understand as to how far standard setting improves
credibility in reporting through major surveys. However, most studies are based on content
analysis of annual reports. Nasir Zameer Qureshi et.al., (2012) in their research paper,
environmental accounting and reporting: an essential component of business strategy, 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. Malarvizhi P (2008) in a study corporate environmental
reporting on the internet: an insight into Indian practices tried to establish the approach and scope
of environmental accounting and reporting, as it exists today. The study was based on a sample of
24 documents comprising annual reports, environmental or sustainability reports and other
relevant reports of past years. Initially companies in the sample were classified as manufacturing
and nonmanufacturing sectors. Since some companies operate in both sectors analyzed, the
assignment to a specific one was determined on the basis of main activity carried out by the
company.

Green accounting methodology for India and its States, a project done by Haripriya Gundimeda
et.al (2005). argue the case for Green Accounting for India (i.e. a framework of national accounts
and state accounts showing genuine net additions to wealth) and to present a preferred
methodology and models to reflect natural capital and human capital externalities in India’s
national accounts, measuring as depreciation the depletion of natural resources and the future costs
of pollution, and rewarding education as an addition to human capital stock. Hecht, Joy E. (1997),
the world conservation union, explains Environmental accounting as 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 wellbeing and
the costs imposed by pollution or resource degradation. It also explains what is environmental
accounting why it matters how it is done who is working on it and how to get started. The data
underlying these aggregate indicators are also used for a wide range of less publicized but equally
valuable policy analysis and economic monitoring purposes.

Mukesh Chauhan(2005), explains the various forms of environmental accounting, its scope,
limitations and legal framework in Indian context. He came out with a suggested framework for
implementing green accounting practices in India and concluded that It is the 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 of environmental aspects in the annual
statements. For sustainable development of country, a well-defined environmental policy as well
as proper follow up and proper accounting procedure is a must.

Stages to be followed by the corporate for green accounting in India: The study developed a
model which specifies six aspects to be covered in environmental accounting in order to measure
the ultimate environmental performance of the organization. The aim of this model is to present a
novel view of the different activities to be undertaken by organizations to facilitate environmental
accounting and reporting.

Identification of Environmental Reporting parameters This is the first stage in environmental

accounting process where in organizations identify their respective environmental reporting
parameters such as environmental policy, health safety and environment, energy conservation,
corporate sustainability/ environmental initiatives, sustainability reporting, waste management,
water management, wind/renewable energy sources, environmental information system,
environmental disclosure practices, environmental targets, environmental reporting indicators,
environmental cost and benefits, environmental liabilities and environmental assets.

Defining the Environmental Reporting Parameters, The second stage in the environmental
accounting process requires the organization to clearly spell out the operational meaning of each
parameter they identified and on the basis of which they wanted to measure the environmental
performance in the long run. Specify the Environmental Targets to be achieved It is in this stage
that the organization tries to formulate the environmental targets to be achieved both in short run
and long run, say the short-term environmental policy of the organization as well as the long term
environmental policy.

Developing the Environmental Performance Indicators In this stage, organisations need to

think about the indicators of their environmental performance such as environmental policy
framework, health and safety standards to be followed, energy conservation practices to be
followed, waste management programmed to be undertaken, water management policies etc.

Measure the Environmental Performance Indicators Here, organizations try to measure the
actual environmental performance in terms of the predetermined standard performance indicators.

Measurement may be either qualitative or quantitative in nature. For instance, indicators such
as environmental policy framework need to be qualitatively measured while; waste management
programmes are to be measured quantitatively.

Report the Environmental Performance Results In the last stage, organizations integrate their
environmental performance with that of financial performance, so as to give the environmental
impact on the financial performance

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 coordinating among the states and the various
ministries, the environmental protection and antipollution measures.

Necessary legislation has also been passed. The various laws relevant to environmental protection
are as under:

(a) Directly related to environment protection:

• Water (Prevention and Control of Pollution) Act, 1974. • Water (Prevention and Control of
Pollution) Cess Act, 1977. • The Air (Prevention and Control of Pollution) Act, 1981. • The Forest
(Conservation) Act, 1980. • The Environment (Protection) Act, 1986. (b) Indirectly related to
environment protection: • Constitutional provision (Article 51A). • The Factories Act, 1948.•
Hazardous Waste (Management & Handling) Rules, 1989. • Public Liability Insurance Act, 1991.
• Motor Vehicle Act, 1991. • Indian Fisheries Act, 1987. • Merchant of shipping Act, 1958. •
Indian Port Act. • Indian Penal Code. • 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 Govt.
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. 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.