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Environmental Reporting: Present Status and Some Suggestive Guidelines for

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 Environmental Reporting: Present Status and Some Suggestive Guidelines for
Listed Manufacturing Companies in Bangladesh
Muhammad Shahin Miah*
Muhammad Zahirul Islam, ACMA*
Al-Amin**

Abstract: This study is designed to assess the extent of disclosure regarding environmental reporting
in the annual reports of manufacturing sector in Bangladesh. There is a strong call for improved
environmental reporting and a greater degree of accountability and transparency by business. The
study was conducted through the checking of annual reports and then we have checked all relevant
laws and other country’s practice from available secondary sources for understanding the compliance
of law as well as practicing of environmental accounting comparing with other country. This approach
allowed us to determine the challenges business face in implementing a comprehensive environmental
reporting system in the Bangladesh context and why, other companies which are part of a group,
businesses are unable or unwilling to increase external reporting. However, we also suggest some
constructive guidelines for more comprehensive practices of environmental reporting in this sector.
Keywords: Effluent Treatment Plant, CSR, EIA, IEE.

Introduction
Corporate Social and Environmental Reporting is ‘The process of Providing Information Designed to
discharge social accountability’ (Gray et al., 1987, p.4), whilst social accountability is the
responsibility to account for actions that do not have purely financial implications, and that persons or
organizations demand under some implicit or explicit contract. The purpose of environmental
reporting is to provide a significant tool for environmental communication and to fulfill organizations’
accountability in regards to the environmental burden. Therefore, there are certain common items or
contents that should be included in environmental reporting (MOE, Japan, 2004). On the other hand,
management policies, company ethics, corporate culture, and/or characteristics should also be
reflected within the environmental reporting. From this perspective, each organization should exert its
“originality and ingenuity” into writing the headings or contents of environmental reporting and the
disclosing media, (including the decision over annual reports or the internet). The study carried out by
Deegan and Rankin (1997) revealed that environmental disclosure is relevant for a wide variety of
users of the financial reports, such as shareholders, individuals within the company and review
organizations.

Bangladesh is facing the challenge of a very fast degrading environment. Some examples of this
deterioration are Dhaka’s terrible air pollution, the ‘clinically dead’ river Buriganga and widespread
arsenic pollution in the underground water. In the absence of pressure groups and appropriate
regulatory measures the degradation has gone to a level from which redress is necessary on an urgent
basis before Bangladesh faces an environmental catastrophe. It is said that Bangladesh has paid huge
costs for its economic achievements. The time has come to think about the environmental damage
done by the economic activities that have been carried out by the corporate entities in Bangladesh. In
this perspective, it is time to assess the current position of environmental reporting in Bangladesh. A
proper environmental accounting system is a supporting measure for achieving sustainable
development in the sense that it is the main tool for measurement, control and decision-making
(Hamid, 2002).

*
Lecturer and Assistant Professor respectively in Department of Accounting & Information Systems,
Jagannath University.
**
Assistant Professor, Department of Accounting & Information Systems, Dhaka University.

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This study is designed to assess the extent of disclosure regarding environmental information in the
annual reports (2009-2010) of manufacturing sector. Here, we also try to make some
recommendations for improving the environmental reporting of corporate sector in Bangladesh.

Objectives of the Study

The main objective of this paper is to inquest the current status of environmental reporting in listed
companies particularly in (Pharmaceuticals, Foods, Textile, Leather, and Cement, Engineering, Fuel
and Power, Ceramic, and Miscellaneous) sectors of Bangladesh. To that end, the specific objectives
are:
 to investigate the motives for and obstacles faced by firms in environmental reporting and
further examines whether firms are in favor of mandatory environmental reporting.
 to highlights some concepts and conventions of environmental accounting which can enrich
the status of environmental reporting.
 to emphasis on consideration of environmental costs in determining product cost.
 to highlights the present guidelines of environmental reporting formulated by Ministry of
Forest and Environment in Bangladesh as well as the incentives given by the tax authority and
its current application in corporate sector.
 to suggest policy implications arising out of the study.

Methodology

Sample: We all know that all the companies irrespective of their nature of operation and objectives,
affect environment in different ways. However for the sake of simplicity and due to time constraint,
we have selected 100 listed manufacturing companies from different sectors which are severely
polluting our environment (Pharmaceuticals, Foods, Textile, Leather, and Cement, Engineering, Fuel
and Power, Ceramic, and Miscellaneous).

Collection of Data: This paper is mainly based on secondary sources of information. The concept of
environmental accounting and reporting is not well known i.e. vague in our country till now. Another
reason is that concerned authority (Govt. or The Ministry of Forest and Environment) has not made
environmental reporting mandatory yet. However, firstly we have gone through the annual reports of
all manufacturing companies, then we have gone through the Bangladesh Environment Conservation
Act, 1995 (amended 2010) , recent SRO from National Board of Revenue, IFAC guidelines on EMA,
Environmental Management Accounting Procedures and Principles (UNDSD), and other renowned
articles on environmental reporting(international and domestic), to prepare checklist and to
comprehend the pros and cons of environmental reporting and its significance for survival.

Literature Review

Economic activity is producing an increasing number of social and environmental consequences

(Gray et al., 1996, P.2). Gray et al. (1995, p.52) indicate that companies do not operate in isolation
from the political, social and institutional framework within which economic activity takes place.
Based on a systems-oriented view of the organization and society, the organization is assumed to be
influenced by, and in turn to have influence upon, the society in which it operates (Deegan, 2002:
292; Gray et al., 1996: 45).

This study will cover company’s environmental information disclosure. In this respect, a number of
studies have been made. Shane and Spicer (1983) investigate firms’ environmental performances in
four industries from 1970 to 1975. They find that large companies significantly increased their
voluntary disclosure of information. Neu, Warsame and Pedwell (1998) analyze the environmental
disclosures include in the annual reports of Canadian public companies operating in the mineral
extraction, forestry, oil and gas, and chemical industries over the 1982 to 1991 period. Their analyses

2
focus on three concerns: the influence of external pressure on environmental disclosures in annual
reports, including the amount and types of strategies used in disclosure; the characteristics of
environmental disclosure vis-à-vis other “social” disclosure; and the association between
environmental disclosure and actual performance. Harte and Owen (1991) provide further details of
the development of green reporting by particularly sensitive sector, the British water industry. Their
results appear that despite recent concerns with corporate environmental performance, little specific
detail is disclosed. Most environmental reporting is still a very general level, not far removed from a
mere general commitment to green issues. Moneva and Liena (2000) analyze the environmental
reporting practices in the annual reports published by companies sensitive for the environment in
Spain, and determine the evolution of these practices during the period 1992-1994, on the basis of
stakeholder theory. They find that the environmental reporting of these sample companies has a
fundamentally narrative character, although there has been an increase in both quantitative and
financial reporting, as well as in the number of companies that are reporting. And the factors with
respect to environmental reporting behavior do not allow us to detect significant differences. Hughes
et al (2001) focus on the environmental disclosure made by 51 United States (US) manufacturing
firms for 1992 and 1993. They use content analysis to analyze the annual report. They find that
disclosure differed between firms who had been rated good, mixed or poor in their environmental
activities. And it is the poor performer who makes the most disclosures and the majority of these
disclosures appear within MD&A and notes. Their results are important in light of Dunlap and
Scarce’s 1991) findings that public concern about the environment was at an all time high, and
Epstien and Freedman’s (1994) findings that individual investors consider annual report information
about environmental activities to be more desirable than information about any other social activity.
Islam and Deegan (2008) analyze the motivational factors behind reporting of social responsibility
information in garments sector in Bangladesh. The results show that particular stakeholder groups
have, since the early 1990s, placed pressure on the Bangladeshi clothing industry in terms of its social
performance. This pressure, which is also directly related to the expectations of the global community,
in turn drives the industry’s social policies and related disclosure practices.

The American Financial and Accounting Standards Board (2001) reported in Improving Business
Reporting: Insights into Enhancing Voluntary Disclosures that companies can markedly improve their
business reporting by voluntarily disclosing more available information in which the investment
community and shareholders have a keen interest. These matters include identifying factors important
to the financial success of the company, delineating management’s plans and strategies for managing
those factors in the past and future, and specifying measurements used by management to assess its
effectiveness in implementing those plans and strategies for corporate governance and corporate
social responsibility (CSR). While Dye (2001) argues that “The theory of voluntary disclosure is a
special case of game theory with the following central premise: any entity contemplating making a
disclosure will disclose information that is favorable to the entity, and will not disclose information
unfavorable to the entity.” Elisabeth Dedman et al (2008), using a sample of firms from the high-
R&D UK biotechnology/pharmaceutical sector, find that there are significantly more ‘good news’
voluntary announcements than ‘bad news’ announcements.

Environmental reporting provides a public face for the organization and can add credibility to &
acceptance of the activities carried out by the organization (DEFRA, London, 2006). Previously
people would define it as environmental performance but now it becomes Triple Bottom Line
(Corporate, social, environmental) phenomenon (UNEP, 2000). However, since from the very
beginning corporate environmental reporting was voluntary, as a result very few companies have been
making efforts to provide environmental information in their reports (Hossain, 2000). But now a days,
disclosures regarding environment and social responsibility have received a great deal of attention by
contemporary researchers (e.g. Gray et al, 1987 Doppegieter and De Viller, 1996, Deegan and Gordon
1996, Robertson and Nicholson, 1996). Considering the world wide demand and concern, from 1999
a number of countries like The Netherland, Norway, and Denmark began to introduce relevant and
transparent mandatory reporting. Because they found that, business can be benefitted from improved
reputation amongst customers even development in share price (DEAT series 17, 2005).

3
Due to flexibility of compliance, performance of our local companies is not satisfactory. For example
Hossain.M (2002) conducted a survey of annual reports of 150 listed companies in DSE for the year
of 1998-1999 and found that only 5% of total sample companies disclosed environmental information
in their annual reports. In 2008, 11% of total companies disclosed such information in their annual
reports (Iqbal.M,&Bose.S 2008, Bala S.K,& Kamal.Y,2003). However in all of the above cases they
found disclosed information was qualitative and descriptive and positive. Although quantitative
information is important for decision making purposes. However a different scenario we can see in
Fuel and Power sector i.e. 81.81% of Petrobangla companies disclosed environmental information in
their annual reports which is very optimistic situation (Bose, 2006).

Analysis and Environmental Reporting Score (ERS)

On the basis of compliance list for individual company we have determined the environmental
reporting score of all sample companies to determine their extent of responsibility to the society and
to determine the Grand environmental reporting score using Statistical Package for Social Science
(SPSS). According to guidelines of concerned authority and analysis of different articles and reports,
a manufacturing company should disclose qualitative and quantitative information that we have
mentioned in the checklist. If a company discloses particular information it will be score 1 otherwise
0. Then we have shown total scenario of environmental reporting in sample companies and later we
have further shown sector wise reporting status (appendix A & B). Calculation of Grand
Environmental Reporting Score (GERS) is shown below:
Grand Environmental Reporting Score (GERS):
∑Xi/n
Where, i=score of all individual company
n= number of companies disclosed information
Total reporting score of all companies/total no. companies disclosed information
X=132/61=2.16393.

Descriptive statistics

Statistical determinants Result

Sample Size 100
No. of Companies did not disclose any environmental information 39
No. companies used to determine statistical determinants 61
Total reporting score 132
Mean 2.16393
Standard Deviation 1.39326
Maximum 7
Minimum 1

Interpretation of findings

At a glance we have seen that 39 (39%) companies out of 100 did not disclose any quantitative even
qualitative information regarding environment in their annual reports of 2009-2010. However, 6
companies (2 pharmaceuticals and 3 from textile 1 from ceramic) out of 100 companies disclosed
quantitative information regarding present & past expenditure particularly cost of installed plant and
other equipment. But no companies disclosed any information regarding estimated expenditure for
environment and for its survival. They simply provided qualitative information about their undertaken
strategies in most of the cases in Chairman’ or Director’s reports. It is found that only 15 (24.59%) ( 5
from pharmaceuticals and 7 from Textile sectors 2 from foods and 1 from ceramic) companies out of
61 companies have installed ETP which very essential instrument for recycling effluent or waste for
freeing the environment from pollution. Only 12 (19.67%) companies are maintaining now separate
department for environment, and 54.09% companies are covering environmental aspects under CSR
umbrella. And 35 (57.37%) companies have mentioned their strategies that they have undertaken in

4
Chairman’s or Director’ Report. However it is found that none company disclosed any negative
information in their annual reports except Lafarge Surma Cement which only provided a separate
statement regarding violation of Environmental Laws of India. Now this company is under court
consideration. In case of Fuel and Power sector only 1 out of 6 companies perform IEE and EIA and
prepare Resettlement plan as guidelines of concerned authority. In some cases we really astonished
that some companies are themselves not aware about the impact of their operation on the
environment, what are their responsibilities to the society and its survival .They are merely reporting
because environmental sustainability is a burning issue in whole world. It is very unfortunate that,
only 1 company (from pharmaceutical) out of 61 got ISO14001 certificate from International
Organization for Standardization.

Role of Govt. and Mandatory Environmental Reporting (Global Arena and Bangladesh)

First and foremost argument for mandatory environmental reporting rest on the need for streamlining
and harmonizing the reporting process to satisfy multiple stakeholders and objectives. Another
argument is: since many of the environmental problems are of global nature there is a need to create
international register of pollution. Besides this, mandatory reporting is cost-effective in a sense that it
becomes easy for concerned authority to assess compliance and can control the entity’s operations.
Considering our environment and extent of responsibility of our country’s manufacturing companies
we think govt. should make environmental reporting mandatory like Denmark, Norway, and
Netherland. Through analysis of different renowned articles (most of them from Europe country) we
have found the following initiatives and current status of mandatory reporting in different countries is
given below:

 The USA: In the USA there is the Emergency Planning & Community Right-To-Know Act
(EPCRA) that established the Toxic Release Inventory (TRI), which requires all companies
with more than 10 full time employees to submit data on their use, manufacture and/or
emissions of approximately 600 different toxic chemicals to the Environmental Protection
Agency (EPA). Around 20 000 manufacturing facilities and 200 federal facilities submit
reports each year (Emtairah, CER).
 European Union (EU): European Commission recommends that companies of member states
must disclose recognition, measurement of environmental issues in the annual accounts and
annual reports of the company to take appropriate measures to promote the application of
these recommendations (Commission Recommendations of 30 May 2001 EC).
 Organisation for Economic Co-operation and Development (OECD): According to
Pollutant Release & Transfer Register (PRTR) of 1996, companies must report periodically
on toxic release transfer and it must disclose to public.
 France: Under commercial Enterprise Law (Decree2002-221, Feb-2002) all publicly quoted
companies will be required to include data on environmental and social impacts in their
annual financial reports and make it available to public.

 Norway: Under Act of Parliament to extend the Law of accounts (1999) companies must
report on emissions and impacts and any preventative plans and make it available to public.

 Australia: Australian publicly owned companies, whose operations are subject to significant
environmental regulation & depending on the industry sectors and the volume of emissions,
are obliged to report certain aspects of their environmental performance to specific regulatory
organizations (A.Helea,K.Bernice)

 Bangladesh: To encourage expenditure on Corporate Social Responsibility area, Internal

Resource Division (IRD), Ministry of Finance, Bangladesh has promulgated new SRO
270/Income tax/2010. Under this regulation those company incur expenditure on CSR will get
10% tax rebate on total expenditure upon satisfaction of certain conditions. For example:
1. Company must pay their staff salary in due time

5
 2. If the company is in manufacturing sector (producing industrial products), it must have
installed Waste Treatment Plant i.e. ETP.
3. Company must pay income tax, VAT and duty timely and must repay institutional loans;
4. Must fulfill all rules as per Bangladesh Labor Act,2006.

However, no Company can charge such CSR related expenditure expensed in manufacturing
or profit and loss account. But, in every case the concerned company or entity must submit all
the relevant documents regarding expenditure to Deputy Commissioner of Taxes as evidence.

Although, through analysis we have found that most of the companies are not providing information
regarding their extent of throwing effluent or waste to river or open field and their undertaken
strategies to protect the environment. So it is one kind of hidden crime.

Concluding Discussions and Policy Recommendations

Today an environmental phenomenon is a burning issue and it is also certain that prime accused party
of pollution is the business entity and negligence of human being. However, to protect our
environment and living being, all stakeholders should come and forward together to ensure better
performance. We have seen that many of sample companies think the environmental issue as a burden
since it is not mandatory. Some companies are very sincere about environmental issue and they tried
to comply with all the required guidelines. But the main problem is free riding problem. Some
companies think expenditure for environment is an unnecessary expenditure (since they are not
receiving direct monetary benefits).Considering the degree of accountability of our country’s
manufacturing companies we think govt. should consider the following scheme.
1. Each and every company must have separate department for environmental activities. And
this department must produce annual environmental report in addition to annual financial
statements. For example CASIO an MNC produce a separate environmental performance
report in addition to their annual financial statements.
2. Ministry of Forest and Environment should mandate the manufacturing companies to disclose
important environmental determinants. So that interested users can assess the extent of
accountability of an entity to the society and environment where he lives.
3. Tax authority should provide separately tax credit facilities for those companies which are
expending more on protection of environment and disclosing more information in their annual
reports and other reports.
4. Govt. should make environmental reporting mandatory. Because when it is voluntary people
feel free and arises a free riding problem. So foremost request to make reporting requirement
mandatory in our country.
5. Govt. should properly monitor whether the concerned entity has obtained environmental
clearance certificate as per paragraph 12 of The Bangladesh Environment Conservation Act,
1995.
6. Electronic and print media can also help to improve the reporting status by disclosing the
actual operating scenario of the manufacturing entities to the face of public. Consequently
concerned company can take appropriate initiatives.
7. Govt. should increasing monitoring in Fuel and Power sector. Because only 1 out of 6 sample
companies conduct IEE and EIA which is very essential for this sector.
8. Authority should provide detail guidelines regarding the extent of disclosure so that
transparency, consistency can be ensured. In addition to that entity should be environment
friendly.

After conducting such exploratory research on environmental reporting we have come up with
conclusion that it is still an initial stage in Bangladesh .In this situation it require further improvement
in corporate reporting and increasing the public awareness.

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Annual reports of all sample companies for the period of 2009-2010.

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Appendix-A: Status of Environmental Reporting of Sample Companies in their Annual Reports
Query Out of 61 companies
Query in descriptive form
# f %
1 Does the company maintain a separate department for environment? 12 19.67
2 Does the company consider environmental information in the context of 33 54.09
corporate social responsibility (CSR)?
3 Have the companies installed Effluent Treatment Plant (ETP) as a pollution 15 24.59
control mechanism1?
4 Mere indication of strategies adopted for environment in chairman or directors 35 57.37
report.
5 Declaration of local authority i.e. Ministry of Forest and Environment is 14 22.95
satisfied with their environmental compliance and current status.
6 Is there any legal proceeding pending against the company for 1 1.64
noncompliance?
7 Obtaining certification for environmental Management Systems/ISO14001? 1 1.64
8 Conducting environmental Impact Assessment/air quality assessment. 3 4.92
9 Past and present expenditure for pollution control equipment and facilities 6 9.84
10 Future expected expenditures for pollution control 1 1.64
11 Ways of financing for pollution equipment and facilities 2 3.27
12 Air emission information5 2 3.27
13 Solid waste disposal information6 0 0
14 Conservation of natural resources 0 0
15 Recycling plant of waste products 5 8.20
16 Subsidies from public or private authority to protect the environment 0 0
17 Utilization of waste materials for energy conservation 1 1.64
18 Incidents of and fines for violation of relevant rules and regulations in force 2 1 1.64
19 Information regarding the extent of throwing wastes into rivers. 0 0
20 Whether the entity perform Initial Environmental Examination (IEE)1 1 1.64
21 Whether the entity conducts Environmental Impact Assessment (EIA) as per 1 1.64
guidelines of concerned authority3.
22 Whether on the basis of EIA, entity prepare Resettlement Plan to provide 1 1.64
compensation4
Note: f = No. of companies disclosed
Footnotes to the Appendix 1:
1. Paragraph 6(c) 2 The Environment Conservation Rules, 1997
2. Paragraph 16 (1) & (2) The Environment Conservation Rules, 1997
3. (Para 3.2.2 Poribesh Niti 1992 and Implementation activities), 4.12(b), National Water Policy, Ministry of Water
Resource, Bangladesh.
4. Paragraph 9(d) The Environment Conservation Rules, 1997 p.p186
5. Para 4.2(2) Sector Environmental Due-Diligence Checklist: ERM guidelines By Bangladesh Bank January 2011
6. Para 4.3(2) Sector Environmental Due-Diligence Checklist: ERM guidelines By Bangladesh Bank January 2011

9
 Appendix-B: A summary of sector wise reporting of environmental information in their
respective corporate annual reports (figures in %)
Query Sector-wise disclosure reporting status
# Pharmace- Foods Cement Textile (out Leather Fuel and Engineering Ceramic Miscell-
utical (out (out of (Out of 6 of 20 cos.) (out of 4 Power (out of Sector (out (out of 6 aneous (out
of 15 cos.) 14 cos.) cos.) cos.) 6 cos.) of 22 cos.) cos.) of 8 cos.)
1 33.33 0 16.67 20 25 16.67 0 0 12.5
2 33.33 22 33.33 35 0 83.33 33.33 60 0
3 33.33 14 0 35 0 0 0 20 12.5
4 40 36 33.33 60 75 33.33 14 20 25
5 6.67 0 33.33 10 50 33.33 10 20 0
6 0 16.67 0 0 0 0 0 0
7 6.67 0 0 0 0 0 0 0 0
8 20 0 0 0 0 0 0 0 0
9 13.33 0 0 15 0 0 0 20 0
10 0 0 0 0 0 0 0 0 0
11 0 0 0 5 0 0 0 0 0
12 0 0 0 5 0 0 0 0 0
13 0 0 0 0 0 0 0 0 0
14 0 0 00 0 0 0 0 0 0
15 20 0 0 0 0 0 0 20 0
16 0 0 0 0 0 0 0 0 0
17 0 0 0 0 0 0 0 20 0
18 0 0 16.67 0 0 0 0 0 0
19 0 0 0 0 0 0 0 0 0
20 n/a n/a n/a n/a n/a 16.67 0 n/a n/a
21 n/a n/a n/a n/a n/a 16.67 0 n/a n/a
22 n/a n/a n/a n/a n/a 16.67 0 n/a n/a

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