A Case study on Environmental Accounting with Reference to JSW Steel Limited

Shreeda Shah Dr. Viral Shah

Faculty of Business Administration New L J College of Commerce

GLS University, Ahmedabad. Ahmedabad.

Key Words: Environmental Accounting, Disclosure, Annual Report, JSW Steel Limited

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 A Case study on Environmental Accounting with Reference to JSW Steel Limited

ABSTRACT:

Economic growth of a nation well as firm’s financial growth is driven by many factors such as
technological advancement, savings and investment rates, government policies resulting in
reduction in Natural Resources, Pollution, Climate Change, Global Warming, Industrial and
Household Waste, Ozone Layer Depletion etc. This requires special attention, therefore
preservation of Natural Resources and Environmental awareness has initiated a novel branch of
accounting known as Environmental Accounting or Green Accounting. Environmental
Accounting refers to disclosure of environment related matters in financial statements of the
firm. It communicates whatever steps taken up for the conservation of environment by the firm
to stakeholders such as Government, Shareholders, Bank, and Financial Institutions etc. This
paper is based on content analysis of Annual Reports of JSW Steel Limited. Study reveals that
JSW Steel Limited is disclosing Environmental Accounting in a constructive manner. Finally,
the study also made some suggestions for JSW Steel Limited.

KEY WORDS: Environmental Accounting, Disclosure, Annual Report, JSW Steel

INTRODUCTION:

First time in 1970s the word environmental accounting was used in Norway and, then
popularized by other countries progressively. Environmental accounting is considered to be a
significant device to know the impact of business entity on ecological environment. Accounting
information supplied by the accountants related to environmental accounts are calculated with
reference to the association of natural resources in fiscal growth and costs increased as a result of
harm to environment. The advantage of corporate environmental accounting initiative is
identified as the ability to determine and create awareness regarding costs related to

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environment, which in turn helps in identifying the techniques for reducing and avoiding costs of
such type. Due to this advantageous feature, the performance of the environment has also been
improved. The environmental costs that occur due to the financial outcomes of the firm’s
operation can be determined by means of Environmental accounting tool. Environmental
accounting is using management tools to conduct in various purposes for example, improving
environment performance, controlling costs, investing in cleaner technologies, developing
greener processes, and performing related to product mix, product retention and product pricing. [
CITATION Sha17 \l 1033 ] In India, the use of environmental accounting is restricted to certain
industries like Cement, Electronics, Engineering, Oil and Petroleum, Power and Natural gas,
Steel and Textile industries.

OBJECTIVES OF THE STUDY:

1. To understand the concept of Environmental Accounting

2. To know the government rules and regulations pertaining to Environmental Accounting
in India
3. To study Environmental accounting practices of JSW Steel Limited

SCOPE OF THE STUDY:

The study is related to application and prominence of environment accounting at the corporate
level in JSW Steel Limited. The study highlights the Conceptual framework of environmental
accounting. The period of consideration for the study is for three years, 2014-15,2015-16 and
2016-17.

RESEARCH METHODOLOGY:

The data is collected from various secondary sources like Annual Reports, Different books,
Articles and several web sites related to Environmental Accounting.

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REVIEW OF LITERATURE:

Imam S. (2000) studied Annual Reports of 34 companies listed with the stock exchanges of
Bangladesh for the year of 1996-97and concluded that only 22.5 percent of the sample
companies have given environmental information in their annual report.[CITATION Ima00 \l 1033 ]

After conducting a survey on environmental reporting practices, Paul and Pal (2001) found

that in spite of non-mandatory obligation and absence of well define Policy, more and more
Indian companies are disclosing Environmental aspect in Annual Reports. [CITATION Pau01 \l
1033 ]

In a study Mukesh Chauhan(2005) , recommended that it is the call of the time that Indian
companies must formulate a strong environmental policy, take steps for pollution control, fulfill
the related rules and regulations, and disclose environmental aspects in the annual reports. For
sustainable development of country, a well-defined environmental policy as well as proper
follow up and proper accounting procedure is a must.[ CITATION Muk05 \l 1033 ]

Ragini (2012) examined and compared the various disclosure practices of intangibles of the top
one hundred Indian, US, and Japanese companies for a period of five years, i.e., 2001–2005. The
study examined the type and extent of information on intangibles being disclosed by the
companies with the help of a disclosure Index. The index of disclosure of intangibles used
consisted of an extensive list of 180 items, including both mandatory as well as voluntary
disclosure items. She found that the countries under study, i.e., India, US, and Japan, have shown
a significant improvement in their overall disclosure scores over the five year period. The
Japanese companies have shown the maximum improvement of 59 per cent in the overall
disclosure scores over five year period, followed by US (42 %) and Indian companies (31%).
She also suggested that Indian companies need to improve their disclosure practices in the areas
of ‘strategy and competition’ and ‘market and customer’. Secondly, the accounting authorities
should endeavor to regularize the narrative reporting on intangibles. A number of organizations
are working to improve disclosure of non-financial items. Some of them are International
Accounting Standard Board (IASB), Financial Accounting Standard Board (FASB),Organisation
for Economic Cooperation and Development (OECD), and European Commission (EC).
[ CITATION Rag12 \l 1033 ]

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In their Research paper Dr. Anita Shukla and Nidhi Vyas(2013) discussed the theoretical
foundation of environmental accounting and reporting with special reference to ONGC, BPCL.
After the proper research they felt that the scenario of Environmental accounting practices has
not been transformed in India. The Environmental Policy of the companies show that they are
giving fully efforts for the better protection of environment but the research findings doesn't
shows the ecological cost, liability and ecological expenditure.[CITATION DrA13 \l 1033 ]

MEANING OF ENVIRONMENTAL ACCOUNTING:

According to Business Dictionary “Environmental accounting refers to Use of traditional

accounting- and finance principles to compute the environmental costs of commercial and
industrial decisions.“[CITATION www17 \l 1033 ]

According to the United States Environment Protection Agency (US EPA): “The term
environmental accounting has three distinct meanings:

● Environmental accounting in the context of national income accounting, refers to natural

resource accounting, which can entail statistics about a nation's or region's consumption, extent,
quality, and value of natural resources, both renewable and non-renewable.

● Environmental accounting in the context of financial accounting usually refers to the

preparation of financial reports for external audiences using Generally Accepted Accounting
Principles.

● Environmental accounting as an aspect of management accounting serves business managers

in making capital investment decisions, costing determinations, process/product design
decisions, performance evaluations, and a host of other forward-looking business
decisions.”[ CITATION AnI95 \l 1033 ]

Environmental Accounting is popularly known as Green Accounting in India.

GOAL OF ENVIRONMENTAL ACCOUNTING:

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Goal of environmental accounting is to generate significant data for those who want it or use it.

NEED FOR ENVIRONMENTAL ACCOUNTING AT BUSINESS LEVEL:

Environmental Accounting at the business level helps the administration to identify whether firm
has been fulfilling its responsibility in the direction of viable development while achieving
business goals, Environmental Accounting talk about the following:

1. Fulfillment of regulatory prerequisites.

2.Functioning in such a manner that does not harm environment.

3. Stimulate environmental friendly working culture among employees

4. Complete Disclosure of steps taken for conservation of Environment to shareholders

5. Proper removal of hazardous waste

SCOPE OF ENVIRONMENTAL ACCOUNTING:

The scope of Environmental Accounting is wide-ranging. It includes Company level, National &
International level.

The following aspects are included in Environmental Accounting: Internal and External Aspects.

From Internal perspective, investment done by companies for conservation of environment such
as purchasing environment friendly equipment. Recording of this transactions are easy because
we can count it in monetary terms.

From External perspective, it refers to any form of indirect damageowing to business operations
for example, soil destruction, damage to bio-diversity, air pollution, water pollution, noise
pollution, reduction of non-renewable natural properties like minerals, water, gas, etc.Recording
of this damages is difficult because calculation of loss of environment is not easy.

From the above, it clear that there is a wide range of environmental accounting research.
However, the proposed paper plans to analyze from the point of view of corporate level

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environmental accounting practices focusing on both the internal as well as external points of
view and evaluation of corporate activities resulting environmental costs and benefits, how they
are highlighted in Annual Report of the company.

LIMITATIONS OF ENVIRONMENTAL ACCOUNTING:

Environmental Accounting suffers from the following limitations:

1. There is no customary accounting method.

2. Comparison between two firms or countries is not possible when methods used by both the
firms and countries are different.

3. Calculation of Contribution for Environmental Accounting is not easy because costs and
benefits related to the environment are not easily assessable.

4. Environmental Accounting is a long-term process.

5. Environmental Accounting must be evaluated along with other facets of accounting such as
financial accounting, Management Accounting, Cost Accounting, Tax Accounting, National
Accounting, etc.

LEGAL ASPECT OF ENVIRONMENTAL ACCOUNTING IN INDIA:

Right from the framing of Indian Constitution, safeguarding wild life and natural resources are
important in India. As per “Directive principle of state policy” of Indian Constitution, it is the
responsibility of the state to protect and improve the environment and save the forest and wildlife
of the country. According to Article 51A of the constitution, it is the basic responsibility of each
and every citizen of India to protect and develop the natural surroundings.Time by time by the
way of different enactments and recommendations the government ensures the environmental
safety. Important Laws related to Environment Safety in India are: Factories Act
1948,Prevention and Control of Pollution Act 1974, Forest (Conservation) Act 1980,Air
(Prevention and Control of Pollution) Act 1981,Environment Protection Act 1986,Water
Biomedical waste (Management and Handling) Rules 1998,Municipal Solid Wastes

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(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 etc. In India, Environmental Accountingand Reporting is in initial phase.

In the year 2011 Ministry of Corporate Affairs issued National Voluntary Guidelines on Social
Environmental and Economic Responsibility of the business (NVGs) to highlight Corporate
Social Responsibility. According to Principle 2 of National Voluntary Guidelines on Social
Environmental and Economic Responsibility of the business (NVG)s “Businesses should provide
goods and services that are safe and contribute to sustainability throughout their life cycle”.

As per Principal 6 of the National Voluntary Guidelines on Social Environmental and

Economic Responsibility of the business (NVG)s “Business should respect, protect, and make
efforts to restore the environment” [CITATION Placeholder1 \l 1033 ]

There are no specific rules for Environmental Accounting and declaration of Environmental
Costs and Environmental Liabilities even after amended Companies Act 2013. According to
Section 135 of Companies Act 2013, every company having net worth of rupees five hundred
crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five
crore or more during any financial year shall constitute a Corporate Social Responsibility
Committee of the Board consisting of three or more directors, out of which at least one director
shall be an independent director. The Corporate Social Responsibility Committee shall,
formulate a Corporate Social Responsibility Policy which shall indicate the activities to be
undertaken by the company. The Committee must ensure that the company spends, in every
financial year, at least 2% of the average net profits of the company made during the three
immediately preceding financial years. Provided that the company shall give preference to the
local area and areas around it where it operates, for spending the amount earmarked for
Corporate Social Responsibility activities.[ CITATION htt17 \l 1033 ].Apart from it only
requirement for the companies are disclosure regarding conservation of energy and
environmental protection. Thus, we can say that Environmental Accounting is in preliminary
phase in India without proper Accounting standards and mandatory disclosure in Annual Reports
of firms. Large companies and business houses mostly undertake sustainability reporting as a
business grandstand, aimed at garnering publicity. The existent lawful system identified with
environmental protection and conservation is not adequately executed, consequently

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commanding the need of thorough reassessment and implementation of the existent laws and
regulations.[ CITATION Piy17 \l 1033 ]

PROFILE OF JSW STEEL LIMITED:

The JSW Group’s foray into steel manufacturing began in 1982, when it set up the Jindal Iron
and Steel Company with its first steel plant at Vasind near Mumbai. The next two decades saw
significant expansion and several acquisitions, following the merger of Jindal Iron and Steel Co
(JISCO) and Jindal Vijayanagar Steel Ltd (JVSL) in 2005. Today JSW Steel Limited has plants
in six locations in India -Vijayanagar in Karnataka, Salem in Tamil Nadu, and Tarapur, Vasind,
Kalmeshwar and Dolvi in Maharashtra - with a combined capacity of 18 Metric Tones Per
Annum.[ CITATION www171 \l 1033 ]

SPECIAL INITIATIVE:

The Earth Care Awards (ECAs) is an initiative of JSW group and Times of India to felicitate
climate friendly practices in the production and consumption by communities, entrepreneurs,
large scale industries, small and medium scale enterprises. The award encourages the replicable
creativity and involvement for the greenhouse gasses (GHG) emission reduction, natural
resource conservation, energy efficiency improvement, development and promotion of
innovative eco-friendly alternatives from the year 2008. 

Environmental Expenditure(in
Million Rupees)
5421
5027

1091
2014-15 2015-16 2016-17

Table:1 Environmental Expenditure

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 Solid Waste Disposed(Tons
Per Year)

1921
1485

318
2014-15 2015-16 2016-17

Table: 2 Solid Waste Disposed

Specific Water Consumption

m3/tcs
4.57 4.52
3.61

2014-15 2015-16 2016-17

Table: 3 Specific Water Consumption (m3 = cubic meter, tcs=tones of Crude Steel)

Specific Dust Emissions kg/tcs

1.5
1.24
1.06

2014-15 2015-16 2016-17

Table: 4 Specific Dust Emission(kg=kilogram, tcs=tones of crude steel)

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 Specific Nox Emissions kg/tcs
1.24
0.98
0.9

2014-15 2015-16 2016-17

Table: 5 Specific NOx Emissions( NOx =Nitrogen Oxides kg=kilogram, tcs=tones of

crude steel)

Specific Energy Consumpton

Gcal/tcs
7.71
6.72 6.29

2014-15 2015-16 2016-17

Table: 6 Specific Energy Consumption(Gcal=Giga calorie, tcs = tones of crude steel)

ENVIRONMENTAL PERFORMANCE TARGETS OF JSW STEEL LIMITED IN

COMING YEARS

No. Key Performance Indicators Unit of Measure Target Target

(KPI) Year

1 Solid Waste Disposed Kg/tcs 0 2020-21

2 Specific Water Consumption m3/tcs 2.590 2017-18
3 Specific Dust Emission Kg/tcs 0.390 2020-21
4 Specific NOx Emissions Kg/tcs 0.530 2020-21
5 Specific Energy Consumption Gcal/tcs 6.513 2018-19

FINDINGS:

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1) JSW adopted an integrated Quality, Environment and occupational health and safety policy
from the year 2002.

2) JSW Steel Limited’s Environmental Expenditure has increased 5 times over a period of 3
years.

3) JSW Steel Limited’s disposal of Solid Waste has increased 3 times over the same period.

4) During the same period, there happens to be a marginal decrease in Specific Water
consumption.

5) Specific Dust Emission has decreased marginally during study period.

6) Specific NOx Emission during the same period has increased which is matter of concern.

7) Specific Energy Consumption has increased in the year 2015-16 and then decreased in the
year 2016-17 which is good sign.

SUGGESTIONS:

 JSW Steel Limited should endeavor to recycle Solid Waste in order to reduce its disposal
in the same state.
 JSW Steel Limited should adopt a technology which will help in reducing it’s NOx
Emission drastically.

CONCLUSION:

Indian Companies Act 2013 made mandatory Corporate Social Responsibility(CSR) but neither
Institute of Chartered Accountants of India(ICAI) nor Ministry of Company Affairs (MOA)
made mandatory disclosure except certain environmental aspects like Energy Conservation
Report, sustainability report on social, environmental and economicinitiatives etc.A detailed
examination of company’s Annual Report reveals that JSW Steel Limited has been conscious in
its commitment to conserve environment. It can be said that the company has set its path of
Sustainable Development by increasing its expenditure on environmental concerns.

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Chauhan, M. (2005). Concept of Environmenl Accounting Practice in India. The Chartered Accountant,
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Deshwal, S. (2017, August 14). www.ResearchGate.net. Retrieved from www.ResearchGate.net:

www.ResearchGate.net

Dr. Anita Shukla, a. V. (2013). Environmental Accounting & Reporting in India (A comparative study of
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http://www.mca.gov.in. (2017, August 14). Retrieved from http://www.mca.gov.in

Imam, S. (2000). Environmental Reporting in Bagladesh. Social and Environmental Accounting, 12-13.

Paul, K. C. (2001). Corporate Environmental Reporting in India. Indian Accounting Review, 27-45.

Ragini. (2012). Corporate Disclosure of Intangibles: A Comparative Study of Practices among Indian, US,
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INHIBITORS. EPRA International Journal of Economic and Business Review, 101-106.

www.BusinessDictionary.com. (2017, August 14). Retrieved from www.BusinessDictionary.com:

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www.jsw.in/steel/about-us. (2017, August 24). Retrieved from www.jsw.in/steel/about-us:

www.jsw.in/steel/about-us

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