Premier University, Chittagong.

Title of the report: “The

The Benefits of Environmental Accounting and
Its Uses.”

Submitted To-
Ms. Sumana Podder
Lecturer (Discipline: Accounting),
Department of Business Administration,
Faculty of Business Studies,
Premier University, Chittagong.

Submitted By-
Anima Jafar
Batch: 32nd
Discipline: Accounting
Program: BBA
Section: A
Student ID: 1503210108727

Submission date: 112th July, 2020.

 Table of Content

Topics Page
No
Letter of Transmittal 3
Acknowledgement 4
Executive Summary 5
CHAPTER- 1 Introduction 5
1.1 Introduction 6
1.2 Objectives 6
1.3 Methodology 6-7
1.4 Scope 7
1.5 Limitations 7
CHAPTER-2 Environmental Accounting: An Overview 8
2.1 Introduction 9
2.2 Meaning and History 10-12
2.3 Definitions 12-14
2.4 Environmental Accounting 14
2.5 Why do we need Environmental Accounting? 14
2.6 Scope of Environment Accounting 15
2.7 What are types of Environmental Accounting? 15-16
2.8 What do environmental accounts measure? 16-19
2.9 Auditing for environmental aspects in the financial statements and External assurance of
sustainability reports 20
2.10 Advantages of Environmental Accounting 20-21
2.11 Limitations of Environmental Accounting 21-22

CHAPTER-3 Environmental Accounting-It’s Benefits 23

3.1 The Definition of "Improved" Environmental Accounting 24
3.2 Uses & Benefits of EMA 25
3.3 Benefits of EMA Application 25-27
3.4 Advantages of Implementation of Environmental Accounting within an Economic Entity 27-28

1
CHAPTER-4 Challenges and Issues of Environmental Accounting 29
4.1 The Issues Environmental Accounting 30-31
4.2 Based on this definition and according to the traditional separation between FA and MA,
the split can also be made between 31-33
4.3 Issues in Social and Environmental Accounting 33-34
4.4 Issues in Social and Environmental Accounting 34
4.5 Challenges of Environmental Management Accounting 34-36
4.6 Environmental Accounting Challenges of Selected Manufacturing Enterprises in
Bangladesh 36-38
4.7 Challenges for Environmental Accounting and Reporting 38-40

CHAPTER-5 Countries Adopting Environmental Accounting 41

5.1 Different Countries Environmental Accounting Adaptation 42-43
5.2 International Initiative in Environmental Accounting Arena 43-44
5.3 Utilization of Environmental Accounting 44
5.4 Flow to Utilize Environmental Accounting 44
5.5 Segment Environmental Accounting 45
5.6 Business Sector Environmental Accounting 45
5.7 Forms of Environmental Accounting 45-46
5.8 The need for Environmental Accounting at Corporate Level 46-47
5.9 Worldwide Span of Environmental Accounting 47
5.10 Uses of Environmental Accounting in different Countries 48-51
5.11 Need for Environmental Accounting in Bangladesh 51-52
5.12 Following ways are put forward for Improving Environmental Accounting Practices in
Bangladesh 52-53
5.13 Recommendations 53-54
5.14 Conclusions 54

References 55-56

2
 Letter of Transmittal
12th July, 2020
To
The Supervisor
Premier University, Chittagong.
Subject: Submission of Term Paper on “The Benefits of Environmental Accounting and Its
Uses”.

Dear Madam,
I am a student of BBA program of Premier University, Chittagong. I have the pleasure to submit
my term paper as part of my BBA degree. My topic is very interesting, beneficial and insightful.
I have tried my best to prepare an effective and creditable report. The report is about “The
Benefits of Environmental Accounting and Its Uses”. To fulfill the requirement of the report I
have followed your instructions and guide lines to writing the Term Paper.

Therefore, if you have further queries regarding the term paper, please let me know. I would be
obliged to avail at your convenience.

I remain Madam.

---------------------------------
Anima Jafar
Student ID: 1503210108727
Batch: 32nd
Major: Accounting
Program: BBA

3
 Acknowledgement
This term paper is made possible through the help and support from my family, teachers and
friends. Especially, please allow me to dedicate my acknowledgement of gratitude toward the
following significant Supervisor and Contributors:

First and foremost, I would like to thank Allah for his unconditional guidance and wisdom as I
make my study.

Second, I would like to thank my Supervisor (Ms. Sumana Podder) for her most support and
encouragement for giving me this study. This give me the experience on how to corporate and
engage myself in a significant task.

4
 Executive Summary

This paper discloses about Environmental Accounting and its practice in Bangladesh.
Environmental Accounting is a recent phenomenon which is related to environmental
information and environmental eco-system. This paper is based on an exploratory study to have
an understanding of the nature and extent of environmental reporting and accounting practices
followed by Bangladeshi Corporate and to determine the factors or attributes that drive the
companies to adopt these practices. The increasing importance of considering environmental
aspects within a company’s decisions demands a broader scope in management accounting.

It reflects the environmental cost and reporting, corporate governance side by side the natural
resources and environmental sound management and administrative system in any country
around the world. The study investigated issues, challenges in applying Environmental
Accounting commonly. It focuses on improving environmental accounting practices and
environmental quality. At present time the developed world is concerned about the state of green
accounting. It is an important tool for understanding the natural environment’s role in the
economy and provides adequate data on contribution of natural resources on the economy. At the
same time they also concern towards the effect of pollution on natural resources, degradation
increases cost.

Like other countries Bangladesh government and organizations should to focus on

Environmental Accounting and its Reporting. For this both the government and private sectors
must come forward and work together to improve the existing Environmental accounting
practice in Bangladesh.

5
CHAPTE- 1
Introduction

6
1.1 Introduction- The topic is about Environmental Accountings’ benefit and uses.
Environmental accounting is increasingly being used to support the development and analysis of
government policy. Environmental accounting shows how different sectors of the economy
affect the environment and vice versa. As the understanding of environment-economy
interactions increases, the appropriate policy and business responses should become clearer. This
professional development short course is designed to support those in government, business or
NGOs interested in developing, implementing or using environmental accounts. Benefit from
Environmental Accounting may be as - Green accounting is used to increase the amount of
relevant for those who need it or can use it. Relevant data depends on the scale and scope of
coverage. Increase the sustainable developments in practice. And some others are-

 Pollution control
 Sustainable development
 Projection, cost, estimating life cycle in the environment.
 Product circulation, administration form environmental prospective.
 Environmental-centered management system.
 Assessing, testing and reporting performance of environmental activities.

Environmental accounting is an inclusive field of accounting. It provides reports for both internal use,
generating environmental information to help make management decisions on pricing, controlling
overhead and capital budgeting, and external use, disclosing environmental information of
interest to the public and to the financial community.
1.2 Objective-

1. To get an idea about Environmental Accounting

2. To highlight on the benefits of Environmental Accounting
3. To find out the challenges and issues related with Environmental Accounting

1.3 Methodology-

Secondary data have been used to complete the report. The type of research is descriptive
research. Due to the topic already exists in the globe.

7
Sources of Data: Books, journals, research papers, newspaper articles have been used for the
study purpose.

1.4 Scope-

I have tried to collect the relevant information about the topic. The purpose of the report was to
know about understanding Environmental Accounting, benefits of it and how it is used. After
reading the paper stakeholders of the paper will be helped. Organizations that would like to apply
Environment Accounting would be able to get clear and relevant ideas about it. And future
potential researchers would get it helpful for their further research purpose.

1.5 Limitations-

There are some constraints that I have faced during making the report. Those are as follows:

1. Time is a big constraint for my research. I had to carry out my day to day study and personal
responsibilities. Therefore, I had less time to spend to work on the report.

2. Insufficient data is the main constraint in the development of the report.

3. Insufficient records and publications have been another limitation in preparation of the report.

4. From the perspective of Bangladesh it is a mere new concept. Still, only few organizations are
thinking to practice Environmental Accounting. Information was unavailable as per need.

8
 CHAPTER-2
Environmental
Accounting: An Overview

9
2.1 Introduction

As the 21st Century continues to be an age of progress and prosperity, more and more emphasis
is being laid on nature and the Environment that surrounds us. Humans have already caused
damage that is beyond repair to the Environment that surrounds them. However, recognizing the
importance that the Environment plays in our survival and careful assessment of the damages
and repercussions that the world would have to face in the long run, is leading more and more
organizations, government and associations to recognize not just the need to protect the
environment but also to create awareness among the masses about the importance of the
Environment. Just as Environmental awareness today is growing at a pace like no other; so is the
need to account for the well-being of the Environment. Corporate and Businesses alike are
understanding and formulating steps to promote green and environment-friendly causes for the
present and the future. Among various other steps that are being taken in this regard is a new
branch of accounting called “Environmental accounting or green accounting”. It is also called
resource accounting or integrated accounting.

2.2 Meaning and History

The term Environmental accounting was used for the first time in the year 1980s by Professor
Peter Wood. Environmental accounting or green accounting is a new branch of accounting that
aims at accounting for the Environment and its well-being. Although it is a completely new
field/branch of study and practice; it’s soon gaining relevance because of its importance. In
addition to merely checking a Company’s profit or loss or its revenue and expenses
environmental or green accounting is a growing field that focuses or provides for accounting the
environmental impact, certain factors may cause to a business or organization. The adoption of
Green accounting depicts the commitment an enterprise/organization has towards the
environment. It deals with 3 most important factors people, profitability and the planet and also
more or less deals with the costs and the advantages or benefits an environment brings to a
business concern.

Environmental accounting is a work in progress, and it is subject to criticism both internally,

by economists, and externally, by members of other disciplines who object to its overly
“economistic” view of value. From: Philosophy of Ecology, 2011

10
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. Environmental accounting sometimes referred to as "green accounting",
"resource accounting" or "integrated economic and environmental accounting".

According to John McConnell, (founder of International Earth Day) "Let every individual and
institution now think and act as a responsible trustee of Earth, seeking choices in ecology,
economics and ethics that will provide a sustainable future, eliminate pollution, poverty and
violence, awaken the wonder of life and foster peaceful progress in the human adventure.

In the words of Mahatma Gandhi “You must be the change you wish to see in the world”

Environmental Accounting as green accounting or resource accounting is a crucial tool for

understanding the role played by natural environment in economy.

Edu et Al (2009) stated that;

“the use of environmental information to disclose the impact of corporate activities on the natural
environment to stakeholders of the corporate entity or organization”

Environment accounts provide information which highlights both the contribution of natural
resources to economic well-being and the costs imposed by pollution or resource degradation.
Traditionally accounting suffers from limitation in dealing with environmental issues (Fortes,
2001), thus the principal reason for the non- existence of accounting standard dedicated to
environmental accounting and reporting. Therefore, environmental reporting has been included
in the field of CSR.

Environmental Accounting is defined as an important tool for understanding the role played by
the environment in the economy as a mutual relationship is identified between the two.
Environmental accounting prepares accounts that exhibit the cost of environmental conservation
during the normal course of business. This article highlights the growing importance of
environmental accounting, lists the countries adopting it and finally explains its various methods.

11
The relationship between the environment and economy is close and mutually beneficial.
Environmental accounting is an important tool for understanding the role played by environment
in the economy. Environmental accounts furnish data pertaining to the role of natural resources
in bringing economic well-being and the costs imposed by pollution or resource degradation.
Environmental accounting prepares accounts that exhibit the costs and effects of environmental
conservation activities. Introduction of environmental accounting helps in improving the
effectiveness of one's conservational activities. It is also sometimes referred to as "resource
accounting", "green accounting" or "system of integrated economic and environmental
accounting" (SEEA).

The Ministry of Environment, Japan in its Environmental Accounting Guidelines, 2002 states
that the aims of environmental accounting are to achieve sustainable development, maintain a
favorable relationship with the community and pursue efficient and effective environmental
conservation activities. Precisely speaking, it allows a company to identify the cost of
environmental conservation during the normal course of business, identify benefits gained from
such activities, provide the best possible means of quantitative measurement (in monetary value
or physical units) and support the communication of its results.

According to IUCN of the World Conservation Union, environmental accounting refers to the
modification of the System of National Accounts (SNA) to incorporate the use or depletion of
natural resources. The UNSTAT (United Nations Statistical Division) prescribes a standard
format for the preparation of SNA to calculate major economic indicators like gross domestic
product, gross national product, savings, trade balance, etc., by the various countries of the
world. Environmental accounting emerges when the depletion of natural resources are included
in the SNA.

2.3 Definitions

Environmental accounting is a subset of accounting proper, its target being to incorporate both
economic and environmental information. It can be conducted at the corporate level or at the
level of a national economy through the System of Integrated Environmental and Economic
Accounting, a satellite system to the National Accounts of Countries (among other things, the
National Accounts produce the estimates of Gross Domestic Product otherwise known as GDP).

12
Environmental accounting is a field that identifies resource use, measures and communicates
costs of a company’s or national economic impact on the environment. Costs include costs to
clean up or remediate contaminated sites, environmental fines, penalties and taxes, purchase of
pollution prevention technologies and waste management costs.

Environmental accounting is a management tool that integrates the financial implications of

environmental issues in the financial management systems of organizations. This enhances more
effective decision-making in order to promote environmental and economic sustainability.

According to a report from March 2000 (Developing an Environmental Accounting System-

Study Group for Developing a System for Environmental Accounting Environment Agency,
Japan) –“environmental costs refer to those investments and environmental maintenance
expenses which are made in order to minimize the impacts that business can have upon the
environment”.

"A successful environmental management system should have a method for accounting for full
environmental costs and should integrate private environmental costs into capital budgeting, cost
allocation, process/product design and other forward-looking decisions.

Most corporate information and decision systems do not currently support such proactive and
prospective decision making." (EPA, 1995a)

Environmental accounting is a term with a variety of meanings. In many contexts,

environmental accounting is taken to mean the identification and reporting of environment-
specific costs, such as liability costs or waste disposal costs. For the purposes of this analysis, a
much more general definition is used. "Environmental accounting" is more than accounting for
environmental benefits and costs. It is accounting for any costs and benefits that arise from
changes to a firm's products or processes, where the change also involves a change in
environmental impacts. As will be shown, improved accounting for non-environmental costs and
benefits -- input prices, consumer demand, etc. -- can lead to changes in decision-making that
have environmental consequences. Thus, we will de-emphasize any clear demarcation between
"environmental" accounting and accounting generally.

13
Environmental accounting information need not be the product of accountants, nor need it be
used by accountants. Instead, it is any information with either explicit or implicit financial
content that is used as an input to a firm's decision-making. Product designers, financial analysts,
and facility managers are equally likely to be the users of environmental accounting data. Almost
any type of information collected and analyzed by firms will qualify. Examples include input
prices, technical and scientific studies that relate production processes to physical outputs, and
legal, marketing, and financial analyses.

2.4 Environmental Accounting

Environmental Management Accounting (EMA) is a cover title used to describe different aspects
of this burgeoning field of accounting. The focus of EMA is as a management accounting tool
used to make internal business decisions, especially for proactive environmental management
activities.

EMA was developed to recognize some limitations of conventional management accounting

approaches to environmental costs, consequences, and impacts. For example, overhead accounts
were the destination of many environmental costs in the past. Cost allocations were inaccurate
and could not be traced back to processes, products, or process lines. Wasted raw materials were
also inaccurately accounted for during production.

2.5Why do we need Environmental Accounting?

The environmental accounting (EA) at the corporate level helps the management to know
whether the corporate has been discharging its responsibilities towards sustainable development
while meeting the business objective. Environmental accounting addresses the following issues
meeting regulatory requirement, operate its factory in a way that environmental damages do not
occur; promote a culture and attitude of environmentally safe working amongst its employees;
disclosure to shareholders the amount and nature of the preventative measures taken by the
management; ensure safe handling and disposal of hazardous waste.

2.6 Scope of Environment Accounting

14
The scope of Environmental Accounting (EA) is extensive and includes corporate, national &
international level. The following aspects are included in environmental accounting.

Firstly, the direct investments made by a corporate for minimization of losses to environment. It
includes investment made into the equipment/devices that help in reducing potential losses to the
environment. This can be easily monetized.

Secondly, indirect losses happen due to business operation. It mainly includes degradation and
destruction such as loss of biodiversity, air and water pollution, hazardous waste including bio
medical waste, coastal marine pollution etc.

Furthermore, depletion happens because of non-renewable natural resources. Beside that

deforestation and land uses (measuring and monetizing them can be complex).

2.7 What are types of Environmental Accounting?

There are a variety of concepts within environmental accounting. These guidelines cover
environmental accounting as shown in the diagram below.

 Macro Environmental Accounting

 National Economy (Natural Resources Accounting, Environmental Economic
Accounting)
 Micro Environmental Accounting
 Individual Company Level
 Accounting for Physical units (Tracking physical units for eco-balance, environmental
conservation benefit)
 Accounting for monetary value (Tracking monetary value of environmental cost)

Environmental Accounting as expounded within these guidelines.

Environmental accounting within the context of these guidelines mainly targets companies and
other organizations. It is the framework for integrating the accounting concepts of both physical
units and monetary values, and addresses the issue of cost performance (cost versus benefit).

In addition, it consists of environmental resource accounting which attempts, as best as possible,

to consistently and comprehensively record information on environmental pollution and natural

15
resources using an accounting framework. Environmental accounting also encompasses eco-
balance, in which a table of input and output data for environmental impacts is created to
measure and report the amount.

2.8 How do environmental account measure?

It tracks the links between the environment and the economy at EU, national, sector and industry
level. It measure what impacts the economy has on the environment (e.g. pollution) and how the

Environment contributes to the economy (e.g. use of raw materials, resource efficiency, etc.) by
using the accounting framework and concepts of the national accounts. It list, in quantifiable
terms, for example, the amount of pollution produced by different industries, which may in turn
be compared with employment and the value of output produced by these industries.

2.8.1Components of Environmental Accounting

Environmental accounting includes several components:

Environmental management accounting (EMA)

Environmental cost modeling and resource economics

Environmental financial accounting (EFA)

Environmental reporting

Assurance for environmental aspects in the financial statements

2.8.2 Environmental Management Accounting (EMA)

EMA is broadly defined as the identification, collection, analysis and use of two types of
information for internal decision-making:

Physical information on the use, flows, and fates of energy, water and materials (including
wastes)

Monetary related information on environment-related costs, earnings, and savings

16
This management tool identifies the environmental footprint of an organization, as well as the
financial implications thereof.

EMA is becoming increasingly relevant as international experience shows that by applying EMA
methodology, companies can track close to 20% of total annual operating costs not currently
recognized as environmental costs, and realize the large embedded savings potential and revenue
gains.

Currently, most of these environmental costs are hidden in ‘overhead’ accounts. This prevents
proper attention being given to these costs, while it may also lead to incorrect product and
pricing decisions.

The potential of EMA as a company-level decision-making tool should not be underestimated.

An EMA system should preferably be linked to the organization’s accounting and/or other
information system to optimize available information and avoid duplication and confusion.

The International Federation of Accountants (IFAC) recently issued an International Guidance

Document on Environmental Management Accounting, which serves as a useful tool for
implementing EMA. EMA can be used in combination with cleaner production and material
flow cost accounting. This can result in powerful synergies

2.8.3Environmental cost modeling and resource economics

 Environmental cost information can be used to develop environmental cost models to

predict costs of various environmental options or liabilities for environmental cleanup.

 Environmental cost models can be powerful tools to help identify areas of wastage and
potential savings.

 On a regional or national level, such models can incorporate monetary values for
ecosystem services and assets to serve as decision-support tools.

Some practical examples

 A leading lens manufacturing company in Japan was confident that its production yield
rate was very high at 99%. An analysis of the losses of glass during the various stages of

17
 its production processes revealed that the cost of the loss of glass and associated costs
amounted to 32% of total production costs. The company implemented several measures
including changing specifications for the raw lenses to be provided by its supplier. After
this initial success the company introduced EMA measures in more than 20 production
facilities globally. In addition to significant reductions in adverse environmental impacts
the company realized savings of US$ 11 million during 2008.

 In an Austrian brewery, Murauer Bier, over the period 1995-2000, applied EMA
principles to both the use of raw materials as well as the generation of waste. This
resulted in a 19% reduction of fresh water used per unit product, a 30% reduction of fuel
oil used per unit product, and a 32% reduction in waste water per unit product. This effort
saved the medium-sized company approximately US$ 186,000.

 Raytheon, an electronics and aerospace company in the United States, used EMA to
support a supply chain initiative. This led to the outsourcing of material management
functions. This resulted in significant scrap reductions, savings of $ 680,000 per year, and
streamlined purchasing and delivery of materials.

2.8.4 Environmental Financial Accounting (EFA)

 EFA refers to the way in which environmental issues impact on the financial statements
of companies and the accounting ‘rules’ that govern the recognition and disclosure of
these issues in the balance sheet, income statement and related aspects of the annual
financial report.

 This enables financial analysts and users of financial statements to understand the
financial and other business impacts of environmental issues on the company. There are
no specific accounting standards for EFA, although several of the International
Accounting Standards refer to environmental aspects in passing.

2.8.5 Environmental Reporting

 The need for organizations to report on their environmental performance is widely

recognized.

18
  The purpose of environmental reporting is to provide information beneficial to
stakeholders in their decision-making. This also includes communities and environmental
stakeholders.

 Environmental reporting is a component of triple-bottom-line or sustainability reporting,

addressing economic, environmental and social performance.

 The most widely used method for environmental reporting is the Global Reporting
Initiative (GRI) Guidelines for Sustainability Reporting, a voluntary system that is also
recommended in the King III report on corporate governance in South Africa.

 The Johannesburg Stock Exchange (JSE) has included compliance with the King III
Report in its listing requirements. The King III Report requires integration between
financial and sustainability reporting.

 Several stock exchanges have developed indices to measure effective reporting, including
environmental aspects. Examples are the FTSE4 Good Ethical Investment Index and
the JSE Socially Responsible Investment Index (SRI).

2.9 Auditing for environmental aspects in the financial statements and

External assurance of sustainability reports

 The consideration of environmental matters in the audit of financial statements is a

logical consequence of EFA. International Audit Practice Statement 1010 covers this
component of environmental accounting.

 The King III Report strongly recommends that companies have their sustainability
reports externally assured. Such assurance can be indicator-based (assessing the accuracy
of the data reported and the systems generating these data) or content-based (focusing on
whether the material issues have been included, all significant stakeholders have been
consulted and how the report has responded to the concerns rose by stakeholders).

2.10 Advantages of Environmental Accounting

19
1) The accounting system helps to detect any leakages spills or any such problems with the
operation and process at an early stage, thus reducing the risk of future problem.

2) It helps to measure the environmental problem impact of each and every process and
operation on the air, water, soil, worker’s health and safety and society at large.

3) It helps to measure the organization environmental performance.

4) It gives an indication of the effectiveness of the environmental management and suggests how
it can be improved.

5) It provides a database for corrective action and future places it identifies the area where the
steps have to be taken to reduce the waste, raw material and energy consumptions.

6) The result of the environmental accounting system helps the management to develop its
environment strategy for moving toward a greener corporate culture.

7) Proper environmental accounting system facilitates proper reporting of the results of

environment practices followed by the company. It facilitates communicating environmental
performance towards stakeholder which goes a long way in enhancing the corporate image of the
organization.

8) Environmental accounting leads substance to verify compliance to local, national and

international standards or best available techniques as well as company’s own standard as stated
in company’s environmental policy.

2.11 Limitations of Environmental Accounting

1) There is no standard accounting method

2) Comparison between two countries of firm is not possible if the method of accounting is
different

3) Input for environmental accounting is not available as the cost and the benefits relevant to
environment are not easily measurable.

20
4) Many business and government organization even large and well manage dones don’t
adequately track the use of energy and material or the cost of inefficient material use, waste
management and related issue. Many organizations therefore significantly underestimate the cost
of poor environment performance to their organization.

5) It mainly considers the cost internal to the company and excludes the cost to the society

6) Environment accounting is long term process therefore to draw conclusion with help of it is
not easy

7) Environmental accounting cannot work independently. It should be integrated with financial

accounting which is not easy.

8) Environmental accounting must be analyzed along with other aspects of accounting because
costs and benefits to the environment depend upon the results of financial accounting,
management accounting, cost accounting, tax accounting, etc.

9) The user of information contained in environmental accounting needs adequate knowledge of

process of environmental accounting as well as rules and regulations prevailing in that country
either directly or indirectly related to environmental aspects.

21
 CHAPTER-3
Environmental Accounting-It’s
Benefits

22
3.1 The Definition of "Improved" Environmental Accounting

Environmental accounting can be considered improved if it yields information that is better in

one of the following senses: First, and most intuitively, information is better if it corrects a pre-
existing inaccuracy. As an example, consider the use of an input that is highly toxic. It would be
inaccurate to view the cost of the input as equivalent to its bulk supply cost alone. Environmental
accounting provides better information if it attaches a cost to this input that captures the expected
cost of environmental and workforce hazards.

Second, information should be thought of as better if it reduces the uncertainty surrounding some
future cost or benefit. For instance, future liabilities are inherently uncertain. Information that
can narrow the variance on estimates of those uncertain liabilities should be considered better
information. Reduced variance is particularly valuable when decision-makers are risk-averse,
since a reduction in variance alone can lead to different decisions when there is risk aversion. If
decision-makers are risk neutral (basing decisions purely on the expected value of an uncertain
parameter), reduced variance has no effect unless it is accompanied by a change in the
parameter's expected value.

Third, information is better if it is more highly disaggregated (more detailed). For example, data
on wastes produced by individual processes or product lines is better than data on wastes created
by an entire factory. For instance, accounting that assigns a wide variety of costs to overhead
problematic because of a lack of disaggregation. Disaggregation is necessary to incremental
financial analysis -- i.e., the evaluation of investment or production opportunities based on their
incremental costs and incremental contributions to revenue. Without disaggregation it is more
difficult for managers to differentiate between substitutes and identify the true cost of producing
a product. In turn, this inhibits optimal decision-making. The above improvements relate to the
collection and application of data in decision-making. Better environmental accounting may also
relate to the use of improved managerial accounting techniques, such as adjustments for risk,
discount rates, and appropriate time horizons for cash flow analysis.

23
3.2 Uses & Benefits of EMA

 The ability of more accurately track and manage the use and flows of energy and
materials, including pollution/waste volumes, types, and fate.
 The ability to more accurately identify, estimates, allocates, and manage/reduce costs,
particularly environmental types of costs.
 Improves Company Image with Stake Holder’s
 The lower the financial, political, and other burdens of environmental protection on
government.
 Implementation of EMA by industry should strengthen the effectiveness of existing
government policies/regulations by revealing to companies benefits resulting from those
policies/regulations

3.3 Benefits of EMA Application

Some researchers have attempted to examine benefits of EMA implementation. Benefits derived
from EMA application include cost reduction (Burrit and Saka, 2006; US Environmental
Protection Agency, 2000), innovation (US Environmental Protection 15 Agency, 2000; Hendro,
Ferreira and Moulang, 2008), cleaner production (Gale, 2006; Staniskis and Stasiskiane, 2006;
Burrit, Herzig and Tardeo, 2009), better product pricing and increased shareholder value
(Staniskis and Stasiskiane, 2006). These benefits will in turn improve corporate reputation from
launching environmentally-friendly products into the market and performing corporate activities
with less harmful effects on surrounded environment.

Some studies discussed in this section comprises Buritt and Saka (2006) which evaluated EMA
implementation in Japan, US Environmental Protection Agency (2000) which presented some
examples of corporate that have benefited from innovations in supply chain management, and
Staniskis and Stasiskiane (2006) which investigated EMA application in Lithuania. 15
Agency,2000; Hendro, Ferreira and Moulang, 2008), cleaner production (Gale, 2006; Staniskis
and Stasiskiane, 2006; Burrit, Herzig and Tardeo, 2009), better product pricing and increased
shareholder value (Staniskis and Stasiskiane, 2006).

24
These benefits will in turn improve corporate reputation from launching environmentally-
friendly products into the market and performing corporate activities with less harmful effects on
surrounded environment. Some studies discussed in this section comprises Buritt and Saka
(2006) which evaluated EMA implementation in Japan, US Environmental Protection Agency
(2000) which presented some examples of corporate that have benefited from innovations in
supply chain management, and Staniskis and Stasiskiane (2006) which investigated EMA
application in Lithuania.

Burritt and Saka (2006) assess benefits of EMA implementation as to eco-efficiency in some
companies in Japan3. Utilizing material cost flow analysis enabled Tanabe Seiyaku to identify
costs of waste processing and losses from processes on large raw material. The cost analysis has
benefited Tanabe Seiyaku on cost saving as well as relevant monetary and physical
environmental information. Evaluation on Nippon Oil, Ricoh, Canon Schweiz and Hitachi
revealed that they have employed eco-efficiency measures to further improve their
environmental management. In addition, Hitachi and Fujitsu have factored in eco-efficiency
measures into product development stage. Implementing eco-efficiency indicator has assisted
them to use more efficient energy and resources in developing their products.

US Environment Protection Agency (2000) assess implementation of EMA in terms of

innovations within lean and green supply chain. Some companies worked closely with their
suppliers to identify environmental cost saving. In purchasing innovation, Nortel and Intel,
electronic companies, have experienced considerable saving and reduced waste. GM cut its
disposal costs by $12 million during 1987-1992 from materials handling innovation, particularly
in developing reusable packaging system with suppliers.

Public Service Electric and Gas Company saved more than $2 million in 1997 by decreasing
storage requirements and reducing carrying costs of disposal, which was previously hidden as
component of overhead cost. Andersen Corporation benefited a 50% return on investment of
wood waste innovation in its manufacturing process. Commonwealth Edison, electric utility
company, gained $2 million annually for reducing its landfill disposal volume. Kodak recycled
77 to 86 percent of camera materials from return products and saved significant costs.

25
These examples provide evidence that innovations toward lean and green supply chain have
enabled companies and their partners in the supply chain to gain significant cost saving form
environmental consideration. Staniskis and Stasiskiene (2006) investigate EMA implementation
in Lithuania4. EMA acts as a link between environmental aspects and shareholder value.
Lithuanian companies utilized total cost assessment (TCA), flow cost accounting and other types
of comprehensive, long term financial analyses of cleaner production to identify financial
indicators of cleaner product investment.

Evaluation on EMA program in Lithuanian companies and analysis of 38 cleaner production

investment projects revealed that EMA assisted companies to reduce their operating costs, better
price the products as well as save natural resources. They concluded that EMA enable companies
to uncover environmental costs which commonly are hidden in overhead costs and neglected by
managers.

3.4 Advantages of Implementation of Environmental Accounting within an

Economic Entity

Environmental accounting:

-is meant to be used for both internal and external users;

-provides useful information regarding decision making for: level and structure of production,
value of investment, environmental costs, etc.;

-indentifies and analyzes the environmental costs and afferent debts; identifies and manages the
ratio between the environmental expenses and its afferent debt;

-identifies, collects and analyses data about raw materials, energy and other information about
the environmental impact of the business, that will lead to more informed decision-making, with
consequent implications for improved profitability and environmental protection;

-it manages the acquisitions, consumption and sales of materials, including waste;

-contributes to a better management of energy and water costs, etc.;

26
-provides information regarding the performance of an economic entity which leads to a better
relationship between partners and the external environment (brings new clients, a better image of
the society);

-leads the manager to purchase materials will minimize the costs.

27
 CHAPTER-4
Challenges and Issues of
Environmental Accounting

28
As an issue, the environment has been growing in significance in the minds of the community
and, more recently, in the minds of business. Everyone remembers the Exxon's Valdez disaster,
Shell's run-ins with Greenpeace and Nike's sweatshop scandal. Whether or not these events
represented true ecological or social disasters is hotly debated, but one thing is not – they all hit
the major news outlets and were public relations nightmares. To avoid such nightmares, many
companies are opting for transparency not only in their financial statements, but also in their
nonfinancial information, such as reports on their environmental record, social responsibility and
sustainability (McCrary, 2002). In this context the aim of this paper is to examine the nature of
environmental accounting and to describe how companies are responding to pressures to keep
accounting records of the impact that their productive processes have on the environment.

4.1 The Issues Environmental Accounting

Accounting, at the level of an organization, can be broadly defined as the collection and
aggregation of information for decision makers, both internal (e.g. managers) and external
(investors, regulators, lenders, and the broader public) to the company. There are usually two
types of accounting within a company:

- Financial accounting (FA) tends to refer to accounting activities and the preparation of financial
statements directed to external stakeholders, such as investors, tax authorities and creditors,
thereby focusing on monetary information as regulated by the so called international ‘Generally
Accepted Accounting Principles’ (GAAP);- Management accounting (MA) deals both with
monetary and physical information, and “primarily focuses on satisfying the information needs
of internal management”, in order to “inform management decisions and activities such as
planning and budgeting”, and promote an “efficient use of resources, performance measurement,
and formulation of business policy and strategy” (IFAC, 2005, p. 12). Because MA is generally
not regulated by law, each company is able to decide how it wants to organize and implement its
internal performance system.

Although considered as parallel information flows, there are in practice many interlinks between
financial and management accounting systems within an organization. As underlined, by the
IFAC, “bookkeeping can be seen as a data collection process that generates information for both
internal and external audiences”, for “most companies, particularly small and medium-sized

29
ones, do not have an independent MA system; they simply use data initially developed for FA
purposes for internal decision making as well as for external reporting” (IFAC, 2005, p. 13).

Information systems such as accounting are particularly strong behavioral drivers within the
context of a corporation where profitability is the main daily concern. Thus, in order for
environmental concerns to become more emphasized, they need to be included within the sea
accounting systems. Doing so will motivate behavior towards linking environmental
management with everyday business. This understanding of the necessity of linking
environmental data to accounting systems by both environmental and accounting practitioners
favored the birth of ‘Environmental Accounting’ as a subset of the broader accounting systems
(Jachnik, 2006). The common definition of environmental accounting is “the identification,
measurement, and allocation of environmental costs, the integration of these environmental costs
into business decisions, and the subsequent communication of the information to a company's
stakeholders” (AICPA, 2004). Typical environmental costs include off-site waste disposal costs,
cleanup costs, litigation costs, and other related costs (Stanko et al., 2006). Therefore it is
sometimes also called “green accounting”.

4.2 Based on this definition and according to the traditional separation

between FA and MA, the split can also be made between

- ‘Environmental Financial Accounting’ (EFA), which is aimed at external reporting of

environmental and financial benefits in (sometimes verified) corporate environmental reports or
published annual reports; and- ‘Environmental Management Accounting’ (EMA), which has no
single, universally accepted definition, but according to IFAC’s Statement Management
Accounting Concepts (2005), is “the management of environmental and economic performance
through the development and implementation of appropriate environment-related accounting
systems and practices”. It considers the financial impacts of environmentally related activity
such as the implementation of environmental protection expenditure (UK Environmental
Agency, 2006), and aims to take corrective management actions to reduce environmental impacts
and costs, and is therefore “a tool for environmental cost control and management in order to
positively correlate economic and environmental performance” (Jachnik, 2006).

30
Expanding on the given definition EMA consists of “the identification, collection, estimation,
analysis, internal reporting and use of materials and energy flow information, environmental cost
information, and other cost information for both conventional and environmental decision
making within an organization” (EMARIC, 2006). It includes both physical information on the
use, flows and destinies of energy, water and materials (including wastes) and monetary
information on environment-related costs, earnings and savings (IFAC, 2005, p.19).

Company accountants are concerned with environmental accounts from the point of view of both
financial and management accounting. Nevertheless, management accountants view
environmental accounting from a different perspective than financial accountants. For example,
while a financial accountant may be interested in detecting energy emissions and material waste
disposal costs because of the impact they have on profits, management accountants are interested
in these costs because they must be monitored and controlled. Another aspect of the management
accountant's role is assessing the life cycle of products and identifying where environmental
improvements may be made to reduce their environmental impact at every stage of life. As an
example, the construction and the design of a car that may be easily re-cycled at the end of its
life (Emery, 2002).

Environmental accounting commenced in the period between 1971-1980: in the form of “social
responsibility accounting”, which tried to establish the degree of responsibility companies should
have move toward stakeholders other than the firm's shareholders. Part of this responsibility
concerned the interaction between the firm and the ecological environment. During the period
1981 – 1990 the emphasis in the accounting literature shifted from ‘social responsibility
accounting’ to ‘environmental accounting’, reflecting the strong interest in the latter (Emery,
2002).

Environmental accounting began when the U.S. Environmental Protection Agency produced
some initial guidance in the early 1990s. But neither the federal government nor the country's
standard setters have done much since then, however, and any new developments – and interest –
have occurred outside the United States. Germany and Japan have been especially active in
EMA, “which has combined well with the detailed materials flow cost accounting common in
those countries” (Cheney, 2005). Countries like Denmark and the Netherlands require companies
to produce a ‘green account’ or ‘environmental report’. The Philippines had such success with an

31
EMA educational program for professionals that it went on to require EMA content in college
curricula, making it the first country to do so (Emery, 2002).

As environmental legislation becomes more intense, companies are required to take a cleaner
approach to production. The environmentally responsible firm will seek to reduce waste
wherever it can by introducing improved and more cost effective processing methods (Emery,
2002). In late 2005 Gordon Brown said: “Best practice is, of course, for companies to report on
social and environmental strategies relevant to their business” (Martin, 2007). But have
businesses really adopted best practice? The truth is that many are still turning a blind eye to
environmental risk management because they think the identification, assessment and control of
such risks and their associated liabilities, will result in “bad news in the short to medium term”
(Martin, 2007). Therefore, the true environmental exposure is unknown in many cases merely
because the company concerned has not taken appropriate action to quantify it. For that reason
more than any other, environmental disclosures are still absent from companies’ annual accounts.

4.3 Issues in Social and Environmental Accounting

Topics include but are not limited to:

 Environmental accounting

 Social accounting

 Ethical issues in accounting and financial reporting

 Corporate governance and accountability

 Accounting for the Costs and Benefits of CSR-related Activities

 Accounting and Disclosure of Environmental Liabilities

 Corporate Environmental Strategy

 Corporate Social Performance

 Corporate social responsibility and management control

 Corporate social responsiveness

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  Triple bottom line performance

4.4 Issues in Social and Environmental Accounting

(Issues in SEA) is an international journal published quarterly. Issues in SEA is networking and
dissemination means of practices and theory of social and environmental accounting by people
concerned with that field. In the journal, prospective authors can view the company's social and
environmental performance from management or financial accounting perspective. The parties
involved in this journal are scholars from so many countries, including: Indonesia, USA, Canada,
UK, Mexico, Australia, New Zealand, Belgium, Ireland, Korea, Jordan, Mexico, Hong Kong,
China, Austria, Malaysia, Japan, and India. Problems of social and environmental in general and
in accounting context in specific are not only local problem, but they have also embraced all over
the world. It is necessary for us to share and cooperate to make better the corporate financial,
social and environmental performance reflecting the three Ps: profit, people, and Planet. We
highly hope you, as one of people who are very concerned with the dissemination of that field,
can share to achieve this goal.

Issues in SEA is a peer-reviewed or refereed journal. All articles submitted by potential

contributors from all over the world to the center (Indonesian Centre for Social and
Environmental Accounting Research and Development (ICSEARD)) are administered by editors.
They are then evaluated using the blind review method.

4.5 Challenges of Environmental Management Accounting

Various reasons are given as to why an increasing number of managers are becoming interested
in EMA information (Ansari, 1997 pp. 4-5, Gray and Bebbington, 2001).

These include that:

 Environmental regulations impose requirements on companies. For example, Superfund

liabilities for site cleanups (remediation) in the USA and take-back (extended producer
responsibility) provisions in the European Union. These regulations, when enforced, can
lead to environmental costs that, if significant be controlled and reduced by management;

33
 An increase in voluntary acceptance (self regulation) by managers of the importance of
managing business environmental impacts. Managers are beginning to recognize the
growing importance of the monetary consequences of corporate environmental impacts to
the prosperity of their corporations. If managers wish to lower their costs (to improve
income or profitability) or environmental impacts (to reduce penalties, e.g. cessation of
business, for non-compliance or the outrage of different stakeholders) then EMA
information is necessary. Voluntary acceptance leads to commitment, assessment,
monitoring and elimination of the causes of adverse environmental impacts and costs, as
well as control in order to maintain corporate legitimacy in the eyes of customers, society
and other stakeholders (Deegan, 2002);
 Promotion of EMA is being undertaken by international, national and local government
bodies and some educational institutions, although little is known about how educational
institutions are embracing the area. EMA is being promoted by groups such as the United
Nations Division for Sustainable Development (UN DSD), United Nations Environment
Program (UNEP) and the Tell us Institute (through The Environmental Management
Accounting Research and Information Center (eMARIC) – because of potential social
and environ-mental benefits from widespread use of environmental management tools
related to the need for organizations to include all environmental costs in operating
decisions and investment project analysis and to invest in clean technology. Academic
investigation into EMA practices is gathering momentum and is being organized through
networks such as EMAN in Europe, Asia Pacific and the Americas. Promoters of EMA
tend to encourage organizations to accept the win-win logic behind the adoption of EMA
practices (UN DSD, 2003, Schaltegger and Burritt, 2000 p. 53). From this perspective,
environmental performance and financial performance of the organization are promoted
on the basis that organizations can take actions that improve both types of performance.
Some success in the promotion and dissemination of EMA ideas has already been noted
(Osbornet al., 2002).
 EMA tools are increasingly available to help in the management process. Each tool, for
example full cost accounting or life cycle costing, has been defined in a number of ways,
there-by adding complexity for successful implementation to be achieved. The range of
tools is typified by experience in Japan, where the Ministry of Economy, Trade and

34
 Industry (METI, 2002) established an EMA project in which the use of various tools –
environmental cost management, material flow cost accounting, life cycle costing,
environmental capital appraisal, and environmental corporate performance evaluation – is
being researched.

4.6 Environmental Accounting Challenges of Selected Manufacturing

Enterprises in Bangladesh

4.6.1General Challenges of EMA

The above brief discussion indicates that the general problem of EA and EMA is less definition
of Environmental cost, lack of willingness of managers to adopt EMA, lack of co-ordination
among functional areas, lack of legal framework, inadequacy of guidelines and compulsion to
adopt guidelines, etc. It is recognized that “the majority of management and cost accounting
systems that are in placed within organization pay little or no attention to attributing any form of
environmental cost to an organization’s operations and as a result, many environmentally
incurred costs are accumulated in overhead accounts such as energy and water costs, waste
treatment costs, stationery costs, insurance from holding hazardous substances, or regulatory
costs associated with particular emissions or release” . The environmental cost is considered
overhead accounts. United Nation Division for Sustainable Development; in fact the scenario is a
like in Bangladesh.

Research on environmental costs revealed that environmental costs are generally higher than
considered because costs are hidden in other accounts. The total environmental costs were found
to be at least twice as high according to EMA methodology as compared to conventional
accounting.

“According to IFAC, the following challenges exist in most organizations management

accounting systems:

1) Inadequate links between accounting and other departments;

2) Unintentional hiding of environmental-related costs information in overhead accounts;

3) Inadequate tracking of information on material use, flows, and costs;

35
4) Lack of some environmental-related information in the accounting records; and

5) Investment decisions made on the basis of incomplete environmental-related information.

The largest part of environmental cost lies in the purchase value of non-product output. Wrongly
allocating costs in particular costing categories can also result in “hidden” costs in the costs in
the accounting system

4.6.2 Perceptions of Respondents as to Challenges of Environmental

Accounting: Bangladesh Context

Environment issue is a burning issue in the present day context due to its damage caused by
natural and human activities. Its safeguard and prevention is thus a serious concern to all-society
and business. Against this backdrop, Environmental accounting and Environmental Management
Accounting have become a research topic globally as well in Bangladesh. This is gaining
recognition too. In such a context the present research was undertaken where in study of
perceptions of respondent to EA and EMA was also undertaken as an important part of this
study.In this context it is worthwhile to mention that the following factors are responsible for
environmental pollution by manufacturing enterprises in Bangladesh: “Water abstraction,
greenhouse gases, acid rain and smog, nuclear waste, dust and particles, coal, nutrients and
organic pollutants, others.” Against this backdrop, now an attempt is made below to evaluate the
perceptions of the sample respondents as to problems of EA in Bangladesh relevant to above
mentioned variables factors and other relevant matters, almost 97% respondent’s shows positive
opinion on this statement.

 Perceptions of Respondents as to Challenges of environmental accounting. Various

types of Challenges may come in the way to introduce and implement Environmental
Accounting. It is urgently necessary to find out challenges beforehand so as to minimize
the same or overcome the same so that it can be applied properly and help achieve
efficiency. To this end efforts were made to know the perceptions of respondents as to
Challenges they face or expect to face and the magnitude of such challenges. Following
paragraphs deal with the same.

36
1) Cost involvement

2) Lack of skilled manpower

3) Lack of consciousness about environmental accounting

4) Lack of set rules about environmental accounting

5) Inadequate environmental accounting standard

6) Lack of co-ordination with different stakeholders

7) Inadequate economic policy or incentive system

8) Institutional constraints of Environmental accounting.

9) Low adoption of environmental accounting.

10) Insufficient information affects recording and presentation

11) Slack governmental management accounts

12) No specific principles of environmental accounting

13) Lack of measure to the environmental issues numerically.

4.7 Challenges for Environmental Accounting and Reporting

Environmental accounting is very important issue. As economic development as well as

environmental protection is equally important but contradictory issue therefore a careful
assessment of the benefits and costs of environmental damages is necessary to find the tolerance
limit of environmental degradation and the required level of development. For that there is need
for proper framework which can provide guidelines on the issue of environmental cost,
environmental liability, environmental assets, capitalization of such cost and liability and
reporting framework.

Again environmental costs have impact on reported profit in the financial statement as well as
product pricing. Study of corporate reporting practices reflects that there is an increasing
tendency among the corporate managers to disclose some information in their annual report to

37
inform about their efforts to shareholders and public in general. It is also clear that most of such
environmental information reported by the companies is found to be non-financial. Such
information is mere description of the efforts made by the company.

The information on amount of money spent for such initiatives and its material effect on
financial results is grossly missing in such information. Again there is wide variation noticed in
the style of reporting and theme the companies selected to report. This can add to other
dimension of the problem of lack of comparability and verifiability. So it is felt that such
information should be integrated with financial accounting information to have reliability. For
integration it is necessary for monetary measurement of environmental cost and benefits. But all
cost and benefit to the environment cannot be suitably measured in monetary unit, at least at
micro level.

Internal cost, like investment made by the corporate sector for minimization of losses to
Environment by product development, process development can be possible for monetary
measurement but cost of externalities like degradation and destruction like soil erosion, loss of
bio diversity, air pollution, water pollution, noise pollution, problem of solid waste, depletion of
nonrenewable natural resources i.e. loss emerged due to over exploitation of non-renewable
natural resources like minerals, water, gas, deforestation etc. and the environmental assets
created by business like a forestation, bio-diversity conservation, water preservation etc cannot
be suitably measured in monetary terms. Further, it is very hard to decide that how much loss has
occurred to the environment due to establishment of a specific business unit.

This makes obstacles in the total integration of environmental accounting within the framework
of existing GAAP. However, it is possible to disclose internal cost and benefit of environmental
measures that is undertaken by a business unit and its material effects in reported profit by
disclosing the way of recognition. In case of externalities, like level emission, waste generation,
a forestation etc. though monetary assessment is not possible but business can make some sort of
quantitative measurement like for water management cubic kilometers, for emission level
concentration of specified particles in terms of ppm, area of land a forested, quantitative facts on
expenditures incurred of such activities, and targets set and achieved. This kind of information
can enhance authenticity and reliability of environmental information.

38
However, for such kind of assessment involvement of some technicalities is necessary. On the
other hand for such recognition of inter cost and other externalities a specific set of regulatory
pronouncement is pre-requisite to have uniformity of accounting information. As in the present
state environmental accounting and reporting is a voluntary rather than mandatory, in such
situation everyone have tendency to depict the strength rather than the weakness.

39
 CHAPTER-5
Countries Adopting
Environmental Accounting

40
5.1 Different Countries Environmental Accounting Adaptation

5.1.1 NORWAY: Norway was the first country in the world to prepare environmental accounts
in the 1970s. It collected data on energy sources, fisheries, forests and minerals to address the
issue of resource scarcity. Subsequently, the country had added data on air pollutant emissions in
its environmental accounts. After feeding environmental accounting data into the national
economy, policymakers in Norway assess the energy implications of alternative growth
strategies.

5.1.2 PHILIPPINES: The Philippines Environmental and Natural Resource Accounting Project
(ENRAP) have been working on environmental accounts since 1993. Treating the environment
as a productive sector in the economy, they integrated the valuation of pollution impacts, non-
marketed goods and services and other economic aspects of the environment into conventional
accounts. Though, this method of preparation of environmental accounts different from SEEA,
government agencies and researchers in Philippines get a rich array of data from their accounts
for policymaking and analysis.

5.1.3 NAMIBIA: In Namibia, the SEEA approach to environmental accounting has been
adopted in a phased manner. It is focused on several key natural resources sector and is designed
to answer such questions, as how to allocated water among competing uses and how land
degradation, affects the productivity of range land.

5.1.4 NETHERLANDS: in Netherlands, the National Accounting Matrix, including

Environmental Accounts (NAMEA), are routinely constructed which is an extended from of
National accounts input and output matrix. NAMEA tracks pollution emission by the economic
sector and assesses the accomplishment of environmental protection objectives by the country.

5.1.5 CHILE: In Chile, the Central Bank undertook the development of environmental accounts
that focused on the forest and mineral sectors. These accounts suggest that the country’s forest-
based development strategy may not be sustainable and hence warrants change in the strategy for
sustainable development.

5.1.6 UNITED STATES OF AMERICA: The United States of America has not been a leader
in the environmental accounting endeavor. In the beginning of the Clinton Administration, the

41
Bureau of Economic Analysis (BEA) made a foray into environmental accounting in the mineral
sector. Opposition from the mineral industry as well as political controversy stood in the way 56
of operational zing environmental accounting in the country. The government then asked the
National Research Council (NRC) to from a blue-ribbon panel to consider what the country
should do on the environmental accounting front.

5.1.7 JAPAN: In Japan, the Ministry of Environment has issued comprehensive guidelines titled
“Environmental Accounting Guidelines-2002” in March 2002, encompassing the definition,
functions, roles, basic dimensions and structural elements of environmental accounting. The
guidelines emphatically state that environmental management has to occupy the center stage of
management strategy and environmental accounting would work as a vital tool of environmental
management. The guidelines also envisage that the environmental conservation cost benefits,
including economic benefits associated with environmental conservation activities, are to be
measured, Environmental accounting information, both physical as well as monetary units, needs
to be disclosed in the environmental report for the benefit of management as well as the general
public. According to the guidelines, environmental accounting comprises three key elements,
viz., environmental conservation cost (monetary value), environmental benefit (physical units)
and the economic benefits associated with environmental conservation activities (monetary
value).

5.2 International Initiative in Environmental Accounting Arena

In the international arena, work on the design of environmental accounts has been underway
since the 1970s. In the 1980s, the United Nations Environmental Program (UNEP), the United
Nations Statistical Division (UNSTAT) and the World Bank launched concerned international
efforts to build consensus on how the SNA (System of National Accounts) might be modified to
include environmental issue. As a result, in 1993, a draft titled “Handbook for integrated
Economic and Environmental Accounting “was published, encompassing the preliminary
methodology to be tested and refined. The approach in this document is often referred to as a
system of Integrated Economic and Environment Accounting (SEEA). The SEEA tries to
integrate the various methods available for environmental accounting into a single framework.
This document offers a series of versions or ‘building blocks’ for the construction of accounts
beginning with physical accounts and disaggregation of data already included in SNA. It also

42
works towards more complex information such as calculation of depletion and estimation of
maintenance costs required for sustainable use of resources. None of the versions of SEEA
encompasses the valuation of non-marketed environmental services. UNSTAT, with UNEP and
other experts, is preparing a practical manual or Work Book for implementing SEEA. The SEEA
is a proposed methodology and does not have official approval of the United Nations. This is to
be tested over the years for bringing refinement in theme methodology.

5.3 Utilization of Environmental Accounting

Environmental accounting is used to determine measures to promote sustainable environmental

management. Reducing environmental impact, using measures that will lead to the creation of
benefits, is crucial to promoting sustainable environmental management. The Ricoh Group uses
environmental accounting to determine what measures should be taken for what processes and
for what operations so that the maximum effect can be obtained. Therefore, we first identify
those processes that have a high environmental impact in business operations, based on the Eco
Balance. We examine a number of improvement plans to reduce the identified environmental
impact, in consideration of developments in society and laws/regulations and competition. Then,
using segment environmental accounting, we assess the effectiveness of each possible approach
and decide what methods should be adopted to gain the best results.

5.4 Flow to Utilize Environmental Accounting

This is a tool to inform the public, of relevant information compiled in accordance with the
Environmental Accounting Guidelines of Japan's Ministry of the Environment. The Ricoh Group
takes the necessary portion from the Eco Balance data, and calculates the cost and effect (in
quantity and monetary value) of its environmental conservation activities based 62 on its own
formulas and indicators. The calculated results are disclosed to the public after being verified by
a third party organization. We will continue to improve the accuracy of the information to be
disclosed and will make a positive effort to make it comparable to already standardized
documents, such as financial statements.

43
5.5 Segment Environmental Accounting

This is an internal environmental accounting tool to select an investment activity, or a project,

related to environmental conservation from among all processes of operations, and to evaluate
environmental effects for a certain period. The effect of investment on 65 environmental
conversations will be calculated based on the concept of “Return on Investment (ROI). The
calculation result is used internally for decision making in sustainable environmental
management. Ricoh Group companies and divisions, such as its recycling business division,
increasingly utilize segment environmental accounting for their operations.

5.6 Business Sector Environmental Accounting

The Ricoh Group engages in environmental activities in many business sectors. This is an
indicator of how such environmental activities contribute to environmental management
conditions in respective business sectors. Because the properties of operations differ by business
sector, we have repeatedly discussed which indicator would be appropriate for a given sector. 65
environmental conservation will be calculated based on the concept of “Return on
Investment”(ROI). The calculation result is used internally for decision making in sustainable
environmental management. Ricoh Group companies and divisions, such as its recycling
business division, increasingly utilize segment environmental accounting for their operations.

The Ricoh Group engages in environmental activities in many business sectors. This is an
indicator of how such environmental activities contribute to environmental management
conditions in respective business sectors. Because the properties of operations differ by business
sector, we have repeatedly discussed which indicator would be appropriate for a given sector.

5.7 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 sub-systems:

44
(a) Segment Environmental Accounting: This is an internal environmental accounting tool to
select an investment activity, or a project, related to environmental conservation from among all
process of operations, and to evaluate environmental effects for a certain period.

(b) Eco Balance Environmental Accounting: This is an internal environmental accounting tool to
support PDCA for sustainable environmental management activities.

(c) 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): It is the Financial Accounting with a particular
focus on reporting environmental liability costs and other significant environmental costs.

(3) Environmental National Accounting (ENA): It is a National Level Accounting with a

particular focus on natural resources stocks and flaws, environmental costs and externality costs,
etc.

5.8 The need for Environmental Accounting at Corporate Level

It helps to know whether: corporation has been discharging its responsibilities towards
environment or not. 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 and 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% of the company’s net worth).

 Operating in a way that those environmental damages do not occur.

 Promoting a company having wide environmental awareness.

45
  Control over operational and material efficiency gains driven by the competition global
market.

 Control over increase in costs for raw materials, waste management and potential
liability.

5.9 Worldwide Span of Environmental Accounting

The scope of Environmental Accounting (EA) is very wide; it includes corporate, national and
international levels. Here, the emphasis is given on the corporate level accounting. The following
aspects are included in EA: -

(1) From internal point of view, investments are 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 losses to the environment either occur directly or
indirectly due to business operation /activities. It mainly includes: (a) Degradation and
destruction like soil erosion, loss of biodiversity, air pollution, water pollution, noise
pollution, and problem of solid waste, coastal and marine pollution. (b)Depletion of non-
renewable natural resources i.e., loss emerged due to over exploitation of non-renewable
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, approximate idea can be given or
other measurement of loss like quantity of non-renewable natural resources used, how much sq.
meter area deforested and total area used for business purpose including residential quarters area
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.

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5.10 Uses of Environmental accounting in different Countries

5.10.1 Brief Report of Canada on Environmental Accounting

In the mid-1990s, the Canadian Ministry of Finance began working on the integration of energy
use and greenhouse gas emissions into one of its existing macroeconomic models. The intent was
to use the model, along with models operated by other government departments and outside
organizations, in the process of developing policy options for addressing climate change. The
focus of much of the work of the Ministry of Finance was on tax policy options. The data
required to augment the existing model to handle energy/greenhouse gas scenarios came from
Statistics Canada’s energy use and greenhouse gas emissions accounts.

The fact that these accounts were structured according to the industrial structure of the System of
National Accounts made it straightforward for the modelers to incorporate the data into the
existing model. The use of the model to address climate change policy was a cornerstone of the
ministry’s sustainable development objectives during this period.

The 2001–03 sustainable development strategy, in which this modeling is mentioned, can be
found here. 15 The model was used actively from about 1997 to about 2004, the period during
which the most activity was devoted to exploring Canada’s climate change policy options.
Ultimately, the government decided to pursue a multifaceted approach to climate change policy
in which one element was a form of emissions trading among the largest GHG emitters in the
economy. The various models used by the government during this period, including the finance
ministry’s augmented model, were instrumental in coming to this policy choice.16 similar uses
of data from the Energy Use and Greenhouse Gas Emissions Accounts have been made by other
ministries of the Canadian government.

The Ministry of Foreign Affairs and International Trade has used made use of the data in
modeling of the environmental implications of Canadian trade. The Ministry of the Environment
has similarly made use of the data in its annual emissions forecasting report and for policy
analysis purposes. At the sub national level, the Ministry of Finance of the province of Ontario
also makes use of the data in a model used for policy analysis.

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5.10.2 Canada’s Forest Carbon Accounting System

Canada developed a monitoring, accounting, and reporting system that integrates several data
sources including forest inventories; forest growth and yield information; statistics on change
agents such as wildfire, insect disturbances, and forest management activities; and land-use
changes (forestation and deforestation). This effort does not rely upon SEEA methods, nor does
it use data from Statistics Canada. Rather, the model relies upon several provincial and federal
government data sources, as well as Natural Resources Canada’s own data compilations for the
annual reporting of greenhouse gas emissions and removals submitted for Canada’s national
greenhouse gas inventory report. Nonetheless, the data are used in the carbon budget model of
the Canadian forest sector to create a national carbon account that estimates carbon stocks, stock
changes and non-CO2 emissions and removals to meet international reporting requirements. The
data are also used in support of government policy to predict future changes in carbon stocks
under differing scenarios, which enables forest managers to consider the effect of proposed
alternatives on carbon emissions when making management decisions.

5.10.3 Brief Report of Australia on Environmental Accounting

The Australian Productivity Commission undertook a suite of research related to water reform,
including the effects of expanding water trade and the management of environmental
externalities associated with the supply and use of irrigation water. This research was based on
the irrigation industry in the southern Murray-Darling Basin, where the majority of irrigation in
Australia occurs.

A foundation for this research was a detailed understanding of irrigated agriculture in the
southern Murray-Darling Basin, including the existing patterns of water use; the emerging trade
in water property rights, and the likely behavioral responses of individual irrigators to changing
water prices. The Water Use Account produced by the Australian Bureau of Statistics was used
to provide background information on existing patterns of water use.

The Australian Clean Energy Council has prepared a report using data from the Energy Use
Account designed to provide a snapshot of Australia’s renewable energy and energy efficiency
sector at the end of the 2012 calendar year. Some of its highlights include the following:

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• According to the Australian Bureau of Statistics’ Energy Use Account and Survey of
Environment Values and Behavior, almost 90 percent of people took some kind of action in 2012
to reduce their power bills.10 Steadily rising power prices mean that Australian homes and
businesses have invested in energy-smart appliances and technology such as solar power and
solar hot water to reduce their electricity bills. The result is that overall demand for electricity
has fallen for the last four years.

• Renewable energy such as solar, wind, hydro, and bio energy provided 13 percent of
Australia’s electricity in 2012. There are now more than a million Australian homes that have
installed a solar power system, along with more than 800,000 that have a solar hot water system.
Hydro electricity still produces the lion’s share of Australia’s renewable energy, but wind power
is making solid progress. Wind power provided

The Australian Bureau of Statistics’ Land Cover/Use Account is considered experimental at the
moment and there are, therefore, no regular users. One potential user of a regularly produced
Land Cover/Use Account would be the manager of the park, the Great Barrier Reef Marine Park
Agency (GBRMPA).

The management goals for the Great Barrier Reef Marine Park (GBRMP) are to provide for the
long-term protection and conservation of the environment, biodiversity, and heritage values of
the Great Barrier Reef region; to allow ecologically sustainable use of the Great Barrier Reef
region for various purposes; to encourage engagement in the protection and management of the
Great Barrier Reef region; and to assist in meeting Australia’s international responsibilities in
relation to the environment and protection of world heritage.

5.10.4 Australia’s Water Accounts

Droughts are common in Australia, and any change in the abundance, distribution, or availability
of water will be extremely challenging for the country to mitigate. Given that climate change is
expected to cause such changes in water supply, Australia has used its water accounts to
understand the impact of and responses to water shortages due to climate change.26 For
example, the Australian Bureau of Statistics used the country’s water accounts to analyze
changing water-use patterns over time and across industries, sectors, and regions. The agency
discovered, among other things, that the agricultural industry gained the least amount of value

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added from additional water use while manufacturing gained the most, as compared to other
industries. In addition, although the agricultural sector remained the least efficient water use over
time, it did increase its efficiency by about one-third between the 2000- 2001 and 2004-2005
time frames, while the mining industry’s efficiency decreased by about one-fifth. Water accounts
can be used to devise water pricing and trading strategies that encourage more efficient water use
and ensure that water is allocated where it adds the most value. For example, the Australian
government recommended that water distributed to urban users should be priced to recover all
costs associated with its capture, storage, treatment, and distribution, while water distributed to
rural and regional users should be priced to cover only the current costs associated with
supplying water. The water accounts can then be used to chart changing patterns of water use
associated with such evolving water pricing and trading policies.

5.10.5 Brief Report of USA on Environmental Accounting

The development of the United Nations system of environmental and economic accounting
(SEEA) and the use of supplemental, or satellite, accounts went a long way towards resolving the
long-standing impasse between those who advocated broader sets of accounts and those
concerned with maintaining the usefulness of the existing economic accounts. The supplemental
accounts allowed conceptual and empirical research to move forward with estimates that can be
linked to the existing accounts, but without diminishing their usefulness.

The Government Accountability Office, in conjunction with the National Academy of Sciences,
held a forum to discuss environmental accounts. Participants included U.S. federal agency
officials and national and international statistical, energy, environment, and natural resource
experts. During the forum, participants discussed strategies for overcoming challenges associated
with environ-mental accounting, agencies that could be involved in such an effort, and lessons
learned from the international community, among other topics.

5.11 Need for Environmental Accounting in Bangladesh

For Bangladesh, ‘Green Protection’ or ‘Environmental Accounting’ both are the matters of great
importance. For this reason, Green Accounting is required to measure the environmental impact
of corporate sector’s economic activities. A standard system of this type of accounting is still

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evolving in Bangladesh. This article provides an insight into the concept in the Bangladesh
perspective. Every business has a prime responsibility to make the fullest possible use of its
resources both human and material. An enterprise is a corporate person or citizen. Like a citizen
it is esteemed and judged by its actions in relation to the community of which it is a member as
well as by its economic performance. As far as Bangladesh corporate sector is concerned it is
sad, but true that it has not been performing as a good citizen that’s why there are so many laws
that have been laid down and further amended from time to time and when required to bound the
corporate sector to fulfill their social responsibility for better development of Bangladesh
Economy. One of the most crucial areas of social responsibility has become responsibility
towards green. Recent years have witnessed rising concern for green degradation, which is
taking place mainly in the form of pollution of various types, viz. air, water, sound, soil erosion,
deforestation, etc. It is a worldwide phenomenon. It reduces economic productivity, spoils
human health and leads to loss of amenities.

Developing countries like Bangladesh are facing the dual problem of protecting the green and
promoting economic development simultaneously. A tradeoff between green protection and
development is required. A careful assessment of the benefits and costs of green damages is
necessary to find the safe limits of green degradation and the required level of development.
Bangladesh is experiencing a fast degradation of environment. Some examples of this
degradation are Dhaka’s terrible air pollution, the ‘clinically dead’ river Buriganga and
widespread arsenic pollution in the underground water. The Government of Bangladesh started
paying attention to the environmental management of Bangladesh since the 1990s and in order to
improve the environmental condition, the Bangladesh Environmental Protection Act, 1995 was
passed. Still, corporate environmental reporting is not mandatory in Bangladesh. But under the
Bangladesh Environmental Protection Act, 1995, companies may be asked to disclose
environmental information as and when required (Belal, 2000).

5.12 Following ways are put forward for Improving Environmental

Accounting Practices in Bangladesh.

 The conventional economic account can be expanded with the physical statistics about
natural environment and its status. To ensure this the government must come forward.

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 Relevant ministry can provide portfolio on physical indicators for forests-like area under
forest, value of timber which can also be arranged in conventional input output type
matrices.
 A careful assessment of cost of green damages and benefits can be introduced to find the
safe limit of green degradation and required level of development. Emission accounting
system that identifies pollution emitted from different economic sectors of Bangladesh
can be introduced and implemented.
 Conventional national accounts may be desegregated to detect expenditures specifically
related to the green.
 Non-marketed green goods and services should be valued for improving green
accounting practice. The valuation of green goods and services will help improving green
accounting practices.
 Green GDP can be introduced side by side the traditional GDP. Green GDP can be
calculated by subtracting pollution expenditures from the conventional GDP or adding
factors like negative costs of urbanization and industrialization.
 Depletion of natural assets like forests, minerals, fisheries, soil, and water can also be
provided to ensure equal treatment of natural capital in computing net income. Green
indicators like green GDP, environment adjusted domestic products (EDP) can be
introduced.
 Both the government and private sector must come forward for improving Bangladesh’s
performance in green accounting performance index and introducing green accounting
practice in Bangladesh. Concept of Green Accounting and its Practice in Bangladesh 491
 Offering different types of benefits from the government side, financial and nonfinancial,
tax exemption or rebate, reduction on import duties or extension of tax holiday facility
etc will encourage more new companies to implement green accounting practice
properly.
 Proper monitoring should be made on a regular basis in the application of green
accounting. Companies who are already practicing green accounting to some extent
should come forward and make more contribution in green accounting practice. They
should expend more in preserving and protection of the environment.

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  Both the government and private sector should play more effective role to increase
Bangladesh’s score in the Environmental Performance Index (EPI)
 Environmental accounting, emission, degradation, costs; resources should be presented in
the financial statements according disclosure requirement in Bangladesh is the disclosure
of expenditures on energy use. Under Schedule-XI, Part-II of the Companies Act 1994
and under Schedule, Part-II of the Securities and Exchange Rules, 1987

5.13 Recommendations

Considering the extent of urgency about environmental accounting and reporting in our
country we think government should make disclosure of environmental issues mandatory for all
or at least for manufacturing sectors. Government should undertake a scheme to encourage the
preparers of the report or the management of the entity to willingly incorporate the
environmental issues. However based on our analysis we recommend some measures, as we
think them indispensable to improve the current status of environmental accounting and
reporting.

1. Companies should show fines and penalties paid by the company, environmental
liabilities of the company, environmental provisions, and environmental costs capitalized in
the notes to the accounts in their annual reports.

2. It is strongly recommended that environmental reporting should be made mandatory in

Bangladesh.

3. Companies in Bangladesh should be asked to submit the detailed environmental

information to the government regarding emission of specific toxic chemicals, pollutants,
effluents, damage to the environment and the community health.

4. Companies should calculate and report some specific ratios indicating their
environmental performance. These ratios, being relative measure may be used for comparing
the performance of the companies on environmental related issues.

5. It is recommended that professional accounting bodies at national levels should develop

a separate conceptual framework on Environmental Accounting and Reporting specifying
the objectives, general assumptions, qualitative characteristics and guidelines for the companies

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6. Environmental expenditures incurred by companies should be classified into capital

expenditures ( Purchasing a new Recycling Machine, Tree plantation, Soil remediation)

and operating expenditures ( annual operating and maintenance cost of the Recycling Machine,
annual operating and maintenance cost of the Tree plantation).

5.14 Conclusions

In developing countries like Bangladesh, greening the national accounts is necessary both for
environmental and economic policy formulation. Economy of Bangladesh is based on natural
resources and featured by high population growth and pressure on the natural resources. So in
Bangladesh misuse and exhaustion of natural capital of the country will resulting extended
valuation of national income figures. This presents a wrong picture that our economy is growing
but in reality the natural wealth-future wealth is decreasing. Some green indicators like green
GDP, environment adjusted domestic product (EDP) can be applied; our policies can be designed
to enhance economic growth without extensive depletion of natural resources. More emphasis
should be places for introducing and improving green accounting practice. Despite of this
awareness, there is an absence of external environmental accounting. The companies in
Bangladesh do not have a proper environmental accounting system to determine the environment
related costs, benefits, assets and liabilities.

Bangladeshi companies fail to provide adequate disclosure on the environment. Without any
strict accounting pronouncements from the ICAB and disclosure norms by the regulatory
authorities, the companies generally provide only statutorily required, qualitative, and
positive information on environment. It can be concluded that there is a low level of
Environmental Accounting and Reporting activity in Bangladesh. The accounting
professionals and the companies has yet to respond to these issues and learnt a lot in dealing with
the environmental matters in the books of accounts.

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