A NEW WAY TO BOOST SUSTAINABLE DEVELOPMENT: GREEN ACCOUNTING

Transcription

1 A NEW WAY TO BOOST SUSTAINABLE DEVELOPMENT: GREEN ACCOUNTING MS.NEHA GUPTA, ASST. PROF. TECNIA INSTITUTE OF ADVANCED STUDIES, GGSIPU, NEW DELHI MS.RAJNI BANSAL,ASST. PROF. TECNIA INSTITUTE OF ADVANCED STUDIES,GGSIPU,NEW DELHI Abstract: Restoring sustainability is one of the greatest challenges facing by companies in today s competitive and dynamic world. Development will be sustainable when it is carried out in a way which protects the environment. Increasing pressures on the environment and raising environmental consciousness have generated the need to account for the interactions between all the sectors of an economy and the environment. Green accounting is an ability to provide accurate information in the financial statements regarding the estimates social cost incurred by the production externalities on the environment and how much deliberate intervention cost had been incurred to bridge the gap between the marginal social cost and the marginal private cost by a firm. Green accounting is also regarded as a management tool that integrates the financial implications of environmental issues in the financial management system of an organization. It enhances effective decision making in order to promote environmental and economic sustainability. This research paper aims to analyze the ways in which green accounting can contribute and boost sustainable development. The paper highlights the emergence of the concept of green accounting, its applicability as well as analyzes the opportunities and challenges of green accounting for an organization. Keywords:- Environment, Green Accounting, Management Information Tool, Sustainable Development, Social Cost. (JAMR) id- jamrpublication@gmail.com Page 230

2 INTRODUCTION Years ago, only a handful of people were aware of the economics which moves beyond their own jobs and expenses, and very few companies thought beyond the economics of their profit and loss statements. The industries operational at that times were neither clean nor green and gave very less importance to the impact of environment on their business. In the later half of 19th century, some men passionate about the natural beauty of the country and advocated for its protection and appreciation and started the environmental movement against it. It is supported by the action of a president who established the National Park System, and a man by the name of John Muir who mused over the beauty of a valley called Yosemite. These simple actions helped a lot in growing the awareness about the value of the world and the obligations towards it. This awareness measures grew the public and industry s vision to see the potential for major environmental problems. This realization forces environmentalism to enter into the world of business. The entire sector whether manufacturing or technological driven faces a variety of environmental regulations and industries need to consider the ecological and social impact. Businesses need to consider the smartest way to the way which is not only ecologically or socially responsible but financially beneficial and economically feasible as well. Financial health and profitability does not happen accidently. The lack of proper planning, and foresight, encountering environmental legislation and social reporting could make a business dry. Environmental and social accounting grew out as a mechanism to balance a company s financial health along with its broader obligations. This has result in drastic change in business operations. Recognition of the threats to our planet has led to global agreements to prevent future environmental damage such as agreements include the Montreal Protocol, the Rio Declaration and the Kyoto Protocol. Businesses are becoming increasingly aware of the impact of their operations, products and services on the environment. Environmental risks cannot be ignored as it has become an essential part of running a successful business just like product designs, marketing and sound financial management. Causal environmental behavior towards environmental damages has a real adverse impact on the business and its finances. Penalties such as imposing of fines, increased environmental taxes liability, loss in value of land, destruction of brand values, loss of sales, consumer boycotts of goods and inability to secure finance, loss of insurance cover, contingent liabilities, law suits, and damage to corporate image etc. are some of the consequences. The accounting aspects of a business are greatly affected by environmental pressures, including accounting. From an accounting perspective, the initial pressures lie in external reporting, (JAMR) id- jamrpublication@gmail.com Page 231

3 disclosures of environment aspect in financial reports and the maintenance of separate accounts for environmental purpose etc. However, these environmental issues cannot be dealt solely through external reporting. Environmental issues need to be managed before reporting and this requires significant changes in the accounting systems of an organization. 2. LITERATURE REVIEW Green accounting is a type of accounting that attempts to factor environmental costs into the financial results of operations. It has been argued that Gross Domestic Product (GDP) ignores the environment and therefore decision makers need a revised model that incorporates green accounting. The term was first brought into common usage by economist and Professor Peter Wood in 1980s.Green accounting is the use of traditional accounting and principles of finance to calculate the impact of environmental costs on commercial and industrial decisions. Green accounting refers to the practice of incorporating the principles of environmental management. It also involves environmental conservation as a practice and conducts ecological cost and benefit analysis. Green accounting allows a business to analyze the impact of ecologically sustainable practice on their business activities from supply chain management to expansion of facility. It also enable accountants to study the economic impact of these decisions on stakeholders which as a result allow proactive decision making about processes which simultaneously meet environmental regulations. Another dimension of accountability is consumer sophistication about environmentalism and the negative impact of non-renewable practices. Businesses which are able to achieve the integration of environmental management in their business practices can lead up in the sphere of public relations. Sustainability refers to the principle of engaging in a practice that will not deplete a resource whereas sustainability accounting and measurement involves engagement in practices that allow the business to analyze and assess the environmental impact of its activities. Sustainable measurement is a kind of quantitative basis for management and measurement of sustainability practices. A business may take a decision to go for green packaging of its product (a sustainable practice). It also involve analyzing the level by which increased cost is offset by the decreased cost of waste disposal, increased interest of consumer along with the environmental implications. Environmental accounting is a field of accounting that identifies use of resources, measures and communicates the costs of a company s impact on the environment. Costs include costs of cleaning up of contaminated sites, payment of environmental fines, penalties and taxes imposed, purchase of technologies that prevent pollution and cost of waste management. (JAMR) id- jamrpublication@gmail.com Page 232

4 A new system of sustainable accounting, known as Green Accounting, has emerged. It permits the computation of income for a nation by taking into account the economic damage and depletion in the natural resource base of an economy. It is a measure of sustainable income level that can be secured without decreasing the stock of natural assets. TABLE:1 Classification of Green Accounting Types of Green Accounting Objective Users National Income Accounting Nation External Financial Accounting Economic Entity External & Internal Managerial Accounting Economic Entity, Department, Production line Internal 2.1 Objectives of Green Accounting: Categorization and Elaboration of Environment related Flows: The categorization of all flows and stocks of assets which related to the environment helps in the estimation of the total expenditure incurred for the protection of the environment. The main objective of such categorization is to identify those segments of the gross domestic product which reflects the costs required to compensate for the negative effects of economic growth, i.e., the defensive expenditures. Connection of Physical Resource Accounts with Monetary Environmental Accounts: Accounts of physical resource includes the total stock or reserves of natural resources and changes occurred from time to time. It includes all resources irrespective of the case that they are not affected by the economic system. Thus accounts of natural resource provide the physical count of the monetary stock and flow accounts. Assessment of Environmental Costs and Benefits: It involve the costing in respect of: (a) The depletion of natural resources in production process and final demand; (b) The changes occurred in environmental quality, on account from pollution. It also involve analyzing the impacts of production, consumption and natural events on environment along with measures required for protection of environmental. Maintenance of Tangible Wealth: The concepts of capital in context of environmental accounting cover not only human-made capital but also natural capital. Capital formation is correspondingly a broader concept of capital accumulation which allow for the use, consumption and discovery of new environmental assets. (JAMR) id- jamrpublication@gmail.com Page 233

5 Discovery and Measurement of Indicators of Environmentally Adjusted NDP: The provision of the costs of depletion of natural resources and changes in environmental quality permits the calculation of modified macro-economic aggregates, such as environmentally adjusted net domestic product (EDP). 3. LINKING GREEN ACCOUNTING WITH ORGANIZATIONAL SUCCESS. Green accounting is one of a significant tool for environmental management. With a view to promote environmental management, Toshiba Group is working to introduce an approach of environmental accounting which aims at collecting accurate data on investments and costs which is required for its initiatives of environmental conservation and analyzing the data collected in order to reflect effects on investment and cost and benefits in relation to managerial decision making. Environmental costs are calculated in accordance with the guidelines issued by the Ministry of the Environment on Environmental Accounting Toshiba Group's, for measuring environmental benefits assumes four basic concepts: competitive advantages, prevention of potential environmental risks, internal and external benefits. The benefits are classified into four categories based on combinations of customer benefits due to reduced power consumption of products, actual economic benefits resulting from reductions in the amount of waste and energy consumed, assumed economic benefits estimated to result from reductions in air pollutant emissions, benefits resulting from preventing potential risks in order to develop a comprehensive approach to environmental accounting. They provide a useful indices for environmental management. Fig:- 2 Environmental accounting as a tool for environmental management (JAMR) id- jamrpublication@gmail.com Page 234

6 3.1 Concept of Natural Capital Accounting In June 2012, United Nations environmental Programme Financial Initiative (UNEP FI) * issued the Natural Capital Declaration (NCD). NCD requires that natural capital, which generates value worth several trillion dollars annually, be evaluated as is done for social capital and financial capital. The World Bank and other institutions are discussing natural capital accounting, which includes the value of natural capital in corporate accounting. We are attempting to perform natural capital accounting as part of our environmental initiatives. At present, environmental accounting is an initiative for aggregating the costs of environmental protection activities and analyzing the benefits obtained from such activities-in other words, measuring the minimization of external diseconomies. However, environmental impacts associated with business activities cannot be reduced to zero. Therefore, Toshiba Group is considering viewing final environmental impacts as economic value and making external diseconomies visible, which the Group regards to be a form of natural capital accounting. Toshiba Group's concept of natural capital accounting can be summarized as shown in the chart below. The chart indicates that reduction of environmental impacts leads to minimization of effects on natural capital. In the future, we will continue to further raise our level of environmental management by effectively using the two tools of environmental accounting and natural capital accounting. Fig:-3 Toshiba Group's concept of natural capital accounting (JAMR) id- jamrpublication@gmail.com Page 235

7 Toshiba Group calculated environmental impacts for natural capital during the past three years; the results indicate that in FY2013, such impacts were reduced by 2.7% compared to the previous year to 14.3 billion yen. On the other hand, the costs required for biodiversity conservation, factory afforestation, and other initiatives that positively affected natural capital totaled 740 million yen. Furthermore, the results of calculations of business activities that were carried out without using natural capital-for which examples include water reuse and recycling as well as effective use of rainwater at business sites-had a worth of 280 million yen in terms of monetary value. Toshiba Group is considering a system for comparing these results to offset or reduce its environmental impacts for natural capital; we found that the reduction rate changed from 7.3% to 7.4% to 7.1% over the past three years. In the years to come, the Group will strive to improve the reduction rate by reducing environmental impacts for natural capital through reduction of such impacts and expanding business activities that do not affect natural capital as well as those that positively affect natural capital. 3.2 Environmental Accounting in Action The Kyoto Protocol The highest profile, most globally reaching, actionable example of environmental accounting is the Kyoto Protocol. The Kyoto Protocol is a legally binding agreement entered into voluntarily by developing and fully industrialized nations designed to reduce six greenhouse gasses that are believed to contribute to global warming. The Kyoto Protocol is environmental accounting in action on an international scale. Using metrics established by the United Nations, the Kyoto Protocols measures change in carbon emissions. National governments develop collaborative relationships with industries that produce greenhouse gasses, or industries that manufacture products that result in consumer-generated emissions (cars and trucks, for instance), and assume responsibility for developing and enforcing legislation that facilitate compliance. Measurement and metrics are the cornerstone of the Kyoto Protocol, and industries that fall under the specter of oversight through the Kyoto Protocol have adopted an aggressive pursuit of environmental accounting, not only in response to the reporting action required by the protocol, but to develop systems and execute decision making that ensures that companies remain profitable through the cycle of manufacturing and air quality control changes, which almost always increase cost. When the Kyoto Protocol was in the news, attention was principally on the cost of compliance and the impact on fully industrialized nations. The US refused to ratify the protocol over economic concerns. But countries that have willingly agreed to participate in the Protocol have turned to sound environmental accounting practices to mitigate the costs associated with participation (JAMR) id- jamrpublication@gmail.com Page 236

8 4. OPPORTUNITIES The concept of green accounting offers the following benefits or opportunities to a company:- 1. It improves likeness of the merchandise or business which directs to improvement in sales and ultimately profitability. 2. Likely competitive advantages as customers may favour environmentally amicable goods and services. 3. Better scrounging access from the shareholders/bankers/creditors. 4. Improvement in the wellbeing safety of the employees which will help increasing productivity. 5. Smaller work turnover ratio, thereby decreasing employing charges. 6. Enhanced likeness within the eyes of stakeholders because the association will get the exceptional rank. 7. Build up believe and confidence inside the community. 8. An advanced environmental presentation which may have a affirmative impact on human health and enterprise achievement. 9. It is furthermore helpful considering pricing policy decision making since this accounting scheme provision data regarding particular casts which are usually obscured by the administration, a large scale lacuna on the part of administration. 10. Green accounting not only recognized or recognizes environmental associated costs but furthermore endeavors decrease those which in turn help every grade of the association. 11. It supplies results in ore unquestionable costing or charge of goods and more eco-friendly processes. Fig:- 4 Advantages of Green Accounting 5. CHALLENGES OF GREEN ACCOUNTING Though green accounting is being attempted by many countries, the concept is not without challenges. The major challenges or limitations of green accounting and reporting are as follows:- (JAMR) id- jamrpublication@gmail.com Page 237

9 1. Green accounting have no economic value. 2. The method of estimating the social value of environmental goods and services are imperfect, often misleading and construers. 3. Estimated values for environmental goods quantified or qualified in terms which have no fixed conversion into money. 4. On account of unrecorded environmental costs and difficulty in extracting and separating environmental cost, the industry data is virally unreliable. 5. Social value placed on environmental goods and services are changing so fast that the estimates are likely to be obsolete before they are available for use. 6. Lack of accounting standards for green accounting. 7. Inapplicable assumption. 8. Green accounting is not a legal obligation in most of the cases in India. 9. Lack of reliable industry data. 6. SWOT ANALYSIS 7. CONCLUSION By determining and using the policies of green or environmental accounting, the organizational entities may benefited in several ways such as strict control over environmental costs, judging and evaluating the environmental performance or benefits at any point of time during the course (JAMR) id- jamrpublication@gmail.com Page 238

10 of action; expanding the customer base and therefore earning high incomes in the long run. Moreover, it helps in improving the image or goodwill in the market among external parties and enables an organization to access or expand the business to new markets. The concept of green accounting also provides a framework for continuous improvement and monitoring the performance of system of green accounting. But on the other hand, it leads to incurring high cost of environmental investment. By costs controlling and revenues which are connected to the environment, a manager can identify ways to save money and improve the external image. Environmental accounting information provided on the environmental costs may help the management team in decision making related to product design, manufacturing process, waste management, investments and so on. The information provided by environmental accounting system and the analysis of the relationship between costs and benefits helps the managers to base their decisions regarding environmental protection, to take measures to prevent environmental damage and to help on environmental costs evaluation. 8. REFERENCES Baba, M. C., 2012, "Advantages of implementing environmental accounting within an economic entity", Timișoara Annals Economics Science Series, Issue: XVIII/2, pp Stern, N., 2007, The economics of climate change: The stern review, Cambridge: Cambridge UniversityPress. s_climate_change/stern_review_report.cfm). Owen, D., 2007, "Chronicles of wasted time? A personal reflection on the current state of, and future prospects for, social and environmental accounting research", Accounting, Auditing & Accountability Journal Vol. 21 No. 2, pp Frost, G.R., and Wilmshurst, T.D.,(2000) The adoption of environmental related Management Accounting: An analysis of corporate environmental Sensitivity. Accounting Forum, 24(4):[[ ]]. Sharma, S., (2000) Managerial interpretations and organizational context as predictors of corporate choice of environmental strategy, Academy of Management Journal, 43, pp Sing h, G., J oshi, M., (20 09) Enivronment management and disclosure practices of Indian Companies, International Journal of Business Research. Smith, M., Khadijah, Y., Amiruddin, A.M., (2007) Environmental disclosure and performance reporting, Asian Review. Corbett, C.J., Luca, A.M. and Pan J.N., 2003, "Global perspectives on global standards a 15- economy survey of ISO 9000 and ISO 14000", ISO Management Systems, January-February, pp (JAMR) id- jamrpublication@gmail.com Page 239