Meaning Environmental Accounting :

The term environment includes everything in all its manifest forms. On the earth, beneath the earth
and above the earth. All over the world there has been much concern regarding management of
environment for ensuring sustainable economic developments. Sustainable economic environmental
development may be defined as the development that meets the needs of the present generation
without compromising the ability of future generations to meet their own needs. It refers to
preserving Eco-system as well as maintaining long-term profitability of the firm.

In order to be a good corporate citizen a firm has to adopt policies and take action that become
environment friendly. The companies must develop strategies which translate actions into benefits,
improve their environmental performance and meet the environment demands placed upon them
by Government and shareholders.

The business activities of every enterprise are affected by a nation's natural resources, viz, water, air,
minerals, forests, etc. or termed as environment in common parlance.

Similarly, the functioning of an enterprise also affects the environment. Hence, it is necessary to
maintain proper accounting records displaying the impact of a business enterprise on environmental
and vice versa. Environmental accounting faithfully performs this function. It is a new concept and is
gaining continuous popularity because of greater environmental awareness. It is a method of
recording environmental events. It includes the evaluation or natural resources measuring the
income therefrom, keeping a record of the cost relating to them, estimating their quantities and
providing depreciation on them. It includes management of environmental costs effectively
presenting and disclosing environmental information in a suitable form.

Features Of Environmental Accounting

Comprehensive Data Collection

The first step in environmental accounting is to gather information about the company. This includes
things like how many resources they use. How much waste do they generate? What do they release
into the air or water? This information has to be collected consistently.

Identifying Costs

Once the information is collected, the company must calculate how much money they spend
harming the environment. This includes costs for pollution, waste management, and using natural
resources. These expenses can be direct. Such as paying to clean up dirty water or indirect. Such as
losing money because of disappearing plants and animals.

Identifying Benefits

Environmental accounting aims to identify a company's negative and positive environmental

impacts. Like reducing pollution, using energy more efficiently, and improving waste management.

Integration with Financial Accounting

Companies need to track how their actions affect the environment. Environmental accounting helps
by adding up the costs and benefits of their actions. And including them in their financial statements.
This helps companies understand the financial impact of their environmental performance, and
enables them to make better decisions.

Benchmarking and Performance Tracking

Environmental accounting helps companies compare themselves with other companies in the same
industry. Using environmental accounting, companies can set goals to protect the environment, and
find ways to improve. This makes them more eco-friendly. Companies can also make plans to reduce
their negative impact on the environment.

Assessment Risk

Environmental accounting helps companies identify environmental problems, such as climate

change, water shortage, and resource depletion. By recognizing these problems, companies can find
solutions to manage them, and ensure long-term sustainability.

Stakeholder Engagement

Companies engage with customers, suppliers, and investors to understand their environmental
concerns.

Compliance with Environmental Regulations

This helps companies create eco-friendly practices that meet the needs of these people.

Environmental accounting can help businesses follow environmental rules. It helps companies
understand their impact on the environment and how they can do better. By doing this, companies
can avoid getting fined or punished for not following environmental rules.

Functions and Roles of Environmental Accounting

Here are some of the key functions of environmental accounting.

Environmental Performance Measurement

Environmental accounting helps companies measure their impact on the environment. It does this
by gathering data on.

How many resources do they use?

How much waste do they create?

How much do they pollute?

This helps them see if they're making progress towards their environmental goals.

Cost-Benefit Analysis
Environmental accounting helps companies study their impact on nature. It helps them make better
choices for the environment and their business.

Compliance with Environmental Regulations

Companies use environmental accounting to comply with nature rules. Environmental accounting
helps companies understand how their actions impact the environment. Companies can identify
areas that need improvement and take steps to reduce their carbon footprint. This prevents
monetary penalties and charges for non-compliance.

Risk Management

Environmental accounting aids corporations in recognizing environmental risks such as weather

changes, reduced resources, and water scarcity. Corporations can then develop plans to manage
these risks and secure their future survival.

Stakeholder Engagement

Companies use environmental accounting to involve stakeholders and measure their environmental
impact. They talk to customers, suppliers, and investors to understand their concerns and values.
This helps companies make decisions that consider the environment.

Resource Efficiency

Environmental accounting can enable organizations to uncover opportunities. It helps to enhance

resource productivity. There are ways to help the environment. These include creating less waste,
recycling, and using energy and water more efficiently. Companies can reduce their impact on the
environment, as they can elevate resource productivity and economize on operational expenditures.

Importance of Environmental Accounting

People are becoming more aware of environmental issues. As a result, businesses are realizing the
importance of Environmental Accounting. Governments are also introducing stricter environmental
regulations. Making it crucial for businesses to keep track of their environmental impact.

Reducing Environmental Costs

Environmental accounting helps businesses become more environmentally friendly. Companies

identify areas where they can make changes to reduce their environmental impact by measuring the
environmental costs of their production and consumption.

Meeting Environmental Regulations

Environmental accounting helps companies follow government environmental regulations. These

rules are getting stricter. Businesses must ensure they're following them to avoid fines.

Enhancing Corporate Reputation

Customers care more and more about the environment. Companies need to have a good reputation
when it comes to sustainability. This can make customers loyal and help the company stand out.

Assessing Environmental Risks

Environmental accounting help companies identify environmental risks and take steps to prevent
them. Businesses can see what could go wrong and fix it by analyzing their activities. This can help
the company avoid disasters and protect its reputation.

Improving Resource Efficiency

Environmental accounting can help businesses use resources more efficiently. Analyzing their
environmental impact, companies can use less energy and water resources. This can save them
money and help the environment.

Encouraging Innovation

Environmental accounting can also encourage innovation. Companies can come up with new
technologies that are more sustainable and efficient.

Forms of Environmental Accounting :

1) Environmental Management Accounting (EMA) :

This is an accounting with a particular focus on material and energy flow information and
environmental cost information.

Sub Systems :

This type of accounting can be further classified in the following sub Systems :

a) Segment Environmental Accounting (SEA) :

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.

b) Eco Balance Environmental Accounting (EBEA) :

This is an internal environmental accounting tool to support PDCA for sustainable environmental
management activities.

c) Corporate Environmental Accounting (CEA) :

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) :

This is a financial accounting with a particular focus on reporting environmental liability costs and
other significant environmental costs.

3) Environmental National Accounting (ENA) :

This is a national Level accounting with a particular focus on natural resources stocks and flows,
environmental costs and externality costs etc.

Need of Environmental Accounting at Corporate Level

It helps to know whether corporation has been discharging its responsibilities towards environment
or not. Basically, a company has to fulfill following environmental responsibilities.

a) Regulatory Requirements :

Meeting regulatory requirements or exceeding that expectation.

b) Cleaning up Pollution :

Cleaning up pollution that already exists and properly disposing of the hazardous material.

c) Information :

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 per cent of the companies net worth).

d) Operation :Operating in a way that those environmental damages do not occur.

e) Promotion :

Promoting a company having wide environmental attitude.

f) Control Over Efficiency Gains :

Control over operational and material efficiency gains driven by the competitive global market.

g) Control Over Cost Increases :

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

Advantages of Environmental Accounting :

i) Discloses Utilisation of Natural Resources :

Environmental accounting is helpful in presenting in a transparent manner, the utilisation of natural

resources of the country, the costs incurred to use them and the income earned therefrom.

ii) Social Contribution by Corporates :

Environmental accounting helps in measuring the contribution made by various corporations or
companies in fulfilling their social responsibilities.

iii) Environmental Protection :

A business enterprise does not live in isolation. In order to maximize wealth, it takes support of
social and ecological systems. Environmental accounting helps in measuring the extent to which a
corporate enterprise has utilised the environmental resources. In any case, it has to be seen that a
business enterprise in the course of their business activities does not vitiate, pollute or endanger
environment. As a matter of fact, a number of laws have been enacted in our country to protect the
environment

Objectives of Environmental Accounting

Environmental accounting helps companies make decisions considering their environmental impact.
Here are some objectives of environmental accounting.

Separating Environmental Accounts

By separating environmental accounts, companies understand the money needed to preserve the
environment. This also helps us see how much it costs to fix any problems caused by our actions, like
pollution. By doing this, we can manage environmental risks and opportunities.

For example, a company can harm the environment. But it can also reduce that harm by using
renewable energy or sustainable practices. Companies can also make money by selling eco-friendly
products. This practice can improve their reputation. Environmental accounting helps companies
make money while also helping the environment.

Linking Environment & Resources Accounts.

Environmental accounting has a few goals. It aims to connect the environment, resources, and
money to see how they relate. By linking natural resources and financial information, we can
determine how to use resources better and make more money. This evaluates how much we're
using resources and how much money we're making.

Assessing Environmental Costs and Benefits

Environmental accounting determines the good and bad effects of a company's actions. We measure
things like pollution and the use of natural resources. This helps companies make better choices. So
they don't break the law or damage their reputation. Knowing the environmental costs helps
companies find ways to reduce their impact.
Accounting For Tangible Asset Maintenance

Environmental accounting also tracks how we care for things like machines. Maintaining them well is
important so they work and don't harm the environment. It monitors how much energy and
resources they use and tries to find ways to use less. This is important because neglecting them can
cause environmental risks. By accounting for tangible asset maintenance, companies ensure their
assets work efficiently. And don't harm the environment.

Green Product and Income Metrics

Environmental accounting requires developing and measuring indicators. The indicators show how
producing and using products affect the environment. This is important as traditional financial
indicators, like GDP, only consider money. And they ignore environmental costs.

To get a more accurate picture of economic activities' true costs and benefits. We must change
these indicators to include environmental expenses and advantages. By doing so, we can better
understand the economic value of products and services. And make more informed decisions.

Scope of Environmental Accounting :

The scope of Environmental Accounting is very wide. It includes corporate level. national and
international level. The following aspects are included in environmental accounting

1) Internal Point of View :

From Internal point of view investment 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) External Point of View

From external point of view all types of loss indirectly due to business operation activities. It mainly
includes :

i) Degradation and destruction like soil erosion, loss of bio diversity, air pollution, water pollution,
voice pollution, problem of solid waste, coastal and marine pollution.

ii) Depletion of non-renewable natural resources i.e. loss emerged due to Over exploitation of non-
renewable natural resources like minerals, water, gas, etc.

iii) 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 caused to the
environment due to a particular industry. For this purpose approximate idea can be given or other
measurement or 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 for
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,
typeand degree of noise made by the factory, etc. can be used.