An accounting device to save the environment


M Jalal Hussain | Published: October 14, 2014 00:00:00 | Updated: November 30, 2024 06:01:00


The environment of the present world faces after-shocks from climate changes, global warming, unplanned deforestation, impetuous urbanisation and  industrialisation. The accounting credenda has been oscillating from the traditional accounting to modern accounting that includes management accounting, financial accounting, cost accounting, green accounting, environment accounting and so forth.
 From the primordial time to the present time, accountants have been playing a significant role in the economy of a country by providing accounting services, planning, decision making and implementation of the same for various public, government and private organisations around the world. Green accounting is a much-talked about and much-needed concept of the contemporary world, although it has not yet thrived in most of the developing countries in Asia and Africa.
"Greening the accounts" covers a variety of activities related to resources and environmental accounting. The accounting activities of national, public and private organisations, especially of the corporate organisations, need to get involved in the accounting for social development, social responsibility and environment. Greening the accounting emphasises greatly on the inclusion of the value of non-commercial, natural and environmental resources in the parameter of accounts and in the reporting systems.
With legislation becoming stricter with regard to the utilisation of natural resources by depletion, degenerating and by deteriorating, "green" concerns are also reflected by business accounts. Wherever prices are changed, taxes are being levied, subsidies paid, quantities restricted, and risks are mounting, there will be entries in the books, accordingly.
The national accounts-- income and expenditure-- are the most important source of information about the economy and its development and are extensively used to assess economic performance, policy, analysis and decision-making. The national accounts have a number of frailties when it comes to the treatment of environment, depletion and damage of forests, water pollution and other consequences. The System of Environmental and Economic Accounts (SEEA) was framed by UN Statistical Commission to take care of valuation of ecosystem services, valuing environmental damages as a process of greening the national accounts of its member countries. To address the shortcomings, greening of national, public and private accounts has become the crucial task for the public and private accountants and the state policy makers.
A key aspect in the appraisal of public policy is quantifying, in monetary terms, its impact on the policy action. While income from harvesting timber is recorded in national accounts, the depletion of forest is not. More importantly, the essential life-support services provided by forest ecosystems are not explicitly recognised at all. This can result in quite misleading economic signals about economic growth. Bangladesh coal-fired power project (proposed) at Rampal, Bagerhat (near the Sundarban forest) is an example where the project costs, revenue earning, production capacity and utilisation, contribution to GDP, etc., have been taken care of in the national accounts for the project. But the costs of environment damages, depletion and damage to the Sundarbon, adverse effect on the ecosystem, adverse effect on the health of people living at the vicinity of the project, weather pollution, water pollution and many more, have not been accounted for and remedial actions remain absent. Greening of accounts requires that environmental costs to be valued in monetary terms and to be reflected in the financial reporting system for any project that affects environment.
Efforts to manage the impact of drivers to maximise social and economic welfare will be thwarted unless greening the accounts of corporates in line with the greening of the national accounts takes place. Environmentally sound, safe and economically viable projects for production need to be assessed through the reporting systems. In the US, disclosure requirements focus primarily on the impact of environmental issues and their effects on the financial results and positions of the corporate bodies. Regulations in many EU countries require disclosure on resources consumption and environmental policy in addition to financial disclosures. Greening the accounting can help in bridging the gap between ecology and economy.
Scholars and the general people have long recognised the shortcomings of the gross domestic product (GDP) as a measure of a country's actual well-being. GDP's exclusive emphasis on goods and services bought and sold through market transactions has resulted in an aggregate measure of economic activity that can be faulted on several counts, with many critics noting its failure to account for natural resource depletion, non-market values, the social costs of pollution and so on. These critics have also questioned the treatment of defensive expenditures designed to offset environmental degradation as increments to GDP. Such limitations have resulted in an unusual coalition of environmentalists, ecologists, economists, and accountants who advocate "green" accounts, or modifications to traditional national income accounting procedures.
Accounting is by no means an end in itself. It allows an assessment of past performances and of expected developments. It allows a comparison of scenarios, i.e., what may be expected under different given conditions. It encourages to quantify benchmarks, targets and achievements, and -- afterwards -- to see what went wrong and why. There is, however, at least up till now, not a single measurement, to include all possible aspects, which would allow us to tell a government which course to follow, and looking backward, exactly when things went off the trajectory. Ecological problems are worldwide only in principle.
Some of them are trans-national or even global, others are rather national or local. And they may diverge from country to country. Carbon dioxide, for example, is emitted mainly by road vehicles, power plants and factories and is, of course, a problem of the big cities in the industrialised countries; but it has become a problem in Sri Lanka, already, and climaxed in almost unimaginable proportions in the big cities of the subcontinent. Global warming is said to be one of the aftermaths with cataclysmic consequences for low lying countries like the Maldives and Bangladesh. Excessive fishing has become a problem in the Indian Ocean as it has in other major waters; deforestation, especially of primary forests of tropical hard woods, is not so much a problem in Sri Lanka but it certainly is in Indonesia and Malaysia; deforestation of the Himalayan forests and floods in India and Bangladesh are major ecological problems. Soil degradation and soil erosion is another major problem in most of the countries of the tropics and sub-tropics.
Greening the accounting is very much helpful because it not only facilitates business decisions but also provides environmental care to core business interests. It should be remembered that the greening of the accounting professional does not end with environment accounting. What is more important is to ensure the formation of all-inclusive values and a green tenet that would acquiesce current and future accountants, and the decision-makers who rely on their work, to count the environment as an critical factor to reckon with. The sooner the developing countries adopt legislative measures to green the accounts of national, public and private entities, the better is it for all the stakeholders.

The writer is the CFO of a private group of industries.
m.jalal.hussain@gmail.com

Share if you like