Deputy Manager (Finance), CRB
28 April 2020
Environmental accounting or green accounting is a new branch of accounting that aims at accounting for the Environment and its well-being. The adoption of Green accounting depicts the commitment an enterprise/organization has towards the environment. It deals with 3 important factors: people, profitability and the planet and also deals with the costs and the advantages or benefits an environment brings to a business.
Importance of Green Accounting
Changes in the environment have a negative bearing on not just the environment but on the economy as a whole. And, it is a well-known fact that changes in the economy have a direct bearing on the changes in any business. It is also important to note that the gross domestic product of a country can be affected by environmental and climatic changes. In addition to this as people become more aware and conscious of environmental issues, the need for sufficient and appropriate corporate disclosures is growing all the more.
Objectives of Green Accounting
- 1. To assess environmental costs and benefits.
- 2. To segregate and categorize various environmental costs.
- 3. To link physical resources with environmental accounts monetarily.
Green Accounting vs. Conventional Accounting System
Conventional accounting, the most common form of accounting does not take into consideration a lot of factors like environmental expenditure (e.g. pollution). It does not study the cause and effect relationship that an environmental incident may cause a business or organization. Conventional accounting does not study or measure the exhaustion of environmental resources or take into consideration the degradation of the environment.
Country’s response to Green Accounting
The Government of India has mandated for companies falling in the categories mentioned below to spend at least 2% of their average net profit of the last 3 years on CSR activities and to disclose a list of CSR activities in its Board/Director’s Report annually. (Section 135 of Companies Act. 2013)
- 1. Companies having net worth of INR 500 crores or more.
- 2. Companies having turnover of INR 1000 crores or more
- 3. Companies having net profit of INR 5 crores.
In addition to this, companies in India have to disclose particulars relating to conservation of energy, technology absorption and foreign exchange earnings and outgo in the Board/Director’s Report. (Section 134 of Companies Act. 2013)
India is still in the early stages of development when it comes to Green Accounting. In fact, most of the world at large is still unaware of the term Green Accounting or its importance. Even though Indian corporate and businesses comply with requirements such as Corporate Social Responsibility etc., there are no clear-cut practices or policies in place to protect the environment. Hopefully, with more awareness on the subject, Green Accounting will become a practice and reality among all firms one day.
“NOTE: The views expressed here are those of the authors and do not necessarily represent or reflect the views of CRB.”