Accountable to the environment

The mention of “green accounting” brings to mind an article a few years ago in Harvard Business Review titled “A Road Map for Natural Capitalism”. It talks about the ‘Biosphere 2’ project, and how human effort to replicate nature’s work of generating breathable air, potable water, and adequate food for just eight people failed within two years — despite the $200 million spent on it.

Now, based on this, one can easily imagine the cost of natural capital for the world’s population. Yes, it will tend to infinity.

Are we really accounting for the depletion of natural resources? Are we measuring and accounting all kinds of wastes generated? Are we restoring sufficiently back to nature?

Let us examine these important environmental aspects through some facts and figures, as also the Indian experience in corporate accountability, and accounting for the environment — namely, Green accounting, or the lack of it.

The stakes involved

Our economy is, and will continue to be, heavily dependent on natural resources. According to “Energy Statistics 2012” published by the National Statistical Organisation, Ministry of Statistics and Programme Implementation, in 1970-71, India’s electricity consumption was 43,724 GWh. In 2010-11 it stands at 607,760 GWh.

A joint study by the Chinese Academy for Environmental Planning (CAEP) and The Energy and Resources Institute (TERI), India, highlighted another important statistic. The annual cost of economic losses and environmental damage in China in 2010 exceeded 1.2 trillion Yuan ($180 billion). In India, the estimated economic cost of environmental damage ranges from 3.5 per cent to 7.5 per cent of the country’s economic output.

While considering the damage to the environment, it is important to note that both countries are home to 37 per cent of the global population, and account for 20 per cent of the world’s energy consumption.

According to Rajendra K. Pachauri, Director General of TERI, air pollution, water contamination and solid wastes, as well as deforestation account for much of the environment damage in India. Laws such as the Environment (Protection) Act, 1986 and related enactments such as the Water (Prevention and Control of Pollution) Cess Act, 1977; The Air (Prevention and Control of Pollution) Act, 1981; and The Forest (Conservation) Act, 1980 have had little or no effect.

Globally, the issue of accounting for carbon footprint has gained importance. What about ‘waste footprint’ and ‘water footprint’? There isn’t enough work in the area of accounting and disclosure for these.

On this front, IBM has published 21 “Annual environmental reports” since 1990. The “2011 IBM and the Environment Report” states that the estimated environmental savings and cost-avoidance worldwide stood at $139.1 million. It also says that the company achieved ISO 14001 Standard on Environmental Management Systems, and ISO 50001 Standard on Energy Management Systems.

A recent study of select large corporates in India showed that 54 per cent do not report their environmental policies on the Internet or in their annual reports.

Green Audits in India

Currently, the CA Institute does not have an accounting standard for these environmental issues. However, it recently came out with the Guide on Environmental Audit, which provides a general overview of environmental auditing as an emerging area. Surely, this is an area filled with challenge and opportunities for chartered accountants.

On October 27, 2010, the Canadian Securities Administrators issued CSA Staff Notice 51-333, Environmental Reporting Guidance. This was a clear signal to corporates — effective disclosure on environmental matters is a mandate, not an option.

In India, everything (including the population) is growing at a rapid rate. But are we growing in the right direction?

It is worth recalling Mahatma Gandhi’s words: “Small is beautiful”, which reiterates the importance of making villages the foundation, and to stabilise and enrich the traditional way of life by using local resources.

This philosophy is based on doing things small, because small is efficient, creative, enjoyable and enduring. Let us imbibe accountability by taking up Green accounting, as we are responsible to the generations to come.

(Hemant M. Joshi is Partner, and Nikhil Kenjale is Manager, Deloitte Haskins & Sells)