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Chapter II
Review of Literature
2.1 Introduction
The literature review is the critical appraisal of the existing research that is
significant to the proposed research work. A literature review is a
description of the existing literature relevant to a particular area of enquiry.
It provides an overview of prevailing theories and hypotheses, methods and
methodologies which are appropriate and useful for the research work taken.
In fact, literature review tries to evaluate and establish relationships between
different works so that key themes emerge. It may be purely descriptive or it
may provide a critical assessment of the literature in a particular field,
stating where the weaknesses and gaps are and contrasting the views of
particular authors, or raising questions.
The proposed study on environmental accounting and reporting has attracted
attention of academicians and researchers who have written a number of
articles and papers on several aspects on this important issue. But an in-
depth and comprehensive study on the performance of Indian companies on
this subject is found very limited. Most of the researches and articles are
found stereotyped. Accordingly, an assessment has been made about
research works conducted and articles written on different aspects of
environmental accounting and reporting practices in the following
paragraphs.
2.2 Literature Review
For the benefit of discussion, the existing literature review has been made in
two perspectives:
I. Literature Review: Global Perspective
II. Literature Review: Indian Perspective
Research works already done in the field are the main source of Literature
Review. Besides this, quite a good number of articles are found to have been
written on various aspects of environmental issues by academicians,
researchers and others. Some of these are purely theoretical based on text
books and experience, and others are based on empirical studies and
secondary data. Moreover, there are also some reports on this topic made by
various recognized authority and agency which have been also taken into
consideration.
2.2.1 Literature Review: Global Perspective
The studies available in this respect have been divided into two groups
according to their inherent nature. The first group is related to Social
Accounting and Reporting and other is Environmental Accounting and
Reporting which have been discussed in the following paragraphs.
2.2.1-1 Corporate Social Accounting and Reporting
Corporate social responsibility (CSR) refers to the voluntary integration of
social and environmental concerns in the business daily operations and their
interaction with business stakeholders. The concept of corporate social
responsibility is strongly connected with the ‘Triple Bottom Line’ approach
advocated by John Elkinghon in 1997. ‘Triple Bottom Line’ is a frame work
for measuring and reporting corporate performance against economic, social
37
and environmental parameters. The idea behind this concept is that for an
organization to be sustainable, it must financially secure, it must minimize
its negative environmental impact and it must act in conformity with social
expectation. So it is clear that CSR is an integral part of sustainable
development concept. In this context, it can be said that social
responsibilities and environmental responsibilities are not separate thing,
rather they are two sides of same coin, i, e, the responsible business. On this
background social accounting and reporting has been taken to the purview of
this particular literature survey.
Though environmental accounting is of recent origin but Adam Smith first
developed the concept of social accounting in 1876. Karl Marx and Frederic
Engels in 1844 and Pigue in 1920 focused on the divergence of social and
private costs. Joan Robinson in 1960 pointed out the social costs of
industrial activities.
Epstein and Elias (1975) analyzed social responsibility reporting aspect in
their study in 47 corporations. They observed that environmental quality,
product safety, educational aid, equal employment opportunity, charitable
donation, employee benefits and various community support programme
were the important areas which commonly appeared in the annual reports.
Epstein, Flamholtz and McDonough (1976) in their paper, synthesize the
major approaches followed in the U.S.A. to measure and report the impact of
an organization on society. The paper also highlighted future research needs
in this subject. They found that accounting researchers, management
consultants and corporate executives produced diverse views in the
measurement models and reporting frameworks that have been developed
for implementation and institutionalization of corporate social accounting.
38
Dierkes and Preston (1977) in their paper, viewed a number of attempts to
develop formal corporate policy statements and accounting-reporting
procedures dealing with protection of the physical environment and
abatement of specific pollution problems. The authors also presented and
illustrated specific implementation proposal with the help of data obtained
from several field studies conducted by them.
Ingram (1978) carried out a study on Fortune five hundred companies. He
examined the information contents of voluntary social responsibility
disclosure practices in the annual report of the companies under study. The
study considered five significant variables for social information disclosure,
namely, environmental, fair business practices, community involvement,
personnel and product. He experienced that there was a wide variety across
the firms regarding the information content of the voluntary social
responsibility disclosure.
Spicer (1978) conducted a study to examine whether there was any
relationship between the size, profitability, risk, price-earning ratio of a
company and its social performance. The study showed that moderate and
strong association exists between the investment value of common shares of
the company and its social performance. It was also interestingly observed
that companies with higher profitability, larger size, lower total risk factor,
lower systematic risk and higher price-earning ratio produced better
pollution control record.
Brockhoff (1979) analyzed the status of social reporting by major German
companies in 1973. He reviewed stakeholder’s pressures for social reporting,
variety of existing reporting mechanisms, extent of reporting on internal
relations, research and development and external impacts.
39
Schreuder (1979) in his paper outlined the developments in the area of
corporate social reporting in Germany. In this paper, the author examined
various corporate social reports published up to date. The trade union
reactions in this connection were also highlighted.
Trotman (1979) also conducted a similar study on social responsibility
disclosure practices of 100 largest listed Australian companies which were
ranked according to their market capitalization. He had taken into account
five major variables, namely, environment, energy, human resources,
product and community involvement. He observed that Australian
companies disclosed different types of social information along with ‘Social
Accounts’ in their annual reports.
Hein (1981) carried out a study in the Netherlands to probe her reactions of
the employees towards the social reports published by the companies. The
results were based on the analysis of 1347 completely posted questionnaires
and 240 additional interviews with the employees of five corporations. The
study revealed that respondents used the social reports more widely than that
was expected.
Coupland (2006) attempted to analyze web-based financial and CSR reports
of five banking group namely Lloyds/TSB, the Royal Bank of Scotland,
HSBC, Barclays and the Co-operative Bank. “It is argued that, rather than
the production of stand-alone reports signaling the growing importance of
CSR considerations, in this context they function to peripheralise the
information. Although it is evident that organizations are beginning to
articulate a stance with regard to CSR, as increasingly more attention is
being paid to social and environmental issues, simple articulation is no
longer sufficient”1.
40
Kamla (2007) carried out a detailed study on social accounting and
reporting practices in the Arab countries namely: Saudi Arabia, Kuwait,
Qatar, Bahrain, Oman, United Arab Emirates (UAE), Syria, Jordan and
Egypt of the Middle East. The study attempted to investigate critically the
actuality and potentiality of social accounting and reporting practices in the
Middle East from postcolonial view. The study concluded that "social
accounting manifestations in the Arab Middle East are largely orientated
towards repressive/counter radical positions of accounting”2.
2.2.1-2 Corporate Environmental Accounting and Reporting
There are so many international studies in this subject. Some of these studies
have been discussed below:
Norman Pope(1971) conducted a study of reporting environmental
information in annual reports. The study covered five heaviest polluting
industries namely chemicals, energy, forestry packing materials and utilities.
He analyzed 125 annual reports of 1969 and 136 reports of 1970. He
observed that most of the companies disclosed information on ecology in the
President’s letter to stockholders. However 18 companies (6.90%) disclosed
this information in the financial statement or in the allied footnotes.
Niskala and Pretes (1995) analysed changes in corporate environmental
reporting practices in Finland in the past five years. The study also tried to
analyse the willingness of firms to disclose environmental information.
They conducted the study on seventy-five largest Finnish firms in the most
environmentally sensitive industries between 1987 and 1992. The study
showed significant changes in environmental reporting practices between
41
1987 and 1992. In 1992, nearly fifty percent firms under study provided
environmental information in their annual reports in comparison to a slightly
more than 25% firms in 1987. Most of these disclosures were in qualitative
rather than in quantitative or financial form. The authors observed a
significant environmentalism on corporate environmental accounting and
reporting practices and policies.
Fekrat, Inclan and Petroni(1996) conducted a study on 168 companies in
six industries of 18 countries to examine the scope and accuracy of
environmental disclosures in corporate annual reports. They also tried to
provide a modest test of the voluntary disclosure hypothesis in the context of
environmental disclosures. The evaluation showed a significant variation in
environmental disclosures making no clear support for the voluntary
disclosure hypothesis. There was also no apparent relationship between
environmental disclosure and environmental performance.
Gamble, Hsu, Jackson and Tollerson (1996) conducted a study on 276
companies from nine industries of 27 countries for the years 1989-1991 to
investigate disclosures of environmental information in their annual reports.
The study revealed that there was a statistically significant difference
between the 1989 and 1990 in respect of individual and overall disclosures
of environmental information. On the contrary, there was a statistically
significant negative difference between the 1990 and 1991 in individual and
overall disclosures. The study also revealed that among the countries United
States provided the highest percentage of companies reporting
environmental information. British-American accounting model is followed
by most of the companies for environmental disclosure.
42
Jaggi and Zhao (1996) examined the perceptions of managers and
professional accountants of Hong Kong about environmental performance
and environmental disclosures. The study showed that though the manager
respondent stressed importance on environmental protection but they were
reluctant in actual environmental disclosures in their annual reports. So far
as professional accountants were concerned, they had no strong outlook for
environmental disclosures. The authors concluded that “environmental
disclosures on a voluntary basis have not encouraged managers to disclose
voluntary information”.3
Bewley and Li (2000) studied the annual reports of manufacturing firms
with the objective of examining the associated factors of environmental
disclosures in Canada. The study examined the level to which voluntary
disclosure theory could clarify the general and financial environmental
information. The study revealed that firms with more news media coverage
of their environmental exposure, higher pollution propensity, and more
political exposure concentrated more on general environmental disclosure.
Gray and Bebbington (2000) tried to present the current state of the art in
environmental accounting research through the ‘managerialist’ lens and
illustrated the essence of the problem through the reporting of a new analysis
of data from an international study of accounting, sustainability and
transnational corporations. The authors call for more explicit examination of
the implicit assumptions held in accounting research generally and
environmental accounting research in particular. According to them,
accounting is contributing to environmental degradation rather than
environmental protection.
43
Hughes, Sander and Reier (2000) tried to find out whether there was any
relationship between environmental disclosure and environmental
performances. They selected twenty companies in U.S. for the purpose of
study. Of them ten were leaders and ten were laggards in environmental
performance as identified by Fortune. By comparing the disclosure of these
two groups of companies the study revealed that laggards made significantly
more mandatory disclosures than leaders; however, there was little
difference in the voluntary disclosures of the two groups. The disclosure of
companies belongs to leaders group were positively correlated between the
mandatory and voluntary sections; whereas almost no correlation was
noticed within the laggards. On the basis of the environmental disclosures
the companies could be properly classified into leaders and laggards
Moneva and Llena (2000) examined the annual reports of seventy large
environmentally sensitive Spanish companies operating in different
industries to analyse the evolution of environmental reporting practices
during 1992-1994 on the basis of stakeholder theory. The main conclusions
of the study were as follows: “The environmental reporting of these sample
companies have a fundamentally narrative character, although there has been
an increase in both quantitative and financial reporting, as well as in the
number of companies that are reporting. The factors analysed do not allow
us to detect significant differences, except for whether the parent company is
foreign-based. As a consequence, there is no significant evidence that during
the period analyzed the environmental reporting behaviour of Spanish
company management has tried to satisfy their stakeholders.”4
Epstein (2003) in his paper reviewed the progress of environmental and
social aspect in both academic literatures and corporate practices over the
44
last forty years. He found that although social and environmental reporting
had been increased to a great extent but the quality of the disclosures had not
been improved sufficiently. He also observed that integration of social and
environmental impacts into management decisions was very negligible. The
paper stressed the needs to increase the integration of social and
environmental impacts into management decisions for the improvement of
both the internal reporting and external disclosures and accountability of
companies.
Holland and Foo (2003) made a comparative study of current corporate
environmental annual reports of UK and US. The study revealed that
environmental activities of companies depend on elements of the legal and
regulatory framework of a country, which influence environmental
performance and it’s reporting in annual reports. The authors examined
theoretical considerations to establish whether the types of disclosure arising
from regulatory pressures, demonstrate that accountability exists in the
disclosure of environmental information, and to what extent the disclosure
discharges the organisation's accountability to the users of such information.
Patten and Crampton (2003) examined the corporate web page
environmental disclosure of U.S. firms which is considered as a potentially
powerful tool for disclosing environmental information and increasing
corporate accountability. The study showed that corporate web pages come
out as additional and non-redundant environmental information beyond what
is provided in the annual reports. The findings showed that “focus of Internet
disclosure may be more on corporate attempts at legitimation than on
moving toward greater corporate accountability".5
45
Siv Nyquist (2003) in his web paper has compared the legislations in
Denmark, Norway and Sweden regarding statutory disclosure of
environmental information. He has observed that these three countries have
large similarities concerning accounting legislation and standards. However,
Denmark prefers a different way to force firms to disclose their
environmental performance in comparing with Norway and Sweden.
Separate green accounts are maintained by Danish firms, while Norwegian
and Swedish firms are bound to disclose environmental information in their
administrative report. The Norwegian and Swedish firms' information
mainly deal with the financial consequences of environmental impact. On
the other hand, Norwegian legislation is also found wider than the Swedish
legislation. The Danish firms mainly address society in general. The
comparison pointed out the needs for further analysis.
Campbell (2004) analyzed the annual reports of UK-based companies in
five sectors between 1974 and 2000 to assess the volume of voluntary
environmental disclosures. They observed an overall increase in disclosure
volume over the period with a marked upturn in the late 1980s. He also
discovered a positive association between environmental disclosure and the
structural vulnerability of the five sectors to environmental liability and/or
criticism.
Tuwaijri, Christensen, Hughes (2004) analyzed the interrelations among
environmental disclosure, environmental performance and economic
performance based on the argument that management's overall strategy
affects each of these corporate responsibilities. The study revealed that good
environmental performance was significantly associated with good
46
economic performance and also with more extensive quantifiable
environmental disclosures.
Walden and Stagliano (2004) studied 53 companies of four major industry
groups in U.S. to give insight into environmental disclosure themes in the
financial as well as non-financial parts of corporate annual reports. The
study also tried to find out the relationship between these disclosure themes
and environmental performance. The analysis revealed that only
environmental expenditures and contingencies were the subject matter of the
disclosure in financial part of the annual report. On the other hand, non-
financial part of the annual report contained mainly information about
pollution abatement and various other environmental data. The study also
showed that there was little relationship between environmental disclosures
and environmental performance.
Epstein and Wisner (2005) examined the relationship between
management control systems and structures with environmental compliance
and applicability of management control theory in Mexican industry. This
study also empirically tested the effectiveness of management control
systems and structures in Mexican industry and focused on management
control and strategy implementation in a developing economy like Mexico.
The result indicated that “success in compliance with environmental
regulations is significantly associated with degree of management
commitment, planning, belief systems, measurement systems, and rewards.”6
Freedman and Jaggi (2005) studied disclosures on pollution and
greenhouse gases emission by firms domiciled in countries that have ratify
the Kyoto Protocol compared to others. The study covered the annual
47
reports, environmental reports, and websites reports of 120 largest public
firms from the chemical, oil and gas, energy, and motor vehicles and
casualty insurance industries.
The study revealed:
(i) firms from countries that ratified the Protocol achieved higher
disclosure indexes as compared to firms in other countries;
(ii) larger firms disclosed more detailed pollution information.;
(iii) multinational firms operated in countries that ratified the
protocol but had their home offices in other countries that did not
ratify the protocol provided lower disclosures;
(iv) lack of consistency in disclosure was not likely to be helpful in
informing shareholders about the social responsibility of their
investments.
The study of Lee and Hutchison (2005) classified and presented the
outcome of prior studies on disclosure of environmental information
addressing the forces which affect the decision to disclose environmental
information, and the need for future research. The categories used include:
(1) laws and regulations, (2) legitimacy, public pressure, and publicity, (3)
firm/industry characteristics, (4) rational cost-benefit analysis, and (5)
cultural forces and attitudes.
Bose (2006) examined the present environmental accounting and reporting
practices of Petrobangla and its companies in Bangladesh. The study
showed that during 1998-99 and 1999-2000 only 45.45% companies, during
2000-01, 63.63% companies and during 2001-02 and 2002-03, 81.81% of
companies of Petrobangla disclosed environmental information. Thus the
figures showed an upward trend in the disclosure of environmental
48
information by Petrobangla Companies. The study also highlighted that
Petrobangla companies disclosed only qualitative, descriptive and positive
information without any quantification and negative information. Most of
the Petrobangla companies recognized environmental issues regarding
protection of the environment, pollution control, planting of trees and other
matters. However, they did not give any importance regarding waste
generation, conservation of energy, water wastage and recycling of waste
etc. This study visualized that “the Petrobangla has already given much
effort in the field of environmental protection. However, the current
accounting system does not reflect such efforts for its stakeholders.”7
Brammer and Pavelin(2006) conducted a study on a sample of large UK
companies to assess the patterns in voluntary environmental disclosures. The
analysis differentiated between the decision regarding voluntary
environmental disclosure and decisions relating to the quality of such
disclosures. They also examined that how the above decisions were
influenced by firm and industry characteristics. They observed that larger,
less indebted companies with dispersed ownership characteristics would
likely to give significantly more importance on voluntary environmental
disclosures. The other important finding was that the quality of disclosures
was positively associated with firm’s size and corporate environmental
impact. They found significant cross-sector variation in the determinants of
both the participation and quality decisions.
Karim, Lacina and Rutledge (2006) have examined factors that are
associated with the level of a firm's environmental disclosure in the
footnotes of its annual report and its 10-K report filed with the Securities and
Exchange Commission. The findings have pointed out that firm with higher
49
foreign concentration are associated with less environmental disclosure
because they are under higher vigilance from other countries and the
international community. Moreover, to some extent, higher earnings
volatility is also associated with less environmental disclosure. The firms
with a more volatile earnings process are less willing to disclose potential
environmental costs and obligations, because additional expenditures have
an adverse impact during low-earnings periods.
Clarkson, Li, Richardson and Vasvari (2007) reviewed the relationship
between corporate environmental performance and the level of
environmental disclosures. They revisited this relation by testing competing
predictions from economics based and socio-political theories of voluntary
disclosure using a more precise research design. They conducted a study on
a sample of 191 firms from the five most polluting industries in the US. The
study revealed a positive association between environmental performance
and the level of discretionary environmental disclosures. The result was also
consistent with the predictions of the economics disclosure theory but
inconsistent with the negative association predicted by socio-political
theories.
Staden and Hooks (2007) in their research tried to determine whether there
was an association between companies which were environmentally
responsive according to an independent ranking and the quality and extent of
their disclosures regarding their environmental impacts. They used
proactive approach in achieving legitimacy to develop the expectation that
legitimacy theory could be used to predict a positive association between
environmental responsiveness and disclosure. They studied the quality and
extent of what was being reported and then matched this assessment with an
50
independent assessment of each company's environmental responsiveness.
They found significant positive correlations between the independent
ranking and the rankings based on the quality and extent of disclosure. The
results imply that companies’ environmental disclosures would reflect their
environmental responsiveness.
Sumiani, Haslinda and Lehman (2007) carried on a research work on the
top 50 Malaysian public companies from various industries listed on the
Bursa Malaysia in the financial year 2003. The study tried to highlight the
current state of Malaysian environmental reporting practices. They evaluated
corporate strategic practices about voluntary environmental reporting
systems of Malaysian corporations. The study revealed that the level of
extent of environmental information in Malaysian corporate annual reports
was rather low. They only reported environmental information either in
general or in qualitative terms. In addition to that, the most reported
information was the general statement of the existence of an environmental
management system in their organization, while the most reported
environmental disclosure was their environment policies that the
organization had. This study also concluded that ISO certification had some
level of influence towards voluntary environmental reporting.
Moore (2008) examined the impact of public sector reforms on
environmental accounting procedures. The study analyzed the different
reforms in the 1980s and 1990s which influenced the accounting for
environmental expenditure in the public sector. The analysis showed that a
little benefit was notice from environmental accounting procedures in the
company with efficiency being recognized as the main driver for accounting.
51
2.2.2 Literature Review: Indian Perspective
In India, very few studies have been conducted in this specific area of social
and environmental accounting and reporting practices so far. Some of the
Indian studies have been presented below.
2.2.2-1 Corporate Social Accounting and Reporting
Singh (1983) evaluated the extent of social responsibility disclosure
practices in annual reports of public sector enterprises. He also tried to
examine the relationship between various organizational correlates with
disclosure of social responsibility. The correlates were age, total assets, net
sales, rate of return, and earnings margin of the company and the nature of
industry. He found that correlates like age and net sales had no significant
impact on social disclosure practices. But size of social assets had a strong
positive impact on the disclosure of social responsibility information. On the
other hand, rate of return had no such influence on social responsibility
disclosure practices; however earnings margin had a significant impact on
such disclosure. He also got a highly positive result in case of nature of
industry.
Chander (1989) undertook a study to analyze the quantum of social
accounting disclosure in the annual reports of selected public as well as
private sector companies. He also examined the extent of correlation
between corporate social accounting and size of the company in terms of net
tangible assets and sales. The study covered the annual reports of twenty-
four private companies and twenty public sector companies for the year
1996-97. He observed that corporate social accounting by public sector
companies was significantly better than private sector companies and the
quantum of net tangible assets did have a significant impact on corporate
social accounting disclosure.
52
Porwal and Sharma (1991) conducted a study to analyze the status of
social reporting practices in India. For the purpose of study, thirty public
sector companies and one hundred forty seven private sector companies had
been selected. They considered forty-seven items with assigned weights for
measuring social responsibility of the companies according to their
significance. These items were also grouped into five classes namely
environment, community, energy, human resources and the product.
Some important observations of the study were:
(i) Almost half of the companies under study disclosed some sort of social
responsibility disclosure in their annual reports.
(ii)Almost all the sample companies under public sector disclosed some
disclosure regarding their social responsibility in their annual report in
comparing with to thirty-five percent only of their private sector counterpart.
(iii) The places wherein environmental disclosures were made were mainly
directors’ report and notes/schedules in financial statement.
(iv)Maximum numbers of companies disclosed information regarding
human resource development. Only forty-six percent companies made
disclosure regarding their community involvement. Whereas only eleven
percent disclosed information relate to environmental protection.
(v) The bigger the companies the larger the environmental information
provided by them in their annual report irrespective of their belonging to
private or public sector.
Naser, Noor and Pramanik (2001) in their article focused the new areas of
corporate social reporting which help in social welfare and improving
effectiveness. They observed that the existing corporate social reporting
practices were insufficient and much more development was needed.
53
Verma, Saxena and Kaushik (2002) made a study for measuring social
performance of nineteen public enterprises of India. They observed that
public sector enterprises in oil and petroleum industry made an effective and
sincere effort for appraisal of social performance. It has been also observed
that Board of Directors carried on a significant responsibility to report social
performance in annual reports. Most of the social performance reports were
made annually. Director’s report and Chairman’s report had been taken as
most popular and convenient medium for making disclosure on social
activities and descriptive mode had been considered as popular mode.
Agarwal (2003) has made a comparative study to evaluate the divergent
social responsibility disclosure practices in both private as well as public
sector enterprises. In this respect, ten companies from each group which had
been awarded for best-presented accounts by ICAI were taken into
consideration. The study considered twenty-six significant variables for
social information disclosure viz. energy conservation, environmental
effects, industrial safety, community welfare scheme etc. In respect of
environmental effects, the researcher found “information regarding
environmental pollution, ecological disturbance to the nearly area, plantation
and pollution (air, water) control techniques adopted were disclosed by
public sector companies. Sixty percent of the companies have disclosed this
information in the descriptive manner in their annual reports. One of the
public sector companies has even disclosed the information with regard to
the damage to the environment due to their industrial activities. There are
only two companies in the private sector which disclosed much information
in descriptive manner.”8
Dave(2003) carried out an analytical study on one hundred Indian public
and private sector companies to find whether they were conducting social
54
audit or not. He pointed out that there were the example that Tata Iron and
Steel Company and Unit Trust in India who had conducted a social audit,
but there was no example of Indian company who had conducted
environment audit. Only a few maintained social accounting and
environment accounting. However, moderate number of companies made
social and environmental reporting in their annual reports.
Reddy and Reddy (2003) conducted a case study on Chennai Petrolium
Corporation Ltd. for measuring social performance. The main objective of
the study was to measure the contribution of CPCL for social progress in
terms of social benefits provided to the employees, community and the
general public. The study revealed that the performance of CPCL in respect
of its social responsibility was notable as the value of social benefits to
different stakeholders was increasing over the study period. Social benefits
provided to the community in terms of environmental improvement were
also continuously increasing over time period.
Ghosh (2004) has described the need and objectives of social accounting
and reporting techniques with special reference to Indian scenario. He has
experienced that social accounting and reporting is still in a transitional
stage and no standard norms are setup till now.
Ghosh (2004) carried on a study on one hundred thirty-four corporations in
India in order to find out the present status of social accounting for the year
1998-99.The study showed that the performance of Indian Corporation was
very poor in respect of value added statement, environmental accounting and
community development accounting. However, better performance was
noted in the case of statutory reporting of employees’ remuneration as Part II
of Schedule VI to the Companies Act, 1956. Particularly, the part of findings
for which we are concerned in our study i.e. environmental accounting was
55
very poor. One noticeable feature in this study was that the companies which
were doing environmental accounting are all manufacturers except a hotel. It
had used environmental friendly wind energy for its operation. Another
distinctive outcome of the study was that the companies performing and
reporting community development activities were mostly manufacturers. In
one ward, the overall performance of the companies under the above
mentioned study in regard to social accounting was not at all hopeful.
Kumar, Kaur and Srivastava (2004) have conducted a case study to know
the state of social reporting in NTPC. The study has revealed that NTPC
serves the society very well. It gives great importance in discharging its
overall social responsibilities to the community and the society at large.
They observed “It is suggested that more and more research should be
undertaken to develop measurement techniques of environmental cost and
benefits so that companies may account and report them more suitably.
There is need for developing expertise in this area. A multidisciplinary team
of experts should be formed to carry out environment audit thoroughly and
properly.”9
Rao and Gupta (2004) in their attempt examined the present status of social
responsibility disclosure practices in public sector enterprises in India. They
also examined the extent of association of different company characters like
age, turnover, and return on investment, total assets and capital employed
with social responsibility disclosure index of public sector undertakings.
They concluded that the social disclosure practices of public sector
undertakings appeared to be fairly satisfactory. Size of the company which
was measured by capital employed, total assets and turnover of the company
was closely associated with disclosure. And maximum disclosure was
statutory in nature. However, age and return on investment of company had
56
not any significant impact on social disclosure practice in public sector
undertakings.
2.2.2-2 Corporate Environmental Accounting and Reporting
Several studies on Corporate Environmental Accounting and Reporting have
been also conducted in India. Some of these have been presented below.
Sengupta (1988) attempted to examine the current trend in pollution control
information disclosure of Indian and foreign companies whose operations
caused pollution. He found that the information regarding their pollution
control measures reported in any one of the following six places of annual
reports namely Chairman’s statement, President’s letter to stockholders,
Director’s Report, notes to financial statements, social accounts and the
supplements to annual reports. The information disclosed in annual reports
was mostly descriptive and quantitative in nature. The companies generally
disclosed descriptive information in the Director’s report.
Shankaranayana (1999) in his article, attempted to discuss the importance
of eco-accounting for strategic managerial decision. In this respect, eco-
accounting methodology for recording and reporting through Eco Balance
Sheet has been discussed and how managerial decision may be based on
eco-accounting has been presented.
Mazi (2000) explained the hindrances to response to environmentalism. The
mechanics of environmental reporting have also been discussed in his paper
titled: Environmental Accounting and Reporting- An Emerging Issue. He
commented “In the absence of specific guidelines regarding its accounting
and reporting, some accounting approaches devised by the UN in the SEEA
have been presented, and also the treatment of different elements of
environmental costs in accounts is shown. Till now, in India, neither
company law nor accounting standards prescribe any accounting and
57
disclosure techniques for environmental matters in the corporate financial
statements and as a result of this only a few companies have voluntary
disclosed EI and that too only descriptive and positive information. The
extent of such disclosure is not that encouraging,”10
Ansari (2001) analyzed the proper framework for appropriate norms of
accounting and reporting about the environment. In this context, he
discussed environmental costs and liabilities with its recognition and
measurement in accounting briefly. International and Indian scene of
environmental accounting and reporting had been also discussed in this
article. The author concluded that the corporate environmental accounting
and reporting was misleading in the absence of any International and/or
Indian Accounting Standard on this issue and therefore an effective
corporate environmental accounting and reporting system should be
introduced.
Ghosh(2001) in a case study, attempted to focus on disclosure requirements
and disclosure practices of environmental information in corporate annual
reports in India. She observed that the sample companies were complying
with the requirements of regulatory disclosure together with voluntary
environmental information in number of cases.
Banerjee (2002) in his paper, dealt with issues like environmental
management, its contribution to profitable operation of a firm and its
competitive advantage.
Baura and Gautam (2002) carried out a study on environmental accounting
and disclosure practices of twenty-five companies for the period 2001-02.
The analysis showed that only forty-eight percent companies provided
information concerning environment in their annual report. The study also
showed the that forty percent companies gave information for pollution
58
control, twenty percent for environmental hazards, twelve percent for raw
material conservation, sixteen percent for waste management of water and
its disposal, and all the companies under study disclosed information for
energy conservation and protection of surroundings in their annual reports.
Padhan and Bal (2002) conducted a study on eighty executives of different
industries to know their opinion regarding environmental reporting under the
provisions of various legislation in India. The study showed that the
corporate world was fully aware about the environmental issues and the
requirements of environmental reporting. The corporate executives also
expressed their positive attitude regarding environmental reporting.
However, this view did not reflected in their annual reports. And most of the
reporting was very poor having a little information about environmental
impact.
Sanjeevaiah (2002) in his paper, tried to draw attention on some specific
issues on environmental accounting. He concluded “Environmental
accounting would receive a substantial boost if an international consensus
could be reached on methodology”.11
In the study of Shankaranayana and Upadhyay (2002), it was noted that
all the companies under study were complying with the requirements of
various acts such as submitting environmental statements, and information
regarding pollution control and environmental conservation, but they rarely
appeared in their annual reports.
Verma (2002) conducted a study on six companies, namely, Gujrat Ambuja
Cement, Hindustan Lever Ltd., Dr. Rrddy’s Lab, Ranbaxy laboratories,
Balsmapur Chini Mills and Shaw Wallace Group for the year 2001-2002.
The study revealed that all the companies made policy statement in
Director’s report only, they seldom gave any quantitative information on
59
expenditures incurred on target set and attained in respect of natural
resource.
Patra (2003) tried to examine environmental accounting and reporting
practices by Indian corporate sector as a tool of environmental management
with a special reference to a case study of TISCO. The author observed
“Most of the companies are not still aware of environmental issues and
found proper place in the Directors’ Report for providing environmental
information to their stakeholders as there is no compulsion for it.”12
Cheema and Singh (2004) in their study, attempted to examine
stakeholder’s influence on the status of environmental disclosure in the
Indian companies.
The specific objectives of the study conducted by Cheema and Singh were:
i) To study how far the status of environmental disclosure is associated with
company size.
ii) To study the creditors’ influence on the status of environmental
disclosure.
iii) To study the foreign influence on the above status.
The findings of their study were:
i) Big size companies for having more stakeholders’ environmental
accommodation and reporting practices are much better than the small size
companies.
ii) Companies for having foreign customers are more conscious about
environmental disclosure than others.
iii) Creditors have no influence on corporate environmental disclosure.
The above researchers pointed out the followings:
60
(i)The big companies for having huge pressure from their large size of
stakeholders are much more responsible in regard to environmental
performance.
(ii)The companies for having foreign customers who are more
environmental conscious are more concern about their environmentally
disclosure.
(iii)Indian creditors are more concern about economic performance than
environmental performance of companies.
Eilbert and Parker (1973), Spicer (1978), Watts and Simmerman (1978)
Trotman and Bradley (1981), Deegan and Gordon (1996) also argued that
the corporate environmental reporting is highly correlated with the company
size.
Garg and Sinha (2004) in their article mentioned the importance of
environmental disclosure for better environmental performance. They also
pointed out the growth in environmental reporting in last two decades which
was not satisfactory in terms of quality and quantity. They concluded with
some proposed framework for corporate level environmental reporting in
India. They observed that corporate environmental reporting practices were
still at initial stage. They significantly noted that “Companies in the
developed countries do not want stringent environmental disclosure norms
in place of developing countries. This is because a stringent norm may affect
their business.”13
Oza (2004) made an attempt “(i) to emphasize the need to be
environmentally concerned by corporate citizens for sustainable
development of economy and business firms (ii) the present status in terms
of legal requirements for environmental accounting and practices, and (iii)
highlight the potential of management accounting to play positive role for
61
sustainable development” in his work. He concluded, “Environmental
accountability by corporate citizens needs change in mindset of people
within the organization- the top management, the key managers, the
supervisory staff, front line and floor people. It needs to be proactive rather
than reactive in fulfilling the environmental accountability to attain the
ultimate aim of sustainable development.”14
Deo (2005) in her article examined the relationship of environmental and
economic performance of enterprises for adopting the environmental
management system. She tried to explain how environmental accounting
could be integrated into business decision making like cost allocation,
capital budgeting, and product design. She concluded that “the green
accounting though helps in many managerial decision makings for a
sustainable survival, growth and prosperity still it faces lots of problems like
lack of support information, specialized personnel and absence of
professional accounting model.”15
Oza (2005) in their paper discussed the needs for consciousness of corporate
citizens in respect of environmental imbalances, how environmental
accounting could help environmental accountability, the present status of
environment allied information and practices, and what to be done for log
term profitability after facing the challenges of environmental
accountability. They observed, “environmental accountability by corporate
citizens needs change in mindset of people within the organization, the top
management, the key managers, the supervisory staff and front line and floor
people. It needs to be proactive rather than reactive in fulfilling the
environmental accountability to attain the ultimate aim of sustainable
development.”16
62
Munipalle (2005) intended to judge the types of costs that were incurred for
environmental matters and the accounting and reporting practices followed
by the corporate sector. The main objective of the study was to examine the
use of economic instruments for environmental protection and provided an
alternative model in place of existing command and control instrument being
followed in India. She also scrutinized the existing policy support,
institutional and infrastructural facilities to combat pollution. She observed,
“…….environmental taxes are more effective than environmental
accounting in terms of governance……..We advocate a mix of instruments
in the form of legislation, regulation, incentives, voluntary agreements,
educational programmes and awareness campaigns. The use of economic
instruments especially environmental taxes seems to be the preferred choice
among several countries across the globe especially over the past decades.”17
Shukla (2005) in his study on the disclosure of environmental information
of ninety-two private sector companies showed that only thirty-seven
percent of the companies reported environmental information in their annual
reports. Among the companies petro products, fertilizers, engineering and
pharmaceuticals were relatively more responsive with environmental
reporting. Another interesting feature which cropped up from the study was
that the medium size companies were more liable for environmental
reporting than small as well as large size companies. As far as reporting
mode was concerned descriptive statement in directors’ report was the most
common mode of the environmental reporting.
Singh (2005) in his study tried to examine the status of voluntary
environmental disclosure of top 200 Indian companies. The main objectives
of the study were to:
63
(i) study the level of voluntary environmental disclosure on twenty
environmental disclosure variables of Indian companies.
(ii) study the length of environmental disclosure.
(iii) study the place of such disclosure.
The findings of the study were:
i) The level of disclosure in respect of those variables which may have
adverse impact on the goodwill of the companies was very poor. But in case
of other disclosure variables the disclosure status of companies is more or
less satisfactory.
ii) The company wise status of voluntary disclosure was very discouraging.
iii) Highly polluting industries were more responsible in disclosing
environmental information than low polluting industries.
On the whole the voluntary environmental disclosure in Indian companies
was very poor, inaccurate and was not self explanatory.
Singh pointed out some reasons behind the poor environmental disclosure
practices:
Firstly, disclosure practices in India are mainly voluntary in nature.
Secondly, this is a costly affair
Thirdly, lack of awareness and commitment is noticed in case of Indian
companies about social responsibility of the business.
Fourthly, the environmental performance of the Indian companies is very
poor.
And lastly, enforcement of the environmental protection law is also very
poor.
Chauhan(2006) in his article attempted to describe the issue of
environmental indicators which could be used by the corporate sector to
64
judge the sustainable management of environment for better disclosure of
facts related to environment.
Mohanty (2006) in his article portrayed some important issues of
environmental accounting like international environment movement,
framework for thinking about the natural environment, social cost and
benefit analysis methodology, shadow pricing, the greening of organization,
scope of environmental accounting, its advantages and steps taken by
Government of India etc.
Parkash (2006) conducted a study of eighty-five Indian companies which
showed that environmental accounting of Indian companies had been made
mainly on a voluntary basis with a positive manner. As far as industry wise
disclosure was concerned the oil and petroleum sector and steel and
engineering sector both had ranked highest in environmental reporting i.e.
60% followed by cement 57%, fertilizers, chemicals and pharmaceuticals
50% and consumer products 37%, whereas textile 29%, power and
electricity 25% and shipping and airways 20%. No environmental reporting
was found in case of health sector. She observed, “In India, there is no legal
compulsion on the corporate’s part to account and report for the
environmental issues that’s why companies are disclosing environmental
matters on a voluntary basis with in a positive manner only. Thus, there is
need to popularize the benefits of environmental reporting among the
industrial’s community.”18
Murthy and Abeysekera (2008) studied the social and environmental
reporting practices of Indian software companies through the eye of
legitimacy theory. They conducted their study against the backdrop of
India’s economic transformation since independence. They focused on
corporate social reporting (CSR) of Indian software firms relating to the
65
complex issues of human resources and community development and found
support for legitimisation motives for CSR by Indian software firms.
2.2.2-3 Other Environmental Related Literatures
Loli and Gahi (2002) focused on auditor’s role in corporate environmental
audit and disclosure in India in their article. They noted that environmental
reporting in India was still in childhood stage. In most of the annual reports
at least a brief statement in this regard in Director”s Report was also absent.
Banerjee(2002-2004) in his paper, emphasized the need for introducing a
scientific environmental management system. The author suggested an
Integrated Environmental Management Approach for the corporate citizens
for sustainable economic development.
Chatterjee (2002-2004) conducted a study on environmental management
and people’s perception about the pollution control measures taken by the
industries. The study covered ten factories in Kolkata Metropolitan area.
From the study the author opined that the existing pollution control
measures were not sufficient, other alternatives would be considered. The
industries should change their existing technology and use cleaner one. The
role of community regarding pollution control is also very important. They
can perform a major role in this respect if they are equipped with proper
education and involvement.
Debnath (2003) has pointed out how environmental pollution leads to social
degradation and to cope up with this problem. He advocated some specific
duties to be performed. He noted “the antipollution acts such as Air
Protection Act, Water Protection Act, etc. are not sufficient to cope up with
the problems of environmental pollution.”19
Ghosh and Chakroborty (2005) in their article have attempted to draw
attention of the alarming situation of environmental degradation which is the
66
result of growing hazardous industrialization which threatens the
sustainability of future generation. The different methodological approach of
environmental accounting, which is the means of measuring and reporting
the economic impact of environmental pollution in different levels, has been
discussed. The author cited “sustainability can only be measured if all assets
are included. Including material capital as part of country’s wealth is an
important step toward better measure of sustainability.”20
Sarkar(2005) in his article, depicted to highlight the effect of green house
gas emission on environment and focused on economic implication in the
perspective of global emission level. He also observed the international
agreements on green house gas regulation as well as valuation approaches in
the perspective of global climate change as environmental threats. He
concluded “Since developed countries have economic, technical and
institutional capacity to cope with the problem, involving developing
countries in reduction of emissions level on more regular and automatic
basis is much desirable for controlling future green house gas emissions in
the atmosphere.”21
Aramvalarthan and Sarkar (2006) have described in his article what
Carbon Emission Trading is and how India could capitalize this opportunity
which ultimately helps environmental management.
2.2.3. Reports and Guidelines on Environmental Accounting and
Reporting
Besides the above studies, there are a number of reports and guidelines by
different agencies and regulatory bodies which are relevant and very useful
for our study. “Various professional accounting bodies and/ or standard
setting authorities have come up, requiring corporations to implement
environmental management system including its verification provision
67
together with the evaluation of reporting provisions. Some of these are Eco-
Management and Audit Scheme (EMAS, 1995); the International
Organization for Standardization (ISO 14000, 1996); the Social
Accountability Standard (SA 8000, 1998) issued by the Council of
Economic Priorities Accreditation Agency (CEPAA); THE Copenhagen
Charter’ (CC, 1999); the Institute of Social and Ethical Accountability
‘AA1000’ social accounting standard (ISEA, 1999); and the Global
Reporting Initiative ‘Sustainability Repotting Guidelines’ (GRI, 2000)." 22
Some of these reports have been considered in the following discussion.
National Association of Accountants(USA) Committee on accounting
for corporate social performance in its report(1974) has described the
different aspect of social performance and identified four major areas of
social performance namely (i) Community development, (ii) Human
resources, (iii) Physical resources and environmental contributions, (iv)
Product or service contribution.
Govt. of India formed Sacher Committee (1978) to consider and report on
the changes those were necessary in the form of structure of Companies Act
and MRTP Act. Committee observed that, “the company must behave and
function as a responsible member of the society just like any other
individual. It cannot shun moral values nor can it ignore actual compulsion.
The real need is for some focus of the accountability on the part of
management not being limited to shareholder only, proper utilization of
resources for the benefit of others also take care of profit is necessary, but is
not primary objective……….the company must accepts its obligations to be
socially responsible and to for the larger benefit of he community.”23 The
committee has suggested adequate disclosure regarding social activities of
the companies for the shareholders and other interested parties.
68
In December 1993, the UN statistical office, which was working on the
project in collaboration with Carsten Stahmer, issued a handbook on
integrated environmental and economic accounting providing detailed
guidelines under the title, ‘The Handbook of Integrated Environmental
Economic Accounting’. This has been subsequently named System of
Integrated Environmental and Economic Accounting (SEEA).24 This
handbook was the outcome of the discussion on environmental-economic
accounting in international workshops organized by UNEP and the World
Bank. This discussion on concepts and methods of environmental-economic
accounting did not able to come any final conclusion and the handbook was
issued as an interim report.
In 2001, UNSD and UNEP published the Handbook of National
Accounting: Integrated Environmental and Economic Accounting - An
Operational Manual. This handbook reflected the on-going discussion on
environmental accounting since the publication of the SEEA in 1993 and the
experiences in developed and developing countries. It provides a step-by-
step guidance on how to implement the more practical modules of the SEEA
and elaborates the uses of integrated environmental and economic
accounting in policy-making.
In 2002 (first published in 1998), UNCTAD made a revise guidance manual
with the help of ISAR, CICA, ACCA and World Bank on ‘Accounting and
Financial Reporting for Environmental Cost and Liabilities’ to inform or
give guidance on environmental accounting issues and identify best practices
that may be considered by national standard setters in the development of
their own accounting standards, rules and regulations.
69
In 2004, UNCTAD and ISAR published ‘A Manual for the Preparers and
Users of Eco-efficiency Indicator’ with the objective to describe the method
that enterprises can use to provide environmental performance as well as
financial performance in systematic and consistent manner. The manual
helped enterprises to give information on their Eco-efficiency Performance
for the five generic environmental issues namely water use, energy use,
global worming contributions, ozone depleting substances and waste.
In 1997, the Statistical Commission requested the London Group on
Environmental Accounting to undertake a revision of SEEA. In 2003, the
United Nations, the European Commission, the International Monetary Fund
(IMF), the Organisation for Economic Cooperation and Development
(OECD) and the World Bank issued, on the recommendation of the
Statistical Commission, the final draft of Integrated Environmental and
Economic Accounting 2003 (SEEA-2003). It was recognized in the report
that although the substantial development in the area of environmental
accounting presented in the revised SEEA, still there has been a wide scope
of methodological and practical work in this field. The London Group
opined that sharing country experience would continue to be a valuable way
to advance theory and practice of environmental accounting.
2.3. Research Gap
From the preceding literature review made, it is evident that in the last
decade, pressure from environmentalists, social groups and scientists
compelled the corporate world to realize that that they had a role to play to
save the mother earth. The role of business in society is shifting
dramatically. Corporate social responsibility and corporate environmental
70
responsibility became two major decision areas of corporate management.
Various frameworks of environmental management and reporting emerged
in different corners of the world. But till today corporate environmental
performance in a comprehensive form has not been dealt with seriously.
Considering this research gap, an attempt has been made in this study to
evaluate environmental performance of Indian companies on a total
comprehensive basis.
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