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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