Count your diamonds, weigh your dirt: Imperatives for green accounting in India

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By SOUMYA BHOWMICK

“Prosperity consists in our ability to flourish as human beings – within the ecological limits of a finite planet. The challenge for our society is to create the conditions under which this is possible. It is the most urgent task of our times,” says British economist Tim Jackson in his book ‘Prosperity without Growth’.

As we progress towards development with instruments such as multidisciplinary approaches towards socio-economic problems and sustainability in terms of environment, economy and society, one must advance towards creating conditions under which imperishable progress can be guaranteed for the future. In the case of developing economies, especially India, one of the thrusts of the development process lies in the gradual shifting of resources from the agrarian sector to the manufacturing and service sectors. Under such circumstances, it is of utmost importance that we deal with economic indicators that include environmental aspects. The traditional System of National Accounts (SNA), which gives us the measures of Gross Domestic Product (GDP) and Gross National Product (GNP), are the performance indicators of any economy which is incapable of producing a true impression of the wealth, income and performance of a nation. The problem with such linear accounting methods is that it does not take into its monetary account the impact of the economic processes on the environment in the form of negative (or positive) externalities.

Another major drawback of the traditional SNA is that it overlooks the value of natural resources that have not been transformed into finished marketable goods or services.

Here comes the notion of ecosystem services, that is, the services provided by the environment to the human community free of cost. Ecosystem services are also called ‘GDP of the poor’ as the poor are heavily reliant on the ecosystem services, but unfortunately such services do not feature in the present scheme of national accounting.

In the current paradigm of sustainable development, Green Accounting, also known as Environmental Accounting or Natural Resource Accounting, is a much desired framework which asks for the incorporation of the missing tenets relating to the ecosystem so as to achieve a more comprehensive development indicator.

According to United Nations Environment Programme Report, 1997, greening the GDP is one of our major pathways towards a Green Economy, be it for India, South Asia or the rest of the world for that matter. Green Accounting provides a framework for organising information on the use, impact, status and value of natural resources and also gives an idea about the expenditure on resource management and environmental protection. Incorporating Green Accounts into the traditional SNA not only allows the policy making body of a country to analyse the inter linkages between economic and environmental costs of a nation but also calculate their magnitude in quantitative terms at the different stages in the life cycle of production processes. Hence, the affiliated agencies will also be able to access much more accurate figures on possible amendments required on its different industrial units based on how much they exceed the pre-established viable externality limits.

For supporting the development of Environmental Accounts, the United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development, and the World Bank issued a handbook in 2003 referred to as the System of Environmental and Economic Accounts (SEEA-2003). There have been two main approaches to Green Accounting, the first method is to create separate or ‘satellite’ accounts that would take care of the valuation of natural resources present, used and depleted, but this account is only linked to and not integrated with the traditional SNA. The latter method talks about completely modifying the traditional SNA and incorporating environmental accounts into it.

Looking back on this relatively new concept, we find that Norway had tried to create the first environmental accounts in the 1970s. 1972 was the benchmark year where the global community laid the foundation to this agenda by linking economic development and environmental degradation at the United Nations Conference on Human Environment. Environmental reporting is mostly voluntary across the globe but some countries have passed legislations, which make corporate environmental reporting mandatory. Denmark, Finland and Australia are some of the countries with the highest levels of regulation of environmental reporting and stringent accounting pronouncements. Australia has a programme where accounting for natural resources like water, energy, timber and coal are done annually. Denmark publishes details of the raw materials used and waste produced in its Green Accounts. Botswana too has been trying to develop a mechanism to evaluate its diamonds and other minerals in its delta. The Ministry of Environment and the Ministry of Economy, Trade and Industry in Japan have published Environmental Accounting guidelines in 2000.

The 2018 Climate Innovation Summit to be held in Dublin in November 2018, is slated to lay its focus on advancing innovation in the field of accounting of environmental aspects vis-à-vis green business.

One of the foremost players in the Indian context is the Green Indian States Trust (GIST) which created environmentally adjusted accounts as early as 2003 under the Green Accounting for Indian States Project. Although the concept of Green Accounting in India is in a very nascent stage, the former Minister of Environment and Forests, Government of India, Mr. Jairam Ramesh emphasised on a transformation towards greening national accounts by 2015. He was instrumental in the foundation of TEEB India (The Economics of Ecosystem and Biodiversity) Project which started in 2011 and has recently completed a few standalone studies in this regard, but that has not sufficiently helped the process of advancing towards a Green GDP due to a piecemeal approach.

Many economists are of the opinion that the Indian growth rate will fall by almost 2 – 3% if environmental externalities and human well being are factored into the traditional accounting process. Although the Companies Act of 2013 made it mandatory for companies of certain categories to invest a part of their profit on Corporate Social Responsibility (CSR), the question remains if adequate investment is made on the environmental protection issues in the absence of quantification of environmental assets or hazards.

An optimistic way forward for Environmental Accounting in India is to look at the CSR agenda of various large Indian companies which are seriously contemplating of carrying out natural capital assessments.

Although Green Accounting is a complicated procedure which is impeded by the lack of data, lack of political will, natural resource and externality computations and the problem of double counting, we must realise that it is indeed important as to how can we proceed towards alternative sustainable policy frameworks with a more comprehensive indicator of a nation’s performance. There is an utmost need to move from a reductionist neoclassical growth perspective to a more holistic eco-systemic perspective of development via the usage of Green Accounting as a potent instrument in this regard.

Source: Observer Research Foundation

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