Submitted to
Md. Ashikur Rahman
Lecturer
Department of
Accounting & Information Systems
University of Barisal Prepared By
Group 3
Group Members
Name Roll No Signature
UNIVERSITY OF BARISAL
i
Environment Accounting in Banking Sector:
A Study of Bangladesh
Prepared For
Prepared by
Group 3
Department of Accounting & Information Systems
University of Barisal
ii
University of Barisal
31 January, 2019
Dear Sir,
Sincerely Yours,
iii
Acknowledgement
The successful accomplishment of this report is the outcome of the contribution and
involvement of a number of people, especially those who took the time to share their thoughtful
guidance and suggestions to improve the report. It’s difficult for us to thank all of those people
who have contributed something to this report. It is with affection and appreciation that we
acknowledge our indebtedness to the persons, without whose continuous support the
completion of the report cannot be possible.
First, the credit goes to our honorable course teacher Mr. Md. Asiqur Rahman, Lecturer,
Department of Accounting and Information Systems, University of Barisal. Who assigned
us to prepare this report and helped us with his support, encouragement and expertise
knowledge.
We also give thanks especially to my friends & many individuals, for their enthusiastic
encouragements and helps during the preparation of this report and for their assistance.
iv
Executive Summary
Worldwide growth of public concern for the natural environment has been one of the most
important developments in recent decades. Globalization has helped connect societies and
their environmental fates more closely than ever before. At the same time, environmental
problems increasingly transcend national borders and pose serious challenges to the health
of the planet.
As an issue, the environment has been growing in the minds of the community and, more
recently, in the minds of business. With this rise in awareness, accountants now accept that
they too need to understand and respond to environmental imperatives. So far, this response
has focused on the area of environmental accounting.
v
Table of Contents
Contents Page No.
Cover Letter ii
Letter of Transmittal iii
Acknowledgement iv
Executive Summary v
Abstract 1
Keywords 1
1. Introduction 1-2
2. Background information 3-6
2.1 Historical development of Environmental Accounting 3
2.2 Basic concept of Environmental Accounting 4
2.3 Need of Environmental Accounting in corporate level 4
2.4 Scope of Environment Accounting 5
2.5 Organizational benefits of producing environmental 6
report
3. Literature Review 7
4. Objectives 8
5. Research Methodology 8
6. Data Analysis & Findings 9-12
6.1 Legal Status of Environment Accounting and 9
Reporting
6.2 Environmental Protections Activities Taken by the 10
Banks
6.3 Environmental Information Disclosure 12
6.4 Mode of disclosing environmental information of the 12
selected banks
6.5 Place of Environmental Information in the Annual
Report 13
7. Conclusion 14
References 15
Abstract
The appearance of environmental problems impacts every area of science globally, as a
result, accounting has to answer these challenges as well, one way of which is
environmental accounting. Bangladesh faces many ecological challenges, including air
and water contamination, land degradation, and waste management. This study was
designed to reveal the extent and nature of environmental accounting practices by banks
in Bangladesh. Information was collected from the annual reports of 15 banks for the
period 2017. The study found that banks disclosed the most environmental information for
green banking and renewable energy categories, whereas they disclosed the least for
environmental recognition and waste management categories.
Keywords: Environmental Accounting, Annual Report, Bank, Disclosure.
1. Introduction:
The term “environmental accounting” is open to interpretation. Environmental accounting
is the identification, measurement and allocation of environmental costs, the integration of
these environmental costs into business decisions, and the subsequent communication of
the information to a company’s stakeholders. Identification includes a broad examination
of the impact of corporate products, services and activities on all corporate stakeholders.
After companies identify the impacts on stakeholders as far as they can, they measure those
impacts (costs and benefits) as precisely as possible in order to permit informed
management decision-making. Measurements might be quantified in physical units or
monetized equivalents. After their environmental impacts are identified and measured,
companies develop reporting systems to inform internal and external decision makers. The
amount and type of information needed for management decisions will differ substantially
from that required for external financial disclosures and for annual environmental reports.
Some 3 million deaths a year are linked to exposure to outdoor air pollution. Indoor air
pollution can be just as deadly.
In 2012, an estimated 6.5 million deaths (11.6% of all global deaths) were associated with
indoor and outdoor air pollution together. Nearly 90% of air-pollution-related deaths occur
in low- and middle-income countries, with nearly 2 out of 3 occurring in WHO’s South-
East Asia and Western Pacific regions. WHO’s air quality model confirms that 92% of the
world’s population lives in places where air quality levels exceed WHO limits.
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Environmental risk factors, such as air, water and soil pollution, chemical exposures,
climate change, and ultraviolet radiation, contribute to more than 100 diseases and injuries.
Bangladesh is ranked fourth among countries with the worst urban air and WHO’s
statement shows the vulnerability of the world environment, particularly South Asian
countries.
Environmental accounting and reporting (EAR) create accountability for business entities
in terms of their efforts to protect the environment in their corporate decisions. In decision
making, an organization considers different pressures from internal and external parties and
attempts to legitimize the impact of its activities on the environment in the eyes of society
and various pressure groups. EAR plays an active role in preparing, presenting, and
analyzing environmental information for interested parties.
Bangladesh is a developing country, but a recent trend indicates that the country is moving
toward a middle-income position. Its economy depends mostly on the manufacturing and
financial sectors. The banking sector has had a positive contribution to and an influence on
the economic development of the country.
At present, Bangladesh faces several environmental problems, including water pollution,
air pollution, land degradation, loss of biodiversity, poor waste management, coastal
erosion, and poor chemical waste processing.
The banking sector can play a tremendous role in upgrading the present environmental
situation of the country. Moreover, banks are the most recognized and significant financial
organizations. They engage in financing for manufacturing as well as nonmanufacturing
companies as financial intermediaries. Thus, banks are related both directly and indirectly
to environmental issues.
A limited study has been found on EAR disclosure along with legal provision and
environmental financing in the Bangladeshi banking sector. Thus, this research would be
unique in the banking sector analysis. Indeed, a study that investigates EAR disclosure of
various banks from an emerging economy like Bangladesh will add a new dimension to the
banking literature.
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2. Background information
2.1. Historical development of Environmental Accounting
Environmental accounting started through a period of improbability. The development of
environmental accounting in four stages.
From 1970 to 1980 is the beginning of the first researches in the area of environmental
accounting, which had a more descriptive character, as studies from that period (Vasile &
Man, 2012).
From 1981 to 1994, there are debates regarding the role of accounting in the disclosure of
information regarding environmental activities (Vasile & Man, 2012). During this period,
the interest of researchers for this area increases; the managers and even accountants start
to pay more attention to the issue of environmental accounting and about 267 researchers
of environmental accounting is also increasing at the expense of researches regarding social
accounting (Vasile & Man, 2012).
From 1995 to 2001, the period was the maturation stage of environmental accounting.
Environmental information is starting to be taken into consideration and also,
environmental audit is launched. Moreover, the environmental accounting was discussed
both ways theoretically and practically especially in developed countries (Vasile & Man,
2012). The studies from this period are starting to grow, this period being named the
“cornerstone” of environmental accounting and the researchers of this area are starting to
pay increased attention to this field, the number of studies is beginning to grow
considerably, and the environmental reports remain the main sub-field approached by
researchers and this sub- field is starting to gain interest due to the implementation of
standards regarding environmental management, standards that also include a part of audit
or verification (Vasile & Man, 2012).
Furthermore, from 2002 to till date, guided regarding the reporting of environmental
information and regulations about environmental accounting was issued (Vasile & Man,
2012). The number and quality of articles about environmental accounting continue to grow
and the studies in this field are more numerous, ample, and bring important contributions
to the development of this research area (Vasile & Man, 2012). The assumptions that may
be drawn is that researches in environmental accounting have grown considerably due to
the importance that environmental issues started to have over entities and over society. New
sub-fields of environmental accounting are developing, namely environmental audit and
environmental management accounting.
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2.2. Basic concept of Environmental Accounting
Environmental accounting as a subsection of accounting that addresses activities, methods
and systems as well as recording, analysis and reporting of environmentally persuaded
financial impacts and ecological impacts of a defined economic system also emphasize two
sides of environmental accounting, the non-monetary and monetary aspects (Burritt, et al.,
2002). Monetary data encompass the material costs of product and non-product outputs,
waste and emission control costs, prevention and other environmental management costs,
research and development costs, and less tangible costs, in contrast, environmental or
physical data consist of information about material inputs (reward auxiliary materials,
packaging materials, merchandise, operating materials, water, and energy) and outputs
(product and nonproductive output, such as solid waste, hazardous waste, wastewater and
air emissions) (Sumiani, Haslinda, & Lehman, 2007).
Monetary and non-monetary information are included in both perspectives. Hence, the
internal perspective encompasses monetary environmental management accounting and
physical or non-monetary environmental management accounting, in contrast, from the
external perspective, it is possible to differentiate monetary environmental regulatory from
environmental accounting and physical or non-monetary environmental regulatory from
environmental accounting (Bartolomeo, et al., 2000). However, it does not combine these
two areas into financial accounting because this term is typically used in monetary terms
and the differentiation between regulatory and environmental accounting originates from a
time when external accounting was initiated by regulatory authorities (Bartolomeo, et al.,
2000). Currently, organizations also account for monetary and physical information
voluntarily to inform their stakeholders and it is clear that environmental accounting can
be realized not only at an organizational scale but also at the firm, plant, regional and
national scales (Bartolomeo, et al., 2000).
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3. Literature Review
Environmental reporting has been a phenomenon of developed countries and therefore,
most environmental accounting and reporting studies were confined to the developed
countries (Belal, 2000) and a handful of studies concentrated on the newly industrialized
countries such as Korea, Hong Kong, Malaysia and Singapore and African countries such
as South Africa, Nigeria and Uganda. Deegan and Gordon (1996) examined the
environmental disclosure practices of Australian companies revealing low voluntary
environmental disclosure in Australia.
Choi (1998) examined the nature of environmental disclosure of Korean companies in
terms of quality and quantity of the disclosure. The result of which was found poor.
Hossain and Chowdhury (2014) studied environmental disclosure of 71 listed companies
of Bangladesh which resulted that only 33 (46.48%) companies reported at least one line
of environmental information in the annual report. They also found that 21 companies have
provided „good news‟, 12 companies „both good and neutral‟ and no companies „bad
news‟,
Bose Sudipta, (2006) has examined different companies of Petrobangla and observed that
the current accounting system of the oil, gas and mineral sectors of Bangladesh does not
reflect these natural assets and their environmental impacts. However, it is very important
to consider these assets and their environment impacts in the accounting system otherwise
sustainable development which is the essence of developed economics is impossible. He
concluded that Petrobangla has already given much effort in the field of environmental
protection but the current account system does not reflect such efforts for its stakeholders.
Rahman and Muttakin (2005) have examined 125 manufacturing companies listed in the
CSE and found that only five of them 125 companies have disclosed environmental
information in their annual report. They also pointed that the main problems involved in
the environmental reporting are lack of provision for environmental reporting in the
company act 1994, separate International Accounting Standard, understanding and
awareness, qualified and trained personnel and motivation.
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4. Objectives
The research focuses on the environmental accounting concepts and reporting practices of
banking sector of Bangladesh. The study also covers the following specific objectives:
To identify the need for environmental accounting and reporting practices by
Bangladeshi Banks.
To find out the present environmental accounting practices of banking sector.
To examine the position of environmental information in the Annual Reports of the
sample Banks during the year-2017.
To find out whether the banking companies have taken any protection on environment.
To identify the problems involved in environment accounting and reporting practices
in the sample Banks.
To find out whether the banking companies have taken any protection on environment.
To observe the legal position of environmental accounting in Bangladesh.
5. Research Methodology
5.1. Designing Report Plan
For our course requirement, we were assigned to make this report. Being assigned we
thought how could we make an effective report. We plan the way in which we can get
practical, authentic, reliable information. We also plan the way of interpreting this
information in a meaningful way to make the report effective and efficient.
5.2. Information Source
For preparing this paper, we used Secondary data.
5.3. Collection of Secondary Data
The major source of secondary data is Annual Reports of listed Banks in DSE.
5.4. Information Analysis
The most important task was to analyze and interpret the collected secondary data. We
analyze those data from many angles, in different aspect based on our experience.
5.5. Preparation of Report
After doing the above stage we have prepared this report.
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6. Data Analysis & Findings
6.1. Legal Status of Environment Accounting and Reporting
Since 1989 in Bangladesh a separate ministry for Forest and Environment has been
functioning in order to conserve the environment of the country. In 1995, UNDP supported
National Environmental Management Action Plan was primed and in the same year
Bangladesh Environmental Conversion Act 1995 wad promulgated. Under this Act,
establishing new industries, environmental clearance certificate from the Department of
Environment and the companies may be asked to disclose Environmental information as
and when required (Rahman and Muttakin; 2005). In addition to this, country’s
Environmental accounting and reporting are influenced by some other legal/professional
laws which are given below in table 1.
Table 1: Legal Status of Environmental Reporting in Bangladesh
1. Ministry for Forest and Environment
2. Department of Forest
3. Department of Environment
4. Planning Commission
5. Bank Companies Act 1991
6. National Environment Policy, 1992
7. Financial Institutions Act 1993
8. Securities and Exchange Commission Act 1993
9. Financial Institutions Act, 1993
10. Companies Act 1994
11. National Environmental Management Action Plan, 1995
12. Environmental Conversion Act, 1995
13. Environmental Conversion Rules, 1997
14. Bankruptcy Act 1997
15. Ozone Depleting Substances Rules, 2004
16. Environmental Court Act, 2010
17. Climate Change Trust Act 2010
18. Credit Risk Management Industry Best Practices by Bangladesh Bank in 2010
19. Environmental Risk Management Guidelines, 2011
20. Policy Guidelines for Green Banking, 2011
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21. Bangladesh Biodiversity Act, 2012
22. Securities and Exchange Rules
23. Bangladesh Bank Rules
24. Tax Ordinances
25. IFIC guidelines
26. IASC guidelines
27. FASB guidelines
28. BFRS guidelines
From the above table, we can say there are strong legal positions of environmental
reporting in Bangladesh because disclosure of environmental information to the regulatory
body is required. According to Bangladesh bank guide line of green reporting, it is
mandatory to disclose environmental information in their annual report. Bangladesh bank
is playing a vital role in preparing and implementing environmental reporting in
Bangladesh (Bangladesh, 2012).
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Electronic form, Email, SMS, Video Conference, Centralized
Trade Processing, Centralized Investment Proposal
Processing System, Waste Management, Energy Management,
Water Management, Paper Consumption, Renewable Energy,
Green Travel, Ethical Banking
Tree plantation, ETP, HHK(Hybrid Hoffman Kiln) & Zigzag
Al Arafa Islamic
technology, Solar panel, Introduces "Green Office Guide" for In-
Bank Ltd.
house Environmental Management.
First Security Islami Blankets distribution, Prime minister relief fund, Disaster
Bank Ltd. Management.
Paperless banking, Solar energy, Green financing, Climate risk
Brack Bank Ltd. fund, Marketing and training & capacity building, ETP, Solar
Panels, Double hull oil tanker, Environment friendly brick fields.
ETP, Renewable energy project, Clean water supply project,
Wastewater treatment plant, Recycle of harmful wastes, Solid &
EXIM Bank Ltd.
hazardous waste disposal plant, Bio-gas plant, Bio-fertilizer plant,
Environment friendly brickfield.
Energy Consumption, Solar powered branches, Financing
renewable energy and carbon offset projects, Reducing Energy &
Bank Asia Ltd. Resource Consumption, Solar Home Systems, Consumption of
water, Solar energy, Bio- gas, and ETP, HHK, Greenhouse Gas
Emission, Waste Management, Online Banking.
ETP, HHK projects, Solid waste management, Energy & water
management, Paper Consumption Management, Renewable
Prime Bank Ltd.
Energy Usage, Green Travel, Online Banking and Internet
Banking facilities, Green marketing,
South East Bank Bio gas, Solar panel, HHFK, Mobile banking, Internet banking,
Ltd. Biometric Attendance system.
Disaster management, Energy Management, Online Banking,
Mobile Banking, Bio Fertilizer, Bio-diversity, In-House Green
Dutch Bangla Bank
Management, use of solar energy instead of electric power, net
Ltd.
banking and mobile banking. Effluent Treatment Plant (ETP),
Solar, automatic Brick Manufacturing industry such as Tunnel
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Kiln, Zig-Zag etc. handling waste in a safe manner in hospital, hot
water heat recovery system in Textile/RMG, converting non-
compliance factory into environmentally complied factory
Energy Management, Online banking, Internet Banking, Mobile /
Jamuna bank Ltd.
SMS banking, Green Marketing.
Mercantile Bank Solar Home System, HHK/Tunnel Kiln/Equivalent Improve Brick
Ltd. Kiln, Energy Management.
Domestic Bio-gas plant, Commercial biogas plant, Vermin
IFIC Bank Ltd.
compost, Finance for Brick Kiln Efficiency Improvement Projects
Waste water treatment plant, Bio-gas plant, Bio-fertilizer plants,
AB Bank Ltd.
solar ATM’s.
Green office self-reporting assessment system, installed capacity
of solar energy to run Bank premises and ATMs installation of
ETP to plants in operations, solar panel/ renewable energy plant,
Eastern Bank ltd
Bio-fertilizer plant, brick kilns adopted cleaner technology, staffs
received training on Environmental and Social Risk Management,
financing renewable energy projects.
From the table it is clear that our banking companies are trying their best to protect our
environment. Most of the banks are covering some environmental protective activities that
are very satisfactory. Islamic bank Bangladesh is clearly ahead among the sample banks.
All of the sample banks provide environmental performance report according to
Bangladesh bank direction.
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6.4. Mode of disclosing environmental information of the selected banks
The common practice followed by the banking companies regarding environmental
disclosure is to offer qualitative information in the annual reports. The trend of disclosing
qualitative information is increasing over time. During the period 2016 to 2017, all banks
provide qualitative information. On the other hand, disclosing of quantitative information
is also increasing in nature. But the banking companies that disclose financial information
on environmental issues do not provide any system wise break up of environmental
expenditure or its accounting treatment in the annual reports. However, some banks have
given detailed information on environmental protection activities through charts and tables.
Moreover, majority of banks disclose both qualitative and quantitative information on the
environment in the annual report and the trend is increasing rapidly. But the banks have
started reporting quantitative/monetary information in the annual report which is generally
brief and inadequate in understanding. However, there is a little consistency in this kind of
disclosing environmental information.
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7. Conclusion
Environmental Accounting would be the best weapon of the modern business management
to create accountability in the society as well as to save the environment from the present
conditions. It can be used like a mirror of the business organization to show what impact
its activities can create on society.
The study found that environmental accounting concept and reporting practices of
Bangladeshi banking companies are upward in trend. Most of the banking companies are
trying to disclose some environmental information in the annual report. All banking
companies EAR performance is in strong position and all banks (100%) disclosed
environmental information in the annual report of 2017. Mode of disclosing EAR
information is also satisfactory. Now most of banks provide both qualitative and
quantitative information in the reporting perspective. Most of the banks provide
information of environmental accounting in a separate section that is highly appreciable.
Disclosing information in a separate section of the annual report as well as chairman and
director message shows greater extent of EAR performance and top-level management
positive concern on EAR. Moreover, all sample banks mission and financial statements
do not provide any information on EAR which is very alarming.
The study also found legal framework of environmental reporting in Bangladesh. There
are many laws and rules currently existing to disclose environmental information to the
different institutions. Bangladesh bank plays key roles to give direction to banks for
providing EA information in the annual report (Bangladesh Bank, 2017).
Day by day banking companies are strongly supporting environmental protections
activities in the countrywide. All banking companies have taken different initiatives to
increase the performance of environmental protection of the country. Bank to bank and
year to year different areas and functions of green banking as well as environmental
protections are increasing.
There is a strong legal provision in Bangladesh for environmental contamination and
safety that is implemented by the ministry of environment but there is lack of awareness
of the law and its practices in the corporate as well as general level. So, government should
take necessary steps to exercise the law strictly. As a guardian of all banks, Bangladesh
bank should take proper control of banking companies in preparing EAR and strict in
giving loan to environmentally hazardous project. Bangladesh bank also should make
green banking concept more popular to the banks and customers.
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References
Annual Report of sample banks for the year of 2017.
Belal, A. R. (2000). Environmental Reporting in Developing Countries: Empirical
Evidence from Bangladesh. Eco-Management and Auditing, 7(3), 114-21.
Choi, John, Seo. (1998). An investigation of the initial voluntary environmental
disclosures made in korean semiannual financial reports. Pacific Accounting Review,
11(1)
Deegan, C., & Gordon, B. (1996). A Study of the Environmental Disclosure Practices
of Australian Corporations. Accounting and Business Research, 26(3), 187-199.
Hossain, I., & Chowdhury, A. (2014). Environmental Reporting: A study of the listed
companies in Bangladesh. The Cost and Management, 42(3), 36-46.
Bose, Sudipta. (2006). Environmental Accounting and Reporting in Fossil Fuel Sector:
A Study on Bangladesh Oil, Gas and Mineral Corporation (Petrobangla). The Cost and
Management, 34(2), 53-67.
Rahman & Muttaki. (2005). Corporate Environmental Reporting Practices in
Bangladesh – A Study of Some Selected Companies. The Cost and Management,
33(4), 13-21
Bartolomeo, M., Bennett, M., Bouma, J. J., Heydkamp, P., James, P., & Wolters, P.
(2000). Environmental management accounting in Europe: current practice and future
potential Eur. Account. Rev., 9(1), 31e52.
Burritt, R. L., Hahn, T., & Schaltegger, S. (2002). Towards a comprehensive framework
for environmental management accounting e links between business actors and
environmental management accounting tools. Aust. Accounting Rev, 12(27), 39e50.
Vasile, E., & Man, M. (2012). Current Dimension of Environmental Management
Accounting. Procedia - Social and Behavioral Sciences, 62(0), 566-570. doi:
http://dx.doi.org/10.1016/j.sbspro.2012.09.094
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