Environmental accounting in Fiji An extended case study of the Fiji Sugar Corporation

Sumit K Lodhia

Abstract

This paper argues that accountants have the potential to play a crucial role in environmental

management and reporting, through their managerial, performance measurement and evaluation,

auditing and reporting skills. An in-depth study is undertaken to review the environmental

accounting practice of the only public company in Fiji that discloses environmental information

in its corporate annual report. The results indicate that environmental accounting in the Fiji

Sugar Corporation (FSC) focuses on legitimising the environmentally sensitive nature of the

companys operations rather than being an attempt to extend stewardship to the stakeholders that

may be affected by the companys operations. There is also evidence of only limited involvement

of accountants in the environmental management strategies of the FSC. The findings suggest that

voluntary attempts at environmental accounting may not necessarily lead to an improvement in

the quality of life for everyone. Hence, it is envisaged that the accountants skills can be utilised

more effectively in environmental matters if appropriate legislation and standards are used to

provide a regulatory framework for environmental accounting.

Introduction

Environmental issues have gained significance in recent years through the dissemination of

information on the potentially harmful effects of industrial activities on our environment. Major

environmental degradation incidents to date1 point to the need to place controls on commercial

activities and to encourage sustainable business practices. This is vital for the South Pacific Island

communities, which have been plagued by a range of environmental problems culminating in sea-

level rise and unexpected climatic change in the islands (see for example Nunn 1999). South

Pacific countries have also been used as a testing ground for nuclear activities and a dumping

ground for foreign toxic wastes. The Moruroa Atoll in French Polynesia, for example, has served

as a testing ground for the French governments nuclear development programme and both

Britain and the USA are also guilty of this particular form of experimentation in the past. As

Nandan observes:

1

Cash payments for accepting foreign wastes are generally large enough to tempt

developing nations to mortgage their public health and environmental integrity. (1993: 7)

Pressing environmental issues in the South Pacificnot all of them endogenousinclude global

warming, atmospheric, soil and water pollution caused by industrial activity, inadequate waste

management, urban sprawl, vehicle exhaust fumes, deforestation, soil degradation, excessive

noise pollution, marine pollution, and the dumping of hazardous nuclear and toxic waste into the

seas and rivers by industrialised nations (as well as careless and dangerous waste disposal by

operations within the island countries).2 These issues are also critical in Fiji and in recent years

growing public awareness has resulted in closer scrutiny of the activities of the major industries

that may be contributing to environmental degradation.

The constant oil spillages in Suvas major industrial area, Walu Bay (see for example Fiji Times,

19 April 1998; Fiji Sun, 2 Feb. 2000; Sunday Sun, 5 March 2000) and the Qawa River saga (see

for example Fiji Times, 28 Sept. 1998) have provoked vehement and committed

environmentalists to urge strongly in the media the need for appropriate environmental legislation

in Fiji. To date, the parties allegedly responsible for the Walu Bay spills have not faced

prosecution. At the same time, there is continual outrage at the excessive discharge of pollutants

by the Fiji Sugar Corporation (FSC) into the Qawa River in Labasa. These events have

highlighted the need for an environment bill for Fiji that could punish such offenders and

indeed, some time after this research was carried out, the passage of the Sustainable Development

Bill in the foreseeable future was announced.

Over a year ago, a South Pacific Regional Environmental Program (SPREP) report indicated that

Fiji rates as one of the worst South Pacific countries in terms of chemical pollution (Daily Post,

29 Jan. 1999). Industrialisation has had an adverse impact on the seas, rivers and soils of Fiji, and

already there are stockpiles of poisonous waste and obsolete pesticides, herbicides and solvents.

However, on a more positive note, the report recorded approvingly that Fiji is included in a long-

term clean-up plan, initiated by the SPREP, that will give help to countries in the form of plans,

methods and training in the safe storage or disposal of dangerous chemicals.

This brief overview is sufficient to suggest that the pursuit of economic growth and

industrialisation should not be at the expense of the environment and that environmental

protection is essential for South Pacific Island nations such as Fiji. Development needs to be

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sustainable,3 which implies that business activities and consideration of the environment should

not operate in isolation from each other. It is in this area that the leading players in business

activity, most of them people with an accounting background,4 have the potential to contribute

towards environmental protection and enhancement.

This paper is structured as follows. Having established the seriousness of environmental problems

for South Pacific Island nations such as Fiji, it proceeds in the next section to suggest ways in

which accounting practice, through the mechanism commonly referred to as environmental

accounting, can contribute to heightened environmental consciousness. The role accountants can

play, through environmental management and environmental reporting, is discussed. Prior studies

of social and environmental accounting in Fiji are reviewed before the present empirical study,

focusing on the Fiji Sugar Corporation, is presented. An analysis of the FSCs environmental

accounting practice is followed by recommendations for improving the companys present

practice. Lastly, the findings of the research are summarised and appropriate conclusions are

formulated.

What is environmental accounting? Environmental accounting, which is a vital component of Social and Environmental Accounting

(SEA),5 is believed to be accountants particular contribution towards preserving the integrity of

the environment. Environmental accounting, write Gray and co-authors,

can be taken as covering all areas of accounting that may be affected by the business

response to environmental issues, including new areas of eco-accounting. (Gray,

Bebbington & Walters 1993: 6)

Similarly, Burritt and Lehman state that:

Environmental accounting is the generic name given to the field of study highlighting the

interrelationships between accounting, accountants, and the ecological. (1995: 16970)

Environmental accounting involves the establishment of environmental management systems

within organisations so that environmental issues can be addressed within the conventional

practice. Further, these internal accounting systems need to be transformed into the reporting of

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environmental information, primarily in the corporate annual reports. This will make the firm

accountable for its environmental performance in addition to its financial results. The components

of environmental accounting are set out in figure 1. This paper will study and evaluate the

environmental accounting practices of the FSC in terms of both the environmental management

and environmental reporting mechanisms. An attempt will also be made to determine the role of

accountants in these mechanisms.

Figure 1 Elements of environmental accounting

What constitutes environmental accounting?

Environmental Management Internalisation of environmental costs

Environmental risk assessment and estimation

Investment appraisal to include consideration of the environment

Establishment of environmental management systems

Environmental Reporting Disclosure of environmental information in corporate annual reports

Disclosure of environmental information in other communication media such as

environmental reports

For the purposes of this study, the development of environmental accounting is visualised in three

stages (refer to figure 2). In the first stage, the organisation establishes an environmental policy,

which is essentially a document outlining a set of objectives or targets that the environmental

strategies adopted are intended to achieve. This policy is used to determine the organisations

responsibility to the environment. Tilt (1997) suggests that characteristic features of an

environmental policy include a statement of objectives, commitment to sustainable development,

details of involvement of staff in development and review, a record of the allocation of specific

funds and the integration of the environmental policy with other policies.

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[Fig. 2 about here]

The next stage consists of the mapping out of the environmental plans and structures by which the

organisation aims to meet the objectives of the environmental policy. All resulting environmental

control activities are based on these plans and structures, and an environmental audit is often an

integral part of this activity. This process involves the execution of environmental policies and

includes all financial and non-financial activities that accountants may undertake in appreciation

of the environment. Environmentalists may also be involved during this stage.

The final stage involves the recording and reporting of the results of the environmental control

activities carried out in the second stage. This would involve incorporating environmental issues

into mainstream accounting. The disclosure of the environmental accounting practice may occur

in the annual reports or in separate environmental reports.

Figure 2 The development of environmental accounting

Establishment of environmental policy

Environmental plans, structures and control activities

Recording and reporting of environmental control activities

The role of accountants in environmental accounting

The very existence of the term environmental accounting implies that accountants can have a

consequential role in environmental issues. Business activities in general contribute to

environmental degradation, and manufacturing industries more especially so. Thus it is suggested

that businesses themselves should play a major part in reducing environmental degradation.

Businesses need performance indicators to analyse the results of activities and the accounting

process is a mechanism that they can use effectively to measure such performance.

The accountants role in handling environmental issues is envisaged through their managerial

skills, particularly those associated with performance measurement and evaluation, auditing and

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reporting. Accountants play a key role in the management accounting systems within their

organisations, for they are continually involved in providing information for planning, control and

decision making (Langfield-Smith, Thorne & Hilton 1998). These skills are essential for

environmental management within an organisation and it is here that the role of accountants

comes to prominence. Accountants hold positions of key responsibility and authority within an

organisation and it is hoped that they will encourage sustainable business practices within their

respective organisations. Further, accounting processes allow the performance measurement and

evaluation of an enterprise. Presently, this measurement is restricted to financial numbers but

there is no reason to believe that the social and environmental performance of an organisation

cannot be easily measured by accounting itself.

On the other hand, the art of auditing within the accountancy profession enshrines an

independent attestation of the performance of a company (Gul et al. 1995). Accountants

particular skills could be utilised in environmental audits, or in seeking an independent evaluation

of the environmental performance of a company. Finally, the ability of the audited reporting

mechanisms employed by the accountancy profession to extend accountability to the numerous

stakeholders constitutes another remarkable trait of the profession. As mentioned earlier, this

form of accountability is presently skewed towards the financial performance of an entity.

However, it is hoped that in the future, social and environmental disclosures will become more

common complements to financial disclosures in the corporate annual reports in order to provide

a broader stewardship function to the stakeholders.

The literature on environmental accounting suggests that the role played by accountants in

environmental accounting is twofold (see for example Owen 1992, 1993; Gray, Bebbington &

Walters 1993; Medley 1997; Wilmshurst & Frost 1998; Lodhia 1998). First, their involvement in

the internal operation of environmental management systems should lead to attempts to

incorporate environmental issues into conventional accounting practice. Secondly, accountants

would be the major contributors to the disclosure of environmental information in annual reports

or in some other medium of communication.

Environmental management

The cost accounting, financial management, risk assessment and information system components

of conventional accounting all need to incorporate environmental accounting (Corrigan 1998).6

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Cost accounting systems would need to trace environmental costs in addition to the conventional

costs and attempt to internalise these costs (Gray, Bebbington & Walters 1993; Corrigan 1998).

There would, it is true, be a degree of subjectivity associated with this process but this need not

be an insuperable problem: conventional practice has in the past managed to handle successfully a

number of other subjective issues in accounting. The financial management components of

accounting systems, on the other hand, would need, as part of their appraisal of investment

projects, to consider the environmental impact of business operations (Gray, Bebbington &

Walters 1993; Corrigan 1998; Gray et al. 1998).

The risk assessment procedures within an organisation should be able to detect, estimate and

minimise environmental risks. For instance, environmental audits could be undertaken to

determine the environmental impact of the operations of a company (Power 1997). There may

also be a need to create provisions for environmental risk and contingent liabilities, in order to

forecast the adverse consequences of the business activities of the organisation (see Love Canal

Tragedy, in Tinker 1985). Auditors could, through their risk assessment models, play an

instrumental role in detecting environmental violations. Lastly, environmental management

systems could be established within conventional accounting information systems to handle

environmental matters (Gray, Bebbington & Walters 1993; Medley 1997; Corrigan 1998). The

skills of accountants in establishing information systems to support organisational activity could

be utilised in the development of environmental management systems. Such systems could see

the pooling of expertise from various disciplines, such as accounting and science, for the purpose

of assessing environmental issues of significance to the organisation and recommending

associated remedial actions.

This paper examines the environmental management strategies of the Fiji Sugar Corporation in

terms of the components identified in this section. Through such internal mechanisms

organisations are able to collate environmental information for disclosure in the corporate annual

reports.

Environmental reporting

To provide accountability to stakeholders on the companys environmental performance,

environmental management systems need to be complemented by disclosure of environmental

information. This is commonly referred to as environmental reporting and is concerned with

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signalling to stakeholders how the companys activities relate to the environment in terms of its

consumption of energy and raw materials; its business activities and operations; and its wastes,

products and by-products (Fayers 1998).

The annual report has been used in the past as a prime medium giving expression to an

organisations accountability to the society (see for example Cooper & Sherer 1984) as well as a

medium of communication for portraying environmental information. However, other means are

also available, including published environmental reports or even separate booklets. Brochures

and advertisements may also suffice in disclosing environmental information (Zehgal & Ahmed

1990).

At its more comprehensive level, environmental reporting involves producing environmental

reports that provide details of environmental policies, objectives, management, performance and

the impact of a companys operations on the environment (Tremaine 1997). Such a report would

need to identify the legislative compliance, a list of any contaminated sites, information about

discharges to air, water and land, carbon dioxide emissions, resource efficiency targets, and

information on the cost of pollution abatement or remediation (ibid.). Unfortunately, as

environmental reporting is presently voluntary, these reports are not disclosed to the stakeholders;

accountability for the impact of an organisations activities on the environment is not extended to

the (society-wide) public.

Environmental accounting practice in the Fiji Sugar Corporation

A case study

Prior studies in Fiji

The only literature on social and environmental accounting in Fiji is that produced by Nandan

(1992, 1993). His 1992 work, a major empirical study of local SEA practice, involved a content

analysis of the annual reports of the listed companies in Fiji, followed by interviews with

practising accountants and corporate managers. His findings highlighted the fact that

environmental reporting was in fact non-existent in the annual reports of the major public

companies in Fiji in the period under examination (19881990). He further pointed out that at

least at that time, those disclosures that were made in the local corporate annual reports were not

broadened to include social issues. Mere compliance with the statutory requirements seemed to be

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the single goal. One of the major public companies studied in that empirical analysis was the Fiji

Sugar Corporation.

Another significant finding of Nandans study was that accountants were also largely unaware of

their potential to make a contribution on social and environmental issues. In the interviews, the

accountants and corporate managers pointed strongly to the need for the regulation of SEA

practice, calling for an increased involvement on the part of the Fiji Institute of Accountants

(FIA). However, the interviewees believed that changes in mainstream accounting brought about

by the incorporation of social issues into the conventional practice were inevitable, largely due to

the popularity of the concept of corporate social responsibility. Nandan concludes:

the sooner we sweep away the mystifications and false images of bookkeepers and

technicians to reveal the true social significance of accounting, the better it is for all of us.

(1992: 146)

Research methods

An analysis of the recent (1998) corporate annual reports of listed local companies indicated the

FSC as the only public company in Fiji that discloses environmental information in its corporate

annual report. At first sight, this made the company a good candidate for an in-depth analysis of

its environmental accounting strategies. Nevertheless, in terms of documents, this study of FSCs

environmental reporting practice has had to restrict itself to the companys corporate annual

reports: attempts to gain access to the companys environmental reports proved futile and the

company does not disclose its environmental performance through other communication media.

In addition, semi-structured interviews and discussions were held with a senior accountant

(Interviewee A) and a senior environmental management staff member at the FSC (Interviewee

B). Informal discussions and unstructured interviews were also held with some of the other

accountants and environmental management personnel at the company. A longitudinal content

analysis of the FSCs corporate annual reports and an analysis of newspaper articles depicting

aspects of its environmental performance supplemented these interviews. Thus although the

companys refusal to allow access to environmental policy documents imposed some limitations

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on the research, it was felt that there was sufficient information available from the interviews and

annual reports to make some evaluation of the FSCs environmental accounting practice.

The company The FSC was established by an Act of Parliament in 1972 and began operations in 1973. Its

shareholders range from the government to statutory bodies, local public companies and

individuals. The corporation has the sole responsibility for the manufacture of sugar in Fiji. It

owns and manages the countrys four mills, the Lautoka, Labasa, Rarawai and Penang sugar

mills.

The FSCs annual report indicates that it is the largest private sector employer in Fiji. The

corporation is predominately managed and staffed by Fiji citizens. Its subsidiary companies

include FSC Projects Limited, South Pacific Fertilisers Limited, Agchem Limited and (in

Australia) FSC Services Proprietary Limited.

The primary product of the company is sugar; the by-products include bagasse, mill mud and

molasses. The corporation makes good use of its by-products. The use of bagasse as the major

source of fuel in the sugar manufacturing process minimises the dependence on fossil fuels. Mill

mud, which is of no further use in production, is distributed to farmers for use as fertiliser and

molasses is sold commercially.

Environmental impact of the companys operations Manufacturing activities almost invariably have an impact on the environment and the

corporations sugar manufacturing operation is no exception. Unfortunate by-products include

air pollution, water pollution, noise pollution, dust emissions, the disposal of hazardous chemicals

used in production, and the environmental risks associated with the storage of bagasse, the

primary source of fuel for production.

Discharges to the air as a result of the manufacturing process are a common sight in the FSCs

four mills. Usually, particle matter from production accompanies smoke emissions. The

corporation believes that its modern boilers capture the bulk of particle matter, allowing only

extremely low volumes of it to be discharged into the air. In spite of this, breakdowns or failures

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in boilers may result in unexpected amounts of particle matter being discharged, with far-reaching

effects on the environment.

The manufacturing process may also cause water pollution. All four mills are of necessity

situated close to a water source. Large volumes of water are extracted from nearby rivers into the

factory to condense the vapour used in the production process, at the completion of which the

liquid waste matter from production is discharged back into the rivers. The corporation has

effluent digestion treatment ponds in the Rarawai, Labasa and Penang mills. Any spillover from

the production process, and pollutants that may be generated from manufacturing, are directed to

these effluent treatment ponds, where they undergo biodegradation. Unfortunately, the Lautoka

mill had no suitable land for the development of such ponds so the practice there is to discharge

wastes into the deep sea. It is believed that because the mixing effect is greater in the deep sea

than in the shallower waters of the foreshore, the impact on marine life is minimal.

A related area of concern for the company is the excessive dust that may be generated when

bagasse is transported to the conveyor during manufacturing. The corporation seeks to minimise

this problem by covering the bagasse with tarpaulin and aprons.

Noise pollution is another result of the manufacturing process and to counteract this the

corporation provides protective gear to employees as part of its occupational health and safety

measures. Cause for greater concern is the use of hazardous chemicals such as lead in the

production process, albeit in extremely small quantities. These substances are disposed of in pits

that are dug around unused and protected land areas. Finally, bagasse is stored close to the mills

for future use in production. Disasters could occur should a fire start, while strong winds and rain

could also cause dust emissions.

Environmental accounting system Although the FSCs environmental accounting practice is still at a fairly rudimentary stage, the

proposed introduction of the Sustainable Development Bill in Fiji makes development and

refinement of the practice inevitable.

The FSC uses environmental accounting as a mechanism for demonstrating its accountability to

its shareholders in order to legitimise its operations and to improve its public image. As one

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would expect of the primary shareholder in the FSC, the government tries to ensure that the

companys operations are environmentally sensitive and to seek assurance that company

objectives are not contradictory to its own policies on sustainable development. Therefore, the

FSC uses environmental accounting to enhance its stewardship role to government. Recently,

following the (1999) election of the Peoples Coalition government in Fiji, the Prime Minister

declared that the company would no longer discharge its waste products into the seas and rivers

(Fiji Times, 24 June 1999). Whether and how this goal can be achieved remains to be seen.

The company has also developed its environmental accounting programme in an attempt to avoid

unforeseen contingencies in the future: minimising the environmental impact of its operations

now seems preferable to doing nothing and incurring excessive fines and damages in the future.

The FSC has established an environmental policy to provide objectives for the management of the

environment. However, for unstated reasons, this policy is confidential and external parties

(including the researcher) cannot have access to its contents. It is understood that the

environmental policy establishes appropriate guidelines for the monitoring of activities that have

an impact on the environment. The corporation carries out regular environmental audits and in the

past, consultant firms such as Kingston Morrison and Patrick Charles Proprietary Limited were

engaged to undertake such exercises.

Upon the completion of the environmental audit, an environmental report is produced. This

report, which is not disclosed to external parties, even if they are stakeholders, indicates to

management the impact of the corporations activities on the environment.

On the basis of the environmental report, corrective measures are taken to minimise adverse

effects on the environment. This quite often involves capital expenditure through investment in

pollution control equipment such as effluent control systems. The FSCs capital expenditure in

environmental management for the period 19911997, totalling F$1,537,993, was spread across

all four mills and concentrated heavily on the problem of effluent control (see tables 1a and b).

[Tables 1a and b about here]

The final stage of the FSCs environmental accounting process includes accounting for and

reporting on environmental control activities. The capital expenditure incurred in environmental

12

management is accounted for through conventional accounting principles. The annual report is

used as the public face, the medium for reporting to external parties. Environmental policies and

reports, on the other hand, are kept strictly for internal management only.

Table 1a FSC investment in environmental management, 19911997

Year Description Mill Amount

(F$)

1991 Pollution control system - Stage 1 Rarawai 100,000

Effluent control system - Stage 2 Penang 121,700

1992 Nil

1993 Effluent treatment upgrade study Rarawai 15,000

1994 Feasibility study on effluent control Lautoka 60,000

Upgrade effluent control system Rarawai 261,772

Upgrade effluent control system Labasa 366,070

Upgrade effluent control dystem (supp.) Labasa 60,000

1995 Ph controls for effluent control systems Rarawai 33,555

1996 Upgrade primary effluent pond Rarawai 100,000

Upgrade effluent control system (supp.) Labasa 12,500

Upgrade effluent control system Lautoka 292,550

Compressor for pollution pond aeration Penang 58, 668

1997 Fence effluent ponds Penang 5,483

Replace 2 pollution pumps Penang 37,568

Divert ater to pond Penang 13,127

Table 1b FSC investment in environmental management, 19911997, by mill, (F$)

Year Rarawai Lautoka Labasa Penang Total 1991 100,000 - - 121,700 221,700 1992 - - - - - 1993 15,000 - - - 15,000 1994 261,772 60,000 426,070 - 747,842 1995 33,555 - - - 33,555 1996 100,000 292,550 12,500 58,668 463,178 1997 - - - 56,178 56,178 Total 510,327 352,550 438,570 236,546 1,537,993

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The role of accountants The extent to which accountants are involved in the FSCs environmental management strategies

provides empirical support for the claim that there is in general only limited involvement of

accountants in environmental management at present. The literature on environmental accounting

suggests that accountants in general are largely unaware of their potential for making a

contribution to promoting environmental sensitivity in organisations (see for example Gray et al.

1995). There is a tendency to rely too heavily on the conventional accounting framework and to

disregard social and environmental issues of significance to the organisation. The FSCs

environmental accounting practice is certainly reflective of such observations.

An examination of the FSCs environmental management systems suggests that accountants are

not in any way involved in the establishment of an environmental policy and the mapping out of

plans and structures on the basis of such policies to meet environmental objectives. Neither are

they involved in the implementation of environmental control activities; these are undertaken by

the production department of the corporation. The accountants involvement is much more

limited. Through conventional accounting practices they account for expenditure on capital

investments attributed to environmental protection. Some consideration is given to environmental

factors when accountants appraise investment projects and they also report on the environmental

control activities of the company in annual reports.

In summary, in terms of environmental accounting, the primary involvement of FSC accountants

is in the disclosure of environmental information in annual reports. Their role in the internal

operations of the environmental management systems is insignificant. Accountants do not

monitor the evolution of the green agenda, nor do they contribute to environmental programmes.

Environmental management Accountants in the FSC do not attempt to trace environmental costs and incorporate them within

conventional costs. Further, even though they indicated in the interviews that they take

environmental risks and contingencies into account, to date the companys annual reports have

incorporated neither environmental costs nor environmental provisions and contingent liabilities.

In addition, the interviewees stated that although they did consider environmental factors when

appraising investment projects, these were given a low priority. Their investment appraisal forms

have a section titled Other Factors relevant to the investment and generally this could include

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environmental factors. Finally, the company does not have a formal environmental management

system that would look at ways of reducing the environmental impact of their business operations

or conduct regular environmental audits.

The accountants interviewed mentioned that they lacked appropriate qualifications to be involved

in environmental matters. They indicated that even though they had a role as good corporate

citizens, environmental accounting was quite subjective and a lack of guidance embodied in

mandatory standards restricted their involvement in environmental issues to giving a financial

account of the companys environmental performance improvements.

Environmental reporting

As noted earlier, environmental reporting in the FSC is accomplished through the medium of the

annual report and separate environmental reports. The environmental reports are kept highly

confidentialthe researchers attempts to gain access to them were unsuccessfuland they are

used solely for internal decision making. But accountants do play a primary role in the disclosures

of environmental information in the annual reports in that they disclose information about the

companys investment in environmental protection.

A content analysis of the FSCs annual reports for the period of 19911998 was undertaken, this

period following on from Nandans (1992) research into SEA practices in Fiji. That study of the

period from 1988 to 1990 had shown that environmental disclosures were not provided by public

companies in Fiji. The current study attempts to ascertain whether environmental disclosures

have been provided subsequently. It also analyses the content of such environmental disclosures

and evaluates their adequacy and desirability. The results of the content analysis of the FSCs

annual reports, 19911998, are presented in table 2.

[table 2 about here or as soon as possible after]

The data summarised in table 2 indicate that the FSC carried out serious environmental reporting

only from 1993 onwards20 years after its establishment following the Fiji governments

purchase of the Colonial Sugar Refining Companys shares in South Pacific Mills Limited as well

as the companys freehold land. However, the disclosure of environmental information after that

date lacks consistency and appears to be inadequate. Further, the environmental disclosures

15

involve only good news, consisting primarily of avowals of the companys commitment to

sustainable development and details concerning the investment in environmental impact control

technology. Details on the environmental impact of the companys operations, environmental

policies and objectives, the conduct of environmental audits, the resultant environmental reports

and any environmental violations by the company are conspicuously absent.

Table 2 Some observations on the FSCs environmental disclosures, 19911998

Year Observations

1991 Mentions the effective utilisation of natural resources as part of the companys

corporate philosophy

1992 Mentions the effective utilisation of natural resources as part of the companys

corporate philosophy

1993 1. Mentions the effective utilisation of natural resources as part of the companys

corporate philosophy

2. The directors report includes a section titled The Environment, which:

outlines installation of water digestion ponds in 3 of the 4 mills

states that cane waste is recycled to provide fuel for boilers, reducing

dependence on fossil fuels

notes that the company considers environmental factors when purchasing

new equipment

states that the company is committed to environmental protection

3. The managing directors statement makes no mention of the environment

1994 1. The directors report includes a section titled The Environment, which:

indicates that the company considers environmental factors when

purchasing new equipment

states that the company is committed to environmental protection

mentions the investment in the upgrading of effluent systems in the Labasa

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and Rarawai Mills, with monetary values attached to investments

2. The managing directors statement makes no mention of the environment

1995 1. States that the report is printed on a waste product of the sugar production

process, implying that the company is environmentally friendly

2. The directors report has a section titled The Environment, which:

states that the company is committed to environmental protection

highlights investments in effluent treatment systems at the Rarawai and

Labasa Mills, with monetary values attached to these investments

talks about the hiring of consultants to monitor and report on the

performance of the new effluent systems.

3. The managing directors statement asserts that environmental awareness of the

impact of the corporations operations on Fijis rivers, oceans and natural resources

and high standards of environmental guardianship remain part of its objectives

1996 1. States that the report is printed on a waste product of the sugar production

process, implying that the company is environmentally friendly

2. The directors report does not have a separate section on the environment. Instead,

environmental issues appear under the heading of Fixed Assets, Depreciation and

Capital Expenditure. Investments in effluent control systems in Rarawai and Labasa

Mills and improvement to effluent discharge facilities at the Lautoka Mill are

disclosed, with their monetary values. The corporations commitment to

environmental protection in terms of its measures to eliminate the discharge of

pollutants to the natural water systems is also mentioned, although these

environmental control measures are not actually described

1997 1. The mission statement of the company includes a comment on the commitment to

environmental protection

2. The directors report has a section titled The Environment, which:

maintains that the company is committed to environmental protection

indicates that improvements to the effluent discharge facilities at the

Lautoka mill are continuing

states that the effluent treatment systems at the Rarawai and Labasa Mills

are performing satisfactorily

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suggests that the emphasis in the future will be on controlling and

minimising the discharge of effluents at source

1998 1. The mission statement of the company includes a comment on the commitment to

environmental protection

2. The directors report has a section titled The Environment, which:

states that the company is committed to environmental protection

indicates that the relocation of the effluent outfall further into the sea in

Lautoka should ensure increased dilution of the effluent and minimise

effects on marine life

reveals that reclamation work has been carried out at the treatment ponds

inside the mills

maintains that the company will continue close monitoring of the discharge

and treatment of effluents to ensure minimal effect on the environment

3. The managing directors vision, which provides details on the Sugar

Industry Strategic Plan and the companys Corporate Plan (19972001),

includes no mention of the environment, though employee issues are discussed

An analysis of the FSCs environmental accounting practice

It appears that the FSC undertakes environmental accounting to legitimise the sensitive nature of

its business operations rather than out of any sense of being accountable to the stakeholders for its

environmental performance. Even though the company includes environmental consciousness as

part of its mission statement in the annual report, Interviewee A mentioned that there were no

formal plans and policies to meet this objective, as there were for other items mentioned as

company objectives. Presumably the disclaimer in the mission statement is intended only to give

a public appearance of commitment to sustainable development. Further, the secrecy surrounding

the non-disclosure of the environmental policies and environmental reports casts some doubt on

the credibility of the companys environmental performance data. The vehement opposition by

the corporation to the proposed Sustainable Development Bill also devalues its claims to

commitment to sustainable development. As Interviewee B remarked:

This bill is too stringent. It is directly taken word by word from a New Zealand

environmental act and a lot of its provisions do not apply in the local context. We are

18

strongly opposing this bill in our submission to the government. Decreasing pollution

levels to the extent required by this Bill is highly impractical and can cause us a lot of

financial difficulties.

These comments, which conspicuously do not include suggestions such as moderating the

provisions, suggest a complete opposition to the Bill on the part of the company.

That the companys environmental performance is susceptible to public pressure is highlighted by

the following statements by Interviewee B:

Our activities are in the limelight all the time.

and

We would not be carrying out environmental control activities if there was no pressure

from external parties.

Clearly the company feels a need to legitimise its environmental performance in the eyes of the

stakeholders.

We have already noted media coverage of the outrage of residents living close to the Qawa River

about discharge of pollutants into this river by the FSC. The adverse effects of these pollutants on

marine life were obvious: dead and poisoned fish were found floating in this area. The companys

necessary response to these accusations was made as a letter to the editor in a local newspaper,

trying to convince readers of its non-involvement in this matter (Fiji Times, 28 Sept. 1998). Later,

the company also undertook dredging operations at the Qawa River in order to improve the

quality of the river. The FSC, in this instance, tried to legitimise its operations in the eyes of the

external constituents. However, during an informal conversation about the incident, Interviewee

A brushed off the seriousness with which the company appeared to regard this matter. He averred

that the river had already been pretty much polluted before the company began its operations in

the area and that the matter was exaggerated out of all proportion by the media. Similarly, the

companys most recent annual report makes no mention of the Qawa River incident, even though

such information would be useful to those living near the river as well as to the general public.

19

There is a growing public sense that the corporation has to be held accountable for the

environmental impact of its operations, and environmental accounting and reporting can be used

as the mechanism to provide such accountability to the wider society. Unfortunately, this practice

is limited at present, the tendency being to restrict disclosures in annual reports to the good

news, in order to legitimise the companys environmental performance. Nevertheless,

environmental lobby groups such as Greenpeace Pacific also continually monitor the companys

operations and carry out surveys to determine the impact of the corporations activities on the

environment. This applies pressure on the company to be environmentally sensitive. Two years

ago Greenpeace Pacific erected a Danger Pollution sign near the Lautoka mill as part of its

activities in connection with national environment week. Its survey near the Lautoka mill had

indicated low oxygen levels in the water at a time when the sugar cane crushing had not even

begun (Fiji Times, 6 June 1998). It is believed that low dissolved oxygen levels have adverse

effects for marine life in that area.

Another possible reason to explain why the company has presently given environmental

accounting a low priority is the occurrence of natural disasters in the country early in 1998. A

prolonged period of drought followed a few months later by extensive floods in the Western and

Northern parts of Fiji had a drastic impact on the cane harvesting and crushing activities of the

company, causing it extreme financial hardship and leading to an enormous reduction in its stock

price. This situation did not remove the company from the spotlight, but the attention was due to

its faltering financial performance rather than its pollution record and the focus shifted from the

Qawa River incident to the natural disasters. The company concentrated on trying to improve its

production process and the associated financial performance, relegating environmental

management and reporting to a low priority.

The literature on environmental accounting presented in this paper suggests that accountants have

the potential to play a vital role in environmental management and reporting within their

respective organisations. Similarly, it seems to be believed that environmental reporting can be

used to extend a companys accountability to society in the matter of its environmental

performance. However, the empirical data of this research are not reflective of such observations.

The case study illustrates that accountants are not involved in environmental management, while

environmental reporting is public relations driven and far from comprehensive.

Recommendations for the environmental accounting practice of the FSC

20

A survey of the literature suggests that performance indicators are required for environmental

control activities. This is where the accountants role takes centre stage. The FSCs

environmental accounting practice, by isolating accountants from the action, neglects

assessment of its environmental control activities. Accountants in this organisation need to move

away from their conservative traditional roles and to use their measurement and performance

appraisal skills to make the company more accountable to society. Evaluating the performance of

company policies on sustainable development can provide accountability. Accountants in the FSC

need to assess the results of the environmental plans, structures and activities, and to determine

the extent to which operations are actually moving towards minimising impacts on the

environment. They also need to disclose this measurement of environmental control performance

in the companys annual reports. At the same time, their managerial skills will be of use in

establishing environmental management systems within the organisation. Accountants will have

to use their position of authority and influence in the organisation to lead the environmental

accounting revolution in the company. In addition, their auditing skills could be expanded to

cover environmental audits and the provision of an independent attestation of the corporations

environmental performancealthough in that case some knowledge in environmental science

may be a further requirement.

The FSCs conventional accounting practice will also need to incorporate environmental factors.

Processes clearly in need of improvement include: the identification of environmental costs and

benefits; elimination of requirements of conventional accounting that are in conflict with

sustainable development; forecasting of environmental risks and contingencies; serious

consideration of the environmental implications of investment; and the development of

environmental management systems.

There is an urgent need for the corporate annual reports of FSC to improve both the quantity and

the quality of the disclosure of environmental information. The company could present

information on its environmental policy and the results of environmental performance

measurement, as well as summarised versions of the environmental reports, and patterns and

trends in sustainable development over a period of a few years. This reporting should be

quantitative as well as qualitative. A suggestion is given in figure 3 for the outline of a section of

the annual report devoted to the environment and environmental policies.

21

Figure 3 A suggested classification for environmental disclosures in the FSCs corporate

annual report

The Environment

Mission Statement for the Environment

Details of Companys Impact on the Environment

Environmental Policy

Details of Environmental Audits and other Environmental ControlActivities

Results of Environmental Control Activities and proposed actions tobe undertaken

Record of Compliance with Environmental Legislation and otherStandards

Clearly, even though accountants have a key role in environmental management and reporting

and should move away from their traditionally conservative roles, certain changes in

contemporary practices would have to occur before such a radical movement could take place.

The academic training of accountants has to improve so that they are equipped with the necessary

skills in environmental management and reporting. Similarly, before accountants, such as those in

the FSC, could play a role in environmental management within organisations there would have

to be an improvement in environmental legislation and the introduction of stock exchange listing

requirements and mandatory accounting standards requiring disclosures of social and

environmental information. These changes would definitely provide an impetus for accountants to

become involved in environmental accounting mechanisms within organisations. It is hoped that

the introduction of the Sustainable Development Bill will prompt local accountants to be

increasingly involved in environmental matters.

22

Conclusion This paper has highlighted the finding that in Fiji, as in other countries, contemporary

environmental management practice in public companies does not involve accountants in

bringing about organisational change (Gray et al. 1995). An in-depth analysis of the

environmental accounting practice of the FSC indicates that presently, involvement of its

accountants in the corporations environmental management strategies is only limited.

Furthermore, the companys environmental reporting mechanisms are inadequate and patchy,

largely because of the lack of mandatory standards for the disclosure of environmental

information.

The environmental accounting strategies of the FSC could be improved through the utilisation of

the managerial, performance measurement and evaluation, auditing, and reporting skills of

accountants. The research has demonstrated that the companys environmental management

systems and disclosures of environmental information are inadequate in extending to the wider

society the broader stewardship role that environmental accounting mechanisms are intended to

provide. Suggestions for improving the present disclosures of environmental information in the

corporate annual reports of the FSC have also been put forward.

Current environmental accounting in the FSC is an attempt to legitimise sensitive aspects of the

companys manufacturing operations rather than being an accountability device to broaden

stewardship to the stakeholders. This case study indicates that even though accountants have the

potential to play a key role in environmental management and reporting in organisations, the fact

that at present environmental accounting practice is voluntary has meant that they are noticeably

uninvolved in these mechanisms. Voluntary disclosures of environmental information are also

likely to be influenced by a companys desire to improve its public relations portfolio, as

exemplified by the present case study. Accordingly, it is believed that a regulatory approach

through environmental legislation and mandatory standards would be the way forward towards

realising the full potential of environmental accounting.

Acknowledgments

23

I am indebted to several members of the Accounting and Financial Management Department in

the University of the South Pacific for advice, assistance and suggestions given during the

research and writing of this paper. Dr Ruvendra Nandan, Mr Umesh Sharma, Mr Richard

Andrews, Mr Ben Coutman and Professor Michael White deserve particular mention. Thanks are

also extended to attendees of the seminar during which an earlier version of this paper was

presented, for their constructive comments and suggestions. The advice and suggestions of

Emeritus Professor Mohan Lal of Massey University during his visit to Fiji are also highly

appreciated. Without the wonderful collegial support of all these people the paper would have

been incomplete. This is in no way to imply that any remaining errors of fact or interpretation are

other than my own.

Dr Philomena Gangaiya and Dr John Bonato of the School of Pure and Applied Sciences in the

University of the South Pacific also helped to brief me on the environmental problems that exist

today. Their assistance was extremely useful as it helped to broaden my understanding of

environmental issues. Beyond the USP, I would also like to thank Mr Ram Moosad, Mr Uba Datt

Ali and Mr Subash Chandra, all with the FSC, for providing me the opportunity to study the

environmental accounting practice of the company. This project would have been incomplete

without their cooperation and assistance. To Professor Rob Gray and Ms Hazel Batchelor of the

Centre for Social and Environmental Accounting Research (CSEAR) I owe thanks for having

sent me introductory material on environmental accounting.

Notes

1. The Bhopal gas leak, the Chernobyl nuclear explosion, the Love Canal tragedy and the Exxon

Valdez mishap are some examples.

2. Based on Hulm (1989), Thistlewaite and Davis (1996), Burt and Clerk (1997) and Nunn

(1999) as well as interviews held with Greenpeace and Fiji Department of Environment staff,

and local environmental scientists.

3. Sustainable development is defined in the oft-cited 1987 Brundtland report as: meeting the

needs of the present without compromising the ability of future generations to meet their

needs (Burt & Clerk 1997; Gray & Bebbington 1998; Gray et al. 1998).

24

4. Most of the executives in any major business organisation deal with financial matters. Hence,

the directors, president, vice-presidents, chief executive officers (CEOs), business managers

etc. of most organisations usually have competence in accounting or have been accountants.

5. The SEA debate emerged in the 1970s, when an idealistic minority theorised that businesses

should have a broader role than simply to make profits or increase the wealth of shareholders.

The articulation of the belief that companies had a responsibility to the environment, their

employees and the wider community was a significant catalyst for the debate..

6. Based on a report by the International Federation of Accountants (IFAC) entitled

Environmental Management in Organisations: The Role of the Management Accountant. But

see also Gray, Bebbington and Walters (1993), Medley (1997) and Gray et al. (1998).

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28

Sumit K LodhiaIntroductionWhat is environmental accounting?

Figure 1 Elements of environmental accountingFigure 2 The development of environmental accountingThe role of accountants in environmental accountingEnvironmental management

Environmental accounting practice in the Fiji Sugar CorporationA case studyPrior studies in FijiResearch methods

The companyEnvironmental impact of the companys operations

Environmental accounting systemThe role of accountantsEnvironmental managementEnvironmental reporting

Table 2 Some observations on the FSCs environme

ConclusionArticles and booksAnnual Reports

Newspapers