Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future

Quantifying the Unseen: Assessing the Economic Impact of Hidden Green Externalities

Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future


Accounting, as a critical language of finance, plays a pivotal role in shaping modern economies. This research article delves into the multifaceted accounting world, specifically focusing on Green Externalities Accounting in India. It explores the impact of green accounting toolkits and standards on economic development, state relations, and businesses. The article concludes with a call to action for a more sustainable future.

Introduction to Green Externalities

Anthropogenic climate change poses a significant threat, capable of engulfing us in one fell swoop, and its impacts extend far beyond a sudden wipeout. The cumulative acts of degradation have prompted various organisations to develop action plans and indices, such as the Climate Risk Index [1] aimed at addressing the threats of climate change. As determining forces, how can human-run organisations position themselves within the shell of nature’s resources and contribute to a more sustainable narrative?

While there is plenty we can do to keep our activities in check, accounting remains at the forefront in offering a structured process of recording, summarising, and analysing financial transactions among and across leading organisations, businesses, and states. It provides stakeholders with essential information to make informed decisions, influencing business strategies and socio-economic landscapes. Highlighting the pivotal role of finance in climate policy, Article 2 of the Paris Agreement emphasises the necessity of aligning financial flows with a trajectory aimed at reducing greenhouse gas emissions and enhancing resilience to climate change.

India’s adoption of International Financial Reporting Standards (IFRS) was initially announced by the Securities and Exchange Board of India (SEBI) in 2010. The convergence and adoption, however, were optimal and only applied to a few companies voluntarily. [2] Although limited, we can not discount the role that accounting standards such as the IFRS and the like play in determining GDP standards and broader economic analysis; much of which has come to stand synonymous with progress and development. Amidst the towering skyscrapers and bustling city streets, the relentless pursuit of economic growth often takes centre stage. However, as we marvel at the soaring GDP figures, it’s time to ask a pivotal question: Does GDP capture the true growth of the nation? A World Bank report from a few years ago revealed that India incurred a staggering cost of $550 billion, equivalent to approximately 8.5% of its GDP, as a consequence of air pollution alone. Furthermore, the expenses related to external factors like water pollution and land degradation were potentially even more substantial. India’s practice of exporting commodities effectively results in the depletion of its natural resources, which in turn escalates the risk of desertification and significant land degradation. If these alarming trends persist, it is plausible that India’s food production could experience a decline of 10-40% within a century. Therefore, when celebrating GDP growth, it is imperative that we also take into account the depletion of our nation’s natural capital in our economic assessments. [3]

Taking into account green externalities aims to quantify the environmental impacts of economic activities, such as pollution or resource depletion, makes them visible in economic assessments. It considers factors including but not limited to greenhouse gas emissions, water usage, and land degradation. In the pursuit of development through multidisciplinary approaches encompassing socio-economic concerns and environmental sustainability, it becomes imperative to ensure enduring progress for the future. This is particularly relevant for developing economies like India, where a shift from agriculture to manufacturing and services sectors is underway. The inadequacy of the traditional System of National Accounts (SNA), which measures Gross Domestic Product (GDP) and Gross National Product (GNP), lies in its inability to capture the true essence of a nation’s wealth, income, and performance. It fails to account for the environmental impact via externalities, be it positive or negative. Additionally, the conventional SNA disregards the value of natural resources that remain untransformed into marketable goods or services. The concept of ecosystem services, which denotes the environment’s free services to humanity, remains absent from current national accounting methods. These services, often termed as the ‘GDP of the poor,’ are especially critical for impoverished communities. The absence of ecosystem services in national accounting overlooks their significant contribution. The evolution of Green Externalities accounting has gained substantial urgency in recent years due to the significant losses nations have suffered from neglecting this crucial aspect of economic analysis. Severity has unearthed consequences including habitat destruction, resource depletion, and climate change. These issues have led to ecological crises, natural disasters, and adverse health effects, all of which have imposed substantial economic costs.

As per the United Nations Environment Programme Report, 1997 [4], greening the GDP is one of our major pathways towards a Green Economy. The integration of Green Accounts into traditional accounting systems will not only enable policymakers to analyse the interconnections between a nation’s economic activities and its environmental costs but also quantify these costs at various stages of production processes. This will empower relevant agencies to access precise data for amending industrial practices that surpass established environmental limits. Beyond accounting and assessment, parameters associated with Green Accounting provide a more accurate representation of economic growth by considering environmental costs and holding businesses accountable for their environmental footprint. Finally, it enables governments to tailor policies for regional variations in environmental impact, promoting balanced development.

Tools for Green Externalities Accounting

Creating an effective toolkit for Green Externalities Accounting involves defining clear metrics, establishing data collection protocols, and developing standardised reporting guidelines. It requires encompassing both qualitative and quantitative data to assess environmental impacts comprehensively. To facilitate the development of Environmental Accounts, key international organisations, including the United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development, and the World Bank, jointly issued the System of Environmental and Economic Accounts (SEEA-2003) handbook in 2003. Two primary approaches to Green Accounting have been proposed: one involves creating separate ‘satellite’ accounts dedicated to valuing natural resources, while the other advocates for a comprehensive modification of the traditional SNA to fully incorporate environmental accounts. In India, the Green Indian States Trust (GIST) took a significant step by creating environmentally adjusted accounts in 2003 under the Green Accounting for Indian States Project. Nevertheless, Green Accounting in India is in its infancy. The former Minister of Environment and Forests, Government of India, Mr. Jairam Ramesh, advocated for a transition towards incorporating environmental factors into national accounts by 2015. The TEEB India (The Economics of Ecosystem and Biodiversity) Project, initiated in 2011, conducted some standalone studies in this regard but hasn’t sufficiently contributed to the development of a Green GDP due to a fragmented approach.

Among the list of prominent reporting and decision-making tools that businesses and organisations are adopting, this article briefly discusses four of the following: Environmental Impact Assessment (EIA), Life Cycle Assessment (LCA), Carbon Pricing, and Sustainability and ESG Reports.

Environmental Impact Assessment (EIA) happens to be one of the many successful policy innovations of the 20th Century for environmental conservation. In India, it took off in the late 1970s and was first ordered during the early 1980s, on the Silent River Valley hydroelectric project. Since its induction in countries undergoing rapid industrialisation and economic growth-such as India- EIA has served as a vital toolkit in helping entities account for the environmental impact of their operations and decision-making and ensure that progress is aligned with environmental protection.

As for its contemporary, the Life Cycle Assessment (LCA). LCA helps pinpoint environmental “hotspots” and offers insights into reducing the substantial energy and material inputs, emissions, and waste, influencing decision-making at various project stages for improved environmental performance. [5] Energy audits generally encompass a thorough examination of an entity’s energy consumption patterns, encompassing the operation of energy-demanding equipment like HVAC systems, lighting, and industrial machinery. Organisations commonly utilise Life Cycle Assessment (LCA) to pinpoint instances of energy inefficiency and devise conservation-focused approaches. [6] However, LCAs demand a substantial amount of data since they require the inclusion of all inputs and outputs related to the environment across every step of supply chains and throughout the entire life cycle of a product or service. Therefore, the establishment of a comprehensive national LCA database is essential for advancing more comprehensive and scientifically grounded approaches to address sustainability challenges at the national level.

Carbon pricing is a policy mechanism aimed at reducing greenhouse gas emissions by assigning a cost to carbon emissions. It can be implemented through carbon taxes or cap-and-trade systems. Carbon taxes impose a direct fee on carbon emissions, while cap-and-trade systems set a cap on emissions and allow trading of emission permits. The idea is to incentivize companies and individuals to reduce their carbon emissions by making it financially advantageous to do so. This mechanism is crucial in mitigating climate change and transitioning to a low-carbon economy. However, currently, India does not levy an explicit carbon price. In 2021, fuel excise taxes, functioning as an indirect method of carbon pricing, accounted for 54.7% of greenhouse gas (GHG) emissions, maintaining the same level as in 2018. Conversely, fossil fuel subsidies, which remained at 2.5% of GHG emissions in 2021 as they were in 2018, worked in opposition to the advancements made in reducing emissions.”[7]

ESG sustainability reports are documents produced by companies and organisations to communicate their performance and commitment to environmental, social, and governance factors. ESG factors cover a wide range of issues, including environmental impact, and social ESG reporting is essential for transparency, accountability, and assessing a company’s sustainability and ethical practices. It is increasingly important in today’s business world as investors and consumers prioritise socially responsible and sustainable investments and products.

Obstacles and Requisites for Incorporating Green Externalities in India

India is currently positioned as the fifth most susceptible country to the repercussions of climate change, potentially endangering 2.5% to 4.5% of its GDP annually. To address this vulnerability, India has committed to reducing the carbon intensity of its GDP by 33-35% by 2030 compared to its 2005 levels. Nevertheless, achieving this ambitious target requires a substantial investment of $2.5 trillion between 2016 and 2030, as highlighted in a report by the Ministry of Environment, Forest and Climate Change (MoEFCC) in 2015.

Despite the urgency of the situation, there remains a significant shortfall in climate-related investments, stemming from both public and private sources. A forthcoming study conducted by the Climate Policy Initiative (CPI) indicates that India is currently mobilising less than a quarter of the necessary investment to meet this crucial target, as reported in 2020. [8] This includes regulatory changes, data infrastructure enhancement, and capacity building for businesses and government agencies. A robust framework for valuing environmental externalities is crucial for accurate accounting. Stakeholders in this transition include governments, businesses, environmental organisations, and accounting bodies. Governmental responsibility entails enacting policies to incentivise green practices. Businesses need to invest in sustainability initiatives and report their environmental impacts accurately. Environmental organisations can provide expertise and advocacy while accounting bodies must adapt standards to include green externalities. However, the process of such assessment in India faces several deficiencies which include but are not limited to its exclusive application to project-specific issues, and its focus on data presentation over analysis.

To enhance the process, accounting and assessment must aim to encompass private sector projects influenced by economic policy changes. Specific criteria for evaluating environmental impacts must be tailored to each project and its local environmental conditions. Furthermore, public participation, beginning early in project development is crucial, necessitating informal channels and financial support for affected communities. Associated departments must meticulously review projects, recording decisions publicly along with post-project monitoring. In India, the potential exists to implement these improvements with existing scientific resources. [9]


The research article has attempted to delve into the crucial importance of implementing Green Externalities Accounting, highlighting its pivotal role in reshaping modern economies towards sustainability. It underscores stakeholders’ need to prioritise transparency throughout their operations and be held responsible for the repercussions thereof. Often, minor externalities represent a significant grey area where communities are enduring global environmental impacts that are often overlooked or insufficiently quantified, even when occurring in plain sight. Until we take responsibility for our actions and incorporate them into our accounting practices, we cannot effectively assess or mitigate the consequences these actions have on communities, whether they are directly or indirectly connected to us. Beyond accounting, there will arise a need to assess climate-induced fiscal risks, and changes in the structure of the economy. Now is the moment for action. Connect with Carbon Mandal today to lead your organisation into this essential accounting revolution. Take a bold step with us now to shape a future that’s truly sustainable.

List of References

  1. 20-2-01E global climate risk index 2020 – Germanwatch. (n.d.). https://www.germanwatch.org/sites/germanwatch.org/files/20-2-01e%20Global%20Climate%20Risk%20Index%202020_14.pdf
  2. Adoption of IFRS in India: Benefits, challenges, and measures. (n.d.-b). https://www.ijsi.in/wp-content/uploads/2020/12/
  3. Gandhi, F.V. (2018, May 23). Natural capital in the 21st century. The Hindu
  4. UNEP. Governing Council (19th sess.: 1997: Nairobi). (1997). United Nations Environment Programme:: report of the Governing Council on the work of its 19th session, 27 January- 7 February 1997, 3-4 April 1997. United Nations Digital Library System. 
  5. Muralikrishna, I.V., & Manickam, V.(2017). Life cycle assessment. In Elsevier eBooks (pp. 57-75). https://doi.org/10.1016/b978-0-12-811989-1.00005-1
  6. Rahman, Md. M., & Islam, M.E. (2023). The Impact of Green Accounting on Environmental Performance: Mediating Effects of Energy Efficiency.
  7. Pricing greenhouse gas emissions: Turning climate targets into … – OECD. (n.d.-d).
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AI’s Potential in Sustainable Development in India

Artificial Intelligence – A Green Tech Catalyst for A Resilient Future

Exploring AI’s Potential in Sustainable Development in India

In a world accelerating towards technological advancements, the embrace of Artificial Intelligence stands as a critical pillar in India’s pursuit of sustainability. With its vast population and burgeoning economy, India faces unique environmental challenges that demand innovative solutions. The dance of AI in this context holds immense promise for the country’s ecological landscape. AI’s ability to process incredible amounts of data, analyse patterns, and make intelligent decisions has the potential to transform our approach to environmental challenges. We explore the likely possibilities of how AI is becoming a vital tool in building a resilient future and highlight its significant contributions to a green tech economy.

Energy efficiency is one of the key areas where AI can make a substantial impact. By leveraging Artificial Intelligence algorithms to optimise energy consumption and distribution, businesses and households can reduce their carbon footprint. For instance, according to a report by the International Energy Agency, AI-driven systems could potentially save up to 10% of global energy consumption by 2030, equivalent to the energy produced by nearly 300 coal-fired power plants [1]. This highlights the enormous potential of AI in curbing energy waste.

Artificial Intelligence Dominion- Possibilities of AI application 

India, a country of rich cultural heritage and breathtaking landscapes, is also home to a blossoming eco-friendly revolution. As the world grapples with the urgent need for sustainable solutions, India, as a developing nation, is striving to leverage the power of artificial intelligence to create a dominion of eco-friendly opportunities.

With a population of over 1.3 billion people, India faces significant environmental challenges. However, it has also embraced the potential of AI to address these issues head-on. The country’s commitment to renewable energy is evident in its ambitious goals of reaching 450 gigawatts of installed renewable energy capacity by 2030 [2]. AI can be instrumental in optimising the use of renewable energy sources, ensuring their efficient integration into the power grid and reducing dependency on fossil fuels.

Another pressing issue that AI is helping to tackle is air pollution.  India’s major cities have long battled with high levels of pollution, posing serious health risks to its citizens [3]. By harnessing the power of AI, air quality monitoring systems have been developed to provide real-time data on pollution levels. This information allows for targeted interventions, such as adjusting traffic patterns or implementing emission control measures, to mitigate pollution and improve public health. The possibilities are plenty!

The potential of AI in India’s journey towards a more sustainable future is immense. According to a report by NASSCOM, the AI industry in India is projected to reach $7.1 billion by 2025 [4]. This growth indicates the increasing adoption of AI technologies across various sectors, including transportation, healthcare, and smart cities, further amplifying eco-friendly opportunities.

Ethical Dilemmas: Artificial Intelligence Potential with Environmental Concerns 

AI algorithms can help optimise resource utilisation and enhance energy efficiency, crucial for India’s sustainable development. By analysing data from smart grids, transportation systems, and industrial processes, AI can identify patterns and recommend strategies for reducing energy consumption, improving waste management, and promoting renewable energy sources. These interventions can contribute significantly to India’s commitment to reducing carbon emissions and combat climate change.

Despite the potential benefits, the deployment of AI in environmental concerns in India raises ethical dilemmas. Privacy concerns arise when data collected by AI systems, such as sensors or surveillance cameras, are used to monitor and analyse individuals’ activities. Striking a balance between environmental monitoring and protecting individuals’ privacy rights is essential. Strict regulations and transparent frameworks should be in place to ensure that data collection and analysis are conducted responsibly and with the consent of individuals. In the context of sustainability, AI models might unintentionally perpetuate existing environmental biases or social inequalities [5]. For instance, an AI-driven carbon credit system might favour large corporations over small businesses, inadvertently favouring established players in the market and further marginalising vulnerable communities. Addressing these biases is not only a technical challenge but also an ethical imperative to ensure that AI solutions in sustainability do not exacerbate societal disparities and environmental injustices.

From Conservation to Consciousness

AI’s integration into sustainability requires a cautious approach. The rising energy consumption associated with data centres and AI hardware, often from non-renewable sources, demands a parallel focus on sustainable energy solutions. Moreover, the rapid obsolescence of AI hardware contributes to India’s mounting e-waste challenge, necessitating responsible disposal mechanisms.

The societal implications of AI demand attention. Job displacement from AI automation raises concerns for vulnerable communities in India’s informal labour sector [6]. To mitigate this, reskilling and upskilling programs must accompany AI implementation, ensuring a just transition to a technology-driven economy. Ethical considerations loom as AI relies on vast data sets for training and decision-making. To prevent biased outcomes and protect privacy, comprehensive regulations and standards for AI systems’ ethical use and data privacy must be established.

India’s journey towards AI and sustainability resembles a symphony where harmony is struck between harnessing AI’s potential for environmental conservation and safeguarding against its potential negative impacts. Embracing ethical AI practices, investing in sustainable energy solutions, and prioritising social welfare will enable India to compose a transformative narrative that propels it towards a greener and more sustainable future. As the conductor of this symphony, India holds the power to orchestrate a unique tale of AI’s role in shaping a conscious and sustainable tomorrow.

AIs transformative capability

AI offers transformative capabilities for building a resilient future. Its applications in energy efficiency, resource management, climate change modelling, and smart grids are reshaping industries and propelling us towards a greener, more sustainable world. By combining AI with innovative green technologies and fostering collaboration between industry, academia, and policymakers, we can leverage its power to mitigate environmental challenges and ensure a resilient future for generations to come. Embracing AI-driven solutions today will pave the way for a more sustainable tomorrow. From reducing waste to conserving natural resources, AI has the potential to revolutionise the way we approach sustainability. But why is this important? Because our planet is at a critical juncture, and we need innovative solutions to address the complex issues facing us. That’s where AI comes in as it offers a powerful tool for creating a more sustainable future

To further explore the possibilities of sustainable methods and eco-friendly solutions, do reach out to Carbon Mandal. As a new-age startup striving to achieve sustainability, we offer expert advice and innovative strategies to build businesses in an eco-friendly nation. Visit www.carbonmandal.com to learn more about our services, read related articles, and join the movement towards a greener future. Together, we can orchestrate a unique tale of AI’s role in shaping a conscious and sustainable tomorrow.


  1. IEA (2023), The evolution of energy efficiency policy to support clean energy transitions, IEA, Paris accessed 19 July  2023, https://www.iea.org/reports/the-evolution-of-energy-efficiency-policy-to-support-clean-energy-transitions
  1. Buckely, T, India needs a doubling of installs to deliver on PM Modi’s 450gw by 2030 ambition, ET Energy World, 15 December 2022, accessed 18 July 2023 https://energy.economictimes.indiatimes.com/news/renewable/india-needs-a-doubling-of-installs-to-deliver-on-pm-modis-450-gw-by-2030-ambition/96246672 
  1. India’s AI market to reach $7.8 billion by 2025: IDC, The Hindu, 5 October 2021, accessed 20 July 2023, https://www.thehindu.com/business/indias-ai-market-to-reach-78-billion-by-2025-idc/article36846106.ece 
  1. World Health Organization 2022. Ambient air pollution data, The United Nations, accessed 19 July 2023, https://www.who.int/news-room/fact-sheets/detail/ambient-(outdoor)-air-quality-and-health 
  1. Ernst et al. “The Economics of Artificial Intelligence: Implications for the Future of Work.” Future of Work Research Paper Series. International Labor Organization, 2018. https://www.ilo.org/wcmsp5/groups/public/—dgreports/—cabinet/documents/publication/wcms_647306.pdf 
  1. AI Primarily An Enhancer Today, Job Displacement Real, Yet Not Near, Businessworld, 14 March 2023, accessed 18 July 2023 https://www.businessworld.in/article/AI-Primarily-An-Enhancer-Today-Job-Displacement-Real-Yet-Not-Near/14-03-2023-468981/