different implications of green accounting on the performance of firms in the UAE

 different implications of green accounting on the performance of firms in the UAE

1.1 Introduction

Green accounting is a term used to refer to the new form of account that was introduced to carter for the environment and resources in an organization. Green accounting has been implemented in different countries, including the United Arab Emirates. Despite being a new field in accounting, it has taken root in different financial institutions and other major companies in the UAE. The green accounting has been significant in the directions of firms to the effects that accounting has on both the environment and resources. The inclusion of environmental cost in firms was deemed necessary due to the public opinion of the contributions of financial firms to the environment as well as the effects that accounting has on the same environment. This research will take into account the different implications of green accounting on the performance of firms in the UAE. It will also analyze literature from various sources about green accounting and its effects on the first that have successfully implemented it in the United Arab Emirates.

Background to the study

The term green accounting was first used by Professor Peter Woods in 1980. This new type of accounting takes into account the environment as part of its objectives. This form of accounting is a new practice especially to UAE; however its relevance has been increasing tremendously due to the popularity it has gained among different financial firms in different parts of the world. Apart from checking the company’s loses profits and revenues, green or environmental accounting is a new field that places much of its emphasis on the accounting of environmental impact. Research shows that gross domestic products GPD, has failed to address the environment and all other relevant issues related to it. In this respect therefore the green accounting has been adopted by policy makers to ensure that all the financial aspects of a firm incorporate facto environment. The main idea behind the green accounting is to enable the businesses to both understand and manage all upcoming quid pro quo between environmental goals and traditional economic goals. UAE has been one of the major countries with green accounting. Research shows that the essence of these changes was based on the need to increase the efficiency of accounting by getting rid of the tradition gross domestic products as its relevance has been drastically reduced.

Statement of the problem

Accounting has been one of the most significant aspects of any firm’s especially financial organizations. The United Arab Emirates like any other country has been focusing more on the Gross domestic products as the primary account form. However, in recent times there have been dire needs for accounting fields that take into account the environmental impact. Several firms have benefited from the green or environmental accounting in the UAE.

Objectives of the study

The objectives of the study are;

To determine the implications of green accounting to financial institutions in the UAE

To ascertain the relationship between green accounting and financial performance in the UAE

Literature review

2.1 United Arab Emirates policies on green accounting

The United Arab Emirates (UAE) is one of the countries with successful implementations of the green accounting. There are three main aspects of the implementation process that needs to be considered. This includes environmental awareness, environmental reporting and environmental involvement. The UAE and other developing countries such as Jordan are among the latest countries to implement green account (Dudin et al, 2016). This has gone a long way to increase the popularity of the financial institutions due to their contributions to environmental conservations, a topic that has been frequently debated across all networks. Some of the financial institutions that have already implemented these policies include the Abu Dhabi Islamic Bank, Bank of Sharjah, Bank Melli Iran, Bank of Baroda, Commercial Bank of Dubai and Arab African International Bank among others.

The financial institutions have diversified over the years particularly in light of several financial scandals that rocked the 20th and 2st centuries. The significance of accounting in first cannot be stressed enough. The United Arab Emirates is one of the countries with more elaborate financial institutions. In recent years the United Arab Emirates has adopted the environmental accounting by factoring environmental cost in (Saedi et al, 2015). However study shows that majority of the organizations have displayed tremendous growth since the implementations of the green accounting. This implies that the original idea of the use of Gross domestic products has been deemed ineffective in the dynamic market hence the need for diversification in the financial industry (Crisostomo et al, 2011).

The primary focus for the UAE over the past few years is the securing of a better future for their future generations through the sections of options that conserve the environment while to some extent propagating economic growth. Green accounting has been viewed as a booster to the economic development of the country through increasing the performance of the financial institutions in the country. Abu Dhabi Islamic Bank, for instances has recorded an increase in profit margin over the past year with a majority of the success is attributed to green accounting. A study shows that over 70% of the GPD in the UAE is independent of oil. The target of the government is to include other equations in the economic development to ensure sustainable growth f the economy for future generations (Ghazal et al, 2016)

Green accounting has been deemed one of the most recent strategies adopted by the country. Green accounting has been perceived as a viable option due to its ability to provide useful financial information that can be used in decision making process as well as policy formulation. The green economy was one of the main challenges faced by the UAE after the initiative for green economy for sustainable development was instituted in the year 2012. The implementations of the green accounting as therefore been regarded a s subject of the overall green economy initiative that was aimed at ensuring sustainable economic development while taking into account the needs of the future generations (Crisostomo et al, 2011).

There are numerous factors affecting the genera performance of any organization. Some of which include the competitions in the industry as well as other internal and external features in the organization. In the UAE financial institutions are among the few organizations that have adopted the green accounting. This has been attributed to the dynamics of the society with preferences paced on all aspects that support sustainable development and economic growth. There have been increased concerns by the public over the human activities to the ecosystem. The establishment of sustainable strategies has so far bore little or no fruits at all. The need to partake in the environmental preservations goals of an organizations have been propelled by policies that have been implemented by the government of the United Arab Emirates in response to the green economy sustainability initiative that was instituted back in 2012.

At the corporate level, green accounting enables the management to determine whether the firm is discharging its corporate social responsibility in sustaining the environment. The Firms in the United Arab Emirates have indicated a suitable growth over the past few years. As mentioned the business objectives are the primary agenda for the economic development of the organization. However the environmental goals have been instrumental in marketing the firms as well as meeting their obligations in environmental conservation (Poulis & Wisker, 2016)

2.2 forms of green accounting

There are different forms of green accounting most of which have been adopted in the United Arab Emirates. The first is green financial accounting which provides the external stakeholders with the information about the performance of the financial institutions. This information is based on the financial status of the company. The information is used by the management to prepare financial reports that are needed by lenders, investors and other stakeholders. Environmental management accounting is yet another form of green accounting. This entails the management of the economic and environmental performances (Vaghefi et al 2015). This is achieved through the implementations of diverse environmental related accounting practices and systems. In the UAE this process entails the auditing and reporting in some companies. Generally environmental management accounting is made of life cycles costing, strategic planning, benefits assessment as well as the environmental management strategic planning. This has been one of the strategic employed by a number of organizations in the UAE since the institutions of the sustainable economic growth in 2012 (Mansour, 2016)

Environmental cost accounting refers to the environmental cost that is required to meet the full cost accounting. In this respect the process entails the identification and allocations of cost such has environmental, social and economic to process, activities, budgets and products. Other forms of green accounting include ecological accounting and natural resource accounting. Study shows that at least 48 % of all the firs in the UAE have at some point provided free finance products or services. This signifies the implications of green accounting to the overall economic development of the United Arab Emirates (Al-Mawali et al, 2018). By 2015, at least 0.275 of the Gross Domestic product has been placed in domestic green investment.

2.3 Implications of green accounting

The race to adopt green accounting has resulted in a competitive advantage among financial institutions who have already adopted the same strategy. Study shows that all those institutions that have adopted the green accounting strategy have been inspired by both competitive advantage and the cost savings reputation. In recent years, the government has also formulated policies that support the implementation of a green accounting. This is based on the report offered by Ministry of climate change and environment (Goyal, 2013). This ministry in conjunction with the central Bank of the UAE has met on numerous occasions to discuss the future of green accounting. The emphases of all these changes in policies towards green accounting have been directed to the economic sustainability by firms in the country. The focus of the green accounting is to increase accountability among institutions as well as the collective efforts of financial firms with the government.

The dynamics of the society have witnesses the running’s to adopt environmental friendly policies by most firms in the UAE like any other country. Te diversifications of products and services offered by organizations also merit the need for adopting such policies. There has been intense research conducted with regard to green accounting and financial institutions in the United Arab Emirates. The consensus for this research indicates that green accounting has attracted external stakeholders, investors and lenders from different organizations and other related shareholders. The essence of the green accounting as been regards as a positive contribution of the firm’s performance. The legitimacy of these policies were cemented by the governments support to sustainable economic development with emphasis on green economy.

It can therefore be affirmed that green accounting has been an integral part of the recent economic development in the United Arabs Emirates (Vaghefi et al 2015). This concussion has been drawn from the efforts made by numerous financial institutions in the country such as the Abu Dhabi Islamic Bank, Bank of Sharjah, Bank Melli Iran, Bank of Baroda, Commercial Bank of Dubai and Arab African International Bank among others. The different forms of green accounting also have definitive roles in the implementations of policies that support a green economy. The recent awareness of the implications of green economy has increased the demand for goods and services offered by institutions that have already implemented the green accounting among others (Nobanee & Ellili, 2017). The policies of green economy have however not begun in recent years.