Environmental Liabilities: What it is, aspects and division

 


In recent years, we have noticed a growing concern to ensure that a company develops in a sustainable manner, which makes mastering concepts such as environmental liabilities essential for more attentive professionals, especially those involved with accounting.

If, on the one hand, the business needs to become solid and competitive, on the other hand, it is important to ensure that growth takes place in harmony with environmental preservation policies.

It is in this context, of ever-increasing investments in the environment, that companies are beginning to worry about monitoring and proving that all intended expenditures reach the desired end.

Thinking about how relevant this topic has become in recent times, this article seeks to clarify what environmental liabilities are, their importance, division, aspects, and also their relationship with accounting routines in companies.

What is environmental liability?

To begin with, environmental liabilities correspond to the sum of damages to the environment caused by companies and, consequently, the obligation to repair them.

That is, in a very objective way, when we talk about environmental liabilities we refer to the waste produced through the performance of a certain company.

Environmental liabilities do not only refer to environmental degradation , but also include all obligations contracted by the company voluntarily or involuntarily to preserve, recover and protect the environment.

Thus, any obligation that benefits the environment in which the resources are used in a sustainable way, constitute the environmental liability.

Therefore, any productive activity, regardless of its nature, generates resource extraction and some type of impact on the environment.

Currently, the environmental factor is part of the entity's management process and influences the emergence of the concept of Corporate Social Responsibility.

Aspects of environmental liabilities

Environmental liabilities are quite comprehensive, being classified into two aspects – administrative and physical.

Administrative aspects of environmental liabilities

The administrative aspects include compliance with environmental standards and the procedures and technical studies carried out by the company, including:

  • Records and entries with government institutions;
  • Compliance with legislation;
  • Carrying out a study and report on the environmental impact of activities;
  • Compliance with environmental licenses;
  • Pending violations, the Basic Environmental Program (PBA) and the results of environmental audits.

In addition, as it is comprehensive, it also includes fines and penalties, tacit, written commercial agreements with neighborhoods and/or communities and pending compensation, indemnity or minimization measures.

Physical aspects of environmental liabilities

The physical aspects cover numerous areas, such as contaminated industries and soil and water contamination, deactivated facilities, obsolete equipment, unmet forest replacement, recovery of degraded areas such as mining and restoration of dumps such as highways, for example. .

In addition, of course, to framing the recompositing of construction sites, human resettlements not carried out transformers with PCB, packaging of pesticides and dangerous products, used tires, animal waste, expired medicines, obsolete furniture and utensils, among others.

How is the environmental liability divided?

Environmental liabilities, like any liability, are divided into third-party capital and equity, thus constituting the origins of the company's resources.

We have examples of the origin of both capitals: bank loans for use in environmental management, purchase of equipment and inputs for environmental control, social, labor and tax obligations, shareholders and society.

But, after all, what is the difference between third-party capital and equity?

Debt capital

Third-party capital is external resources that companies seek to finance their activities through financial institutions.

The biggest advantage of third-party capital is being able to have full control over the use of credit that was received from third parties, without interference.

Equity

Own capital is nothing more than all the net capital of the company, that is, all the equity that the company has, which the partner-owners and shareholders receive since they are the beneficiaries of all the profit of the business.

To arrive at this value relative to the equity of a business, it is necessary to calculate the difference between all the value that the company has and all the value of its debts.

What is the difference between environmental assets and liabilities?

It is worth noting that there are differences between environmental liabilities and environmental assets.

Thus, when we talk about environmental assets, we are talking about machines, inputs and parts that the company has already acquired as a way of minimizing its impact on nature.

We can insert in this concept:

  • Investment in research;
  • Implementation of new technologies;
  • Facilities for environmental education projects;
  • And machinery.

Thus, it can be concluded that the main difference between environmental assets and liabilities is that: in the first case we have everything that a business does to control environmental impacts and in the second case, we have an action aimed at recovering the damage caused during its operation .

However, both data must be part of a company's balance sheet and can be decisive factors when negotiating the organization.

Why is environmental liability so important?

Since we went through the Industrial Revolution, the world has suffered the impacts of unbridled development and unconcerned about preserving nature. Such irresponsibility would certainly have consequences, and today, it is possible to perceive the signs of exhaustion emitted by the environment.

Business activity itself affects the environmental balance. On the other hand, there is no denying that some business segments end up harming the ecosystem more aggressively, such as large factories, mining companies and even construction companies.

It is in this sense that we realize how much concern about environmental liabilities is essential for the survival not only of the business, but of the entire planet.

Environmental management allows the company to comply with environmental laws and regulations, avoiding fines; develop and use clean technologies that reduce waste emissions into water, air and soil as well as save energy and materials; reduce risks to the environment and man.

More and more companies that invest in sustainability and assume their environmental liabilities are better seen by stakeholders and have possibilities to remain in the market.

A company that operates sustainably is also well regarded by consumers, as many are concerned about environmental issues these days, and this shows another side of the company – a more humane and empathetic side.

How to carry out the investigation of environmental liabilities?

The carrying out of the investigation of environmental liabilities must be carried out in cases where there are places where there are signs of environmental contamination, when requested by the environmental agency that issues licenses, acquisition or sale of an industrial property and closure of companies with polluting activities.

It is even recommended that a company's environmental liabilities be investigated or declared at the time of a possible sale. This is because new owners also acquire environmental liabilities.

One of the ways to identify a company's environmental liabilities is through the analysis of the Environmental Impact Study (EIA) and Environmental Impact Report (RIMA) – documents required for opening and licensing companies.

1st part: Preliminary Assessment of Environmental Liabilities: where technical and historical information of the area is collected, in addition to the activities that were or are carried out in that space.

2nd part: Confirmatory Assessment of Environmental Liabilities: previously raised by the preliminary study, it aims to certify this possibility.

3rd part: Detailed Assessment of Environmental Liabilities and Risk Analysis: this is where the area affected by contamination and the concentration of chemical products in the environment are determined.

4th part: Recovery of Degraded Areas: it is in this phase that the activities that need to be carried out for the recovery of the evaluated area are described.

What are the ways of measuring environmental liabilities?

Regarding the measurement of liabilities , the United Nations (UN) determines that when there are difficulties in estimating the value of an environmental liability, the best possible estimate should be indicated. The explanatory notes must disclose information on the method used to prepare this estimate.

Many entities do not record, nor show their environmental liabilities, given the impossibility of financial measurement, in whole or in part.

For these cases, it is imperative that the reasons that prevented the entity from making an estimate of the value and accounting for the obligation are disclosed, through explanatory notes, but not exempting itself from the responsibility of disclosing its real equity situation.

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