Implementation of Environmental Accounting in a Halal Manufacturing Company Implementasi Akuntansi Lingkungan di Perusahaan Manufaktur Halal Hamid Siti Nur Cholisa sitinur@gmail.com Muis Lidya Shery lidyasherymuis@umsida.ac.id Indonesia Indonesia 25 10 2024 <bold id="bold-1bffe86b9d4fc678e84709ec58cd1a30">INTRODUCTION</bold>

Due to its ethical manufacturing practices, hygiene, and quality standards, the halal business has become a substantial global economic sector that is appealing to both Muslim and non-Muslim consumers simultaneously [1]. Dinar Standard's 2023/2024 "State of the Global Islamic Sector Report" estimates the global halal sector's value at USD 2.3 trillion. Halal cosmetics (USD 70 billion), halal pharmaceuticals (USD 110 billion), and the halal food and beverage industry (USD 1.27 trillion) are all included in this statistic, in addition to contributions from other industries such as fashion, travel, and Islamic media (Uus et.al 2024). This expansion is supported by the halal manufacturing industry, which is notably active in the food, pharmaceutical, and cosmetic sectors. This industry is driven by the significant demand for halal products that adhere to sharia and safety standards.

Indonesia, the nation with the largest Muslim population on a global scale, is instrumental in the development of the halal sector ecosystem. In 2022, the Muslim population in Indonesia surpassed 237 million individuals, accounting for approximately 86.9% of the total population, as per data from the Central Statistics Agency (BPS). The Indonesian government, through the National Committee for Sharia Economics and Finance (KNEKS), is striving to establish Indonesia as the global hub of the halal business. The Indonesian Sharia Economic Masterplan 2019–2024 explicitly outlines this initiative, with a primary emphasis on the integration of sharia principles into all aspects of economic operations, including corporate accounting and reporting frameworks, and the strengthening of the halal sector.

The company's social and environmental responsibility is inextricably linked to the development of the halal business (Jannah et.al, 2020). Shariah-based Environmental Accounting has emerged as a significant subject that is gathering traction in both academic and practical discussions, in light of the expanding focus on sustainability [4]. The primary objective of conventional environmental accounting is to quantify, document, and disclose the environmental impacts of corporate operations [5]. This reporting is not solely concerned with adhering to state legislation from an Islamic perspective; it is also rooted in the principles of maqashid sharia and spiritual values, including tauhid, amanah, and responsibility to Allah SWT [6].

The concept of maqaṣid al-shariʿah, which consists of five fundamental principles preservation of religion (hifz al-din), life (hifz al-nafs), intellect (hifz al-‘aql), progeny (hifz al-nasl), and wealth (hifz al-mal) has been adapted in contemporary discourse to include environmental protection (hifz al-bi'ah) as a fundamental component of the principle of safeguarding life [7]. In this context, environmental accounting emphasizes the necessity for organizations to be accountable to a higher moral authority (God-conscious accountability) in addition to their stakeholders [8]. The spiritual dimension is a fundamental component of the company's reporting and decision-making framework, as posited by [9], in accordance with the Islamic accountability theory [10].

However, practical experience suggests that the application of sharia-compliant environmental accounting is somewhat restricted, particularly in the halal manufacturing sector. Kimia Farma, which is located within the Medan Industrial Area (KIM2) in Deli Serdang Regency, North Sumatra, serves as an illustration. The incorporation of sharia principles in environmental reporting has not been prioritized, despite the company's acquisition of halal certification and the submission of environmental reports to governmental bodies. According to a recent news article, the public's scrutiny of manufacturing operations at KIM, which has been accused of causing environmental harm, serves as evidence that sustainability reporting fails to embody the comprehensive Islamic principles. The content is consistent with the findings reported by researchers in the following manner:

News about environmental destruction KIM

Source: Berita 2025

The persistent disparity between the principles of sharia environmental reporting and the operations of the halal business is exemplified by this issue. Several halal enterprises, particularly those in the pharmaceutical industry, have produced sustainability reports that are administrative in nature and have not implemented a comprehensive maqasid al-shari‘ah framework. The absence of empirical research that examines the practical application of Islamic principles within the environmental reporting systems of industrial firms exacerbates this challenge. Most previous studies have focused more on reporting Islamic social responsibility or Islamic Corporate Social Responsibility (ICSR), and on ZIS institutions Anggraini, Melyn, 2024 [11]; the financial sector Kamilia & Martini, 2023 [12], Rokhaniyah et.al 2024 [13], Widayanti et.al, 2025 [14]; in hospitals Dahlia, 2021 [15], Susanti, 2021 [16]; and in production companies such as in the study Nabil & Dwiridotjahjono, 2024 [17]. The availability of research on the application of environmental accounting in the halal manufacturing sector is limited, indicating a substantial void that requires more pertinent and contextualized investigations.

To understand these dynamics more deeply, this study refers to two main theoretical foundations, namely stakeholder theory [18] and Islamic accountability theory [5]. According to stakeholder theory, organizations are accountable to society and the environment in addition to their capital proprietors [19]. In contrast, Islamic accountability theory introduces a transcendental aspect to accountability processes, requiring that enterprises be accountable for their operations not only to people but also to Allah SWT [20]. The development of a more comprehensive and significant environmental accounting system is supported by the synergy of these two concepts.

The research's originality is derived from its methodological approach, which involves a case study of PT Kimia Farma in the Medan Industrial Area. This topic has not been extensively investigated in the sharia accounting literature. This paper investigates the application of environmental accounting concepts and introduces an environmental reporting model that is based on maqasid al-shari‘ah.

This study aims to examine the application of environmental accounting in the halal industry, using a case study of a manufacturing company in Medan City (Medan Industrial Estate II/KIM2). This research is expected to serve as a reference for improving reporting practices that are not only socially and environmentally responsible but also align with spiritual values in the context of halal business. Furthermore, this study seeks to advance the field of sharia accounting by offering practical insights for regulators, sharia auditors, and industry stakeholders in the development and implementation of environmental reporting systems consistent with Islamic principles and the Sustainable Development Goals (SDGs).

 <bold id="bold-88534a3abf756b036d36e7adcd474ca0">METHOD</bold>

Utilizing an exploratory case study design, this investigation implements qualitative methodology [21]. This methodology was employed because it is consistent with the study's objectives to conduct a comprehensive examination of the challenge of integrating sharia-compliant environmental accounting into the halal industry, with a particular emphasis on manufacturing companies. Academics can gain a contextual and comprehensive understanding of environmental accounting methods through case studies, which involve direct interaction with the study participants.

The study's site was deliberately chosen to focus on manufacturing enterprises in KIM2, specifically PT Kimia Farma in Deli Serdang Regency, which has halal certification from LPPOM MUI and/or BPJPH and indulges in industrial procedures that have an environmental impact. Medan City was chosen for its status as a halal sector center in the Sumatra region. It is home to numerous industrial zones, including the Medan Industrial Area (KIM2), which functions as a foundation for halal food and beverage production enterprises.

Data collection methods include direct observation, in-depth interviews, and documentation. The data sources obtained will be processed manually, starting with interviews with company management, particularly the finance and environmental departments. The interview guide was created in accordance with the theoretical framework of Islamic accountability and the principles of maqashid sharia, with a focus on environmental responsibility, spirituality in reporting, and the challenges and strategies that companies face when implementing environmental accounting. The degree to which environmental factors were incorporated into the production and reporting processes was evaluated through observation. Simultaneously, financial reports, sustainability reports, and other pertinent documents were documented [22].

The theme analysis approach was employed to analyze the data that was acquired. The analysis was conducted in a phased manner, commencing with the transcription of interview data, followed by data classification, identification of primary themes, and data interpretation in relation to the theoretical framework. Islamic accountability theory (Triyuwono, 2019) elucidates the spiritual and ethical principles in the company's reporting and decision-making processes, while stakeholder theory (Freeman, 1984) delineates the company's obligations to stakeholders.

 <bold id="bold-e37690787b2b842484920aad2c349b80">RESULTS AND DISCUSSION</bold> A. RESULTS Forms of Environmental Accounting Implementation Applied by PT Kimia Farma

The results of the exhaustive interviews and observations conducted with PT Kimia Farma, a halal manufacturing entity located in the Medan Industrial Area (KIM2), suggest that the entity is currently in a nascent and incomplete phase of growth. The concepts of maqashid sharia have not been fully integrated into the reporting and accounting framework, despite the company's compliance with its administrative duties for environmental reporting.

Field observations conducted on May 9-10, 2025, demonstrated that PT Kimia Farma has a well-defined environmental policy and is implementing numerous measures that are relevant to environmental protection. The programs that were directly observed are as follows:

Implementation of PT Kimia Farma's environmental policy

Aspect Implementation
Waste Management Wastewater treatment through an integrated wastewater treatment plant (IPAL).
Energy Use Efforts to make electricity efficient by implementing an automation system and replacing LED lamps.
Environmental CSR Planting trees around the industrial area and training local community health.
Environmental Regulation Compliance Periodic reporting to the Medan City Environmental Service and annual environmental audits.

Source: Research Observation 2025

Three primary components comprise the implementation:

1.Documentation and identification of environmental expenditures, such as energy consumption and refuse management;

2.Reporting on corporate social responsibility (CSR), which encompasses the reduction of carbon emissions, energy efficiency, and environmental initiatives;

3.Compliance with environmental regulations established by the Environmental Management Agency and the local government.

The halal manufacturing enterprises that were analyzed had primarily implemented a variety of environmental policies, such as energy efficiency, waste management, and environmental social responsibility initiatives, as indicated by the field results. Conversely, there is no explicit documentation regarding the implementation of an environmental accounting framework that integrates the principle of hifz al-bi'ah (environmental protection) and the integration of Islamic accountability values, including maslahah, amanah, and tauhid, into corporate sustainability reporting. The corporate environmental reporting discourse has not explicitly included the spiritual dimension.

Mr Ferby Aprialdi, an informant from the financial sector of PT Kimia Farma, corroborated this statement:

“The pharmaceutical industry's extensive regulation is a significant factor in the stringency of our environmental reporting system. Nevertheless, there has been no direct integration of sharia. Although they have not been formally documented in a sharia-compliant report, our internal values may be consistent with principles such as pollution avoidance and safety maintenance.” (Interview conducted in Medan on May 16, 2025).

This statement suggests that ethical principles and social accountability are recognized in management; however, they have not been institutionalized through a systematic Sharia reporting mechanism. The findings are further supported by an interview with Mr. Dodi Handoyo, the director of the Environmental Division at PT. Kimia Farma:

“ We have rigorously followed ISO 14001 and conducted annual environmental assessments. Nevertheless, we have never conducted an environmental assessment from the perspective of maqasid al-sharia. This could be a valuable piece of advice for the future, especially in light of our current halal certification.” (Interview conducted in Medan on May 17, 2025).

This comment suggests that, despite the company's intention to incorporate Islamic principles into its operations, these concepts have not been demonstrated in tangible financial reports.

In the future, PT Kimia Farma has expressed a desire to implement a sharia-compliant reporting system. Mr Ferby Aprialdi, a member of the financial department at PT Kimia Farma, declared:

“We are collaborating with numerous colleges in North Sumatra to establish reporting requirements that are consistent with Islamic principles, in addition to ISO or GRI standards. We consider this as essential for maintaining our competitive advantage.” (Interview conducted in Medan on May 16, 2025).

This presents an opportunity to develop a practical paradigm that balances the demands of sustainability, Islamic faith, and legal requirements.

Additionally, researchers found that PT Kimia Farma has implemented environmental ethics training for its employees, which encompasses fundamental moral principles such as environmental stewardship and accountability. However, the training material does not explicitly incorporate Islamic concepts or references to sharia sources, such as the Qur'an and Hadith.

Additionally, researchers found that the total quantity of Corporate Social Responsibility (CSR) funds allocated by PT. Kimia Farma for initiatives in the Medan industrial zone in 2024 is approximately IDR 5,000,000,000 (five billion). This is consistent with the assertion made by Mr. Ferby Aprilaldi, an informant from the financial section of PT Kimia Farma, who stated:

“We are unable to furnish transparent financial reports as a result of company policy." Nevertheless, the corporation allocated approximately $5 billion for corporate social responsibility (CSR) funds last year. However, we have not yet implemented sharia-compliant recording.” (Interview conducted in Medan on May 16, 2025).

This suggests a prosperity for spirituality; However, there is no established reporting framework or policy that explicitly integrates the environmental accounting system with Islamic precepts. The implementation of environmental accounting is still defined by normative ideals, rather than a formalized and standardized reporting structure.

The Environmental Division serves as an illustration of the utilization of internal terminology, such as "blessings," "moral responsibility," and "safety of the people," during garbage reporting and production review meetings. The company's sustainability reports that have been officially published do not contain this language.

This discovery has exposed a discrepancy between formal reporting frameworks that are consistent with conventional accounting norms and internal practices that are based on Islamic beliefs. Financial considerations, environmental sustainability, and maqashid sharia ideals have not been comprehensively integrated as the spiritual and ethical foundation for reporting.

 B.Supporting and Inhibiting Factors in the Implementation of Environmental Accounting at PT Kimia Farma

The study's results suggest that the implementation of environmental accounting at PT Kimia Farma, a halal manufacturing entity located in the Medan Industrial Area (KIM), is hindered by a variety of dynamics that underscore prospective, structural, and cultural impediments. By conducting extensive interviews with the environmental team of the company, the researchers identified numerous facilitating and obstructive factors in the implementation process.

Supporting and Inhibiting Factors in the Implementation of Sharia-Based Environmental Accounting

Category Supporting Factors Inhibiting Factors
Managerial Management commitment to Islamic values and sustainability (implementation of the principle of hifz al-bi’ah through waste management and energy efficiency). The company's primary focus is on administrative efficiency and regulatory compliance, not on spiritual or sharia reporting.
Certification and Systems Halal certification by LPPOM MUI encourages a disciplined work culture, including environmental documentation and sharia-based internal audits. Lack of technical guidelines or environmental reporting standards based on maqashid sharia; reporting still follows conventional GRI/PROPER standards.
Culture and Ethics Ethical and spiritual awareness of Muslim employees towards environmental preservation as part of religious responsibility. Low literacy of accounting and environmental staff regarding maqashid sharia and Islamic accountability, due to conventional technical/economic educational backgrounds.
Internal Training There is Islamic work ethics training and internal coaching related to the values of moral responsibility towards the environment. The training materials have not explicitly integrated sharia concepts, such as verses from the Qur'an or hadiths related to environmental conservation.
Supporting Factors

1.Management Commitment to Islamic Values and Sustainability

The management of PT Kimia Farma exhibits a commitment to environmental stewardship that is consistent with Islamic ethical values and sustainability concepts. The principle of hifz al-bi'ah (environmental preservation) is exemplified by the company's practices regarding refuse management, energy efficiency, and the use of eco-friendly products.

Mr Dodi Handoyo, who represented the Environmental Division, stated:

“We acknowledge that our responsibilities as a halal company extend beyond the quality of our products to encompass the production methods. In addition to adhering to these regulations, we strive to embody Islamic ideals in our practices, as Islamic beliefs emphasize the importance of environmental stewardship and sanitation.” (Interview conducted in Medan on May 17, 2025).

2.Halal Certification and Sharia-Based Internal Audit

PT Kimia Farma, a halal pharmaceutical company, has successfully completed the halal certification process by LPPOM MUI and has implemented a halal management system in its manufacturing process. The fundamental concepts of sanitation, safety, and production integrity have evolved into core values that promote awareness of environmental implications, despite the fact that environmental accounting is not a formal requirement for certification. This is consistent with the statement made by Mr. Dodi Handoyo from the Environmental Division, which is as follows:

“We are accustomed to LPPOM conducting halal audits. It improves our discipline in documentation and supervision, which encompasses eco-friendly practices and waste management. The certification has not explicitly mandated environmental accounting.” (Interview conducted in Medan on May 17, 2025).

3.Employee Awareness of Islamic Ethics in Production

The significance of environmental preservation is perceived by employees of PT Kimia Farma who are Muslim as a spiritual obligation and a religious duty. The development of a work culture that supports the application of accounting in accordance with sharia principles has been facilitated by a variety of internal initiatives, such as regular studies and training in Islamic work ethics.

 Inhibiting Factors

1.Unavailability of Technical Guidelines for Sharia-Based Environmental Accounting

The primary obstacle that PT Kimia Farma faces is the absence of reporting criteria or standards that are specifically designed to regulate environmental accounting from an Islamic perspective. Maqashid sharia indicators are not comprehensively included in the reporting that has been conducted thus far, which adheres to conventional environmental accounting standards (GRI or PROPER). From the financial department of PT Kimia Farma, Mr. Ferby Aprialdi stated:

“We are currently lacking a standardized reference for recording and reporting environmental impacts in accordance with sharia. The reporting is still subject to governmental regulations rather than the sharia framework.” (Interview conducted in Medan on May 16, 2025).

2.Company Focus on Administrative Efficiency and Compliance

Firms are required to prioritize operational efficiency and administrative conformance, despite their apparent endorsement of Islamic ideals, due to the demands of business. Sharia-compliant environmental accounting is perceived as an ancillary component that is no longer necessary for strategic economic purposes. PT Kimia Farma's finance department's Mr. Ferby Aprialdi stated:

” To date, our focus has been on environmental reporting in accordance with governmental regulations. The incorporation of a sharia component may be advantageous; however, its imminent necessity for corporate success has not yet been investigated.” (Interview conducted in Medan on May 16, 2025).

3.Company Focus on Administrative Efficiency and Compliance

The accounting and environmental personnel of PT Kimia Farma typically possess traditional technical or economic educational qualifications. These principles are difficult to integrate into the reporting system independently due to their inadequate understanding of maqashid sharia theory and Islamic accountability.

 <bold id="bold-5af5ea9378648b210ae3a0e77301c95f">DISCUSSION</bold> A.Form of Environmental Accounting Implementation in PT Kimia Farma Company

The study's results indicate that the environmental accounting practices of PT Kimia Farma, a halal manufacturing entity located in the Medan Industrial Area (KIM), are still in the process of being developed and do not yet fully align with the principles of maqashid sharia. This finding is consistent with the Islamic Accountability thesis, which was developed by Triyuwono. This thesis asserts that financial and non-financial reporting is accountable not only to stakeholders but also to Allah SWT on a vertical level [23].

Although PT Kimia Farma has implemented official environmental policies, such as energy efficiency, effluent treatment, and environmental CSR initiatives, these practices are primarily administrative and regulatory in nature, rather than spiritually motivated. This demonstrates the superiority of the compliance-oriented approach, as defined in traditional accounting theory [24], which is devoid of any transcendental elements that exemplify the principles of tauhid, amanah, and maslahah in reporting.

This conclusion is corroborated by the research conducted by Ariffin & Seman, 2019 [19] in Malaysia, which suggests that sharia enterprises predominantly implement environmental accounting to fulfill legal obligations, without aligning these practices with Islamic principles. [8] reported that the Global Reporting Initiative (GRI) remains the primary focus of environmental reporting in halal enterprises in Indonesia, without a maqashid sharia framework.

The notion of a disparity between normative behaviors and formal Islamic reporting procedures was further emphasized by a statement from Mr. Ferby Aprialdi, who stated, "Concerning sharia, there has been no direct integration yet it has not been explicitly recorded as a sharia-based report." This suggests that the corporation is increasingly recognizing the importance of Islamic-based environmental responsibility; however, it has not yet been formalized in financial reporting procedures.

Additionally, the utilization of phrases such as "blessings," "moral responsibility," and "safety of the people" in internal production meetings implies a spiritual perspective; however, it is still symbolic and has not yet been developed into a methodical framework for the development of the organization's sustainability report. [15] conducted a study on sharia hospitals, which suggests that environmental conservation policies are implemented normatively but have not been explicitly connected to the maqashid sharia framework in reporting. This conclusion is consistent with the same.

Consequently, despite the fact that PT Kimia Farma has implemented certain practical aspects of environmental accounting, it is still imperative to improve the spiritual and ethical reporting dimensions in accordance with the principles of hifz al-bi'ah and the Islamic accountability framework. This will guarantee that the implementation of environmental accounting is both systematic and applicable, rather than merely normative.

 B.Supporting and Inhibiting Factors in the Implementation of Environmental Accounting at PT Kimia Farma

This study established that the application of environmental accounting in the halal manufacturing industry is both facilitated and impeded by a combination of internal and external variables. The primary factor that supports the organization is the management's commitment to sustainability and Islamic values, which is consistent with Freeman's stakeholder theory (1984). This theory emphasizes the importance of considering the interests of all stakeholders, including the environment and society [25].

The declaration of an informant from the environmental division of PT Kimia Farma, "We endeavor to incorporate Islamic values into our operations in addition to regulatory compliance," illustrates a commitment to the principles of maqashid sharia, specifically hifz al-nafs and hifz al-bi'ah. This pledge is a critical first step in the integration of sharia principles into the company's reporting framework.

Additionally, the organization of environmental reporting and management among firms is enhanced by halal certification and the ability to conduct sharia-compliant internal audits. This is consistent with the findings of [26], which suggests that halal certification promotes internal corporate discipline in the context of clean, safe, and ethical manufacturing processes and systems.

However, environmental accounting is confronted with numerous substantial obstacles. The most significant challenge is the absence of standardized criteria and technical regulations for environmental accounting reporting from an Islamic perspective. Mr Ferby Aprialdi stated, "We do not currently have a standardized reference for recording and reporting environmental impacts in accordance with sharia," considering the scarcity of practical literature available for corporate guidance. This conclusion is consistent with the findings of a study conducted by Susanti et.al, 2021 [16], which suggests that the absence of regulatory norms presents a challenge for sharia hospitals in setting up a sharia environmental reporting system.

The company's emphasis on regulatory conformance and efficiency further impedes the process, as sharia environmental reporting is perceived as an ancillary obligation rather than a priority. Despite the long-term impacts on sustainability and reputation, reporting tactics that do not yield immediate financial rewards are considered superfluous in a commercial setting.

Incorporating Islamic principles into the reporting system is significantly impeded by the insufficient literacy of human resources regarding the concepts of maqashid sharia and Islamic accounting. This is in accordance with the concept proposed by Ainulyaqin et al., 2024 [20], which emphasizes the importance of both technical and spiritual proficiency in the creation of a sharia accounting system that is both comprehensive and pertinent.

 <bold id="bold-a5c8984e48091fe9ce334dcfe9c06c53">CONCLUSION</bold> (1) Core Findings:

This study found that the implementation of environmental accounting in the halal manufacturing sector, particularly at PT Kimia Farma Kawasan Industri Medan (KIM), is still in its early stages and does not fully align with the principles of maqasid sharia. Implementation strategies include waste management, energy efficiency, and corporate social responsibility, but these have not been documented in a sharia reporting framework that reflects the values of tauhid, amanah (trust), maslahah (beneficial service), and hifz al-bi’ah (beneficial service). Although Islamic principles have been internalized in the work culture, they are not yet reflected in the company's sustainability report.

(2) Theoretical Implications:

These findings broaden the scope of the Islamic accountability paradigm by highlighting the need for a spiritual dimension in environmental reporting systems. This demonstrates the limitations of conventional, predominantly administrative-regulatory approaches and emphasizes the urgency of integrating maqasid sharia values into sharia-based environmental accounting theory.

 (3) Practical Implications:

For halal industry practitioners and regulators, the design of an environmental reporting structure that explicitly incorporates sharia principles is necessary. Management commitment, an Islamic work culture, and halal certification can provide a strong foundation for promoting spiritually and socially responsible environmental accounting. Improving literacy on the principles of sharia principles among human resources and strengthening sharia-based regulations are also important strategic steps.

 (4) Further Research Recommendations:

Further research is recommended to develop an empirically tested and widely implemented model for environmental reporting based on the principles of sharia principles. Comparative studies between certified and non-certified halal companies can also enrich understanding of the influence of sharia principles on environmental accounting practices across various industry and regional contexts.

 ACKNOWLEDGEMENT

The author would like to express his sincere gratitude to all parties who contributed to the completion of this research. Special thanks are extended to the management, finance department, and environmental division of PT Kimia Farma (KIM2) for their tremendous support, valuable insights, and willingness to participate in in-depth interviews and field observations. The author also thanks his family and colleagues for their continued encouragement and moral support throughout the research process. Hopefully, this research will make a meaningful contribution to the advancement of Sharia-compliant environmental accounting practices and encourage sustainable and spiritually responsible business behavior in the halal industry.