Urging Global Uniformity in Accounting Standards for Carbon-Related Financial Instruments
In a groundbreaking study, the Association of Chartered Certified Accountants (ACCA) and the University of Glasgow's Adam Smith Business School have highlighted the need for a globally applicable accounting standard for carbon-related instruments. The standard, if implemented, would ensure faithful representation of their financial and environmental impact.
Currently, due to the absence of a dedicated International Financial Reporting Standards (IFRS) Accounting Standard for carbon-related instruments, companies create their own accounting policies. This leads to significant inconsistencies in how carbon-related instruments are treated in corporate financial reports, undermining confidence in sustainability claims made by companies.
Professor Ioannis Tsalavoutas from the University of Glasgow states that this discretion leads to a lack of transparency and comparability. Aaron Saw, Head of corporate reporting insights at ACCA, emphasized that quality information on these instruments is vital for stakeholders.
The proposed standard would guide companies on defining the scope, recognition, measurement, and disclosure of carbon-related instruments. It would build on the articles include workflows based on current IFRS standards and the broader implications for ESG reporting, tax risk, and reputation.
The study, titled "Reality of accounting for carbon-related instruments," reviewed 300 companies in high-emitting sectors. It found that the lack of transparency and comparability is due to inconsistent terminology and methodologies in accounting for carbon-related instruments.
To address this issue, ACCA suggests a unified term, "carbon-related instruments," to promote harmonized communication across markets. The research also recommends integration of scientific advances and operational experience, sector-specific adaptation within a harmonized global framework, prioritization of direct measurement with validation of models, stakeholder engagement, and alignment with regulatory and voluntary reporting needs.
New international guidelines, such as the proposed ISO International Workshop Agreement (IWA), seek to harmonize greenhouse gas (GHG) accounting standards for industrial products. This will facilitate interoperability of climate-related data, support international trade of low-emission products, and accelerate decarbonization in sectors like construction, automotive, and agriculture.
Moreover, the 2025 Criteria for High-Quality Carbon Dioxide Removal (CDR), developed by Carbon Direct and Microsoft, establish rigorous and pathway-specific standards covering nature-based solutions and engineered and abiotic marine methods. These standards incorporate enhanced technical precision, strengthened measurement and verification, and specialized monitoring protocols for marine ecosystem risks.
In conclusion, while a fully globally consistent accounting standard for carbon instruments is still emerging, the current status involves coordinated efforts to harmonize frameworks, develop rigorous criteria tailored to carbon removal methods, and align sustainability reporting to these evolving standards. ACCA calls on regulators, standard-setters, and finance professionals to engage with the findings, to build a more transparent and trustworthy carbon market.
ACCA has supplemented the report with two practical articles offering insights for decision-makers and finance teams. The urgent need for globally consistent accounting standards for carbon-related instruments is emphasized in the study.
- The lack of a globally applicable accounting standard for carbon-related instruments leads to significant inconsistencies in how these instruments are treated in corporate financial reports, undermining confidence in sustainability claims made by companies.
- According to Professor Ioannis Tsalavoutas, the discretion in creating accounting policies for carbon-related instruments results in a lack of transparency and comparability.
- ACCA suggests a unified term, "carbon-related instruments," to promote harmonized communication across markets and addresses the issue of inconsistent terminology and methodologies.
- The new international guidelines, such as the proposed ISO International Workshop Agreement (IWA), aim to harmonize greenhouse gas accounting standards for industrial products, supporting international trade of low-emission products and accelerating decarbonization.
