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This research by ACCA and the Adam Smith Business School of University of Glasgow finds that the variety of terms and accounting treatments for carbon-related instruments can cause complexity. 

The findings suggest that companies need guidance for consistent accounting and reporting of carbon-related instruments.  

What are carbon-related instruments

In broad terms, carbon emissions are priced within carbon markets and companies can use instruments connected to carbon emissions, such as carbon allowances and carbon credits, to reduce their carbon footprint. In this research, we refer to these instruments collectively as ‘carbon-related instruments’.

Purpose of research 

The research is intended to:

  • help accountants and finance professionals understand the growing importance of carbon markets and the current landscape for the accounting and reporting of carbon-related instruments
  • inform a broad spectrum of stakeholders about the considerations for accounting and reporting of carbon-related instruments
  • inform policymakers, including standard-setters, regulators and business associations/networks, about the necessary interventions to improve accounting and reporting of carbon-related instruments.

Present situation 

Currently, there is no IFRS Accounting Standard or guidance dedicated to accounting for carbon-related instruments. Consequently, companies have had to develop their own accounting policies to account for these instruments as either assets, liabilities, income or expenses.

Research

ACCA and the Adam Smith Business School of University of Glasgow examined the annual reports of 300 companies in 10 subsectors around the world and observed at least 11 terms being used within and across companies’ annual reports to describe instruments in carbon markets.

The variety of terms causes complexity when no definitions are given for these terms and their descriptions are often vague. While some terms are frequently associated with one type of carbon market, such as ‘allowance’ with the compliance carbon market, and ‘credit’ with the voluntary carbon market, these associations are not always obvious.

Findings

Several accounting treatments are observed across companies.

On the assets side, these instruments are most often accounted for as ‘intangible assets’, followed by ‘inventories’ and ‘financial assets’. Some companies presented these instruments as ‘other assets’.

Furthermore, these instruments are measured at cost or at fair value (or a combination of both approaches). Some companies do not disclose their measurement approach at all. On the liabilities side, some companies recognise provisions on a gross basis, while others do so on a net basis.  

Recommendations

Considering the growing importance of carbon markets and associated accounting for carbon-related instruments, good quality information about such instruments would benefit a broad spectrum of stakeholders in the corporate reporting ecosystem.  

Therefore, companies need globally applicable guidance for consistent accounting and reporting of carbon-related instruments.

Such guidance should help determine: 

  • the appropriate scope when accounting for each carbon-related instrument that faithfully represents its nature, function and intended use 
  • when and how to recognise the instrument 
  • the appropriate measurement approaches 
  • relevant disclosures to enable users to evaluate the financial effects of such an instrument on the company, including its nature, function and intended use. 

Next steps 

Download the report. 

Coming soon 

Look out for a series of articles due in July 2025 to accompany the research report. Each article will supplement key findings from the research with anecdotes and examples on:  

  • organisations’ perspectives 
  • implications on the organisation and its value chain.
  • considerations for accounting treatments.
Further reading