TSR – FASB undertakes environmental credits

Podcast overview

More companies are using carbon offsets, allowances and other environmental credits to meet net-zero goals, trade or comply with regulations. With no US GAAP accounting for these credits today, there’s diversity in practice. This episode of The Sustainability Report looks at how the FASB's proposed model aims to standardize financial accounting and disclosure for environmental credits and obligations and how it could impact your company.

Asset or expense? Companies would account for environmental credits based on their intended use: credits likely to settle an ECO or be transferred in an exchange transaction would be recognized as assets, initially measured at cost. All other credits would be expensed as incurred. Capitalizable costs for internally generated credits would be limited to transaction costs. Companies would recognize liabilities based on credits needed to satisfy their ECOs as if the reporting date were the end of the compliance period, measuring funded and unfunded portions.

Applicability

Entities that have environmental credits or environmental credit obligations

Relevant dates

• Comments due April 15, 2025.

Podcast contents

• 00:05 – Introduction
• 02:30 – Environmental credits and how companies comply 
• 06:10 – FASB definition of environmental credits 
• 08:45 – In-scope obligations 
• 12:00 – Various uses for a credit 
• 19:05 – GHG emissions accounting meets financial reporting 
• 23:00 – Three next steps 
• 25:15 – Parting thoughts