FASB to explore rules on accounting for ESG credits

By Kevin Brewer for JournalofAccountancy.com

FASB will explore new rules regarding the accounting for financial instruments with environmental, social, and governance (ESG)-linked features and regulatory credits.

FASB added the project to its technical agenda at Wednesday's meeting. The project would monitor the recognition, measurement, presentation, and disclosure requirements for participants in compliance and voluntary programs that result in the creation of environmental credits, including:

• Those created under compliance programs, such as cap-and-trade and baseline allowance programs;

• Renewable energy credits/certificates;

• Renewable identification numbers; and

• Carbon offset credits.

The project also includes financial reporting requirements for nongovernmental creators of environmental credits.

FASB decided that the preliminary scope of the project is environmental credits that are legally enforceable and can be traded. It also decided that the scope of the project excludes the accounting for tax credits, tax incentives, or investments in renewable energy structures or entities (such as partnerships).

FASB added another project to its research agenda: Financial Key Performance Indicators for Business Entities. This project will explore standardizing the definitions of financial KPIs and consider interactions with the regulatory framework.

Based on investor feedback and the need to focus on higher-priority projects, FASB said, it decided not to add projects to its agenda on the following topics at this time:

• Financial key performance indicators;

• Balance sheet classification;

• Materiality considerations for disclosures;

• Debt modifications;

• Fair value measurement disclosures;

• Backward tracing for income taxes;

• Accounting for the sale of a business;

• Recognition and measurement of market risk benefits;

• Equity method of accounting;

• Stock buybacks; and

• Definition of participating interest in transfers and servicing of financial assets.