Constrained by Accounting: Examining How Current Accounting Practice is Constraining the Net Zero Transition

11 Pages Posted: 26 Mar 2021

See all articles by Andrew Watson

Andrew Watson

affiliation not provided to SSRN

Thaddeus Zochowski

Impact Investing and Sustainability Special Projects

Robert D. McGarvey

affiliation not provided to SSRN

Date Written: March 23, 2021

Abstract

In February 2020, BP made a commitment to become carbon neutral by 2050, creating an obligation to society and investors. We explore how accounting practice constrains BP’s transition plans. While BP can achieve much of its net zero obligation through technical innovation, these investments will typically be expensed through the income statement, whereas capital expenditures on hydrocarbon projects would tend toward capitalization and slow depreciation through the income statement. And whereas internally-generated innovation will be expensed, intangibles acquired in M&A will be capitalized. Accounting's logic must support BP's net zero obligation as a social imperative and reward its acceleration. Normative accounting for intangibles provides a promising solution to overcome these challenges and restore accounting for net zero decision-making and reporting.

Keywords: Sustainability, Climate Change, Accounting, Intangibles, Normative Accounting for Intangibles

JEL Classification: M10

Suggested Citation

Watson, Andrew and Zochowski, Thaddeus and McGarvey, Robert D., Constrained by Accounting: Examining How Current Accounting Practice is Constraining the Net Zero Transition (March 23, 2021). Available at SSRN: https://ssrn.com/abstract=3811577 or http://dx.doi.org/10.2139/ssrn.3811577

Andrew Watson

affiliation not provided to SSRN

Thaddeus Zochowski (Contact Author)

Impact Investing and Sustainability Special Projects ( email )

Boston, MA 02163
United States

Robert D. McGarvey

affiliation not provided to SSRN

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