Accounting is the Language of Sustainability

Abstract

This paper is based on a presentation at the 2024 Accounting and Business Research, International Accounting Policy Forum in Berlin. We thank participants at the forum for their helpful comments ABSTRACT We discuss the FASB Conceptual Framework as a foundation for developing an environmental accounting system. We describe three proposed carbon accounting systems. We introduce a carbon accounting measurement framework for net-zero pledges that parallels the financial reporting framework for lease accounting (ASC Topic 842). Under this framework, entities prepare emission reduction schedules to achieve net-zero targets by a specific date. This proposed framework creates a Pledge Asset and a Pledge Liability account (the present value of projected emissions) as beginning balances, which are amortized in a manner similar to lease assets and liabilities. A Carbon Flow Statement tracks actual emissions and pledge variances, providing information regarding an entity's progress toward its net-zero target. Significant variances may result in a revised emission reduction schedule or target date. The pledges may be monitored and audited.

Keywords: carbon emissions, accounting, net zero, carbon pledge, sustainability