Is carbon accounting lost in translation?

A global study has called for urgent action to create consistent accounting guidance for carbon-related instruments, highlighting the diversity in how companies report these items and the implications for stakeholders.

The research, published by the Association of Chartered Certified Accountants (ACCA) in collaboration with the Adam Smith Business School at the University of Glasgow, examined the annual reports of 300 companies in high-emitting sectors worldwide.

The study found that, in the absence of a dedicated IFRS Accounting Standard, firms are applying their own accounting policies, leading to inconsistent practices.

Dr Ioannis Tsalavoutas, professor of accounting at the University of Glasgow, said:

“Without guidance from standard setters, companies are developing their own accounting policies and providing information based on their own discretion. While the application of judgement when applying accounting policies is welcome, the use of substantially different accounting policies and different terms to describe these instruments, undermines transparency and comparability.”

The study, Reality of accounting for carbon-related instruments, identifies how inconsistent treatment affects stakeholders across the corporate reporting ecosystem, including employees, customers, and investors.

ACCA has supplemented the findings with two articles that provide practical insights for finance teams and decision-makers, including a workflow based on existing IFRS standards.

Aaron Saw, head of corporate reporting insights – financial at ACCA, said:

“Good quality information about carbon-related instruments would benefit a broad spectrum of stakeholders in the corporate reporting ecosystem. Our research provides a glimpse into the complex landscape and offers a starting point for purpose-driven accounting and reporting of carbon-related instruments.”

The report concludes that the lack of a unified standard creates challenges for investors and businesses navigating carbon markets, ESG claims, and reputational risks. It urges standard-setters to develop a global framework that would:

• define the scope of carbon-related instruments,
• set clear rules on recognition and measurement, and
• require disclosures that allow users to evaluate their financial effects.

The researchers also recommend adopting an overarching term, “carbon-related instruments”, to harmonise language across markets and improve comparability.

ACCA is calling on finance professionals, regulators, and standard-setters to engage with the report and contribute to shaping future guidance, arguing that clearer standards would support trust and transparency in carbon markets.