Carbon emissions management is becoming an increasingly important business objective for US companies, but questions about accounting, reporting and tax considerations are far from resolved, leading to inconsistent practices, according to a new report.
The demand to focus on emissions reporting was heightened by the January 27 SEC decision to issue interpretive guidance to require greater consistency for registrant disclosures of the effects of climate change on their businesses.
The new Ernst & Young report, "Carbon market readiness: accounting, compliance, reporting and tax considerations under state and national carbon emissions programs," concludes that, while the timing and scope of climate change legislation in the US is uncertain, many countries around the globe (and many states) have some type of regulatory program to manage carbon emissions. With the strong likelihood that there will be more regulatory activity in the US, companies should consider carbon emissions requirements as part of their businesses and financial management strategies now, including establishing plans for measurement, monitoring, reporting and accounting.
Ernst & Young’s report reveals that, in a survey of more than 1,000
US public registrants with revenues between $1 billion and $100
billion, just 29 companies disclosed an accounting policy related to
emissions credits or allowances in notes to their financial statements.
Additionally, far fewer than half of the approximately 1,000 corporate
representatives participating in an Ernst & Young webcast on
January 12, 2010–Climate change and carbon markets: what every
business needs to know and why–claimed to have a strategy in place to
deal with carbon emissions regulations or markets.
“Being carbon market ready is logical business,” explains Steve Starbuck, the newly appointed Leader of Americas Climate Change and Sustainability Services for Ernst & Young LLP. Starbuck. “The global carbon market is likely to grow significantly in the future. Preparing for and identifying related business risks and opportunities up-front, can better position an organization for growth and provide a competitive edge. Last week’s SEC action further highlights the increasing need for companies to have the systems and processes in place to keep their stakeholders informed,"
Following various state and federal reporting frameworks, as well as the evolving accounting standards and tax regulations governing carbon emission management could pose many challenges. To stay ahead of the curve, companies should fully embed carbon-related considerations in their business strategies to address climate change issues effectively. They should review their risk management processes as well as day-to-day business operations, accounting and tax planning.
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