FASB proposes ASU on environmental credits

The Financial Accounting Standards Board today proposed an accounting standards update related to environmental credits and environmental credits obligations.

The changes in the proposed ASU aims to improve the understandability of financial accounting and reporting information about environmental credits and environmental credit obligations, and improve the comparability of that information by reducing diversity in practice.

Stakeholders noted that entities are increasingly subject to emissions-related government mandates and regulatory compliance programs, which often result in obligations that are settled with environmental credits. In addition, some entities voluntarily purchase environmental credits from third parties. Stakeholders also noted that GAAP does not provide specific guidance on how to recognize and measure this activity, which results in diversity in practice. 

The proposed ASU provides recognition, measurement, presentation and disclosure requirements for all entities that purchase or hold environmental credits or have a regulatory compliance obligation that may be settled with those credits. 

However, as FASB’s role is to establish and improve financial accounting and reporting standards, this proposal only addresses amounts reported in financial statements. Measuring or tracking an entity’s voluntary emissions initiatives or actual greenhouse gas emissions are not addressed by FASB or these proposed amendments. 

FASB is looking for comments, which are due by April 15, 2025. The proposed ASU and information on how to submit comments is available at www.fasb.org.