ESMA to issuers: let’s lift the fog on carbon allowances
As carbon pricing schemes expand, their growing presence is poised to reshape financial reporting, with dwindling free carbon allowances set to bring these programmes into sharper focus on company balance sheets. In light of this, the European Securities and Markets Authority (ESMA) is looking to improve the usefulness of financial disclosures related to these programmes with a public statement addressing how issuers account for carbon allowances in their financial statements.
This statement encourages issuers to consider which IFRS Accounting Standards can be applied to account for carbon allowances, although it does not prescribe a specific method. Instead, ESMA emphasises the need for greater clarity in how companies recognise, measure, and disclose carbon allowances in their financial reports, especially as the market for these allowances evolves and costs rise.
ESMA’s recommendations focus on improving the decision-usefulness of financial statements by promoting transparency in reporting on carbon pricing programmes. With an eye on the growing importance of sustainability in corporate reporting, ESMA also encourages issuers to ensure consistency between financial statements and sustainability disclosures, helping to avoid greenwashing and support stakeholders’ understanding of how companies are managing climate-related risks.
For more details, read the report here.
