New Ernst & Young LLP report examines greenhouse gas reporting practices as the SEC releases new climate change disclosure guidelines
New York, 2 February 2010 — 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 report released today by Ernst & Young LLP. 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 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.
“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, a 30-year veteran of the Firm, coordinates climate change and sustainability services in the Americas and is a member of the climate change advisory board of the Global Ernst & Young organization. “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,” Starbuck continued.
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.
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.
“A major challenge is determining how to harmonize the various reporting frameworks an organization already uses to avoid future discrepancies. For that reason, an overall approach to greenhouse gas (GHG) management that involves a cross-functional team of professionals –- from the tax department to the environmental sustainability team –- is vital to identify and implement carbon management initiatives,” said Herb Listen, Ernst & Young LLP, a co-author of the Report and a partner in the Firm’s Americas Oil and Gas Center.
The Ernst & Young white paper further examines:
- The methods for accounting for emissions credits and allowances; the Financial Accounting Standards Board (FASB) anticipated draft policies in early 2010, which will address accounting for emissions in trading programs –- a component of many existing state and regional carbon management schemes, as well as proposed federal legislation.
- How the evolution of the carbon market will promulgate new tax rules both locally and federally for those affected, as well as internationally for global corporations.
- Companies can benefit from alignment of their products and/or services with their customers, suppliers, neighbors, regulators and employees to increase enterprise value and corporate reputation.
About The Americas Climate Change and Sustainability Services
Ernst & Young LLP’s Americas Climate Change and Sustainability Services help organizations manage the risks and the opportunities created by regulations and other developments relating to climate change. We assist clients in achieving measurable results by leveraging our leading knowledge of the economics of climate change and environmental sustainability, the global resources of the Ernst & Young organization, and our deep financial insight. We help clients identify the right approach to climate change during each phase of their business from vision, planning and execution to monitoring, measuring and reporting results.
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This news release has been issued by Ernst & Young LLP, a US client-serving member firm of Ernst & Young Global Limited.
Note to editor:
Ernst & Young’s webcast, Climate change and carbon markets: what every business needs to know and why, can be accessed through the webcast archives. Copies of the report, Carbon market readiness: accounting, compliance, reporting and tax considerations under state and national carbon emissions programs, are available at (pdf ,4.38mb).