Financial accounting-for-carbon finance. A new standard for a new paradigm

Abstract

This policy paper offers new insights into carbon financial accounting and extends our published overarching COP26 Green Finance Report. The latter was developed in collaboration with the British High Commission, the COP26 Universities Network, and the Singapore Green Finance Centre, and presented analysis and insights into carbon credits financial accounting policymaking in the Association of Southeast Asian Nations (ASEAN). Delivered with the collaboration of the industry, this white paper is addressed to policymakers, regulators, and the financial industry—primarily banks, asset managers, exchanges, and marketplaces. Its aim is to help readers understand the global carbon markets financial accounting regulatory framework and related policymaking challenges, and to suggest concrete policy recommendations. The report focuses on certified carbon offset credits (i.e., carbon offsets) as transferable and tradable financial instruments based on IFRS definitions. It also addresses the lack of transparency and faithful financial accounting representation, concluding with the need to establish a specific standard and revisit the definition of financial instruments for carbon offsets. Drawing on industry insights from leading institutions, senior officials, and policymakers regarding the common understanding of carbon offsets across Europe, China, and Singapore, the paper develops recommendations based on these insights. This topic is highly sensitive, and we respect the anonymity and discretion claimed by industry contributors.