What should you know about accounting for carbon offset transactions?
Carbon offsetting recognises that many organisations cannot reduce their CO2 (carbon dioxide) emissions to zero, and it has, therefore, become a key tool for those who say climate change needs to be urgently addressed not just by governments, but also by companies. Offsetting involves balancing those carbon emissions against processes that save or store equivalent amounts – such as energy-efficiency projects and tree-planting schemes – so that the negative effects of climate change are reduced.
Most companies are making big efforts to reduce their carbon emissions. But where this isn’t possible or commercially viable, offsetting is implemented as part of an environmental strategy aimed at redressing the balance, and also as a boost for corporate public relations. Offsetting policies and activities are also increasingly integrated into recruitment and retention strategies. In fact, working towards ‘carbon neutral’ status is often regarded as the mark of an employer of choice.
Carbon offsetting has an impact on the financial reporting of a host of activities, such as energy consumption, company vehicles, commuting, business travel, waste, and logistics. The big debate is over how to account for carbon offset transactions; accountancy firms and offsetting organisations are working to devise systems for consistent and measurable reporting that can be easily understood by all. The coming year is likely to see further debate, as companies strive for greater transparency.