The International Accounting Standards Board (IASB) has voted to delay a decision on whether to add a project on pollutant pricing mechanisms (PPMs) to its work plan, citing mixed stakeholder feedback and limited resources.

Project manager Rachel Knubley said the staff would “continue to monitor developments in this area, including looking at the work that others are doing.”

The 29 January vote means the IASB has deferred a decision on the project until its next agenda consultation, which will likely start later next year.

In their recommendations to the board ahead of the vote, the staff said there was insufficient evidence that the issue was sufficiently urgent to justify disrupting active projects. 

Pressure to tackle PPMs

The main reason for PPMs is to incentivise reductions in harmful emissions. These mechanisms can be broadly categorised as either mandatory or voluntary.

The IASB’s third agenda consultation revealed strong support for the board to address the accounting complexities of PPMs, but, due to limited resources, the IASB has not yet prioritised the project.

While some stakeholders, like the IFRS Interpretations Committee and some investors and regulators, supported prioritising a project to address the growing prevalence and diverse accounting practices of PPMs, others, such as some ASAF members and the Global Preparers Forum, suggested that other projects should take precedence. 

Increasingly material consideration

Despite differing priorities, most stakeholders acknowledge the increasing significance of PPMs and the need for greater clarity and consistency in related financial reporting.

In terms of managing the board’s resources, staff argued that starting a PPMs project now would require retiring, pausing, or slowing down other active projects, which could be disruptive given the high level of stakeholder engagement in those projects.

They went on to argue that deferring the decision to the next agenda consultation would allow stakeholders and the IASB to consider the priority of PPMs in relation to other potential projects holistically.

Investor priorities

The results of staff outreach, based on a limited survey of investors presented to the board’s June 2024 meeting, show investors overwhelmingly find current financial reporting on carbon credits falls short and lacks both key details and comparability.

They urged the IASB to prioritise a project on PPMs, saying there was a need for standardised reporting and arguing that the issue was becoming increasingly important for both compliance and voluntary market participation.

But while most users called for more information, some suggested certain entities may be over-disclosing, highlighting the need for balanced and relevant disclosures.

One suggestion from some respondents was that existing accounting standards, particularly IFRS 9, the IASB’s financial instruments accounting rulebook, could be applied for greater consistency.

Some advocate focusing on compliance schemes due to materiality and simpler accounting, while others stress the need for greater transparency around offset usage, credibility, and related risks as these become crucial for meeting reduction targets.

The latest digital edition of IPE’s magazine is now available

Topics