Date of Defense
12-5-2024
Date of Graduation
12-2024
Department
Accountancy
First Advisor
James Penner
Second Advisor
Jerry Kreuze
Abstract
This thesis presents an informational overview of ESG systems and associated financial reporting requirements. This writing focuses on two main types of ESG systems, carbon taxes and emission trading systems, also known as cap-and-trade programs. Both carbon taxes and emissions trading systems are market-based approaches to reducing greenhouse gas emissions. Carbon taxes offer price certainty as governments set a tax rate to incorporate the negative environmental effect of producing a good or service into the cost of that good or service. Emissions trading systems provide reduction certainty as a government or other entity will set a cap on total emissions allowed during a compliance period and divide it into allowances for companies to trade in the market. Furthermore, revenue generated from either system can be used to offset the regressive nature of additional costs of compliance on low-income households and fund projects to further improve the environment and community. Specifically, the ESG systems covered are carbon taxes implemented in Europe, California’s Cap-and-Trade program, and the European Union’s Emissions Trading System (EU ETS). These systems are analyzed throughout four main categories as follows: basic definitions, general economic impacts, effectiveness of GHG emissions reductions and financial reporting. Environmental financial reporting requirements create transparency on the environmental impacts of companies. Important ESG financial reporting requirements include the International Financial Reporting Standards (IFRS) S1 and S2 disclosures on climate-related risks and opportunities as well as sustainability-related risks and opportunities. Additionally, a new influential environmental reporting requirement, the Corporate Sustainability Reporting Directive (CSRD), now requires large European companies, their subsidiaries, and other foreign companies with significant activity in the European Union to report on the environmental effects of their entire value chain. The thousands of companies required to adopt the CSRD are covered members based on certain asset, revenue, and workforce thresholds. Lastly, this thesis provides an opinion of whether any of these ESG systems or financial reporting requirements can be applied to the U.S. as a whole.
Recommended Citation
Layton, Madison, "ESG Systems and Financial Reporting" (2024). Honors Theses. 3893.
https://scholarworks.wmich.edu/honors_theses/3893
Access Setting
Honors Thesis-Open Access
Defense Presentation