What Businesses Need to Know

At Funds To Function, we closely track accounting changes that impact U.S. businesses , and this is one for the history books.

The Financial Accounting Standards Board (FASB) has issued its first-ever accounting standard for environmental credits such as renewable-energy certificates, carbon offsets, and cap-and-trade credits. This landmark rule is designed to bring transparency, consistency, and comparability to how companies record these credits in their financial statements.

What the New Rule Says

From 2028 for public companies (and 2029 for private companies), businesses must:

• Recognize environmental credits when they’re likely to be used to settle an obligation or be sold.
• Record the credit at cost, and if unused, test for impairment.
• Disclose any change in usage and the financial impact on the income statement.

Why It Matters

Until now, U.S. accounting rules provided no standard way to treat these credits , leaving investors with inconsistent information. As FASB Chairman Rich Jones put it:
“Consistent accounting is the best way to improve transparency with all stakeholders.”

While the new standard improves clarity, FASB scaled back last year’s proposal, removing the requirement for companies to disclose the total amount of environmental credits they hold. Businesses, including Ford Motor Co., had expressed concerns about cost, competitive risks, and potential volatility in reported results.

Our Take at Funds To Function

For companies engaged in renewable energy, compliance programs, or sustainability initiatives, this is a game-changer. While disclosure requirements are lighter than first proposed, the need for accurate measurement, valuation, and impairment testing remains critical.

We recommend U.S. businesses start preparing early, reviewing current credit tracking processes, internal controls, and valuation methods to avoid compliance headaches down the road.

📌 Bottom Line: This rule marks a significant shift in U.S. accounting, setting a precedent for future sustainability reporting standards. At Funds To Function, we help businesses stay compliant, informed, and financially clear, even as regulations evolve.