Let’s talk about the Climate Ledger, and not in an abstract “the atmosphere keeps score” kind of way, I mean in a literal Corporate Ledger kind of way.

A quick history first.

Carbon counting has long been the prevue of environmentalists, and rightfully so. It took quite a while for science to prove the effect carbon emissions have on the climate. These carbon emissions weren’t coming from individuals’ activities, short of a few campfires, they were coming from industry. As these scientific learnings started to become known to the public, business started begrudgingly bringing environmental professionals into their operations. Thus, the arduous process of counting all the sources and quantities of GHGs began.

As societal concern over rising emissions intensified, companies began publishing related reports. However, it wasn’t until investors started factoring emissions into capital allocation decisions that regulators took notice. It’s easy for a government to dismiss concerns that fall outside their election cycle mandate, and climate change had always been a problem for a later set of politicians. Ironically, regulatory action only accelerated when shareholders began scrutinizing corporate emissions, highlighting the risk of misleading investors through inaccurate or incomplete disclosures.

Now there’s an urgency to protect investors who may be misled by inaccurate or incomplete corporate climate disclosures. Long ago financial disclosures were standardized globally, ultimately creating the International Financial Reporting System (IFRS) that we use today. The standardization of financial reporting unlocked market efficiencies and price discovery to the benefit of the economy specifically and society generally.

Compare financial disclosures with the current state of climate disclosures. There are too many reporting frameworks, all with the noble goal of nudging companies to take responsibility for, and action to reduce, their GHG emissions. Thankfully the IFRS foundation convened the International Sustainability Standards Board (ISSB), who has published standardized climate disclosure frameworks.

Climate Reporting Needs Accounting Infrastructure

Just as financial markets couldn’t function without standardized reporting of financial data, they’re now demanding the same for climate data. Effective climate reporting thus requires climate accounting, a natural extension of financial accounting.

Traditional carbon counting relies on outdated methods:

• Spreadsheets
• Manual calculations
• Fragmented systems
• Incomplete or absent records

These approaches falter during verification, where assurance providers demand answers to key questions:

• Where did this number originate?
• What evidence supports it?
• Can it be reliably reproduced?

Legacy carbon counting systems lack the architecture for true assurance. When data becomes “decision-grade” influencing investor choices it must match the rigor of financial reporting, which depends on:

• Ledgers
• Charts of Accounts
• Journal Entries
• Audit Trails

This infrastructure ensures traceability, consistency, and auditability.

CLIMATE LEDGER

The Climate Ledger is precisely what it sounds like: a structured system for recording a company’s GHG emissions, mirroring financial ledgers where every dollar in and out is accounted for. In climate terms, every dollar spent carries associated emissions. Obvious examples include fueling delivery vehicles or heating offices with natural gas. Less apparent ones involve purchasing flights or shipping raw materials.

The same logic applies to the products or services produced by a company. The company pays for goods and services to produce something for a customer. Just as dollars flow in and out of a company, so too should emissions data. A price tag, or an invoice, is the notice of exchange, i.e. give me X dollars and I will give you the thing I produce. It stands to reason that this is the same medium through with emissions data be transferred from the seller to the buyer. Which is exactly how climate accounting and climate reporting are supposed to work. The ‘carbon footprint’ of a product or service is the amalgamation of all the inputs and all the ancillary activities a company does to produce it.

CHART OF CLIMATE RELATED ACCOUNTS

If you’re going to have a climate ledger, it makes sense to have a chart of climate related accounts. Financial accounting begins with the Chart of Accounts (CoA). The Chart of Accounts is the structured list of all financial accounts used in a company’s general ledger to record transactions. It provides a classification system that organizes every financial transaction into categories like revenue, expenses, assets, liabilities, and equity, etc. Climate accounting should therefore follow the same principle. Rather than creating a separate emissions taxonomy, emissions should be linked directly to the financial accounts that generated them.

Every financial transaction already flows through a Chart of Accounts. Those transactions represent economic activity, which is the driver of emissions. By attaching emissions factors or activity data to financial accounts, companies can translate financial transactions into emissions data. This allows emissions to be tracked using the same accounting structure that already governs financial reporting.

This eliminates the need for separate sustainability data pipelines. When emissions are tied to the Chart of Accounts, climate data becomes part of the same accounting system that produces financial statements. That is the foundation of climate accounting as an accounting discipline.

CLIMATE ASSURANCE IS FINANCIAL ASSURANCE

Audits transform disclosures from mere claims to facts. Without audits, companies have all kinds of incentives to bend the truth in their reporting. Audit trails are essential for financial reporting and allow auditors to trace numbers back to source documents. Climate data should provide the same traceability. The most important audit question is not the number; it is where the number came from.

It’s time to pull back the curtain and show you what environmental software and service providers either don’t know about or can’t talk about. It’s also the thing the most ardent critics of emission disclosures point to discredit climate disclosures.

Who is attaching sensors to planes to measure the emissions from a flight, or to the mining equipment to measure the carbon footprint from metals pulled from the earth? The argument is that without direct measurement of emissions, such as at a smokestack, everything else is a guess. And if we can’t measure it, we can’t manage it!

Resource companies deal with the same uncertainty, and yet they’re often incredibly profitable. Part of the value of a resource company is how much of the commodity they have in their reserves, i.e. how much of it is still in the ground? This gets estimated and put into the financial record of the company, shareholders scrutinize it and determine a price for the company. But you can’t see gold still in the ground? Accountants certainly have no ability to predict these reserves, they rely on engineers, measurements, best practices, international standards, and transparent calculations to come to their conclusions.

This analogy helps explain audits in climate accounting.

Just as in a financial audit an audit of climate disclosures relies on evidence. Evidence of data, evidence of control over that data, and evidence of the accuracy of the calculations applied to that data. In climate accounting as with financial accounting, we deal with varying degrees of data quality. The highest quality is source documents, receipts, and tangible evidence of a transaction provided by the seller. In environmental parlance this is called activity data, i.e. a company purchased 10,000L of diesel fuel for their delivery vans last year. Next is regional industry averages, i.e. a company purchased 10 tonnes of steel from Hamilton, Ontario, which the industry association calculates as having X GHG emissions per tonne. The lowest quality of data uses spend based estimates, these use much broader estimates that equate the amount of spend to the GHG emissions, i.e. a company spends $5,000 per year on AI services, which is estimated to have Y GHG emissions.

Perfect is the enemy of good.

Just as in financial accounting there may not always be receipts for everything, paper gets misplaced, emails don’t get filed. So long as the assurance provider calculates the risk of the numbers being wrong to within the materiality threshold, they can provide a reasonable level of assurance. In GHG terms the materiality threshold is often set to 5%, which may be higher than permitted in traditional financial audits, however it provides enough certainty without being onerous on the reporting company.

Internal Controls for Climate Accounting

If you haven’t been part of a financial audit (thank your lucky stars), you might not be familiar with internal controls. Internal controls refer to how data gets into the system, what happens to it when it’s there, who can change it, and the records associated with all of it. Controls ensure accuracy, authorization, and consistency. In climate accounting specific controls are both preventive in nature, e.g. approved emission factor libraries, standardized methodologies, controlled data inputs, and detective e.g. variance analysis, reconciliation against activity data, supplier data validation, and change logs.

Closing the loop on climate accounting and finance teams

Accountants have a professional skepticism of data and reports that can’t be proven to within a reasonable level of assurance. This has been a major friction point between environmental professionals and their carbon counting and financial professionals and their financial accounting.

Climate disclosures increasingly require independent assurance, and historically, GHG verification was performed by ISO-accredited verifiers. ISO 14064 provides the framework for quantifying and verifying GHG inventories. The accounting profession is now entering this space through ISSA 5000. International Standard on Sustainability Assurance 5000 was developed by the International Auditing and Assurance Standards Board (IAASB) and can be applied by both professional accountants and other assurance practitioners.

It is the publication of this standard that gives CPAs the framework through which GHG emissions data can be interpreted in the financial context. If Climate accounting is a discipline of financial accounting, that means a company’s financial teams, their workflows, and their controls must incorporate climate data.

This isn’t as difficult as it sounds.

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