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Keeping you in-the-know on environmental, social and governance developments

In the past two weeks, both the Financial Accounting Standards Board (FASB) and the Commodity Futures Trading Commission (CFTC) made important announcements about actions they are taking on climate matters within their jurisdiction.

FASB Votes to Move Forward on Carbon Credits

At their May 25 session, FASB voted to add

… a project to the technical agenda on the recognition, measurement, presentation, and disclosure requirements for participants in compliance and voluntary programs that result in the creation of environmental credits. These credits include (but are not limited to): 

  1. Those created under compliance programs, such as cap and trade and baseline allowance programs
  2. Renewable energy credits/certificates
  3. Renewable identification numbers
  4. Carbon offset credits.

Additionally, the project includes financial reporting requirements for nongovernmental creators of environmental credits. The Board decided that the preliminary scope of the project is environmental credits that are legally enforceable and can be traded. The Board also decided that the scope of the project excludes the accounting for tax credits, tax incentives, or investments in renewable energy structures or entities (such as partnerships).

CFTC To Seek Input on Voluntary Carbon Markets

CFTC announced it planned to release a

… Request for Information (RFI) on climate-related market risk, coming out in the next week.  The RFI will seek feedback on all aspects of climate-related financial risk as it may pertain to the derivatives markets, underlying commodities markets, registered entities, registrants, and other market participants…

The RFI will also seek responses on questions specific to data, scenario analysis and stress testing, risk management, disclosure, product innovation, voluntary carbon markets, digital assets, greenwashing, financially vulnerable communities, and public-private partnerships and engagement.  The Commission may use this information to issue new or amend existing guidance, interpretations, policy statements, and regulations, or take other potential Commission action…

Multiple private sector-led voluntary carbon markets initiatives are underway to address the integrity of the supply and demand for carbon offsets.  It’s critical that the voluntary carbon markets support high-quality, data-supported carbon offsets that meaningfully reduce or avoid carbon emissions.  It’s also critical that we acknowledge that carbon offsets are only one tool to mitigate emissions and should only be used when all other means have been exhausted to mitigate emissions.

After that announcement was made, they followed through – the RFI itself is here.

What This Means

This is more evidence that the Biden Administration continues to develop regulatory programs for a variety of climate matters. These two in particular could be serving as foundations to become more aligned with emerging international standards – in particular ISSB. But how long these will take is anyone’s guess and of course the actions taken by FASB and CFTC will go through public comment periods. Eventually, however, I think these proposals could have a meaningful impact on the quality of carbon offsets and reduce fraud. Also, once finalized, these actions may also have unforeseen consequences in the market that – as I have said in the past – could be outside of current corporate climate management plans and assumptions.

As a reminder, Carbon Accounting Risks: Offsets, Disclosures & More is one of the panels in our 1st Annual Practical ESG Conference on October 11. The special Early Bird Rate expires June 10. The registration fee for this Conference can be bundled together with the Proxy Disclosure & Executive Compensation Conferences for an additional discount. Register by the end of this Friday, June 10th to save $320 on a single user registration, and over $500 on our single office location and firm-wide registrations. Sign up online, email, or call 1-800-737-1271 to ensure you’re able to face these rapidly evolving issues with confidence.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile