Investigating compatibility between physical greenhouse gas emissions accounting and general-purpose financial statements

Thesis

This thesis identifies greenhouse gas (GHG) accounting as an emerging field that sits at the intersection of financial accounting and life cycle assessment. This research advances knowledge of how to align the two disciplines, creating impact in improving decision making for achieving a net zero economy. The thesis identifies a gap: (1) primary users of financial reports require a temporal presentment of financial data and (2) contemporary greenhouse gas (GHG) accounting lacks temporal characteristics. The current incompatibility calls into question a fundamental assumption of the climate finance field, that GHG accounting values can be used to make financial decisions. First, I performed a rapid systematic review of 102 GHG accounting standards to find that all standards are based on the GHG Protocol system. Second, I analysed the GHG Protocol for the ability to make comparative assertions between entities, a primary use case for financial decision making. In analysing the information architecture of the GHG Protocol and conducting an empirical analysis of corporate GHG data, I conclude that the lack of temporal characteristics prevents the GHG Protocol from being used to make comparisons. Third, the thesis proposes a solution, general-purpose life cycle assessment (GP-LCA), which introduces a temporal information architecture into GHG accounting aligning it with financial accounting. In using empirical data from a real estate project, I show how GP-LCA can mediate information transfer between financial accounting and the GHG Protocol. Finally, I research climate-aligned decision making in a real estate project by forecasting physical GHG emissions using GP-LCA and cost of damage using financial accounting. The results show that decisions diverge depending on the accounting system being used, calling into question the use of financial assumptions to manage physical flows and physical outcomes. In summary, the thesis demonstrates the importance of temporal alignment of business activities with GHG emissions. Today, the two systems can produce opposing results as to what actions are climate aligned. The result of this thesis opens the door for further research to improve alignment of environmental and financial indicators for climate finance decisions.

Authors: Jia, J

• DOI: 10.5287/ora-2n0dzqdge
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford
• Language: English
• Keywords: life cycle assessment; GHG accounting; climate finance; temporality; carbon accounting; sustainable finance; comparability
• Subjects: Sustainability; Sustainable buildings; Greenhouse gas mitigation; Climate; Accounting