This paper considers the growing trend of market participants entering into transactions linked to environmental, social and governance (ESG) factors to further promote sustainability goals. It aims to identify and illustrate how ESG factors impact accounting and reporting on embedded ESG features under US Generally Accepted Accounting Principles (US GAAP), and includes comparisons to International Financial Reporting Standards.

As ESG features become more pervasive in the market, alternative approaches to assessing ESG features could be introduced under US GAAP to alleviate the operational burden on companies when entering into green transactions. At present, ISDA members believe the existing accounting frameworks, as they relate to ESG-linked transaction activity, do not provide decision-useful information to users of the financial statements.

The paper proposes that ESG-related issues are better covered through qualitative sustainability disclosures that many entities are already reporting on.

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