Accounting for sustainable financial instruments

IFRS 9, Financial Instruments, was a controversial standard during its development and its adoption into EU law. It is now subject to a Post-Implementation Review (PIR) and is once again attracting debate. In their April 2022 meeting, IASB members discussed the accounting for instruments with environmental, social and governance (ESG) features; this could be a loan or a bond for which the interest rate could move up or down depending on whether the borrower meets contractually specified ESG targets, which could be for levels of greenhouse gas emissions, diversity or other matters. While most members were anxious not to change the principles in the standard, some were concerned that IFRS 9 as it stands may lead to many financial assets with such features being measured at market value, which would not be aligned with how banks manage them.