Embedding ESG And Carbon Accounting Into The Financial Ledger: A Sub-Ledger Architecture For CSRD-Aligned Reporting
DOI:
https://doi.org/10.15662/c1vctd41Keywords:
ESG accounting, CSRD, carbon accounting, IFRS S1/S2, sub-ledger architecture, SAP S/4HANA, Green Ledger, ICSRAbstract
The Corporate Sustainability Reporting Directive (CSRD, in force from January 2023) and the first set of European Sustainability Reporting Standards (ESRS Set 1, adopted as Commission Delegated Regulation (EU) 2023/2772) subject some 50,000 European preparers to mandatory, externally assured sustainability disclosures. The data that feeds these disclosures, however, is still produced in most organisations from spreadsheets, ad-hoc trackers and isolated sustainability tools, none of which carries the financial-grade controls assumed by ISAE 3000-style assurance or by the March 2023 COSO ICSR framework. This paper proposes an ESG sub-ledger that sits inside SAP S/4HANA as a parallel ledger in the Universal Journal (ledger 2S alongside the leading IFRS ledger 0L) and integrates with the SAP Sustainability Control Tower. Each Scope 1, Scope 2 and Scope 3 emission is captured as a quantity-only posting in tCO₂e, linked to a cost centre, internal order, source document, emission-factor master record and reporting period, and then reconciled, snapshotted and locked at period end. We describe the posting logic, map the controls onto the five components of COSO ICSR, and present a five-stage maturity model for adoption. The result is a reconcilable, period-locked and audit-ready ESG ledger that allows CSRD and ESRS-bound preparers to extend the discipline of the financial close to sustainability data
References
[1] C. C. Gonzalez and J. Peña-Vinces, “A framework for a green accounting system—exploratory study in a developing country context, Colombia,” Environment, Development and Sustainability, vol. 25, no. 9, pp. 9517–9541, Jun. 2022, doi: 10.1007/s10668-022-02445-w.
[2] M. Gil-Marín, A. Vega-Muñoz, N. Contreras-Barraza, G. Salazar-Sepúlveda, S. Vera-Ruiz, and A. V. Losada, “Sustainability accounting studies: A metasynthesis,” Sustainability, vol. 14, no. 15, p. 9533, Aug. 2022, doi: 10.3390/su14159533.
[3] A. F. Rahi, J. Johansson, A. Fagerström, and M. Blomkvist, “Sustainability reporting and management control system: A structured literature review,” Journal of Risk and Financial Management, vol. 15, no. 12, p. 562, Nov. 2022, doi: 10.3390/jrfm15120562.
[4] M. M. Thottoli, Md. A. Islam, F. A. Sobhani, S. Rahman, and Md. S. Hassan, “Auditing and sustainability accounting: A global examination using the Scopus database,” Sustainability, vol. 14, no. 23, p. 16323, Dec. 2022, doi: 10.3390/su142316323.
[5] V. Sehgal, N. Garg, and J. Singh, “Impact of environmental and social reporting and performance on financial performance of a firm: An Indian study,” Paradigm — A Management Research Journal, vol. 26, no. 2, pp. 99–118, Oct. 2022, doi: 10.1177/09718907221126429.
[6] R. Kumawat and N. Patel, “Are ESG disclosures value relevant? A Panel-Corrected Standard Error (PCSE) approach,” Global Business Review, vol. 23, no. 6, pp. 1558–1573, Oct. 2022, doi: 10.1177/09721509221128637.
[7] K. Mulchandani, K. Mulchandani, G. Iyer, and A. Lonare, “Do equity investors care about Environmental, Social and Governance (ESG) disclosure performance? Evidence from India,” Global Business Review, vol. 23, no. 6, pp. 1336–1352, Oct. 2022, doi: 10.1177/09721509221129910.
[8] S. Kumar, P. Mishra, and A. Sharma, “Do sustainability disclosures lead to opportunistic behaviour? Empirical evidence from India,” The Indian Economic Journal, vol. 71, no. 5, pp. 845–863, Dec. 2022, doi: 10.1177/00194662221138127.
[9] R. Desai, “Determinants of corporate carbon disclosure: A step towards sustainability reporting,” Borsa İstanbul Review, vol. 22, no. 5, pp. 886–896, Jul. 2022, doi: 10.1016/j.bir.2022.06.007.
[10] A. A. Vărzaru, “An empirical framework for assessment of the effects of digital technologies on sustainability accounting and reporting in the European Union,” Electronics, vol. 11, no. 22, p. 3812, Nov. 2022, doi: 10.3390/electronics11223812.
[11] V. F. Dumitru, B.-Ş. Ionescu, S.-M. Rîndaşu, L.-E.-L. Barna, and A.-M. Crîjman, “Implications for sustainability accounting and reporting in the context of the automation-driven evolution of ERP systems,” Electronics, vol. 12, no. 8, p. 1819, Apr. 2023, doi: 10.3390/electronics12081819.
[12] G. B. Akrong, S. Yunfei, and E. Owusu, “Development and validation of an improved DeLone– McLean IS success model — application to the evaluation of a tax-administration ERP,” International Journal of Accounting Information Systems, vol. 47, p. 100579, Aug. 2022, doi: 10.1016/j.accinf.2022.100579.
[13] L. Anaya and F. Qutaishat, “ERP systems drive businesses towards growth and sustainability,” Procedia Computer Science, vol. 204, pp. 854–861, Jan. 2022, doi: 10.1016/j.procs.2022.08.103. Webology (ISSN: 1735-188X) Volume 21, Number 1, 2024 149 http://www.webology.org
[14] R. W. Santoso, H. Siagian, Z. J. H. Tarigan, and F. Jie, “Assessing the benefit of adopting ERP technology and practising green supply chain management toward operational performance: Evidence from Indonesia,” Sustainability, vol. 14, no. 9, p. 4944, Apr. 2022, doi: 10.3390/su14094944.
[15] W. Wu, W. Chen, Y. Fu, Y. Jiang, and G. Q. Huang, “Unsupervised neural-network-enabled spatialtemporal analytics for data authenticity under environmental smart reporting system,” Computers in Industry, vol. 141, p. 103700, May 2022, doi: 10.1016/j.compind.2022.103700.
[16] B. Bui, M. N. Houqe, and M. K. Zahir-Ul-Hassan, “Moderating effect of carbon-accounting systems on strategy and carbon performance: A CDP analysis,” Journal of Management Control, vol. 33, no. 4, pp. 483–524, Sep. 2022, doi: 10.1007/s00187-022-00346-7.
[17] R. Kaur, J. Patsavellas, Y. Haddad, and K. Salonitis, “Carbon-accounting management in complex manufacturing supply chains: A structured framework approach,” Procedia CIRP, vol. 107, pp. 869– 875, 2022, doi: 10.1016/j.procir.2022.05.077.
[18] J. Krishnan, S. M. Lee, M. Son, and H. Song, “Social capital and internal-control material weaknesses,” Accounting Horizons, vol. 36, no. 4, pp. 133–155, Nov. 2021, doi: 10.2308/horizons16-153.
[19] V. Ramautar and S. España, “Domain analysis of ethical, social and environmental accounting methods,” arXiv preprint, arXiv:2208.00721, Aug. 2022, doi: 10.48550/arxiv.2208.00721.
[20] P. K. Manoj, “ESG reporting for business sustainability: Role of CMAs in internal audit,” The Management Accountant Journal, vol. 57, no. 7, pp. 68–71, Jul. 2022, doi: 10.33516/maj.v57i7.68-71p.
[21] European Parliament and Council, Directive (EU) 2022/2464 of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting (CSRD), OJ L 322, pp. 15–80, 16 Dec. 2022. [22] European Commission, Commission Delegated Regulation (EU) 2023/2772 of 31 July 2023 supplementing Directive 2013/34/EU as regards sustainability reporting standards (ESRS Set 1), OJ L, 22 Dec. 2023.
[23] IFRS Foundation — International Sustainability Standards Board, IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information. London, U.K.: IFRS Foundation, Jun. 2023.
[24] IFRS Foundation — International Sustainability Standards Board, IFRS S2: Climate-related Disclosures. London, U.K.: IFRS Foundation, Jun. 2023.
[25] Committee of Sponsoring Organizations of the Treadway Commission (COSO), Achieving Effective Internal Control over Sustainability Reporting (ICSR): Building Trust and Confidence through the Application of the COSO Internal Control — Integrated Framework. New York, NY, USA: COSO, Mar. 2023.
[26] World Resources Institute and World Business Council for Sustainable Development, The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, rev. ed. Washington, DC, USA: WRI/WBCSD, 2015 reprint, with the Scope 2 Guidance (2015) and Corporate Value Chain (Scope 3) Standard (2011).
[27] Intergovernmental Panel on Climate Change (IPCC), Climate Change 2022: Mitigation of Climate Change — Contribution of Working Group III to the Sixth Assessment Report (P. R. Shukla et al., eds.). Cambridge, U.K.: Cambridge Univ. Press, 2022.
