Tricky Accounting for 'Green' Bonds Challenges Rulemakers

Issuers of loans or bonds with so-called green features are running into problems accounting for them, and US accounting rulemakers are trying to figure out what to do.

The problem: Financial instruments, such as bonds with interest rates linked to reaching a greenhouse gas emissions target, can meet the definition of a derivative under US accounting rules. Those rules trigger accounting designed to capture the volatile value swings for complex instruments like options, swaps, and futures contracts, and requires measuring instruments at fair value, a judgment-laden exercise.

Other common transactions that can be tripped up by the broad definition of ...