Why plastic credits do not fit a standard accounting line
A plastic credit is a new kind of purchase. A company buys a certified quantity of plastic recovery, usually for one reporting period, and wants to show it in its accounts and sustainability disclosures. There is no dedicated international accounting standard for voluntary plastic credits, and the same is largely true of voluntary carbon credits. Companies therefore apply general principles, and practice varies between auditors and sectors. This article sets out the questions to settle before the first purchase rather than a single answer that suits every organisation.
Step one: decide why you hold the credit
The accounting treatment depends on the purpose of the purchase. A credit bought to be retired against a stated plastic footprint is used up in a single act. A credit bought for resale, or held for a future period, is a different kind of holding. Write down the purpose before the transaction. The purpose, the registry record and the contract together form the evidence an auditor will ask for.
How the purchase is usually treated
Many companies treat a credit that is held but not yet retired either as an intangible asset or as inventory, depending on whether it is held for own use or for sale. Under IFRS, the general framework in IAS 38 on intangible assets is often the starting point, and companies reporting under US GAAP work from comparable principles. Once a credit is retired in support of the company's own claim, it is generally treated as consumed, and its cost is recognised as an expense in the period the claim is made.
Other companies recognise the cost as an expense on purchase. This is simpler, and it avoids carrying an asset whose value is hard to measure. Either route is defensible if it is applied consistently and explained in the accounting policies note. Switching between them from year to year is the outcome to avoid.
Prepaid and forward purchases
Long-term offtake agreements add another layer. Where a company pays in advance for credits to be delivered in later years, the payment is not yet a credit. It may be recorded as a prepayment or deposit until delivery. The contract terms matter: who bears the risk if a project fails verification, whether refunds are available, and which vintage the credits will carry. If delivery becomes uncertain, the prepayment should be reviewed.
Impairment and loss of value
If a held credit loses value, for example because a project is suspended, the registry record is challenged or the methodology is withdrawn, the company should assess whether the carrying amount is still supportable. Keeping the registry entry and the latest verification statement on file makes that review far easier than reconstructing them later.
Disclosure matters as much as the entry
Accounting entries are only part of the picture. Companies reporting under the EU Corporate Sustainability Reporting Directive use the ESRS framework, where plastic and resource use are covered under ESRS E5. A credit purchase should be disclosed separately from the company's measured plastic footprint, so readers can see how much of the footprint has been addressed through reduction and how much through funding recovery elsewhere. Netting the two without explanation makes the figures hard to check.
- State the basis. Name the reporting framework and the accounting policy applied.
- Separate the figures. Show measured footprint, reduction achieved and credits retired as distinct lines.
- Link to the registry. Disclose the retirement record and the vintage covered.
- Check the word offset. Use it in the accounts only after the wording has been reviewed, because it implies a cancellation that a credit alone cannot show.
Working with auditors
Agree the treatment with the auditor before the first purchase, not after the year end. Provide the contract, the registry record, the verification statement and the calculation that links the credits to a stated footprint. A short written accounting memo, updated each year, saves time and stops the treatment drifting between periods.
What to do this year
Start with a simple register of every credit held, bought, retired or committed, with its serial numbers, vintage and purpose. Decide the accounting policy once, document it and apply it to every purchase. Review the policy when the market or the relevant guidance changes, because the area is still developing.
Frequently asked questions
Is there an official standard for plastic credits?
Not a dedicated one. Companies apply general accounting principles and document their choice. Guidance from standard setters and professional bodies may develop over time.
Can a company record a credit as a cost straight away?
Some do. Expensing at purchase is simpler, but the chosen policy must be applied consistently and disclosed. Ask your auditor which approach fits your reporting framework.
Does a credit reduce the reported plastic footprint?
No. The footprint is measured from the company's own plastic. Credits are reported separately as funded recovery, so the footprint figure should not be reduced by them.
Who should be involved in the decision?
Finance, sustainability and the external auditor should agree the policy together, with legal input on any claims the purchase will support.
This article is general information, not accounting or legal advice. Confirm the treatment for your organisation with qualified advisers.
About the author
Plastic Units editorial team
Editorial team
The Plastic Units editorial team writes and maintains the Knowledge Bank and news on the plastic credits market, recycling economics and plastic policy.