Rethinking ESG Cost Accounting under Carbon Regulation: Toward an Integrated Model of Recognition, Measurement, and Reporting

Abstract

The accelerating transition toward low-carbon development has intensified the need for enterprises to treat environmental, social, and governance (ESG) costs as material financial items rather than discretionary disclosures. However, existing studies often conceptualize ESG costs qualitatively, lack standardized recognition principles, and offer limited empirical evidence on how carbon policy pressures shape accounting practices. To address these gaps, this paper develops an integrated framework for ESG cost accounting under carbon regulation, linking recognition, measurement, and reporting through a three-layer model encompassing institutional pressures, organizational strategies, and micro-level accounting practices. Methodologically, the study employs a combination of literature review, cross-jurisdictional comparison, and multiple case studies of ArcelorMittal, Shell, and Heidelberg Materials during 2023-2025, drawing on corporate reports, regulatory filings, and assurance statements. Findings indicate that firms are increasingly embedding ESG costs into financial reporting, albeit with divergent recognition approaches, hybrid measurement models that combine historical cost and scenario-based fair value, and evolving assurance practices. These results contribute to academic debates by reconciling conservatism with forward-looking relevance, while offering practical guidance for firms, regulators, and auditors to enhance transparency, comparability, and credibility in ESG cost accounting.