In an effort to counteract greenwashing, companies’ environmental, social, and governance verification firms will be required to adhere to a new ethics code, the head of a global standards group told Reuters.
Investment funds promoting their green credentials have attracted trillions of dollars, but this tactic, known as “greenwashing,” can be deceptive. Consequently, businesses are under growing pressure to provide additional information regarding their efforts to combat climate change as well as other matters like board diversity.
Beginning this year, businesses in the European Union and around the world will need to include new, required disclosures in their annual reports on ESG and climate-related aspects for 2024 and beyond.
To prevent greenwashing, external auditors will need to verify these declarations.
The International Ethics Standards Board for Accountants (IESBA), chaired by Gabriela Figueiredo Dias, announced that the organisation was planning to add to and modify existing ethics standards for auditing sustainability data from businesses.
An independent worldwide organisation called the IESBA establishes ethics guidelines for companies and other organisations.
By providing thorough guidance in areas including accounting for the impact of business actions on emissions, relying on outside experts, and detecting and resolving conflicts of interest, the standards outline best practices for confirming a company’s sustainability claims.
“There is nothing more central to sustainable finance than the information that is provided to those who decide to invest or fund projects and businesses.”
According to Dias, the proposed standards will support the creation of new technical assurance standards by the International Auditing and Assurance Standards Board. They will be available for public comment until May.
“The foundation of the entire infrastructure is ethics. When it comes to disinformation and greenwashing, behavioural problems are usually the underlying cause rather than technical reporting flaws.
According to her, “there are ethical or independence issues like conflicts of interest, such as financial interests, pressure from client companies or their management, inducements, or a lack of competence,” rather than because preparers and providers don’t know what they have to report and assure.
The international securities regulation IOSCO has applauded IESBA’s efforts to revise its requirements as climate-related disclosures are made necessary by law rather than through private sector advice, which will facilitate the fight against greenwashing.
Jean-Paul Servais, the chair of the IOSCO board, expressed his appreciation for IESBA’s initiative to invite issuers, investors, and assurance providers to take part in the consultation.
“Trust in such disclosures will be enhanced when they receive external assurance based upon globally accepted standards regarding ethical behaviour and independence.”
According to IESBA, companies other than professional accountants that audit sustainability disclosures, including consultants, engineers, or lawyers, might also apply the new criteria that are being proposed. These companies are in charge of almost half of sustainability reports.
EU regulations permit non-accounting firms to audit sustainability disclosures, which are audited to a lesser standard than financial statements. This permits the Big Four accounting firms—KPMG, EY, Deloitte, and PwC—to face competition in the corporate auditing market.
