Business World

Global watchdog proposes new ethics code to help combat greenwashi­ng

- Reuters

LONDON — Firms that check environmen­tal, social and governance claims made by companies will be asked to follow a proposed new ethics code to help combat greenwashi­ng, the chief of a global standards body told Reuters.

Trillions of dollars have flowed into investment funds touting green credential­s, but these can be misleading, a practice known as greenwashi­ng. As a result, companies are increasing­ly being asked to disclose more about their actions on climate change and other issues such as board diversity.

Companies in the European Union (EU) and globally from this year will have to use new, mandatory disclosure­s on ESG and climate-related factors in their annual reports for 2024 and onwards.

These disclosure­s will need checking by external auditors as a safeguard against greenwashi­ng.

Gabriela Figueiredo Dias, chair of the Internatio­nal Ethics Standards Board for Accountant­s (IESBA), said it was proposing revisions and additions to its ethics standards for auditing sustainabi­lity informatio­n from companies.

The IESBA is an independen­t global body that sets ethics standards for business and other organizati­ons.

The standards spell out best practice for verifying a company’s sustainabi­lity claims by offering detailed instructio­ns in areas such as accounting for the impact of corporate actions on emissions, relying on outside experts, and identifyin­g and tackling conflicts of interest.

“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.”

Ms. Dias said the proposed standards, which will be open for public consultati­on until May, would complement the developmen­t of new technical assurance standards from the Internatio­nal Auditing and Assurance Standards Board.

“Ethics is the baseline for the whole infrastruc­ture. If you think about... greenwashi­ng and misinforma­tion, (it) always has behavioral issues at its root and not technical reporting reasons.”

“It’s not because preparers and providers don’t know what they have to report and assure, it’s because there are ethical or independen­ce issues such as conflicts of interest,” she said, for example, financial interests, pressure from client companies or their management, inducement­s or a lack of competence.

Global securities watchdog IOSCO has encouraged the moves by IESBA to update its standards as climate related disclosure­s under mandatory rules, rather than private sector guidance, are rolled out, making enforcemen­t against greenwashi­ng easier.

IOSCO board Chair Jean-Paul Servais said he welcomed IESBA’s action to call on issuers, investors and assurance providers to participat­e in the consultati­on.

“Trust in such disclosure­s will be enhanced when they receive external assurance based upon globally accepted standards regarding ethical behavior and independen­ce.”

IESBA said the proposed new standards could also be used by firms other than profession­al accountant­s for auditing sustainabi­lity disclosure­s, such as consultant­s, engineers or lawyers, responsibl­e for more than half of sustainabi­lity reports.

EU rules allow non-accounting firms to audit sustainabi­lity disclosure­s — which will be checked to a lower standard than financial statements — to provide competitio­n for KPMG, EY, Deloitte and PwC, dubbed the Big Four who dominate corporate auditing. —

Newspapers in English

Newspapers from Philippines