Dive Brief:
- The International Ethics Standards Board for Accountants proposed compliance standards for sustainability reporting Monday to help companies and asset managers mitigate greenwashing and for evaluating outside sustainability experts’ credentials.
- The standards, which are both profession and framework agnostic, include five “fundamental principles” all sustainability assurance practitioners should abide by: Integrity, objectivity, professional competence and due care, confidentiality and professional behavior.
- IESBA said it developed the ethics standards due to the rise in importance of sustainability information to capital markets, consumers, companies and the broader society. “It is of public interest that sustainability assurance practitioners act ethically in order to maintain public trust and confidence in sustainability information,” the ethics proposal stated.
Dive Insight:
IESBA began developing the International Ethics Standards for Sustainability Assurance in December 2022, after the International Organization of Securities Commissions, whose membership comprises 95% of global securities market regulators, and the Financial Stability Board expressed support. The proposal would update existing IESBA codes relating to sustainability reporting.
The accounting ethics standard-setter said a global ethics baseline for sustainability reporting ethics will help ensure the integrity and objectivity of sustainability reporting. IESBA Chair Gabriela Figueiredo Dias said in the release the standards will serve as a “cornerstone of ethical behavior with far-reaching benefits.”
“Ethics is about acceptable behaviors and right decisions to avoid bias in sustainability information and foster trust,” Dias said. “All users of sustainability disclosures have a vested interest in ensuring ethical choices by the preparers and assurers of such information.”
The organization said entities that perform the sustainability assurance engagements should follow the “most stringent ethics requirements” given the level of public reliance placed on climate-related disclosures as this information is used by a wide range of stakeholders to assess and compare companies’ performances and to make investment and business decisions.
The IESSA standards’ updated glossary of terms defines sustainability information as “information about the opportunities, risks or impacts” of economic, ESG or other sustainability factors on an entity or an entity’s operation on the economy, environment or public. The organization also includes any sustainability information as defined by law, regulations or reporting and assurance frameworks.
In its explanatory memorandum that accompanied the IESSA standards, IESBA said it made the definition “intentionally broad and sufficiently generic” to make it perennially relevant and interoperable with different reporting, regulatory or assurance frameworks.
“The reference to ‘other’ factors is intended to keep the definition flexible and thus evergreen,” the memo said. “Moreover, it is broad enough to cover disclosures made under both single and double materiality perspectives.”
The International Accreditation Forum, comprising 97 global accreditation bodies, plans to stipulate that the IESSA standards be used when authorizing assessment organizations to do assurance work on corporate sustainability disclosures, according to the release.
“Sustainability disclosures are undeniably high on the agenda of investors globally,” IOSCO Chair Jean-Paul Servais said in the release. “Trust in such disclosures will be enhanced when they receive external assurance based upon globally accepted standards regarding ethical behavior and independence that have been developed in the public interest.”
The standards come amid a global push for sustainability reporting regulations and frameworks: From the European Union’s Corporate Sustainability Reporting Directive and the Securities and Exchange Commission’s upcoming climate disclosure rule to global frameworks coalescing around standards from the International Sustainability Standards Board and the Global Reporting Initiative.
The importance of sustainability reporting has risen alongside issues of greenwashing and social washing — companies making misleading social claims. ESG data and research firm RepRisk found issues of greenwashing rose 35% from September 2022 to September 2023, and companies’ greenwashing incidents made up 25% of climate-linked risk incidents over the same time period.
