Global initiative introduces ethics code to counter greenwashing, ensuring integrity in sustainability reporting.
In a groundbreaking move to combat the pervasive issue of greenwashing, the International Ethics Standards Board for Accountants (IESBA) is introducing a new ethics code. This code is designed for firms that verify environmental, social, and governance (ESG) claims made by companies, as revealed in an exclusive interview with Reuters.
The rise of greenwashing – the practice of misleadingly touting green credentials – has been a major concern, especially as trillions of dollars flow into investment funds claiming eco-friendly initiatives. To counter this, companies, particularly within the European Union, are now mandated to include new disclosures on ESG and climate-related factors in their annual reports from 2024 onwards.
Dias highlighted the critical role of ethics in sustainable finance. "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," she stated. The IESBA's focus is not only on technical reporting but also on addressing ethical and independence issues such as conflicts of interest, financial interests, client pressure, inducements, or lack of competence.
The initiative has garnered support from the global securities watchdog, the International Organization of Securities Commissions (IOSCO). Jean-Paul Servais, IOSCO board Chair, expressed his endorsement of IESBA's actions, noting that external assurance based on globally accepted standards of ethical behavior and independence will enhance trust in such disclosures.
Under the proposed new standards, firms other than professional accountants, like consultants, engineers, or lawyers, could also audit sustainability disclosures. This move, particularly relevant in the EU, where non-accounting firms are allowed to audit these disclosures, aims to introduce competition against the dominance of the 'Big Four' – KPMG, EY, Deloitte, and PwC – in corporate auditing.
The proposed ethics code by the IESBA marks a significant step towards ensuring transparency and accountability in the corporate world, offering a robust defense against the misleading practice of greenwashing.
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