A4S Summit 2022: Audit key to mitigating greenwashing

Speaking at the Accounting for Sustainability (A4S) Summit, Jane Diplock AO, director of Singapore Exchange Regulatory Company, told onlookers that “rigorous auditing” with “reasonable assurance and not limited assurance” is vital in tackling greenwashing.  

“If the data doesn’t match the hype, it should be revealed in the audit report to investors and other stakeholders,” she added.    

Jean-Paul Servais, chair of International Organisation of Securities Commissions (IOSCO), stressed that high-quality audit will help mitigate greenwashing which threatens to “erode” trust in sustainable investing.     

Auditing can be employed to “protect financial markets,” Servais added.    

Non-governmental organisation (NGO’s) that attempt to expose greenwashing incidents must be supported by larger organisations from the “moment they can be pilloried”.  

Diplock believes what NGO’s do is a “public service” and allow “consumer-decision making to be much more informed”.  

In preparation to speak at the A4S Summit, Diplock admitted that she was “horrified” to learn that some of the brands she commonly uses have been accused of greenwashing.   

Meanwhile, Servais outlined the IOSCO’s plans to endorse the International Sustainability Standards Board (ISSB) global baseline standards for sustainability disclosure.   

The ISSB was created by The International Financial Reporting Standards Foundation (IFRS) at COP26 to deliver a global baseline of sustainability disclosures to meet capital market needs.  

The ISSB will issue its standards for climate disclosure and general requirements in early 2023, with Servais expecting the global standards for disclosure and audit to be ready for use by corporates by the end of 2024.  

Servais says IOSCO and its Monitoring Group will work alongside the ISSB to continue the development of global sustainability standards and “seize the momentum”.    

 An endorsement from IOSCO should be a real “game-changer for regulators around the world setting regulatory requirements consistent with the global baseline,” Servais added    

Servais acknowledged the creation of global baseline standards must be settled at an “appropriate pace […] as effective sustainability disclosure for capital markets will empower market participants with the right information to support better economic and investment decision making”.    

Confidence gap in sustainability reporting   

During the A4S Summit, Diplock shared her concerns about the “significant gap” in the level of confidence in sustainability reporting from investors and other stakeholders compared with regular financial reporting. 

She stressed the importance of filling this gap and how the International Auditing and Assurance Standards Board (IAASB) must play a significant role in restoring confidence in sustainability reporting.   

According to Diplock, the issue of trust in sustainability reporting now requires urgent attention as “people want clearer information that they can have confidence in”.”     

Additionally, this will require company leaders of all industry’s to be “digitally literate” so they can report on their business activities effectively, she added.   

Digitalisation is becoming increasingly important, and Diplock says it is up to company directors to transition to digitised systems so its sustainability reports can be “properly tagged and assessed.”  

“Otherwise, it’s going to be extremely difficult to make sure apples are compared with apples and that the lifecycle of the data is something which we can have confidence in.”    

The accounting profession must possess the capabilities to review the lifecycle of data or the origin of it to detect who was responsible for it, Diplock noted.    

The IAASB will be addressing the challenges of auditing sustainability information in December 2022, according to Diplock. Previous work was completed on external reporting by the IAASB, but it only led to “limited assurance” and did not increase recipients’ confidence in the information they were being presented, she added.