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THE CHARTERED ACCOUNTANT

SPECIAL WRITE-UP

Ensuring Public Trust in Sustainability

Reporting – The Ethics Cornerstone
Sustainability is no longer a buzzword but a fundamental
expectation in the society today. Families are becoming
more conscious of their buying habits, often opting for
reusable items over single-use ones, and embracing
energy-efficient technologies. Schools are teaching
children increasingly about the threats to the planet and
society from unethical behaviors and about the need to
embrace sustainable options, businesses and ways of
Gabriela Figueiredo Dias
life.
Chair of the International Ethics
Standards Board for Accountants

A
s consumers or
investors, our decisions
are now being driven
not only by the price of
products and the financial
return of investments but also
by the values of the companies
behind those products and
investments. Take the story of
success of some brands that
chose to build their business
models around sustainability,
and the severe reaction of
consumers and investors
against other brands that have
opted to resist this necessary
new ethical approach to
business: both demonstrate
how much sustainability has
already been incorporated as
a public value and a condition
for financial resilience and
success.
The substantial growth of
ESG (Environmental, Social,
and Governance) investing
is another indication of
sustainability’s prevalence
in our society today. As of
June 2023, one of the world’s
largest asset managers
reported an increase in its ESG
assets under management
(AUM) to US$2.5 trillion, up
from US$1.2 trillion just two
years prior. This explosive
growth of ESG investing
underscores the robust interest
from investors globally in
sustainable finance.
This fundamental shift
towards a more sustainable
economy has also spurred
organizations of various sizes
to promote and celebrate
their sustainability efforts.
Organizations communicate
their “aggressive net
zero goals,” “sustainable
investment vehicles,” and
more through data-driven
reporting and vibrant
advertising campaigns. In
doing so, they inform the
public of their commitments
towards the environment,
society, and their own
governance. For instance,
some companies are targeting,
or claim that they have
reached, “net zero” carbon
emissions. Others claim they
will be not just carbon neutral,
but also carbon negative by
2030.
As the pressure on
companies to act more
sustainably has risen, so
has the imperative of timely,
relevant, and trustworthy
sustainability information.
This new information is
increasingly being used to
support decisions made by
investors, customers, workers,
government agencies, and
other stakeholders. It is
therefore critical that this
information is as reliable as
financial information.
But is all this information
trustworthy? Reliable?
Before taking over as Chair of
the IESBA, I served as Chair
of the Portuguese Securities
Commission (CMVM), and a

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member of the Board of the
International Organization
of Securities Commissions
(IOSCO). These positions
require ample awareness of
the capital markets’ needs
and being conscious of the
close links between high-
quality, ethically prepared
and presented corporate
information, and well-
functioning capital markets.
But the demand for reliable
sustainability information
has gone well beyond the
capital markets and is
coming from all economic
and social partners, including
individuals, concerned about
understanding the impacts
of each activity on the
sustainability of the system.
As stakeholders clamor for
more data on sustainability,
the amount of available
relevant information has
also risen dramatically. This
surge presents organizations
with opportunities to cherry-
pick or exaggerate, or
even misrepresent their
sustainability credentials to
enhance their public image.
This raises a significant
public interest concern that
sustainability credentials might
be overstated or manipulated
for corporate gain.
A 2021 survey conducted by
Yale University and George
Mason University found that
71% of Americans believe
companies’ claims to be
sustainable even when their
actions are not. The survey,
however, revealed that the
public had developed a
healthy skepticism about the
stated sustainability efforts
of businesses. In another
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global survey in 2022, two-
thirds of the executives
expressed doubt regarding
the authenticity of their
companies’ sustainability
efforts. Such skepticism and
mistrust can lead to significant
challenges when it comes to
sustainability reporting.
Without strong ethics in the
production, reporting, and
assurance of sustainability
information, there are
significant risks of issues like
“greenwashing.” Merriam-
Webster defines greenwashing
as “the act or practice of
making a product, policy,
activity, etc., appear to be
more environmentally friendly
or less environmentally
damaging than it is.” With the
widespread developments
in sustainability, it’s not
only about the environment
anymore, but also about the
societal and governance
impacts.
A classic example of
greenwashing in recent history
is the case of the Volkswagen
“Dieselgate” scandal in 2015,
which led to billions of US
dollars in fines for Volkswagen
and a tarnished reputation
for fraudulently altering its
diesel vehicles’ emissions
performance even though it
had marketed those vehicles
as environmentally friendly,
with low emissions that
complied with environmental
regulations. But Volkswagen
is not alone: the number of
accusations against famous
brands―from Deutsche Bank
to IKEA, from H&M to Coca-
Cola―for hiding unethical
behaviors behind the shiny,
green clothes of sustainability
THE CHARTERED ACCOUNTANT
information shows the
importance of focusing on
the trustworthiness of such
information.
Greenwashing threatens to
undermine the significant
progress being made daily
towards sustainable solutions
and can severely damage
the credibility of sustainable
finance. It can lead to a loss
of confidence in sustainability
information, making it
challenging for investors
and consumers to trust an
organization’s sustainability
credentials. Over time, this
loss of confidence could result
in reduced sustainability-
related investments and
decreased incentives for
organizations to change their
behavior, hindering overall
progress towards a more
sustainable world.
Several factors contribute
to companies reporting
misleading or false
sustainability information. First,
the existing metrics governing
sustainability are more
subjective than established
operational and financial
measures. This subjectivity
may cause organizations with
good intentions to appear to
be greenwashing if their claims
do not align with expectations.
Simultaneously, it enables less
ethical companies to present
subpar results in a more
favorable light.
The increased pressure on
organizations to publicly
report their progress against
sustainability commitments
also exacerbates the problem.
This pressure, together with
low technical understanding
of the problems, often drives
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THE CHARTERED ACCOUNTANT
organizations to portray a
specific narrative, leading to
potential misinformation or
exaggeration. Finally, a crucial
factor contributing to this issue
is a lack of standardization in
sustainability reporting. With
no overarching regulation
governing sustainability
reporting, critical activities
such as compliance,
measurement, and reporting of
sustainability information often
become arbitrary.
Ethical behavior is
foundational to a more
sustainable future
For sustainability efforts
to be meaningful, it is vital
that investors and other
stakeholders can trust the
information they receive as
much as they trust financial
information. Understanding
what is being measured is
important but that is only part
of the challenge. Verifying and
validating the information, and
understanding the impacts
of sustainability on financial
accounting and forecasts, are
all critical components of this
puzzle.
To address these challenges,
we need clear, truly global,
and consistent rules,
definitions, and objectives.
The International Sustainability
Standards Board (ISSB)
is actively developing
sustainability disclosure
standards for capital markets
and is expected to release
their first two standards
soon. Additionally, regulators,
businesses and the citizens
have high expectations for the
role the accounting profession
will play in ensuring the
integrity and trustworthiness
www.icai.org
of sustainability information.
All parties will benefit from
the profession’s support in
bolstering the confidence
of investors and other
stakeholders in sustainable
projects and choices―and this
is only possible if there will
be strong, globally applicable
ethics and independence
standards.
To that end, while the
International Auditing and
Assurance Standards Board
(IAASB) is working to develop
an overarching standard for
assurance on sustainability
reporting, the IESBA has
timely committed to develop
the necessary ethics and
independence standards for
sustainability reporting and
assurance.
In fact, while standardization
and regulation can help
eliminate the gray areas
within sustainability reporting,
these alone cannot prevent
greenwashing―an ethical
foundation is absolutely
necessary to promote
authentic sustainability actions
within organizations. Intent
matters, and organizations
need to demonstrate they are
acting in an ethical way to
earn and maintain public trust.
Ultimately, the public needs
to believe that organizations
are holding themselves
accountable for delivering on
their sustainability plans.
Ethics as the cornerstone
to reliable sustainability
information
From the professional
experience in financial markets
and corporate governance,
it has always been my deep
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conviction, confirmed by the
practice, that ethics forms the
cornerstone of public trust in
any organizational reporting.
The integrity of the information
provided to investors and
other users is a core element
of the system. To foster
trust between organizations,
governments, investors,
employees, consumers,
and other stakeholders, we
need to promote an ethics-
based organizational culture
and an ethical approach to
sustainability work.
Ethical behavior underpins
the integrity and credibility
of information, and an
organization’s ethics
framework can guide its
people responsibly, ensuring
public confidence is not
undermined. Environments
where leaders promote
accountability and reward
ethical behavior are essential
for this to happen.
The IESBA’s International
Code of Ethics for
Professional Accountants
(including International
Independence Standards)
(the Code) provides a robust
ethical framework and
receives global appreciation
as the high ethical bar needed
to underpin confidence in
corporate information. The
Code has been adopted
in over 120 jurisdictions
and translated into about
40 languages. It serves as
the ethical “north star” for
professional accountants
globally. Underpinned by five
fundamental principles―
integrity, objectivity,
professional competence and
due care, confidentiality, and
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The integrity of the
information provided
to investors and other
users is a core element of
the system.
professional behavior―the
Code plays an important
role regarding accountants’
conduct, guiding them on
how to ethically approach
their day-to-day work, be it
the rigor of their analyses,
the inquiring mind they apply
or their duty to challenge the
information and explanations
provided by management.
In October 2022, the IESBA
Staff released a Question &
Answer (Q&A) publication
Ethics Consideration in
Sustainability Reporting,
Including Guidance to
Address Concerns about
Greenwashing. The publication
highlights the relevance and
applicability of the Code
to ethics challenges in the
context of sustainability
reporting and assurance,
especially in circumstances
involving greenwashing. Since
then, and in response to a
call from IOSCO to develop
profession-agnostic ethics
and independence standards
for sustainability assurance,
the IESBA has further
committed to developing
globally applicable ethics and
independence standards to
support transparent, relevant,
and trustworthy sustainability
reporting. This strategic
commitment sets up the third
pillar of the global standards
infrastructure, alongside as
the sustainability reporting and
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assurance standards being
developed by the ISSB and the
IAASB, respectively.
Ensuring that the ethics
standards being developed will
be fit-for-purpose, framework
neutral, and profession-
agnostic requires a deep
understanding of the others’
perspectives, opinions and
needs. With that purpose,
earlier this year, the IESBA
held a series of four global
roundtables in Paris, Sydney,
Singapore, and New York to
obtain stakeholder input to
help shape the development of
our new sustainability-related
ethics and independence
standards. The roundtables
were attended by senior-
level participants from a
wide range of stakeholder
groups, including the
investor and corporate
governance communities, data
aggregators, regulators and
oversight bodies, international
policy-making organizations,
national standard setters,
preparers, professional
accountancy organizations,
and sustainability assurance
providers both within and
outside the accounting
profession.
Based on this extensive
outreach and upon deep
reflection, the IESBA is
advancing ethics and
independence proposals
for sustainability-related
standards, and a related
standard on the use of experts.
Exposure Drafts are expected
by the end of this year, with
the final standards due by the
end of 2024, responding to the
urgency to fill in the ethics and
independence gap in this field.
THE CHARTERED ACCOUNTANT
Professional accountants are
not the only professionals
engaged in reporting on
sustainability information.
Studies show that more than
half of the sustainability
assurance engagements
globally have been conducted
by independent assurance
providers outside the
accounting profession.
Recognizing this reality
and the public interest in
all sustainability assurance
providers adhering to the
same high bar of ethical
behavior, the ethics and
independence framework
the IESBA is developing
will be applicable to all
professionals involved in
sustainability assurance, not
just professional accountants.
Conclusion
We have an unprecedented
opportunity, and arguably
an obligation, to promulgate
robust, globally applicable
standards to support
trustworthy sustainability
reporting and assurance.
Doing so will foster and build
public trust in the business
and financial sectors’
ongoing efforts to improve
sustainability practices. With
greater clarity on sustainability
reporting, companies
can develop meaningful
strategies that support a
more sustainable world, avoid
greenwashing, and satisfy the
expectations of regulators,
investors, and the public.

Author may be reached at
eboard@icai.in
www.icai.org