IESBA proposes ethics changes for sustainability
February 14, 2024
The International Ethics Standards Board for Accountants has proposed new ethics rules for sustainability assurance to help auditors steer companies away from exaggerated claims about their environmental efforts.
The proposed standards, which IESBA unveiled in late January, aim to elevate the quality of sustainability information and avoid so-called "greenwashing" by companies that boast about making strides on reducing their emissions and enlist outside auditing firms to bolster those claims.
"One of the major issues the standards are intended to address is the issue of greenwashing," said Ken Siong, program and senior director at IESBA. "We know that it is very prevalent in the area of sustainability reporting. We hear unfortunately too many instances of companies being called to account in terms of the claims they're making relative to their decarbonization efforts, how green their products or services are, especially in the financial sector, and how they're designing certain financial products that allegedly serve to meet ESG goals, but in reality it is found that's actually not the case. Our standards are intended to bring an ethical approach to those products and services up to par and raise the level as to how companies are advocating their strategies, goals and vision for how they are meeting their sustainability goals."
IESBA is asking for comments on two exposure drafts, International Ethics Standards for Sustainability Assurance ED, which includes revisions to its existing ethics code related to sustainability reporting, and Using the Work of an External Expert ED, by April 30 and May 10, respectively, It's also planning a series of webinars to explain the proposals.
The exposure draft on using the work of an external expert proposes an ethical framework to guide professional accountants or sustainability assurance practitioners, as applicable, in evaluating whether an external expert has the necessary competence, capabilities and objectivity in order to use that expert's work for the intended purposes. The proposals also include provisions to apply IESBA's ethics code's conceptual framework when relying on the work of an outside expert. To coincide with the launch of the public consultation, the International Accreditation Forum announced its intention to stipulate to national accreditation bodies around the world that IESBA's proposed standards are to be used when accrediting and authorizing conformity assessment bodies to carry out assurance work on corporate sustainability disclosures.
Accountants and auditors are already being asked to report and vet their clients' sustainability claims. "On the reporting side, accountants play a fundamental role as preparers and decision makers in the reporting chain, and certainly on the assurance side, clearly the audit firms play a very prominent role in this area and will play an even greater role as we go forward," said Siong. "The accounting profession has historically developed the expertise and the skills needed to basically be the go-to players when it comes to assurance services, so the profession will play a very important role and is already playing a prominent role on both sides with sustainability reporting and assurance."
The effort parallels a proposed set of sustainability assurance standards that IESBA's fellow standard-setter, the International Auditing and Assurance Standards Board, proposed last August.
"We're working very closely with them because we both serve the same objective of really achieving a globally consistent framework of standards on the reporting side and assurance side," said Siong. "On the IAASB side, clearly their remit is on assurance. What we're trying to achieve is to avoid fragmentation of standards. That is undoubtedly not in the public interest."
The IESBA standards will impose an ethical approach to sustainability reporting and assurance. "On the reporting side, our proposed standards will address some challenging areas when it comes to ethical behavior in a number of respects," said Siong. "With climate reporting, we know that many companies are very strategically focused on their net zero goals and decarbonization efforts because, from a business perspective, clearly there is a competitive advantage in being able to demonstrate that they are in the vanguard of sustainability efforts. Customers appreciate that and have a greater tendency to align with companies that demonstrate greater environmental credentials. There's a lot at stake."
But how companies achieve their net zero targets and goals will be a challenging task, as there are a number of ways to achieve decarbonization in terms of companies' operations, he noted.
"Airlines may very well wish to claim that their operations are greener or they are very environmentally sustainable," said Siong. "For example, they may invest in renewable energy projects. They might purchase carbon offsets, or invest in specific decarbonization or carbon sequestration initiatives. Many of these initiatives will involve the use of new technologies. It might involve the need to turn to external experts when it comes to the measurements relative to the amount of carbon reduction that these initiatives would have achieved. If you're going to involve external experts, it's going to be very important to make sure they come to the task with the necessary level of competence and objectivity. Many of these technologies are really at the frontier of science. How do accountants really make sure that when they turn to external experts, they have done their due diligence as required under our code of ethics?"
Accountants and auditors will also need to stand behind the sustainability reports they are assuring. "It is going to be very important for those accountants who will have responsibility for those disclosures to make sure that those disclosures are being made in a truthful and straightforward manner because it is going to be very easy to succumb to the pressures and incentives that we will face to perhaps paint a rosier picture than might actually be the case," said Siong.
[Accounting Today]
