Clamp down on corporate greenwashing underway - Boodle Hatfield

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06 Jul 2023

Clamp down on corporate greenwashing underway

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2 min read

The International Sustainability Standards Board (the ISSB) has recently published a new set of standards designed to improve investors' trust and confidence in a company's sustainability credentials. 

The publication of the standards can be seen as a response to cases of corporate "greenwashing" - when a company deceives consumers (and investors) into believing that it is more environmentally friendly than it really is.

The new ISSB standards create a "global baseline" of sustainability and climate related disclosures.  By using a common language in sustainability reporting, it is intended that such disclosures will be comparable across multiple jurisdictions and therefore clearer for investors to understand and assess.  The standards have been welcomed by the Financial Conduct Authority who commented that they "answer the clear market demand for complete, consistent, comparable and reliable corporate sustainability disclosures". 

The ISSB is an offshoot of the International Financial Reporting Standards Foundation (known as the IFRS) which already publishes accounting rules used in more than 100 countries.  It seems likely therefore that this new set of standards - named IFRS S1 and IFRS S2 - will catch on. 

Whilst IFRS S1 requires a company to disclose material information about its sustainability-related risks and opportunities, IFRS S2 is more specific and requires a company to disclose certain information about its climate-related risks and opportunities.

Amongst a number of other requirements, both standards state that a company should disclose details of its progress towards any sustainability- or climate-related targets it has set itself, as well as any targets it is required to meet by law.

It will be for individual jurisdictions to decide whether to adopt the standards.  The UK government has already signalled its support for the ISSB and has announced that it is establishing a mechanism for formal endorsement and adoption of IFRS S1 and IFRS S2.  Further information on which UK companies will be required to adhere to the standards (if adopted) is therefore awaited, but it is likely that the appetite for reliable information on a company's green credentials is only going to increase.  The new ISSB standards could provide a useful guide for companies - of all sizes - as to how they can present this information. 

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