Auditors get tougher guidelines on judging firms’ environmental claims

London — International auditors have been given new guidance on what to check and how when assessing firms’ environmental, social and governance claims, as part of efforts to increase rigour and consistency, the industry’s global ethics watchdog says.

The move by the International Auditing and Assurance Standards Board (IAASB) and the International Ethics Standards Board for Accountants (IESBA) comes as more companies are pushed to disclose data as part of efforts to fight climate change.

While global reporting standards and separate ones for the EU had been released, the guidelines and rules for auditors were crucial to help ensure trust in the information, IESBA chair Gabriela Figueiredo Dias said.

“One thing is to know what you must do, and another thing is to know how to behave and how to approach many dilemmas, decisions and judgments that you need to make,” Dias said.

For example, how a firm should handle pressure from a client to cherry-pick information that makes them look better, or “greenwashing”.

The new standards are contained in the IAASB’s International Standard on Sustainability Assurance 5000, and IESBA’s International Ethics Standards for Sustainability Assurance.

About 130 countries have reflected IESBA’s guidelines for financial reporting in their rules, and Dias said she expected they would do the same with the sustainability guidelines.

The EU is busy debating the scope of a suite of sustainability rules, including its corporate sustainability reporting directive, amid concern that extensive reporting requirements are damaging EU competitiveness.

In the US, meanwhile, similar rules have been challenged and are likely to continue to be under scrutiny during the Trump administration.

“It is our conviction that in a world with less detailed rules ... ethics standards matter more as there is more space for judgment, more space for decision-making,” Dias said.

Despite the political backdrop, 34 of the world’s biggest auditors had all said they would adopt the guidance, she said.

“This creates a significant global framework and a set of expected behaviours which have some kinds of enforcement,” though to what degree would differ depending on the jurisdiction, she said.

Reuters