New IESBA Standards – The Importance of Ethical Standards in Sustainability

The International Ethics Standards Board for Accountants (IESBA) has proposed a set of new standards regarding the way in which companies prepare their sustainability statements. The International Ethics Standards for Sustainability Assurance (IESSA) have been developed by IESBA at the request of international regulators who understand the growing importance of sustainability reporting and the need for investors, customers and other stakeholders to be able to trust the disclosures that companies make. 

Within the European Union, legislation is being introduced to oblige many businesses to report on their performance regarding environmental, social and governance (ESG) matters. The Corporate Sustainability Reporting Directive (CSRD), for example, harmonises the disclosures in-scope businesses must make and requires them to obtain limited assurance over the accuracy of the data they provide. The new IESSA will ensure that all reports are prepared and audited in accordance with the same ethical benchmarks, reducing the chances of organisations greenwashing – artificially exaggerating the sustainability performance of the business. 

IESBA refers to IESSA as “a robust ethics framework to complete the global sustainability standards infrastructure by supporting the proper conduct of sustainability preparers and assurance providers globally.”

Independent assurance of sustainability reports

With the rise of sustainable investing and consumers who are increasingly likely to make spending choices based on the green credentials of a business, there is a necessity to understand exactly how sustainable an organisation is. However, without proper auditing in place, it can be difficult to gain perspective on this.     

Sustainability data should be reliable, comparable and trustworthy. Independent external assurance helps reassure stakeholders that the claims of the business have been robustly audited and found to be correct. The addition of the new standards from IESBA further galvanises this, as they formalise the process to ensure that all reporting passes the same strict tests before it is published. 

IESBA’s standards: fighting greenwashing

IESBA recognises the “subjectivity, prospectivity and immaturity” of sustainable reporting data, which is why the IESSA prioritise an ethical approach to providing assurance over disclosures.

With a rapidly increasing amount of sustainability information available to stakeholders, these standards on sustainability reporting and assurance provide an ethical framework that supports proper conduct from those who prepare and audit disclosures. It binds them to act in a way that ensures reporting is useful and accurate, avoiding situations that could result in greenwashing. 

As many jurisdictions move from voluntary to mandatory sustainability reporting, having this ethical approach in place now addresses many of the potential issues that could arise and lead to misreporting from businesses. The end goal of IESSA is truthful, high-quality disclosures. 

IESBA’s standards in detail

Five principles

The IESSA creates five principles of ethics for assurance providers regarding sustainability matters: 

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

The person conducting the assurance process, either internally or externally must implement these principles as they carry out their work. 

Integrity

Working with integrity means auditors are straightforward, fair and honest in their task, as well as ensuring they act appropriately, even when they are pressured not to do so. They should challenge actions they believe to be wrong and refuse to provide assurance to reports that are false or misleading, that omit or obscure key information and that contain statements which cannot be evidenced.

Objectivity

The individual should exercise their experienced, professional judgement without being swayed by any bias, conflicts of interest or the influence of other stakeholders, entities or technology. 

The ethical standards require that the person providing assurance over the reporting should not undertake the task if the situation or relationship with a stakeholder will attempt to make them act in a manner contrary to their best judgement. 

Professional competence and due care

The person tasked with auditing the sustainability reporting of a company should ensure they have the skills and knowledge necessary to carry out the task, maintaining this as new technical and professional standards are released. They should also make sure they always work within these standards. 

Keeping up-to-date with industry developments is another factor of this principle, as is using sound judgement and ensuring they understand and act in accordance with the requirements of each specific assignment. 

Confidentiality

The practitioner should maintain the confidentiality of the information with which they deal in the course of the task. This is unless that information must be reported as part of the process of sustainability reporting.

Understanding what information must be kept confidential and ensuring that they do not disclose it professionally or socially is crucial, as is taking steps to alert their team to the confidential nature of the information if necessary. 

This principle often applies to information after the practitioner has ceased to work with or for the organisation. 

Professional behaviour

The assurance provider must comply with all laws and regulations, act in the best interests of the public and avoid conduct that might affect the trust of external stakeholders in the information they are auditing. 

Threats to compliance

The standards require that those providing assurance services for ESG data should be responsible for identifying, evaluating and addressing threats to compliance as part of their role. 

Here are the relevant requirements: 

Ethics and corporate governance

Ethical behaviour is an essential element of good governance and, therefore, a driver for a culture of compliance. By displaying ethical attitudes from the boardroom down, your employees are happier and confident they will be treated with respect and fairness. In addition, the organisation is more likely to avoid regulatory risks as all decisions are taken with doing the right thing as a leading attitude.