What is greenwashing and how do new standards aim to combat it?

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Greenwashing and New Standards to Enhance Corporate Accountability

Greenwashing refers to the practice where companies misrepresent their environmental efforts or achievements to appear more sustainable than they actually are, often to improve their public image or gain a competitive advantage. This can involve exaggerating the positive impact of their actions or downplaying their negative environmental consequences, leading to a lack of trust in corporate sustainability disclosures. The International Sustainability Standards Board (ISSB) has introduced its first standards, IFRS S1 and IFRS S2, designed to combat this issue by establishing a uniform and reliable framework for sustainability reporting, which will be available for use from next year.
Establishing a Common Language for Sustainability Disclosures

The newly issued IFRS S1 and IFRS S2 standards aim to create a universally understood language for companies to communicate the impact of climate-related risks and opportunities on their operations and future prospects. This common framework ensures that disclosures about a company's sustainability performance are detailed in a consistent manner across all businesses. For instance, the standards specify how companies should measure their direct and indirect emissions, utilizing the widely recognised Greenhouse Gas Protocol methodology. This consistency is crucial for investors and stakeholders to accurately compare and assess the sustainability efforts of different organisations.
Enhancing Data Reliability and Accountability

A significant aspect of the new standards is their focus on improving the reliability of sustainability data. Currently, while many large companies report their carbon emissions, the data's quality and comparability are often questionable, enabling practices like greenwashing. The ISSB's standards mandate that companies must audit their emissions data, thereby increasing its accuracy and trustworthiness. Furthermore, they require that a company's climate strategy be formally adopted and overseen by its top management, reinforcing accountability at the highest levels of corporate governance.
Global Adoption and Compatibility Considerations

The ISSB anticipates that the new climate reporting standards will be adopted as mandatory by several countries, with Japan and Britain expected to be among the first. There is also hope that China will embrace these standards, given its significant economic influence. While the European Union is developing its own sustainability standards that will encompass broader areas like biodiversity and human rights, the ISSB is working towards ensuring compatibility with these initiatives. This global alignment aims to reduce the complexity for multinational corporations and foster a more cohesive international approach to sustainability reporting.

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What is greenwashing and how do new standards aim to combat it?

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