1. Consideration of Ethics in
Sustainability Reporting
Organized by SAFA Committee on
Professional Ethics and Independence
Sabbir Ahmed, FCA
Chairman, Professional Ethics and Independence
Committee and Council Member, ICAB
Key Note Paper on
2. Why Sustainability Reporting is needed
In recent years, investors have been increasingly focused on information that provides a better understanding
of a company’s long-term value creation and enables them to allocate capital to businesses they perceive as
being more sustainable. Financial markets have seen accelerated growth in the disclosure of sustainability
information. More importantly, stakeholders not only want to see what you have achieved, they also want to
know how you achieved.
• Stakeholders expectation
• Building trust and confidence on business
• Bringing transparency
• Managing risk and creating resilience
• Enhance corporate value
• Compliance with regulation
3. Stakeholders of sustainability reporting
Stakeholders
of
sustainability
reporting
Government
and
regulators
Civil society,
NGOs,
public
Employees
and
suppliers
Financiers
Customers
and clients
Investors
and capital
market
4. Evolution of Sustainability Reporting
• Global Reporting
Initiative (GRI)
• Other Regional Forums
Pre 2000
• Carbon Disclosure
• Greenhouse Gas
• Climate Disclosure
2001-2010 • IIRC
• SASB
• UN SDGs
• IOSCO-SFN
• WEF-IBC
2010-2020
5. Evolution of Sustainability Reporting
Global Reporting Initiative (GRI)
• Established in 1997, GRI is the independent, international organization that helps businesses and other organizations to
take responsibility for their impacts by providing them with the global common language to communicate those impacts.
The International Integrated Reporting Council (IIRC)
• The International Integrated Reporting Council (IIRC) was established in 2010 as a global coalition of businesses,
investors, policy-makers, the accounting profession and civil society.
• The IIRC Board of Directors oversaw the strategy, finances, and operations of the organization and appointing members
of the International Integrated Reporting Framework Board. The International Integrated Reporting Framework Board
recommended any revision, modification or other updates to the International Integrated Reporting Framework. The
Council was the primary institutional forum for expression of the broad market view on matters relating to integrated
reporting and integrating thinking, as well as a medium for its interaction and provision of advice, guidance and input on
issues of relevance for the organization, including its nature, objectives, purpose, vision and mission, as well as its
strategy and the means by which to deliver it.
6. Evolution of Sustainability Reporting
The Sustainability Accounting Standards Board (SASB)
• The Sustainability Accounting Standards Board (SASB) was founded in 2011 as a not-for-profit, independent standards-setting
organization. SASB’s mission was to establish and maintain industry-specific standards that assist companies in disclosing
financially material, decision-useful sustainability information to investors.
• In 2017, SASB transitioned to a two-tier governance structure. This structure included a board of directors (“the SASB
Foundation Board”) and a standards-setting board (“the SASB Standards Board”). The SASB Standards Board developed, issued,
and maintained the SASB Standards. The SASB Foundation Board oversaw the strategy, finances, and operations of the
organization, and appointed the members of the SASB Standards Board.
The Value Reporting Foundation (VRF)
• In 2021, the IIRC merged with the SASB Foundation into the Value Reporting Foundation (VRF). The IIRC Board of Directors and
the SASB Foundation Board of Directors combined to form the Value Reporting Foundation Board of Directors (“the VRF Board”).
A governing board, the VRF Board was responsible for overseeing the strategy, finances, and operations of the organization and
appointing members of the International Integrated Reporting Framework Board/the SASB Standards Board.
7. Evolution of Sustainability Reporting
• On 3 November 2021, the IFRS Foundation Trustees announced the creation of a new standard-setting board—the International
Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of high-quality sustainability disclosure
standards to meet investors’ information needs. The IFRS Foundation also announced plans to consolidate with the Value
Reporting Foundation and the Carbon Disclosure Standards Board (CDSB).
• Effective August 1, 2022, the Value Reporting Foundation–home to the SASB Standards–consolidated into the IFRS Foundation,
which established the first International Sustainability Standards Board (ISSB). SASB Standards are now under the oversight of
the ISSB. The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards
that provide investors and other capital market participants with information about companies’ sustainability-related risks and
opportunities to help them make informed decisions.
• Subsequently, on 1 November 2022, the IFRS Foundation Trustees have announced a new advisory group named The Integrated
Reporting and Connectivity Council (IRCC). The Integrated Reporting and Connectivity Council (IRCC) is an advisory body to the
IFRS Foundation Trustees, the International Accounting Standards Board (IASB) and the International Sustainability Standards
Board (ISSB).
8. Independent Assurance on Sustainability Reporting
So far the focus has been mainly on Sustainability Reporting. However, off late demands are also being created for independent
assurance on sustainability reporting. For example, the International Organization of Securities Commissions (IOSCO) has engaged
with different stakeholder groups; investors, issuers, assurance providers, and standard setters across different regions and
encouraged standard-setters to work on assurance of sustainability related reporting.
In particular, IOSCO encouraged the IAASB and the IESBA Boards to work with others in the ecosystem to support capacity-building
by providing support and guidance including using robust methodologies and rigorous risk assessment processes. Other key
messages emerged from these IOSCO sessions are as follows:
• Among investors, there is growing demand for assurance to enhance the reliability of corporate sustainability reporting. While
limited assurance may be the most realistic objective in the short term, investors typically see reasonable assurance as the long-
term target, especially in respect of metrics such as those related to greenhouse gas emissions.
• Issuers also expressed a need for assurance standards that are effective in the current landscape of sustainability reporting and
are capable of keeping up with evolving standards and practices. Investors and issuers also see consistent and comparable
assurance standards for sustainability-related information as key to supporting high-quality assurance engagements.
9. Specific issues in sustainability reporting
In October 2018, IOSCO established its Sustainable Finance Network (SFN) to provide a forum for members to exchange
experiences and gain a better understanding of, and have structured discussions on, various sustainability issues. The SFN has
analysed the context in which securities regulators are addressing sustainability efforts, the roles they can play and the challenges
they may face. SFN’s findings highlighted three recurring themes, namely
• multiple and diverse sustainability frameworks and standards, including sustainability-related disclosure;
• a lack of common definitions of sustainable activities; and
• greenwashing and other challenges to investor protection.
Greenwashing usually refers to practices aimed to mislead intended user of the information or intentionally giving them a false
impression about how well an entity or an investment is aligned with its sustainability goals.
For example, an investor in sustainable finance consider the process of incorporating economic, social, and environmental (ESG)
factors into financial decision-making. Examples of greenwashing in this context can include an over-emphasis of ESG
considerations in the communication of a product or instrument and in corporate information to target investor in sustainable
finance, where such considerations have had a very limited impact on the actual investment or business strategy being
implemented.
10. Ethical consideration and IESBA involvement
Ethics and independence plays very important role in the collection, reporting and assurance of sustainability information.
Accordingly, the IESBA has taken steps to develop fit-for-purpose, globally applicable ethics and independence standards as a
critical part of the regulatory infrastructure to support transparent, relevant and trustworthy sustainability reporting.
ISSB
Reporting
IAASB
Assurance
IESBA
Independence
IESBA Ethics
The IESBA’s strategic commitment is to set up the International Code
of Ethics for Professional Accountants (including International
Independence Standards) (“the Code” or “the Code of Ethics”) as
the third pillar to trustworthy sustainability reporting and assurance,
alongside the standards being developed by the International
Sustainability Standards Board (ISSB) and the International Auditing
and Assurance Standards Board (IAASB).
It is worthwhile to note that in comparison to financial reporting,
sustainability-related reporting typically involves a more extensive
narrative component, more forward-looking information, and more
reliance on information pertaining to the issuer’s value chain, which
may be outside of the issuer’s internal controls. It may also be
disclosed in different formats and across different documents.
11. Ethical consideration and IESBA involvement
As per the published IESBA Update in December 2022, the IESBA approved two new projects that will deliver the following:
Sustainability Project
• Profession-agnostic independence standards for use by all sustainability assurance practitioners
• Specific ethics provisions relevant to sustainability reporting and assurance
Experts Project
• Specific ethics and independence provisions addressing the use of experts by organizations as well as in the context of audit and
assurance engagements (including sustainability assurance).
The projects will be carried forward by two separate task forces; the Sustainability Task Force and the Experts Task Force.
The Sustainability Task Force will in turn have two workstreams:
Workstream 1 will focus on the independence issues relating to sustainability assurance; and
Workstream 2 will focus on the ethics issues relating to both sustainability reporting and assurance.
The IESBA has also established a Sustainability Coordination Committee (SCC) which will be responsible for overseeing the
coordination of the work on the Sustainability project and between the Sustainability and Experts projects.
13. Why professional accountants can play an important role
The accountancy profession plays a major role in the sustainability reporting supply chain. The profession brings to this domain its
wide and deep competencies in the preparation and presentation of information and the provision of assurance thereon.
The profession has historically demonstrated wide and deep technical competencies and a strong ethical core in preparing,
presenting, and assuring financial information. Similarly, those attributes are invaluable in reporting on non-financial information
such as information related to sustainability.
Most importantly, public trust in the profession in those crucial roles for sustainability is underpinned by robust global ethics
standards, which in turn contribute to confidence in sustainability reporting.
Misleading sustainability reporting (e.g. greenwashing) covers more specifically a range of behaviors, from omitting information to
misrepresenting or falsifying it with the intent to mislead investors and other users. In some cases, greenwashing might result in
non-compliance with laws and regulations. Professional accountants by following the Code can ensure integrity of sustainability
reporting.
14. Specific ethical issues: IESBA Staff questions & Answers
There are several ethics-related challenges arising from professional accountants' involvement in sustainability reporting and
assurance, especially circumstances related to misleading or false sustainability information (i.e., "greenwashing").
The International Code of Ethics for Professional Accountants (including International Independence Standards) (“the Code” or
“the Code of Ethics”) requires professional accountants not to be associated with misleading information.
The Code also establishes a responsibility for professional accountants to act in the public interest. Intentionally misleading
investors and other users of sustainability information would constitute a breach of the fundamental principle of integrity and
could be fraudulent. In addition, threats to compliance with the fundamental principles of objectivity, professional competence and
due care, and professional behavior might also be created.
Accordingly, in October 2022, the IESBA has published a Staff Questions & Answers to highlight the relevance and applicability
of the Code in certain specific issues and circumstances. Most critical elements from that publication are reproduced and
discussed in the following slides.
15. Specific ethical issues: IESBA Staff questions & Answers
Q: Do professional accountants have to comply with the Code’s provisions when preparing and presenting not only financial,
but also non-financial information, including sustainability information
A: Yes. The Code specifies that a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in
the public interest. Confidence in the profession is a reason why businesses, governments and other organizations involve
professional accountants in a broad range of areas, including financial and corporate reporting, assurance and other professional
activities (paragraphs 100.1 and 100.2). Accountants understand and acknowledge that such confidence is based on the skills and
values that they bring to their professional activities, including: (paragraph 100.2)
(a) Adherence to ethical principles and professional standards;
(b) Use of business acumen;
(c) Application of expertise on technical and other matters; and
(d) Exercise of professional judgment.
Irrespective of the nature of the professional activity and the skills and knowledge necessary to perform such activity, a
professional accountant must comply with the Code’s provisions and act in the public interest.
16. Specific ethical issues: IESBA Staff questions & Answers
Q: Are there specific provisions in the Code that safeguard against greenwashing?
A: Yes. Complying with the fundamental principles, in particular integrity, plays an important role in avoiding practices that could lead
to greenwashing. For example, professional accountants who comply with the principle of integrity are straightforward and honest in
all professional and business relationships, and refrain from being associated with sustainability reports, returns, communications or
other information where the accountant believes that the information:
• Contains a materially false or misleading statement;
• Contains statements or information provided recklessly; or
• Omits or obscures required information where such omission or obscurity would be misleading.
When a professional accountant becomes aware of having been associated with materially false or misleading sustainability
information, there is an obligation under the Code for the accountant to take steps to be disassociated from that information. This
requirement applies even in difficult situations, or when the professional accountant feels pressured to do otherwise.
17. Specific ethical issues: IESBA Staff questions & Answers
Q: The multiplicity of reporting frameworks may result in inconsistent approaches to reporting on sustainability information.
Does the Code require compliance with a specific reporting framework when professional accountants prepare and present
sustainability information?
A. Pursuant to paragraph R220.4, the Code requires professional accountants to prepare and present sustainability information in
accordance with the relevant reporting framework, where applicable. However, when no sustainability reporting framework is
applicable or available, the Code requires the professional accountant to exercise professional judgment to identify and consider:
• The purpose for which the sustainability information is to be used;
• The context within which it is given; and
• The audience to whom it is addressed.
The Code recognizes that preparing or presenting information might require the exercise of discretion in making professional
judgments. For example, this might involve selecting disclosures about risks under the applicable sustainability reporting
framework. The Code is clear that in making judgments, professional accountants must not exercise discretion with the intention
of misleading others or influencing contractual or regulatory outcomes inappropriately.
18. Specific ethical issues: IESBA Staff questions & Answers
Q: Sustainability-related terms are constantly emerging, resulting in different definitions across jurisdictions. There is a lack of
common understanding or transparency, for example, about what is meant by “sustainable investment” and “sustainability
risks.” The descriptors for sustainability performance metrics (e.g., “green” or “ethical”) are not yet standardized or defined.
These inconsistencies present challenges in providing transparent and reliable sustainability information. What guidance does
the Code provide to address this matter?
A. The Code does not explicitly deal with this matter. However, the overarching requirements, including the fundamental principles
and the conceptual framework, apply. Application of the conceptual framework would lead the professional accountant to exercise
professional judgment and use the reasonable and informed third-party test in deciding on which terms are fit for purpose. In
the case of the preparation and presentation of sustainability information, the Code calls for professional accountants to exercise
professional judgment to describe clearly the true nature of the underlying business transaction or activity (paragraph R220.4 (c)).
In exercising judgments about the appropriate term to use in a sustainability report, it is relevant to consider the purpose, context,
and audience of the report.
19. Specific ethical issues: IESBA Staff questions & Answers
Q: Making misleading or inaccurate claims about the sustainability performance of an investment without providing evidence
for the claims is another form of greenwashing. Does the professional accountant have any responsibility to verify the
sustainability information or performance?
A. Yes. The application of the conceptual framework calls for professional accountants not to accept the sustainability information
at face-value – the Code requires them to have an inquiring mind (paragraph R120.5(a)). This involves: (paragraph 120.5 A1)
(a) Considering the source, relevance and sufficiency of the information obtained, taking into account the nature, scope and
outputs of the professional activity being undertaken; and
(b) Being open and alert to a need for further investigation or other action.
The Code provides guidance to assist professional accountants in considering the source, relevance and sufficiency of information
obtained. In applying an inquiring mind, professional accountants should consider whether the sustainability information
presented is substantiated.
20. Specific ethical issues: IESBA Staff questions & Answers
Q: ESG metrics can be broadly categorized as point in time measurements. Different timing of measurement and disclosure of
ESG data can lead to inconsistency in the presentation of the information and make it difficult to compare advancement in ESG
goals. Does the Code provide guidance in relation to the timing of the measurement or disclosure of sustainability information?
A: The Code does not specify the point in time at which ESG measurements should be taken or disclosed, or how often to do so.
However, when preparing and presenting sustainability information, including ESG data, the Code requires that a professional
accountant exercise professional judgment to classify and record the information in a timely and proper manner (para R220.4 (c)).
Furthermore, when there is no relevant reporting framework, preparing or presenting sustainability information might require the
exercise of discretion in making professional judgment. The Code prohibits a professional accountant from exercising discretion
with the intention of misleading others or influencing contractual or regulatory outcomes inappropriately (paragraph R220.5).
Consequently, professional accountants should not choose the timing of disclosure of the sustainability data to achieve a more
favorable presentation or better outcome.
21. Specific ethical issues: IESBA Staff questions & Answers
Q: There is a great deal of pressure to meet ESG goals in the current environment. There are also many incentives and
opportunities to “cherry-pick” or “greenwash” ESG related information. Does the Code provide guidance on how to deal with
such pressure?
A. The Code requires that a professional accountant comply with the principle of integrity. Integrity involves fair dealing,
truthfulness and having the strength of character to act appropriately, even when facing pressure to do otherwise or when doing
so might create potential adverse personal or organizational consequences.
Q: Suppose a professional accountant prepared a sustainability report and subsequently learns that information in that report is
misleading. In investigating the matter, the professional accountant also obtains information that suggests there has been non-
compliance with a particular law or regulation. What is the professional accountant’s responsibility under the Code?
A: When a professional accountant knows, or has reason to believe, that the sustainability information they are associated with is
misleading, the Code requires the accountant to take appropriate actions to seek to resolve the matter (paragraph R220.8).
