On 17 July 2024, as part of the ICGN 2024 Annual Conference in London, EY and IFAC organized a joint breakfast discussion to explore how an ecosystem for high-quality, reliable and decision-useful information, including corporate governance, has a pivotal role in tackling greenwashing. Gathering over 150 participants from the global investors community, it also looked at how boards can become challengers who ensure that their company’s green ambitions align with tangible outcomes and create lasting value.

The event banner for the ICGN Fighting Greenwashing event in July 2024

Ensuring the authenticity and impact of corporate sustainability information and commitments that preserve long term value is a critical challenge of our time.

Recent studies from EY and IFAC have shed light on a crucial nexus: the connection between effective board-level sustainability governance and business performance. Within this landscape, sustainability reporting and assurance are emerging as important tools in tracking the transformation that companies are undergoing with respect to incorporating sustainability-related factors into their business models, strategies, and assessments of performance.

The crucial role of investors in fighting greenwashing

Andrew Hobbs speaking at the Fighting Greenwashing event July 2024

In his introductory remarks Andrew Hobbs, Partner, EMEIA Center for Board Matters Leader at EY set the scene: “Greenwashing is a problem, both for companies and the investors who invest in them. Greenwashing, or misleading information, can present extensive reputational, regulatory and litigation risks to companies – risks that may negatively impact their share price and even their ability to operate. Another concern is that greenwashing impedes investors’ ability to perform their jobs.”

But investors can help to address this, by holding companies to account over their sustainability strategy. “You can do this by questioning the board over the company’s targets and metrics, as well as its structures for monitoring progress against sustainability goals. By doing this, you will show the board how much value you place on sustainability. This should help to drive up standards of sustainability governance and sustainability information,” Andrew Hobbs told the audience of investors.

Panel onstage at the Fighitng Greenwashing event July 2024

The panel discussion, moderated by Severine Neervoort, Global Policy Director at ICGN, made it clear that explicit investor interest in sustainability does drive business change, as highlighted in ICGN’s new Investor Viewpoint on the assurance of sustainability reporting.

Speakers also offered key recommendations for investors to ensure their portfolio companies are prepared for future challenges and help assess their readiness for long-term value creation and risk mitigation:

  • Take several steps, including:
    • Undergoing appropriate training on integrating sustainability and AI into business strategies
    • Educating others
    • Asking the companies how their boards are trained on these topics;
  • Ensure that sustainability is integrated with the business strategy and that potential integrated KPIs are in place. Monitoring the company’s commitment to Science-Based Targets, their shared roadmap, and the presence of an AI Policy is also crucial;
  • Understand that implementing comprehensive sustainability disclosures and the associated practices is a journey, and that companies may be at different stages;
  • Engage actively and constructively with portfolio companies on sustainability issues. Ask probing questions about portfolio companies’ sustainability strategies (e.g. their strategic approach to the policy and regulatory agenda) and be prepared to support them through this transition;
  • Encourage companies to use their investments in compliance for the better and strategically, rather than ticking the box. Questions matter and create real change; do not stop asking!
  • Encourage transparency about challenges as well as achievements, and look for evidence of how sustainability is being integrated into core business strategies rather than being treated as a separate, compliance-driven exercise. Connected reporting and connected assurance are necessary;
  • Support mandatory assurance requirements as the next step following mandatory sustainability reporting requirements, but know what to expect from initial assurance engagements.

The role of boards in the company’s readiness for long-term value creation and risk mitigation

Liselotte Engstam, Board Member of the Climate Governance Initiative, Non-executive director at listed and private companies, and researcher & author, shared her views on how sustainability is being discussed in boardrooms, noting that this varies by region. “In Europe, particularly in the Nordics, it's a higher priority on strategic board agendas compared to the US and Asia. Discussions often blend value creation and transitioning, with listed companies increased focusing on reporting, frequently delegating this task to the Audit and Risk Committee,” she said.

“Boards must engage in materiality discussions and integrate these into the overall business risk and opportunity maps. This integration is often missed, also by advisors, necessitating board intervention for proper business alignment,” Liselotte Engstam noted.

Rebecca Donnellan, Partner, Climate Change and Sustainability, EY, UK, noted that while companies are largely in a compliance tunnel (i.e., looking at things though a compliance lens and being blind to other considerations) there are positive structural changes as a result of responding to the CSRD and other ESG-related regulations.

Crowd in ballroom at Fighting Greenwashing event July 2024

“We note, in particular, efforts with regards to forcing greater transparency, rigor, and comparability of sustainability data. We also see more genuine cross functional collaboration, and more genuine/structured board engagement,” she said.

“Another positive development is that companies are also rethinking the architecture and structures that support sustainability, namely by asking themselves key questions such as ‘are governance and risk management; data processes and controls; technology; people and culture; reporting and assurance readiness truly fit for purpose?’” she added.

This was echoed by Ravi Abeywardana, Director, Strategic Affairs and Capacity Building, IFRS Foundation, UK, who referred to his past experience at Olam International, highlighting broader benefits of sustainability to drive financial returns, and the subsequent integration to support that “Cross-functional collaboration was crucial,” he said,  particularly in aligning Olam International’s sustainability efforts with its overall business strategy. “Olam International also experienced the challenge of rethinking its governance structures and data processes to capitalize on the benefits of sustainability, how this can improve decision making and support sustainability reporting, and the benefits it had with customer goodwill. This also to served other purposes, such as access to capital and the cost of capital,” he explained

“Overall, it's a journey. Many businesses are at different stages of this transformation, and it takes time to bottom out which position,” Ravi Abeywardana added.

Sustainability reporting and assurance as guardians against greenwashing

Investors need reliable, high-quality comparable information, including on sustainability, that enables them to identify high-quality companies that create sustainable value over the long term.

“Unfortunately, that reliable high-quality sustainability information is often lacking today. 80% of investors who responded to the most recent EY Global Corporate Reporting and Institutional Investor Survey said that ‘too many companies fail to properly articulate the rationale for long-term investments in sustainability’,” said Andrew Hobbs.

“Yet change is happening – to the benefit of investors. New regulations in different jurisdictions should help to drive up the quality of sustainability reporting going forward, by bringing greater consistency and transparency to reported information,” he noted.

“ISSB standards, and the supporting ecosystem, play a crucial role in combating greenwashing, promoting high-quality information, that is comparable, and how that information can be assured to enhance trust in the information,” said Ravi Abeywardana.

“Assurance is key, and whilst not responsible, the ISSB understands the importance of international assurance standards to enhance reliability of sustainability-related information. Similar to financial statement audits, sustainability assurance builds investor confidence,” he added.

David Madon, Director, Sustainability, Policy & Regulatory Affairs, International Federation of Accountants  (IFAC), USA, underlined that “assurance is not the ‘cure’ for greenwashing, but it’s an essential part of the process that brings more rigor to data collection, processes, and controls inside of companies—which supports high quality, not misleading reporting. Today we are in a voluntary environment and the observed change to mandatory is important.”

For Liselotte Engstam, timely prioritization and integration of sustainability reporting, as well as effective assurance, are key. “Boards need to set reporting priorities early to avoid overwhelming the company with excessive items. Reporting should focus on what is material to the company, ensuring business integration, to provide clear guidance and prevent box-ticking and greenwashing.

“Assurance is confirmed for most listed companies, but also risks box-ticking. It should go beyond compliance, offering strategic insights to ensure meaningful sustainability reporting,” she pointed out.

For Rebecca Donnellan, “Harmonized and mandatory reporting will help reduce ambiguity and provide more confidence in reporting. External assurance over sustainability data can help provide transparency and accountability to stakeholders, as well as assurance to management teams and those charged with governance over the quality of the information provided.”

What to expect?

Ravi Abeywardana indicated that “at ISSB, we're keenly aware that creating high-quality standards is just the first step. Policymakers and regulators play a crucial role in ensuring these standards are effectively implemented and enforced at the jurisdictional level.”

David Madon, referring to IFAC’s recent What to Expect paper, warned that it is going to take time for sustainability assurance to mature. “Investors should not expect to see sustainability assurance at the same level as financial audits—it will continue to be limited in nature. There may also be scope limitations in what information is assured, as regulation may take a phased approach – limited before reasonable and perhaps only assurance on GHG in some jurisdictions,” he explained.

“As we move forward, we should all set the bar high, but not react too negatively to first results of sustainability assurance engagements (modified conclusions, for example) as the entire ecosystem has work to do to bring sustainability information on par with financial information,” David Madon underlined.

In his concluding remarks, Andrew Hobbs summarised four recommendations for investors that have been provided by the panel:

  • Support companies in their transition
  • Be an informed consumer of sustainability reporting: pay attention to the sustainability assurance report conclusions
  • Upskill further on sustainability to help you drive change faster- your engagement really does work
  • Focus on the strategic aspects of sustainability (e.g., business-related KPIs) over the compliance aspects

USEFUL LINKS

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A man in a suit, smiling at the camera
Andrew Hobbs

EMEIA Public Policy Leader

Andrew leads EY's Public Policy team for Europe, Middle East, India, and Africa. His team strengthens the relationship between the public and private sectors by monitoring policy developments and building strong relationships with international stakeholders on sustainability, technology, corporate governance, and skills. They work closely with European institutions, regulators, and international organisations, including the OECD, business groups, professional bodies, companies, investors, and academics.

Andrew's role includes coordinating with EY's Assurance business to support their interactions with independent regulators overseeing public interest audit work across EMEIA. He also collaborates with colleagues in similar roles in other EY regions, ensuring consistent policy and governance support. His interest in corporate governance extends to initiatives like EY's partnership with Tapestry Networks, and as of September 2022, he leads EMEIA's Center for Board Matters.

Andrew holds several prominent positions, including chair of the Research Advisory Board for ICAEW, chair of the Corporate Governance Working Group of the European Contact Group, and vice-chair of the Corporate Governance Policy Group of Accountancy Europe. He is also involved with the Financial Capital Committee of the International Corporate Governance Network, the Asia Corporate Governance Association India Working Group, and the Corporate Governance Committee of the Business and Industry Advisory Committee at the OECD. Additionally, he co-authors EY’s annual Long-Term Value and Sustainable Corporate Governance Survey and regularly writes blogs on corporate governance and trust.

Cecile Bonino
Cecile Bonino

Principal, Global Engagement

Cecile Bonino is Principal of Global Engagement for IFAC. She bridges global organizations' relationship management, policy support, event management, and brand awareness. A lawyer by education, Cecile has 20 years of experience in public affairs and public relations. Before joining IFAC, Cecile worked for 13 years at ACCA, where she headed EU Affairs and the ACCA Brussels office, working with European decision and policymakers, Media and key influencers, as well as global organizations. Prior to this, Cécile worked as a consultant in financial services, energy, environment, and climate change at Weber Shandwick and as Environment and Legal Affairs adviser at the European Landowners Organisation. At the beginning of her career, Cécile also worked at the DG TRADE of the European Commission, the DG Development of the College of Europe, and the law firm, Gide Loyrette Nouel. In 2012, Cécile won the ‘Public Affairs Professional of the Year’ prize at the European Public Affairs Awards.

David Madon

Director, Sustainability, Policy & Regulatory Affairs

Mr. Madon joined IFAC in 2019, where he is Director - Sustainability, Policy & Regulatory Affairs.  He is responsible for developing and coordinating IFAC’s sustainability policy and advocacy activities in addition to conducting research, policy development, and engagement with respect to a range of topics and stakeholders, including industry organizations, regulators, public authorities, and institutional investors.  Mr. Madon's areas of expertise include sustainability/ESG, corporate reporting, financial audit quality/reform, sustainability assurance, ethics, investor protection, financial market regulation, and credit markets.  Most recently, he has focused on the development of a global reporting system (including assurance) for sustainability/ESG information.  Prior to IFAC, Mr. Madon represented the IFRS Foundation in the U.S. for nearly a decade, during which he focused on building institutional investor relationships, funding-raising, and the adoption of IFRS Standards by U.S. publicly traded companies. Prior to his public policy work, Mr. Madon spent twenty-five years in financial services, most recently as a Managing Director at Dresdner Kleinwort Wasserstein. He holds a Masters in Public Administration-MC from the Harvard Kennedy School, an MBA in Finance from The University of Chicago Booth School of Business, and a BS in Management-Accounting from Purdue University Northwest.