Why accountants are best-placed to fight greenwashing

April 2024

What do the experts think...

The antidote to greenwashing is transparency

Transparency about a company’s carbon footprint requires accurate carbon accounting. Carbon accounting is a crucial tool we are going to be hearing a lot more of as the business world navigates a pathway to Net Zero emissions.

Carbon accounting is the process of quantifying the amount of greenhouse gases (GHGs) a company produces from its operations and supply chain. It is similar to financial accounting, but instead of measuring a company's financial results, carbon accounting measures its climate impact. The best practice methodology for carbon accounting is the GHG Protocol which was first released in the 1990s and is now used by thousands of companies around the world. The GHG Protocol is the basis for major reporting standards like the TCFD and ISSB.

When you combine this data-driven approach with annual reporting what you get is a once in a generation opportunity to not only change the way businesses report but how they communicate their commitment to environmental sustainability.

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Overview of climate reporting legislation

This comes at a time when the pressure for companies to quantify their carbon emissions is only going to increase, with regulatory bodies and governments around the world introducing legislation and frameworks to drive emissions reductions.

For UK based companies The European Union's Corporate Sustainability Reporting Directive (the ‘CSRD’) is a prime example of the increased regulatory focus on emissions reductions. The CSRD introduces new mandatory requirements for large or listed companies to report on a wide range of Environmental, Social, and Governance (‘ESG’) metrics, including carbon emissions, in a standardised manner.

Smaller UK based companies outside the scope of CSRD will also be indirectly impacted as the process of establishing a company’s carbon footprint requires consideration of the carbon impact of its value chain – including the emissions of smaller suppliers.

Similarly in Australia mandatory disclosures will commence for large entities in January 2025, with the Australian Securities and Investment Commission (ASIC) advising that even if small businesses do not have any direct climate reporting obligations, they form part of the supply chain of larger businesses, which means they may need to engage with climate reporting considerations over time.

By leveraging their expertise in data analysis, attention to detail, and regulatory knowledge, accountants can play a crucial role in helping businesses avoid greenwashing. They can ensure that companies provide transparent, verifiable information about their sustainability efforts, ultimately promoting trust and integrity in the fight against greenwashing. 

The challenges of greenwashing

Greenwashing not only deceives consumers, but it can also undermine genuine efforts to address environmental challenges.

Some companies are even choosing not to declare their environmental goals or achievements for risk of being accused of greenwashing - this is known as Greenhushing. 

To combat greenwashing, it's essential to adhere to stringent advertising standards and promote transparency in reporting. Clear, accurate, and verifiable information helps build trust with consumers and stakeholders.

Key elements to avoid greenwashing include:

  • Transparency: Companies must provide clear and accessible information about their environmental impact, including carbon emissions and sustainability initiatives.
  • Third-party verification: Independent audits and verification of sustainability claims add credibility and ensure accuracy in reporting.
  • Standardised reporting and globally recognised methodology: Adhering to recognised standards for sustainability reporting, such as the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP), GHG protocol aligned, helps provide consistent and reliable information.
  • Continuous improvement: Businesses should regularly evaluate and improve their sustainability practices, and openly report progress and challenges.

The future of accounting is carbon

As the world faces the challenges of climate change, carbon accounting is emerging as an integral piece of the climate puzzle.

Carbon accounting enables businesses to meet the climate impact reporting requirements of current and future policies and regulation, all whilst mitigating its risk of greenwashing. 

An accountant’s role in sustainability goes beyond simply measuring a company's carbon footprint—it extends to advising on strategies for decarbonisation and emission reduction. 

The Advertising Standards Authority's 2023 decision on greenwashing set a precedent that deems all sustainability claims misleading if the entity making those claims has not taken an evidence-based approach to reducing emissions. 

In other words, businesses can no longer claim to be sustainable solely based on measuring their carbon footprint and purchasing offsets. Instead, they must meet a higher standard of carbon accounting that includes both measuring their emissions and actively working to reduce them. Decarbonisation involves making strategic decisions that lead to genuine reductions in carbon emissions, a process accountants can guide businesses through.

Why an Accountant’s skillset is critical to mitigating greenwashing

Accountants are uniquely qualified to address greenwashing due to their specialised skills:

  • Analytical expertise: Accountants are trained to analyse data and identify discrepancies or inconsistencies in reporting. This skill is essential for verifying sustainability claims.
  • Attention to detail: A key aspect of accounting is precision and accuracy, which ensures that sustainability reporting is thorough and reliable.
  • Knowledge of regulations: Accountants are familiar with financial regulations and can apply this knowledge to emerging sustainability standards and reporting requirements.
  • Risk management: Accountants can assess and mitigate risks associated with greenwashing, helping businesses avoid reputational damage and legal consequences.

The rigour that is required of an accountant - from reporting on emissions, to understanding current regulatory requirements and analysis of data - allows an organisation to confidently and transparently report on its carbon footprint and decarbonisation plan.

Just like accountants are the antidote to financial fraud, they are also the antidote to greenwashing.

What next?

  1. Read more about carbon accounting here
  2. Learn more about Trace’s carbon accounting training programme here
  3. Become a Trace partner here

The Trace Fellowship is designed to provide Accountants, Advisors and Consultants with the skills needed to add carbon accounting to their toolkit. Register your interest here: 

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