How to create clear ESG standards and universal practices
The rise of ESG-focused investing should, on its face, be a movement defined by trust, good governance and accountability. When companies make claims about their ESG performance, it should be easy for stakeholders to verify those claims.
But that’s not the reality we live in right now — ESG reporting is often opaque, subjective and even outright fraudulent. Investors and regulators are waking up to this fact and demanding that companies report their ESG efforts honestly and transparently.
To be sure, ESG malfeasance didn’t emerge just in the last few months or even the last few years. There have been more than a few notable past incidents of ESG fraud. For example:
- A vast carbon credit fraud perpetrated on people in the UK led to the arrest and extradition of perpetrators.
- A massive Ponzi scheme was based on the fraudulent claim that something called “biochar” — waste from tires and household garbage — would be a future source of green energy.
- The Volkswagen diesel engine scandal remains one of the most notorious incidents of business fraud in history.
Read Grant Thornton CEO Brad Preber’s ESG and the risks of having good intentions for guidance in avoiding fraud and developing a sound ESG reporting process.
Read Grant Thornton CEO Brad Preber’s ESG and the risks of having good intentions for guidance in avoiding fraud and developing a sound ESG reporting process.
Providing accurate ESG metrics starts with guardrails, asking hard questions and investing constantly in quality reporting. It also requires better controls and well-developed approaches to integrating ESG reporting into every other kind of reporting.
This is not to say it’s a simple task. The concept of materiality is complex, and providing ESG metrics is a challenge. Read our report for an in-depth look at the issues and for guidance on current actions.
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