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What is greenwashing and how to avoid being guilty of it? Final of a 3-part series.


Carbon Timeline - GHG Protocol
Carbon Timeline - GHG Protocol

The Everlution Blog is devoted to discussing issues related to the ever increasing ecological footprint of human beings. If we have the determination, we can reduce that footprint, even with more population and more affluence. We have the technology to overcome human-induced climate change - the biggest issue we have ever faced. But we have to get going as our species is irreversibly altering the climate that has been stable for the last 800,000 years.


 

This is the final blog of a three-part series that discusses what greenwashing is, the rise of greenwashing claims, tips to avoid it and greenwashing put in the context of the new climate and sustainability-related financial disclosure rules.


Part 3: Greenwashing and the new financial disclosure rules


The new IFRS financial disclosure rules stipulated in S1 General Requirements for Disclosure of Sustainability-related Financial Information and S2 Climate-related Disclosures require entities to disclose information about climate-related risks and opportunities that could reasonably be expected to affect their cash flows and access to finance or cost of capital over the short, medium or long term.

These risks and opportunities are collectively referred to as sustainability and climate-related risks and opportunities that could reasonably be expected to affect an entity’s prospects.


In Australia, new accounting standards specific to Australian corporations are being developed now that align with IFRS S1 and S2 requirements.


The connection between the new International Financial Reporting Standards (IFRS) financial disclosure rules and greenwashing primarily lies in the transparency and accountability the new standards aim to enforce in financial reporting as follows:


  1. Enhanced Transparency: The new IFRS financial disclosure rules require companies to provide more detailed and transparent information about their environmental impacts, sustainability initiatives, and risks associated with environmental factors. This increased transparency can make it harder for companies to engage in greenwashing – a practice where companies exaggerate or mislead stakeholders about their environmental efforts to appear more environmentally friendly than they actually are.

  2. Risk Identification and Mitigation: By mandating comprehensive disclosure of environmental risks, the new IFRS standards can help investors and other stakeholders better understand the potential risks associated with a company's operations, such as regulatory changes, climate-related risks, or resource scarcity. This transparency helps in identifying and addressing potential greenwashing attempts, as stakeholders can scrutinize the disclosed information more effectively.

  3. Accountability and Trust: Clear and accurate financial reporting under the new IFRS standards builds trust with stakeholders, including investors, customers, regulators, and the general public. By providing credible and reliable information about their environmental performance, companies can demonstrate their commitment to sustainability and build trust with stakeholders. This emphasis on accountability makes it more difficult for companies to engage in greenwashing practices without facing reputational or regulatory consequences.

In summary, the connection between the new IFRS financial disclosure rules and greenwashing lies in the role of transparency, accountability, and risk disclosure in preventing companies from misleading stakeholders about their environmental performance and sustainability efforts. These standards aim to ensure that companies provide accurate and comprehensive information about their environmental impacts, reducing the potential for greenwashing and promoting more responsible corporate behaviour.




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