[Ed. note: No blogs will be published Monday in recognition of the Labor Day holiday in the US. We will return Tuesday September 5.]
Even against anti-ESG and “greenhushing” headwinds, we are seeing more ESG disclosures and ESG-related performance components in executive compensation metrics. It shouldn’t surprise anyone that the pressure is drastically increasing to make sure that company performance is shown in the best possible light. With so much as stake, fraud in ESG is on the rise – something I wrote about at the beginning of the year.
Tim Klatte, partner and Shanghai head of forensic advisory services for Grant Thornton, wrote an article on the matter in Compliance Week. The article explores the what, how and why of ESG fraud. He also presents his view of five elements that must be in place in companies to “to begin the ESG fraud risk mitigation journey”:
- Accuracy. ESG reporting disclosures should have the same rigor as financial statement reporting. The data must be authentic and free from misrepresentation.
- Completeness. Organizations should disclose the whole picture with thorough information regardless of the weight. This includes reporting all ESG information and disclosures.
- Existence and occurrence. Organizations should only report ESG matters that have occurred during the period(s) or relate to conditions that exist at the time of reporting.
- Rights and obligations. Organizations should only disclose information that legally belongs to the organization and is permitted for use. This information includes obligations that organizations will have to settle in the future.
- Comparability. Organizations should seek a standardized reporting framework appropriate for their industry to allow for comparability from one reporting period to the next and across organizations within their industry.
In sum, a system of controls and validation for ESG data relied on and reported is critical. We have resources available to help in the ESG fraud risk mitigation journey, such as our ESG Data Validation Guidebook. If you’re not yet a member, try a no-risk trial now. Our “100-Day Promise” guarantees that during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
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