Research by: Ekjot Sodhi
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ESG Impact
The current financial landscape is changing rapidly therefore business models need to evolve quickly. The propagating demand for financial and non-financial data among corporates - from investors, to stakeholders, financial markets and other regulators is creating a buzz in the business world. The ever-rising need for social responsibility and sustainability is demanding better quality financial and non-financial data from corporates and businesses.
The main area of focus is increased spotlight on non-financial information like ESG factors (environmental, social, and governance) which can help investors identify upcoming risks and opportunities early on. This may be related to global issues like climate change, gender inequality and opportunities for global partnerships that can combat sustainability issues and help develop more resilient infrastructure.
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Greenwashing
Subsequently due to increasing demand for sustainability reporting to meet international standards, and investor demand, the financial market is deluged with misleading information, also called "greenwashing". In its simplest form, greenwashing is when a business or company uses false claims or misleading information to sell products as sustainable. Greenwashing can also take place in the form of green marketing gimmicks to create an illusion about the sustainability credentials and benefits of services.
Due to the growing importance of corporate social responsibility(CSR) and green marketing, many leading corporations and brands are being found to be guilty of practising greenwashing. Greenwashing plays a key role in the transparency and accuracy of data in the fight against sustainability challenges globally.
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Case study - BMW Greenwashing Case
According to the Guardian, BMW the car giant's Facebook advertisement was banned in 2017 for its i3 electric car. BMW claimed that the car had “zero emissions”, but this was disputed on the grounds that it came with the option of a small petrol engine to maintain its charge and also that it seemed to claim that by buying the car, customers would be “giving back” to the environment. The Advertising Standards Authority (ASA) ruled that this was misleading and the original advert was pulled for breaching the Committee for Advertising Practice (CAP) code for breaking rules such as misleading advertising, substantiation, and environmental claims.
As a result of such risks, we are seeing the convergence of standards like the Sustainability and Accounting Standards Board (SASB) and the Task Force for Climate-related Financial Disclosure (TCFD) into an International Sustainability Standards Board for reporting ESG. On projects, NEC is publishing a consultative secondary option to enable construction clients to engage suppliers in the global drive towards net-zero and sustainability.
These improvements are critical for private and institutional decision-makers like pension funds to consider in ESG investment decision making. Audits are one way to ensure that ESG KPIs/metrics are governed closely and reported on transparently to satisfy investor requirements and prevent greenwashing.
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Statistical Data 1: Green Tech Top Companies
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From the statistical information above from Statista, Apple and Facebook are leading Greentech companies that provide operational transparency and reduce their carbon footprints. It is evident that;
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Apple is number one in making the best use of renewable resources. 83% of the energy that Apple uses is obtained from renewable resources and for the past three consecutive years, they have been named the most environmentally friendly of the world’s leading tech companies.
Facebook is another example after Apple, in the lead for using 67% of renewable resources as power supply. The report also provides vital information that both brands did not indulge in the greenwashing practice. Other popular brands following in the sustainability race are Google (56%), HP (50%), Salesforce (43%), IBM (29%), Amazon and Adobe are also named in the graph above.
Statistical Data 2: Key Information for a Sustainable Fund Worldwide 2021
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From the survey above, conducted in February and March of 2021, the availability of clear and transparent information about a fund's objective was crucial for institutional investors worldwide. This was important for investors to understand and make informed decisions about investing in a sustainable fund.
According to 51 per cent of respondents in the 2021 survey, the way a fund contributes to specific sustainability goals and how targets/KPIs are governed was chosen as a key piece of information for decision making and for understanding sustainable funds.
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Governance via Cost Assurance and Audit
The rising demand for compliance in the reporting of non-financial data like sustainability and ESG factors is leading to concerns about whether the information provided by businesses are trustworthy and can be relied on by investors and stakeholders. This is resulting in back to back compliance requirements across the supply chain being embedded into contracts. Consequently, to prevent greenwashing, there is a requirement for governance and assurance. Independent cost assurance audits, that involve the examination of costs, cash inflows and payments is one way to achieve this.
During these audits it becomes evident if a business or project is sustainable or not. Cost assurance audits present a transparent x-ray view of the business' affairs or a project that can deter greenwashing.
As a result there are strict non-disclosure or confidentiality agreements that prevent full information disclosure but audit rights can equally allow the full examination of records and accounts by an independent third party.
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ESG Audit
There should be penalties for non-compliance to audit, reporting and disclosure requirements. If not mandatory, this could result in misleading information to investors and inaccurate reporting to stakeholders. If a business is involved in greenwashing or does not comply with ESG standards while promoting itself as sustainable it could result in further harming of the community and environment. It is vital for relevant the businesses to ensure that internal audit, independent audits, ESG audits and financial audits are coordinated and conducted using the latest credible techniques and standards for ESG reporting. ESG audits can help determine sustainability risks related to the environmental impact of green house gases, the social impact of equal rights and highlight risks relating to the long-term viability of a business. ESG audits can highlight potential threats and opportunities from financial and non-financial data that can be identified at an early stage so that controls, protocols and measures can be implemented to mitigate these risks and take advantage of opportunities early on.
ESG audits can highlight potential threats and opportunities from financial and non-financial data that can be identified at an early stage so that controls, protocols and measures can be implemented to mitigate these risks and take advantage of opportunities early on.
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Embedding ESG into Strategy
This is fundamental to ensure that a golden thread runs throughout a business and its value chain to achieve trust and credibility in ESG reporting. This can be achieved via an independent third party to build trust in the information provided by the parties and the appropriate metrics can be fed into strategic and operational planning, budgeting, management decisions and reporting accordingly. Assurance by an independent party using verified and comparable industry data on key ESG performance metrics can help achieve desired or set sustainability goals.
Greenwashing is not a sustainable approach for any business, but for many businesses, the challenge of ESG reporting is not in applying the UN SDG framework for example or a relevant standard but the challenge of gathering sensitive comparable benchmarking data, the practicalities of capturing that data, applying these to targeted metrics and reporting on these within their own business. CFBL can help in several ways.
Independent cost assurance audits
Sustainability & ESG pre-audit and diagnostics
Carbon cost audit
HR, equality and gender pay balance ED&I audits
Implementing a sustainable business strategy
ESG finance workshop and training
Impact and sustainability reporting
Implementing practical ESG protocols and controls
References
https://www.theguardian.com/technology/2020/feb/09/the-five-ads-banned-for-greenwashing
https://www.statista.com/statistics/1273679/key-information-to-invest-in-a-sustainable-fund/
https://www.cfbusinesslinks.com/post/top-tips-for-integrating-esg-into-business-strategy
https://www.cfbusinesslinks.com/post/risks-and-opportunities-of-a-sustainable-business-strategy
https://www.neccontract.com/news/new-nec-secondary-option-will-incentivise-net-zero-emissions
What CFBL Consulting does?
CFBL consulting offers cost assurance audits and sustainable strategy consulting services. This includes an initial ESG assessment, X-ray view of actual costs to prevent or evidence greenwashing, impact reporting, payroll audit to safeguard equal pay and practical training on how to embed ESG KPIs into finance, commercial and project investment decisions. We identify, resolve, and follow through. By establishing ourselves as strategic partners, we govern and help implement sustainable strategies. Our roadmaps ensure that project plans are successful, as a result, we measure our success by yours.
Who We Work With and What We Do
Infrastructure project: cost assurance audits, systems payroll HR audits & protocols
SME Business Strategy: 5-Yr strategic business plans and financial statements
Fintech/Transformation advisory: minimising risk and optimising business case ROI
Sustainability & ESG: pay-gap carbon cost audits reporting ESG finance training
Training: delivering case-based training for buy-in to technology & staff upskilling
Fintech & Digital: strategy cost optimisation & digital transformation advisory
Steering Group (CSR): cost assurance and audits on infrastructure projects/contracts
Sustainability & ESG Strategy Tips - How can CFBL Consulting help
Developing and implementing sustainable business strategy for SME growth/scaling
Sustainability/ESG strategy: implementing, carbon measurement and benchmarking
HR/Payroll audit: Independent HR, payroll cost, pay-gap gender balance auditing
Sustainability & ESG: strategy implementation, carbon cost auditing/impact reporting
ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making
ESG protocols: training & designing controls, tools, and templates for ESG reporting
Infrastructure Projects - Tips & How can CFBL Consulting help
Cost assurance: implementing capex people, process, systems & controls
Protocols: training & designing project/contracts process, tools, templates
Independent cost audits: verifying actual/ defined cost on cost/open book contracts
Systems auditor: examining financial records, controls, and cost systems for integrity
Pre-audit diagnostic: identifying risks on cost-based/open book alliance contracts
Independent contract auditor role: Undertaking internal project/contract auditor role
Legal records: facilitating records for legal compliance on cost/open book contracts
Payroll audit: Independent HR, payroll, carbon cost, gender pay-gap/balance audit
Business case: Implementing capex strategy/developing investment business cases
ESG Finance training: upskilling staff/supply chain on ESG KPIs in decision making
ESG protocols: training & designing controls, tools, and templates for ESG reporting
SME Business Strategy -Tips & How can CFBL Consulting help
Scale-up investor funding pitch diagnostic assessment and recommendations
Developing a sustainable business plan for scaling-up, funding, and advisory
Developing/implementing strategy: sustainable business strategy for growth/scaling
5-Yr Strategic business planning: financial statements, analysis for funding & grants
People training & upskilling: business and supply chain engagement and training
Independent Fintech/Transformation Advisory: minimising risk and optimising ROI
Capex Investments: optimising grants, funding R&D tax credits & capital allowances
Financial management: tax, planning & implementing financial controls for resilience
Finance business partnering providing strategic advice in financial decision making
Fintech & Digital Transformation Advisory - How can CFBL Consulting help
Commercial systems: advisory on commercial, contract, cost, audits & projects
Financial systems: advisory on financial, HR, management, and reporting systems
ESG KPI reporting: Insight and benchmarking for reporting and competitive edge
Independent advisory on payroll, project, contract, cost, audit and reporting software
Independent advisory on technology that best aligns to strategic goals benefit
Training: delivering case-based training, for buy-in to technology & staff upskilling
Steering Group (CSR) Outputs: Tips - How our Steering Group Experts help
Key Output 7 - Cost Assurance & Audit in Practice
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Past Blogs
Governance & Assurance of Capex Spending
How to Realise Benefits from Investments in Technology & Digital
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