Free Courses Sale ends Soon, Get It Now


CORPORATE GREENWASHING

28th June, 2023

Disclaimer: Copyright infringement not intended.

Context

  • The recent extreme instances of climate change are the hot talk of the town.
  • New rules are introduced for ensuring rigorous reporting of environment complied practices by companies.
  • The aim of these new set of G20-backed global rules is to help regulators crack down on greenwashing.

Other Details

  • These norms of reporting have been framed by the International Sustainability Standards Board.
  • Britain was the first major economy to make Task Force on Climate-related Financial (TCFD) disclosures by listed companies mandatory.
    • TCFD is an organization of 32 members established by the Financial Stability Board.
    • It aims to develop guidelines on voluntary Climate Related Financial Disclosures by companies.
    • In this way investors are informed about the initiatives of companies to mitigate the risks of climate change in a transparent manner.
  • Some other countries like Canada, Britain, Japan, Singapore, Nigeria, Chile, Malaysia, Brazil, Egypt, Kenya and South Africa are considering their use.
  • Also the European Union is expected to finalise its own disclosure rules in July 2023.

More about Rules

  • Companies will face more pressure to disclose, in their annual reports 2024 onwards, how climate change affects their business.
  • However compliance on reporting is voluntary and it would be up to individual countries to decide if listed companies are required to apply the standards.
  • The ISSB standards build on the work of the
    • Climate Disclosure Standards Board (CDSB).
    • Task Force on Climate-related Financial Disclosures (TCFD).
    • The Value Reporting Foundation’s Integrated Reporting Framework and
    • Industry-based guidance from the Sustainability Accounting Standards Board (SASB).

Need and significance of these rules

  • 42% of the world's top 4,000 companies do not provide data on Scope 1 and 2 carbon emissions.
  • Hence these standards/rules/norms will serve as the foundation for a comprehensive global standard sustainability disclosure.
  • It will specifically focus on the needs of investors and the financial markets as trillions of dollars are wasted hyping the environmental, social and governance credentials of companies.
  • In this way it will enhance the effectiveness of the capital markets.
  • Use of ISSB framework will be game change for regulators around the globe as it will bring more transparency and rigour to sustainability reporting.

International Sustainability Standards Board (ISSB)

The ISSB, launched at COP26 in Glasgow in 2021, is part of the independent International Financial Reporting Standards foundation, which also writes accounting rules used in more than 100 countries, while global securities watchdog IOSCO is expected to "endorse" the new standards.

Key objectives of ISSB are –

  • To develop standards for a global baseline of sustainability disclosures;
  • To meet the information needs of investors;
  • To enable companies to provide comprehensive sustainability information to global capital markets; and
  • To facilitate interoperability with disclosures that are jurisdiction-specific and/or aimed at broader stakeholder groups.

Corporate Greenwashing

  • Greenwashing is a corporate practice when a company makes a false environmental claim about its products and other initiatives. This practice overestimates the positive efforts of company towards climate change and the environment.
  • Hence it conveys a false impression or misleading information about so called environmentally sound products of the company.

Must read Article:

https://www.iasgyan.in/daily-current-affairs/greenwashing

PRACTICE QUESTION

Corporate greenwashing is considered a practice which has severe implications for environment. Elaborate. Also critically analyse how rules/norms by International Sustainability Standards Board can help in this regard. (250 words)

https://www.reuters.com/sustainability/new-global-rules-aim-clamp-down-corporate-greenwashing-2023-06-26/