Why ethics and sustainability go hand in hand

Mark Babington, Board Member of International Ethics Standards Board for Accountants (IESBA), in conversation with ICAEW’s Director of Trust and Ethics, Laura Hough.

IESBA Board Member Mark Babington talks to ICAEW about the relevance and importance of ethics when it comes to sustainability reporting and assurance.

Ethics plays a vital role in sustainability information, given the subjectivity, forward-looking nature, and relative immaturity of the data today, says Mark Babington, Board Member of International Ethics Standards Board for Accountants (IESBA), in conversation with ICAEW’s Director of Trust and Ethics, Laura Hough.

There has been a rise in both market and public demand for sustainability information in recent years, he adds, which is increasingly used to support not only capital allocation by investors, but also other decisions by a broader range of stakeholders, including customers, current or potential employees and government agencies.

Preparers and assurers are key in preventing or mitigating greenwashing by applying an ethical mindset and exhibiting ethical behaviour to ensure that corporate sustainability disclosures for investors and other stakeholders are transparent, relevant, and trustworthy.

Babington believes this is a challenging and exciting time, as the nature of sustainability reporting and information is constantly evolving, increasing expectations and the need for transparent, relevant, and trustworthy corporate sustainability disclosures. An extra challenge in the mix is the need to ensure consistency across a market that involves several different professions, including professional accountants and non-accountants.

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Why is ethics so central to sustainability reporting and assurance?

Mark Babington discusses why ethics underpins trust and confidence in information, why this is particularly relevant to sustainability and the role it plays in driving professional scepticism and preventing greenwashing.

Why has IESBA chosen to develop a new sustainability standard now?

Increased demand on the part of investors, plus changes in the standard-setting landscape, are behind the drive to establish a framework-neutral, profession-agnostic sustainability standard, says Mark Babington.

How has IESBA approached developing the new proposed standards and responded to some of the challenges?

Developing the new proposed standards, and doing so at great speed, has presented IESBA with many challenges, says Mark Babington, not least because they will be used by multiple audiences, in multiple jurisdictions, all of which will need to have a regulatory framework in place.

How does IESBA plan to implement the new standard?

Using organisations such as ICAEW as its ‘eyes and ears’ will be key, says Mark Babington. IESBA will be working across professions on this, ensuring there is an adequate implementation period, so that organisations have time to develop the necessary training materials and systems.

Why is reporting and assuring across the entire value chain such a challenge?

It’s important to look at threats to independence, says Mark Babington. While an engagement partner is responsible for this, there may also be other forms of assurance in play, so you need to ensure that your framework is strong, but not so rigid that it prevents anyone from doing the work.

Further reading
• ICAEW Code of Ethics – ICAEW’s code is based on IESBA’s Code of Ethics for Professional Accountants and supporting materials. • IESBA – Sustainability Reporting and Assurance – IESBA has consulted on two exposure drafts: International Ethics Standards for Sustainability Assurance ED, which includes revisions to the existing Code related to sustainability reporting; and Using the Work of an External Expert ED. IESBA’s objective is to help reduce greenwashing and other unethical behaviour in relation to sustainability reporting and assurance, which will foster greater public and institutional trust in corporate sustainability disclosures. • ICAEW’s responses to the IESBA consultations: • Proposed International Ethics Standards for Sustainability Assurance (including International Independence Standards) (IESSA) and other revisions to the Code related to sustainability assurance and reporting. • Using the work of an external expert • Visit the ICAEW Ethics hub for more ethics resources, including the ICAEW CPD course From theory to practice.

• ICAEW Code of Ethics – ICAEW’s code is based on IESBA’s Code of Ethics for Professional Accountants and supporting materials.
• IESBA – Sustainability Reporting and Assurance – IESBA has consulted on two exposure drafts: International Ethics Standards for Sustainability Assurance ED, which includes revisions to the existing Code related to sustainability reporting; and Using the Work of an External Expert ED. IESBA’s objective is to help reduce greenwashing and other unethical behaviour in relation to sustainability reporting and assurance, which will foster greater public and institutional trust in corporate sustainability disclosures.
• ICAEW’s responses to the IESBA consultations:

• Proposed International Ethics Standards for Sustainability Assurance (including International Independence Standards) (IESSA) and other revisions to the Code related to sustainability assurance and reporting.
• Using the work of an external expert

• Visit the ICAEW Ethics hub for more ethics resources, including the ICAEW CPD course From theory to practice.

July 2024
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