Accounting watchdog warns companies against ‘greenwashing’

Irish Auditing and Accounting Supervisory Authority says it has challenged some firms over climate targets

The Irish accounting watchdog warned companies against “greenwashing” as they prepare their financial accounts, amid concerns that some firms that fall under its remit are failing to work out the financial costs of meeting their publicly declared targets to reduce carbon emissions.

Greenwashing is when a company falsely purports to be environmentally conscious for marketing purposes.

The Irish Auditing and Accounting Supervisory Authority (Iaasa) also pressed companies in its latest annual “observations” paper that they need to weigh the effects of rising interest rates, inflation and deteriorating economic forecasts as they make judgments on asset valuations, income and cash flows in preparing going-concern statements.

‘Climate announcements’

“Iaasa considers that greenwashing is risk indicator impacting certain issuers,” it said. “Iaasa has noted that certain issuers have made public announcements regarding, for example, their CO2 emission reduction targets by specific dates in their management commentary. However, the financial impact from these climate announcements is not readily apparent from the disclosures in the financial statements.”

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The watchdog said that it has challenged some companies’ climate targets “and has required some issuers to provide further explanations on their decarbonisation and nature-based projects which issuers undertake or commit to undertake to achieve climate targets”.

Meanwhile, the organisation said in the paper that financial statements for 2022 “will be prepared against an uncertain outlook with businesses facing uncertainties”, including European Central Bank rate hikes for the first time in a decade, domestic inflation running at rates last seen four decades ago and falling economic growth forecasts and “some talk of recessionary risks in some economies”.

Technical recession

The Irish domestic economy could slip into technical recession – a period of two successive quarters of contraction – in the coming months as households and businesses struggle against soaring inflation, Central Bank officials said this week, even as they continue to forecast annual growth over the coming years.

Meanwhile, the International Monetary Fund warned on Thursday that the risks of a global recession are rising as it lowered its projections for the world economy in 2023.

Iaasa said it would expect firms to “provide company-specific disclosures on the significant judgments and the sources of estimation uncertainty and changes in the key assumptions underpinning assets, liabilities, income, expenses and cash flows”.

Iaasa is directly responsible for oversight of accountancy firms that audit so-called public interest entities, including Irish-listed companies, banks, insurers and public issuers of debt securities. It is also responsible for the examination of certain listed entities’ financial reports.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times