Navigating Environmental Reporting

Frendy
Professor, NUCB Business School

The landscape of environmental reporting is rapidly evolving. What was once a voluntary practice is quickly becoming a mandatory requirement, driven by growing stakeholder demands for greater corporate accountability. Globally, regulators are stepping up their efforts to standardize and mandate environmental disclosures. The IFRS S2 Climate-related Disclosures standard (IFRS, 2023) is gaining traction as a baseline for many jurisdictions. Japan, among others, is moving towards adopting these standards, signaling a clear shift towards greater transparency and comparability in environmental reporting.

Key Takeaways for Businesses:

•Authenticity is Key: Avoid the temptation to exaggerate your environmental performance. A study by Frendy et al. (2024) highlights the risk of companies overstating environmental achievements, which can ultimately erode trust on the companies’ disclosures. This risk could be mitigated by strengthening internal oversight of environmental reporting and performance.

•Limitations of Assurance: Assurance of environmental disclosures can improve credibility, but it has limitations. Assurance providers often rely on information provided by the company itself, which creates a potential conflict of interest (Frendy et al., 2024). Assurance standards for environmental information are still evolving and there’s a risk that assurance may not always detect material greenwashing. Investors should increase scrutiny and skepticism of environmental disclosures, particularly from companies with poor environmental performance.

•Standardized Reporting: Familiarize yourself with emerging standards like IFRS S2. This framework provides a roadmap for companies disclosing climate-related risks in a consistent manner.

By proactively embracing these changes, businesses can not only mitigate risks but also unlock new opportunities for innovation, growth, and long-term sustainable value creation.

Reference

Frendy, Tomoki Oshika, & Masayuki Koike (2024), “Environmental Greenwashing in Japan: The Roles of Corporate Governance and Assurance”, Meditari Accountancy Research, Vol. 32 No. 7, pp. 266-295.
IFRS (2023), IFRS S2 Industry-Based Guidance on Implementing Climate-Related Disclosures.