Fraud risks in connection with the CSRD

The EU Green Deal sets specific targets for a sustainable and decarbonised economy by 2050. In order to make implementation and target achievement measurable and transparent, detailed sustainability information is required, which companies will have to publish in future as part of their non-financial reporting.

The requirements of the Corporate Sustainability Reporting Directive are increasing the pressure on companies to demonstrate positive sustainability indicators and progress in the ESG area. In addition, the CSRD's requirements for disclosing the key figures of their value chain remain extensive and complex, despite the simplifications brought about by the omnibus package. They require the detailed inclusion of data that was previously not subject to reporting obligations. The requirements therefore not only create transparency, but also harbour risks with regard to fraudulent behaviour.

Typical fraud risks are

• Greenwashing to present a better image,
• data manipulation to fulfil CSRD requirements and
• inadequate controls that can lead to errors or fraud in reporting.

The risks of fraud in connection with the requirements of CSRD can come from both internal and external actors within a company. Within the company, employees, management and executives may be under pressure to achieve certain results, which can lead to misconduct. External actors such as service providers and suppliers can also create fraud risks, especially when it comes to securing contracts.

In order to effectively identify, prevent and combat fraud risks in connection with the requirements of the CSRD, the following measures are particularly recommended:

• Introduction of whistleblower systems
• Establishment of internal control systems
• Defining clear responsibilities
• Carrying out risk analyses to evaluate business partners and identify risks
• Regular audits

Violations of the CSRD can result in fines, reputational damage, legal disputes and a loss of trust among business partners, investors and employees.  

Identify risks, establish controls Companies must ensure that they report on an honest and comprehensive data basis as part of their non-financial reporting. Indications of misconduct or integrity risks must be followed up.

We support you in recognizing risks and establishing efficient processes and controls that help you to reduce opportunities for manipulation and implement effective mechanisms to identify and reduce fraud risks.

• Screening of business partners on environmental concerns and social aspects as well as integrity and governance
• Support in drafting the content of (third-party) codes of conduct in connection with ESG fraud
• Conducting supplier audits with a focus on working conditions, human rights violations, diversity, equality and inclusion
• Conducting ESG fraud risk assessments including a gap analysis to identify ESG risks and control weaknesses. The assessments include determining the maturity level of your third-party management and your ESG corporate culture as well as the implementation of ESG regulations.
• Support in setting up whistleblower systems and complaints procedures in accordance with the Supply Chain Due Diligence Act (LkSG)
• Support in implementing processes and guidelines to promote an ESG corporate culture and combat corruption and bribery. This includes measures to protect whistleblowers, deal with lobbying activities and disclose payment practices in accordance with the governance standard of the European Sustainability Reporting Standards (ESRS G1).
• Implementing suitable prevention and detection measures and conducting awareness training on corruption and bribery risks and the associated reporting channels
• Provision of software solutions for monitoring and managing third-party risks

If you have any questions about identifying, preventing and combating fraud risks in connection with your sustainability reporting, please do not hesitate to contact us. We look forward to hearing from you.