The landscape around ESG-related disclosures and compliance is evolving. Regulators are accelerating efforts over mandatory disclosure requirements and taking action against ESG-related misconduct, in a bid to boost the transparency and accountability of companies. For instance, the Singapore Exchange (SGX) has introduced mandatory climate reporting on a “comply or explain” basis commencing financial year 2023. While there has not been any enforcement action taken in Singapore, the SGX could soon take other countries' lead in doing so.
Against this backdrop, it is no surprise that ESG-related fraud is also on the rise. ESG-related fraud refers to misrepresentations of ESG practices or performance to improve ESG ratings, demonstrate compliance with ESG-related disclosures or to attract stakeholders (e.g., greenwashing).
ESG-related fraud is not new, as it shares many characteristics with financial fraud and misstatement. Companies may misstate ESG-related targets and disclosures to deceive their stakeholders, which may include non-financial disclosures, such as total water consumption or greenhouse gas emissions.
Like other frauds, ESG-related fraud could lead to expensive and disruptive consequences, including fines and penalties, reputational damage, and loss of investor confidence. ESG-related fraud has the potential for additional impact on the environment and on society, as it means that a company may ultimately have failed to operate sustainably.
To achieve ESG integrity, ESG-related fraud risks should be a core component of your company’s risk management strategy, encompassing both proactive and reactive controls. Download our full publication for more insights on how to prevent, detect and respond to ESG-related fraud.
