Why Professional Ethics are Important in Sustainability Reporting

Ethical issues for CPAs to watch out for in Sustainability Reporting


For CPAs, ethics serve as a fundamental guide when navigating challenges. Professional ethics is the foundation of trust in the financial information we prepare, present, and assure. It is even more critical in sustainability reporting because sustainability reporting is new, complex, subjective and fraught with incentives. Let’s take a closer look at how each of these factors can create ethical risks for CPAs.

It’s new: Sustainability reporting is still in its infancy in terms of standardization and regulation. As companies begin their sustainability reporting journey, they will have to decide on which topics to report, which standards to use and which sustainability data to gather across their operations and value-chain. It is likely there will be challenges around completeness and accuracy of the sustainability data. It is also likely that there may not be the relevant expertise to fully capture and report data in accordance with the requirements in the standards.

It’s complex: Sustainability reporting is complex. Sustainability topics are diverse and may require expert technical knowledge based on the operations of the organization and the data to be reported. In addition to the technical expertise, it requires a deep understanding of the business, its value-chain, its impact on the environment, society, and the potential impact of changes to any one of these components.

It’s subjective: Sustainability reporting captures non-financial information and future-oriented information, such as projections, which are based on estimations and assumptions. There is a higher risk of measurement uncertainty. There is also subjectivity in the identification of sustainability topics to report via the materiality assessment.

There are incentives for misrepresenting and misreporting data: Shareholder and stakeholder expectations can lead to a higher risk of pressure to publish misleading favorable sustainability information.

If not properly managed, these risks can lead to a breach of the CPA Code of Professional Conduct and the five fundamental principles governing conduct: Professional Behaviour, Integrity and Due Care, Objectivity, Professional Competence and Confidentiality.

Let’s examine some of the potential ethical issues CPAs may encounter on their sustainability journey:

Ethical Issue #1: Association with False or Misleading Sustainability Information

Greenwashing & Greenhushing

With growing demands from investors and consumers for sustainability in products, services and business operations, there is a strong incentive for organizations to advertise and report false or misleading sustainability-related information. This deliberately deceptive practice can come in two forms:

  • Greenwashing is the practice of overstating more favorable sustainability-related information.
  • Greenhushing is the underreporting of unfavorable sustainability-related information.

The corporate motivation to “greenwash,” such as falsely labeling products as sustainably sourced or making inaccurate or false claims about the company’s sustainability practices or achievements, represents a direct ethical issue. A CPA with oversight of sustainability information may feel pressured by management to go along, and by extension become associated with misleading information.

The fundamental principle of objectivity requires CPAs to “…not allow their professional or business judgment to be compromised by bias, conflict of interest or the undue influence of others.” When CPAs become aware of being associated with materially false or misleading sustainability information, they have an obligation to take steps to shine a light on the situation, either by having the information corrected or by disassociating from the information.

The risk is real. According to a global review led by the International Consumer Protection and Enforcement Network, 40% of green claims made online could be misleading consumers. RepRisk saw a 70% jump in climate-related greenwashing incidents in the Banks and Financial Services sectors in 2023 compared to the prior year. The International Organization of Securities Commissions (IOSCO) published a report on supervisory practices to address greenwashing, recognizing the growing risk of greenwashing to undermine the fundamental trust in sustainable finance.

Inconsistent and incomplete data

Besides greenwashing and greenhushing, there are other ways CPAs may become inadvertently associated with false or misleading information. For example:

  • inconsistent interpretation of what is material to disclose, resulting in poor data quality, inconsistent or incomplete data from subsidiaries or value-chains;
  • inadequate processes and internal controls to identify, collect and aggregate sustainability data;
  • inconsistent understanding and use of terms and classifications for sustainability data across operations and geographic locations;
  • projected information is too far into the future (e.g. long-term metrics) and not reliable.

The fundamental principle of integrity and due care requires CPAs, whether they are in the industry or professional practice to “…perform professional services with integrity and due care.” This requires CPAs to act carefully, thoroughly and in accordance with technical and professional standards. To comply with this fundamental principle, CPAs should consider the source, relevance, and completeness of sustainability data and to question/investigate further as necessary.

Misrepresenting sustainability knowledge or expertise

Whether it is on a resume or on the web, CPAs should be careful not to overstate their sustainability expertise or experience misleading the counterparty in their professional relationships.

Under the fundamental principle of integrity and due care CPAs are expected to be straightforward, honest, and fair dealing in all professional relationships. Members and firms should ensure, at all times, that any reference to themselves or their services is accurate.

Ethical Issue #2: Insufficient Knowledge or Expertise

Sustainability reporting covers a broad range of topics, from greenhouse gas emissions to community relations. Sustainability reporting also contains non-financial and future-oriented information that measure an organization’s progress against established goals over time. This is why expert technical knowledge and professional judgement is so critical.

The fundamental principle of professional competence requires CPAs to maintain a high level of competence in the area they provide professional services, as an employee or as a consultant. CPAs in sustainability reporting must ensure they have the necessary competencies to discharge their professional responsibilities and to use an expert as required.

While CPAs’ have core competencies that are transferrable to sustainability reporting, upskilling with specific sustainability training is necessary. As this space is evolving, it is important for CPAs in sustainability report to stay abreast with the latest developments in sustainability regulation and standards.

Ethical Issue #3: Due care to different stakeholders with different priorities

When it comes to sustainability reporting, there will be no shortage of voices and perspectives on which course is the right one. Sustainability reporting provides investors information on a company’s long-term value creation, driving their investment decisions, but they are not the only stakeholders interested in an organization’s sustainability reports. Consumers, governments, and employees/potential employees also use sustainability information to make decisions.

Given different stakeholders will have different perspectives on what is material sustainability information, CPAs in sustainability reporting will be required to use their professional judgement based on whom they have duty of care and to what extent.

Let’s use the example of a company that has an environmental event: a contamination of a local lake in one location for which the financial impact, such as the cleanup cost and regulatory penalty, is immaterial. While it may not be material for disclosure from a financial perspective for investors, the impact is material to local governments and the residents of that community.

The world of sustainability reporting is new and complex, and it can feel like navigating our way through unchartered waters. Fortunately, CPAs have everything they need to light their way forward: ethical obligations, reporting framework requirements and, mostly importantly, in depth experience in using their professional judgment.

And CPA Ontario is here to help. Through Sustainability Simplified, we have created a one-stop resource for everything CPAs need to take the lead on sustainability. Stay tuned for our series on Ethical Dilemmas in Sustainability Reporting and learn what you need to know to chart the right course.