Newly-appointed ICAS CFO, Chris Barber CA, talks greenwashing

The life of a major CEO isn’t an easy one. Take HSBC chief Noel Quinn, for instance. He has to manage a sprawling, multi-billion-pound global business while facing activist investors, political headwinds and a raft of other problems that alone would be enough to keep most people awake at night. His latest problem, however, relates to two simple bus stops – one in London, one in Bristol. In April, the Advertising Standards Authority (ASA) gave the banking giant a slap on the wrist for two advertisements which it said were “greenwashing” its environmental credentials.

Accusations of greenwashing used to be the preserve of dedicated campaigners. Now it is one of the City’s biggest buzzwords – and more and more firms are falling foul of those on the hunt for it. The ASA’s Environment and Climate Change Project puts it front and centre. And consumers and investors are also growing more conscious.

For those unfamiliar with the term, greenwashing is simple: it is the practice of firms overselling their environmental credentials in marketing materials, giving eco-conscious punters a false impression of just how seriously they take their green responsibilities.

For businesses under fire, the need to formally report on their sustainability record might be seen as a threat. But for Chris Barber CA, the new CFO at ICAS, the ever-growing focus on environmental issues represents a great opportunity for the accountancy profession. Barber believes sustainability reporting is an area tailor-made for CAs to showcase their skills and hold their own businesses to account – thus avoiding any criticism of greenwashing down the line.

“Sustainability reporting is in its infancy,” Barber believes, “and that’s half the problem. At the moment there are varying levels of credibility around sustainability statements across many different organisations, and some companies in the same sector, or even in the same country, are reporting the same information very differently.”

That may soon change. The much-ballyhooed Cop26 summit in Glasgow at the end of last year may not have produced the “big bang” that campaigners were hoping for, but it did bring the business community together around sustainability issues. The conference has produced international working groups which are looking to develop genuine sustainability monitoring, with accountancy at its heart. “Accountants drive disclosure, and drive the analysis behind it that demonstrates where there is good practice and bad practice,” explains Barber.

Even at the very biggest corporates, where sustainability might require an end-to-end study of even the most obscure supply chain, Barber believes it will be accountants who are key to assuring those numbers.

Functioning markets

Greenwashing is one thing when it appears in an advert, but quite another when it’s being slipped into an annual report. That’s doubly true as sustainability becomes not just a nice-to-have but something at the heart of investment decisions. As firms with strong environmental, social and governance (ESG) credentials become more appealing as investment targets, scrutiny of those credentials will only increase.

“Companies are increasingly being rewarded by capital markets for greening up their businesses,” says Barber. “Companies have reported on sustainability in the past, but it has also been voluntarily, so there has been a lack of consistency, with some entities adopting a selective approach.”

But with performance on sustainability now affecting a company’s share price, CAs need to take assuring those numbers extremely seriously. “More and more investors want to invest in credible ESG and sustainable companies,” Barber says. “So CAs will play an ever increasing role in providing assurance.”

For Barber, that means putting sustainability not on the outskirts of a business but at its beating heart. He believes it’s vital that the sustainability buck – not just on climate issues but across the spectrum – stops at the desk of the finance department. He gives two reasons: “One, it will be the finance team that drives the reporting, the disclosure and the transparency that we’ll require for sustainability in the future. And second, a lot of the capital and investment decisions are made by the CFO, and they have to balance future performance with investment in sustainability.”

Another reason why finance is so vital to the green transition is because markets are typically the most efficient vessel for directing capital towards profitable and valuable projects. Investors are more likely to put their money in firms that are likely to help solve the energy conundrum – perhaps by inventing or developing a new technology – or reward those that have gone greener (termed a “greenium” by some investors). Retail investors, too, are going green, with increasing numbers, especially among the young, attracted to ESG stocks.

If reporting is awash with marketing smoke and mirrors, investors will be unable to make the most efficient decisions. That may mean businesses that embrace sustainability aren’t rewarded – and promising technologies and firms that could help achieve our goals don’t receive the investment they need. Either way, greenwashing distorts the market.

Such is the distortion of incentives that “greenhushing” – in which firms actively suppress good news about sustainability to avoid criticism from profit-at-all-costs investors – can also pose a problem. Barber, though, thinks there are fewer of those profit hawks in the market today than in years and decades past.

“I’m cautiously optimistic that people are starting to wake up to the way their money or their investments can influence corporate decisions,” he says. “It has to be sustainability and growth, rather than sustainability or growth. If we don’t have growth, then jobs and companies are at risk. So there’s a trade-off and there’s a balance between growth versus progress on sustainability – and that’s where the CFO becomes very important.”

Big or small

New initiatives are emerging to help business make progress in this field. London-based sustainability firm Provenance, which uses blockchain to monitor a firm’s sustainability achievements in real time, recently announced the successful closure of a $5m (£4m) investment round for its Proof Point technology, which lets consumers check on a business’s sustainability claims with a simple click. And US firm Persefoni allows companies to “plug in” their expenses data to a software platform that calculates carbon emissions almost instantaneously.

While such initiatives are within the reach of larger firms, tackling sustainability remains daunting for smaller entities. But that’s another area where Barber believes CAs can come into their own.

“Accountants generally deal with facts and they’re very good at doing the analysis around it,” he says. “But a lot of the accountants’ role is around applying judgement, standing back and saying: what does this actually mean in context? My observation is that chartered accountants have a really good grounding in business and in judgement, and are able to make those decisions.”

It may surprise the critics of finance, then, that it’s the accountants who have the tools and skills to help save the world. With credible reporting backed by investor pressure, the auditing and accounting of green data is likely to be the driving force for companies of all sizes to become more sustainable.

“It’s not easy,” concedes Barber. “But working collaboratively across all these organisations will ultimately get you to the right answer.”