Auditor and corporate sustainability

The new balance between green and corporate profit.
by Federico Valenza

Businesses are gradually understanding the need to find a stable balance between economic, social and environmental issues to ensure the long-term survival of the company's business. If on the one hand the sensitivity in relation to this issue on the part of businesses and societies has increased, on the other hand the new actions introduced by the Legislator and the European Authorities undoubtedly also contribute.

By way of example, in recent months a document has been published to stem contractual irregularities linked to the so-called PRIIPs (packaged retail and insurance investment products) as well as a request for clarification on the Sustainable Finance Disclosure Regulation (SFDR) by the European Commission – for more information on these innovations, see. qui.

Already since April 2021, with the proposal of the European Commission to expand the list of companies required to non-financial reporting, the context has taken a further step forward. But before getting to this it is necessary to understand the reason for all this attention to green issues.

Green washing: what it really means

The reasons for all this lie in the greater awareness of consumers, who prefer products characterized by an ethical and social value rather than a purely economic one: the choice often falls on "biodegradable", "green", "zero kilometer", "no animal tested", "recycled" or "recyclable" goods. It is inevitable, therefore, that some market operators want to exploit this resource to sell more without taking on a real change in terms of sustainability.

This phenomenon is conventionally called greenwashing, or rather a “communication or marketing strategy pursued by companies, institutions, bodies that present their activities as eco-sustainable, trying to hide them thenegative environmental impact”. The result is the consumption of goods and services perceived as sustainable but actually polluting.

In this complex context in which nothing seems to be able to contain the free - and often uncontrolled - movement of the market, the figure of the auditor is of primary importance. The latter, in fact, does not limit himself to carrying out his professional work in the field of budget audit but becomes a guide for the implementation of socio-economic-environmental issues.

The non-financial statement

Perhaps this is precisely why the European Commission has chosen to broaden the range of action of this strategic corporate figure, providing it with a more penetrating tool in the country's economy.

The Commission has, in fact, proposed to modify the so-called Corporate Sustainability Reporting Directive, the regulatory text that introduced the regulatory obligation of the so-called non-financial reporting of companies, i.e. the expected report on activities other than financial ones. To date, this reporting is mandatory only for large companies of public interest i.ethat:

• they have more than 500 employees;
• they record more than 40 million in turnover or;
• they have total assets on the balance sheet of more than 20 million.

Considering this dimensional data today, only the 28% of the main Italian companies are required to present the so-called Sustainability report. Furthermore, only 40% of these companies dedicate part of the reporting in question to climate issues, confirming the trend of greater awareness of preparers of issues from an ESG perspective. This is why the EU Commission has chosen to propose this new regulation, raising awareness of the issue among an ever-increasing number of companies.

This is enough to suggest the growing importance that the figure of the auditor is destined to assume since he can contribute decisively to the correct implementation of strategies and techniques linked to the sustainability paradigm. What is necessary today is to create the culture of sustainability and ensure that this becomes the backbone of company activities: only in this way does the environmental, social and economic commitment presented by companies (in compliance with ESG paradigms) become concrete and become real value for consumers and other stakeholders. The auditor has the possibility of having a positive impact on this context thanks to the continuous collaboration with the top management, which becomes a source and stimulus for the infusion of sustainability among the company's core values.

The auditor: his/her skills in green

In achieving all this, the auditor is required to have transversal and additional skills compared to "traditional" knowledge in the field of budgeting and accounting: numerous reference practices (PdR) dictated by the ISO body, the international organization for the implementation of common standards, come to the aid of the professional. In particular, knowledge of the ISO 26,000 principles linked to social responsibility is a solid basis for accompanying companies on their path towards sustainability, to be combined synergistically with the awareness of the reporting methods of non-financial reporting: the correct identification and implementation of the GRI standards (Global reporting Initiative), linked to the international principles dictated by the United Nations in relation to the Agenda 2030, are certainly essential regulatory elements, both for the company and for the auditor himself.

The European Union is also looking at defining better non-financial reporting standards.

Following the numerous treaties and plans on the subject, including the 2015 Paris Agreements and the European Green Deal (which aims for net zero by 2050 and fully sustainable economic growth), the Union takes a new step with the adoption of the Regulation 825/2020, which proposes a common front on the subject of sustainability and transparent reporting of company activities, with the clear objective, on the one hand, of stemming the phenomenon of green washing to protect consumptionators and, on the other, to prepare a common definition of sustainability. More recently, the standard SRG88088:20 (Social, Responsibility and Governance, dated January 2022) was published, which establishes the key principles for the implementation of a sustainable organizational system; applicable to all businesses, of whatever nature or form they may be.

What do we expect from this trend

While waiting to understand how the market and stakeholders will react, the need to implement a standard setter of values and ethical practices remains unchanged, with the aim of guaranteeing the maximum expression of transparency and integrity of the auditor and, consequently, of the company carrying out the reporting.

Despite the fact that subjects linked to companies have very different and apparently uncommon interests, the auditor cannot ignore the need to unify the needs of stakeholders under the aegis of transparency of reporting, especially with regard to environmental, social and economic issues: only in this way is it possible to achieve, with everyone's contribution, the true and full realization of the sustainability of company activities.