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Businesses unaware of sustainability fraud risk

24 Mar 2011

By Will Nichols

According to Holmes, the same advice applies to companies that are voluntarily purchasing offsets from schemes including the Voluntary Carbon Standard to boost their green credentials. He also points out that the trading of credits from carbon-cutting or forest protection schemes - known as Reducing Emissions from Deforestation and Forest Degradation projects - is open to the same abuse, as well as problems of bribery and corruption. Additionally, a Point Carbon survey in March found 15 percent of respondents from organisations covered by carbon regulation had seen projects claiming greater savings than actually realised, multiple-selling of credits or offsets traded from fictitious projects.

All of this may garner no more than a shrug from many finance directors. After all, they do not always deal directly with the treacherous carbon markets.

Wrong, says Holmes. While the carbon markets may be particularly susceptible to these pitfalls, he advises any company branching out into sustainability to be cautious, as getting it wrong can be a reputational catastrophe.

Emissions reporting is practised by 98 of the FTSE-100, but there is no hard and fast measurement standard. Companies can switch from being a victim of fraud to being its perceived perpetrator simply by changing methodologies.

“The risk is that if you report one year with a perfectly reasonable standard and then next year use another perfectly reasonable standard, you can be accused of manipulating the numbers because you have changed the basis of measurement,” warns Holmes. “The reputational damage can be enormous, and you do not want to be associated with it.”

 

How to protect against green fraud

1 Extend ‘business as usual’ attitude “Companies need to apply the same diligence to their sustainable business activities as they do to their core financial reporting and controls,” says Holmes. In fact, existing processes are more than capable of dealing with these scams, so they should not deter companies from green practices

2 Warn staff Boards are well aware of the dangers, but staff are less informed. PwC conducted a fake phishing test that convinced 20 percent of employees to click through to a fake
web page

3 Report sustainability consistently Companies need to define specific criteria and design a consistent approach to communicating outcomes, either through an annual report, sustainability report or their website. Defra has published guidelines for businesses

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