GBP Monitor in January: Sustainable Companies Are Not More Honest than Others When It Comes to Financial Reporting

Since this year, many companies are obliged to publish their key sustainability figures in the same way they publish their financial information. How do companies deal with the non-financial ESG figures which include environmental and social aspects as well as governance?

The goal of the new EU Sustainability Reporting Directive is to give a company’s sustainability information the same priority as its financial information. It imposes requirements for climate and environmental protection, social justice, and corporate governance (ESG) on companies. The latest report of the German Business Panel (GBP) shows that more than a quarter of these companies exercise accounting discretion, this means they use the legal room for maneuver to present their results in a more positive way.

Companies focused on ESG measures are just as likely to pursue an accounting policy than other companies (27.7 percent compared to 25.5 percent). Specifically, they use leeway to reduce their profits for tax reasons or to increase their profits for their communication with business partners. “ESG requirements influence the long-term economic performance and thus also the balance sheet. It is no surprise that companies use the legal room for maneuver allowed to make their results look better,” says Professor Dr. Jannis Bischof, who is the head of the project. If a company is committed to sustainability, this does not mean that this company will be more honest in its reporting.

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