15 May

Unaudited non-financial reporting – opening the floodgates to greenwashing?

Neither in Germany nor in Italy or Austria is there an obligation to undertake external audits of activities described in sustainability reports. However, there is a heated debate about this matter in business, political and societal circles.

Indeed, it works all too well to „sugar-coat“ adverse consequences of entrepreneurial activity through skilful marketing and communication strategies. Especially consumers are thereby led to believe that the value creation process would be free from negative effects on humans and the environment. External audits by competent institutions could prevent such deception, argue the proponents of mandatory audits.

But let’s be realistic. No corporate management will commit itself to publicly explaining the negative consequences of entrepreneurial actions, thereby ultimately damaging its own business. Accordingly, reporting, externally audited or not, will always reflect what is already sustainable and well-designed in the value creation process. Consumers will thus have to activate their own judgment. This requires information to be gathered, evaluated and weighed up. Education for sustainable development is needed.

An external audit represented by a certificate, attestation or audit seal, however, dismisses consumers from the assessment process. Admittedly, this saves them a lot of time and helps enormously in the process of making purchase decisions. But it also keeps them stupid, put bluntly. And it empowers certification companies to conduct the assessment. These employ experts that want to make a living from their work. This is right and proper. In the end however, the reporting company’s auditing costs rise and thereby also consumer prices.


What it ultimately comes down to…

Mandatory audits by external institutions involve an interplay of stakeholders with multifaceted effects and repercussions. They can be expedient in global value creation processes that no “normal consumer” is in a position to comprehend. Nevertheless, consumers must take a conscious look at the information at hand. As regards locally active companies such as for example cooperative banks, it makes more sense to invest in stakeholder dialogue. This stimulates education for sustainable development, fostering communal expertise and allowing communities to develop local social contracts that, in turn, help to find a jointly designed prosperity index. Citizens, be they in the role of members, customers, employees or community members, are thus empowered to become sustainability experts themselves. The way to get there is still uncertain and it is far, yes that’s true. Since no obligation for external audits has been fixed, the way is also still open and any creativity is possible.

Mandatory audits or not, one thing is clear: the shift towards a sustainable development in the economy and society will not be achieved through the much-debated obligation for external audits. It will be achieved through people in companies and societies who take on a new responsibility to secure the essential foundations for a good life for everybody. Many of our Terra customers, partners and companions are already on this path. Without any legislation or audit requirements.