Effective Board Oversight of ESG and Greenwashing Risk

As ESG becomes a must-have rather than an add-on and best practices switch from claims and press releases to measurable activity and data-based disclosures, mid market and larger businesses must ensure ownership and accountability are in the right places. 

Organisations which fail to do this risk accusations of greenwashing. Some Australian companies are already experiencing the repercussions of an ASIC investigation into false or misleading messages about environmental and social governance. 

Having clear ESG policies which can be tracked and measured is an essential step, and along the way, it is important to ensure ownership and accountability are in the right places. 

ESG Oversight: Where the board ends and management begins

Getting the governance structure correctly in place is a helpful first step in reducing greenwashing risk. 

Many businesses struggle with unclear accountability between the Board and management. This is where problems creep in: ESG claims are made before they’re fully tested, or disclosures evolve with no clear line of ownership.

At the top level, the Board’s role is to set ESG direction and boundaries. This includes:

• Defining ESG strategy and risk appetite
• Approving relevant policies
• Overseeing frameworks via the Audit, Risk or Sustainability Committees
• Asking for updates which include data and clarification of genuine progress
  
  

Meanwhile, management’s execution role in ESG means they’re responsible for:

• Creating policies and setting targets related to environmental and social governance
• Data collection and integrity
• Drafting ESG claims and disclosures
• Operating controls around claims
• Managing internal responses to any flagged issues

Four lines of defence against greenwashing

You can almost think of ESG in the same vein as income reporting. It’s unavoidable and public-facing ESG information needs the same rigour as financial reporting. This means building a layered defence model which gives the Board confidence that claims are accurate and verifiable.

Here’s how well-managed ESG oversight and greenwashing risk management can look in practice:

1. Management controls

Activities relating to ESG data and claims should be embedded in day-to-day processes. This includes documenting methodologies, evidence trails and clear sign-off steps before anything goes public.

2. Risk and compliance
   Policies should be in place to govern the use of ESG language, metrics, imagery and public claims. Compliance teams should monitor adherence and report on any potential risks, especially in relation to vague, forward-looking or implied wording in public announcements or on packaging.
3. Internal audit
   Audit teams can assess data lineage (where the numbers come from) to confirm accuracy and credibility. This is particularly useful for disclosures which span multiple systems or departments, which is often the case in ESG.
4. External assurance
   For selected disclosures, such as emissions intensity, offset use or Scope 3 progress external reviews and approvals provide additional credibility. It also sends a clear message to investors and regulators about the maturity of your ESG reporting.

What the Board should see each quarter

Boards have a great deal to oversee, so regular ESG reporting should be practical and efficient. 

Here’s what makes ESG oversight useful at the Board level:

• ESG disclosure map:
  A summary of what the company says publicly, where those claims appear, and who owns the evidence behind them. This connects governance to reputation.
• Substantiation status:
  A traffic-light summary of which claims are fully substantiated, which are in progress, and any corrections or clarifications that have been issued.
• Progress to targets:
  A clear and easy-to-follow update on performance against ESG targets, especially those with public commitments. This should include any relevant capital expenditure alignment and the organisation’s approach to offsets.
• Claims issues log:
  A running record of internal concerns, flagged inconsistencies or whistleblower disclosures related to ESG statements. It helps Boards identify patterns and respond early.
• Clarity around messaging:
  Additional context on marketing collateral, press releases or website content that references environmental or social achievements and commitments.

Set the tone from the top

Effective ESG oversight is needed to ensure claims and announcements are accurate, explainable and backed by real progress. The Board’s role is to set the agenda and parameters for success, give management the frameworks they need to operate with confidence, review progress and confirm compliance.