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ACCA Applied Knowledge · Business and Technology · Governance in business organisations

Karvel Co publishes a sustainability report in which it states only the positive outcomes of its environmental programmes and omits a recent pollution incident that led to a regulatory fine. Which weakness of sustainability reporting does this best illustrate?

The best answer is selective disclosure undermining credibility. By reporting only favourable outcomes and leaving out the pollution incident and fine, Karvel Co presents a biased picture, which is a form of greenwashing and reduces stakeholders' trust in the report.

  1. AReports are prepared only on a mandatory basis
  2. BSelective disclosure that undermines the credibility of the reportCorrect
  3. CThe use of non-financial measures instead of financial ones
  4. DOverlap between the report and the statutory financial statements

Explanation

Omitting the negative incident while highlighting positives is selective disclosure, sometimes called greenwashing, and it damages the reliability and balance of the report. Using non-financial measures is normal in sustainability reporting and is not itself a weakness in this scenario. The scenario says nothing about mandatory reporting or overlap with the financial statements.

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