ESG fraud is a growing threat to businesses that are increasingly concerned about the risk of inadvertend ESG fraud within their organisations, a survey has found.

The survey results come amid increased scrutiny of companies' sustainabilty goals, which are mounting pressure on leaders responsible for reporting their impact.

The study, which was undertaken by KPMG in Canda, surveyed 300 organisations that had been victims of fraud. It found 24% of these respondents have encountered ESG fraud within the last five years.

Simultaneously, 89% of respondents reported that they had faced increased scrutiny from stakeholders, who have demanded evidence of their progress on meeting ESG targets.

Among the respondents, 86% also said they felt concerned over the increase in risk regarding ESG-related fraud within their operations, while 81% said they are worried that their organisation may unintentionally commit ESG fraud.

"The fact that stakeholders are demanding accountability for ESG performance is a positive factor for driving change, but unfortunately it can motivate – and already is motivating – some individuals or teams within organizations to misrepresent or inflate their sustainability and financial metrics for corporate or personal gain," KPMG partner, Becky Seidler said.

The survey findings come amid a wave of ‘legislation lethargy’, which has hit organisations as the volume and intensity of sustainability reporting has increased.

Data released by facility management and transformation firm, Mitie, shows almost two in five (38%) sustainability decision makers admit to not being clear about what they need to report on, while 20% admit to the prospect of greenwashing accusations keeping them awake at night.

Almost half (46%) of respondents now report to at least three different ESG frameworks, yet over a quarter (28%) say they are not sure they are equipped to comply if legislation becomes stricter.

KMPG leader of ESG legal risk and disclosure, added a warning t companies of the litigation risks they face if activists or investors find any flaws or inconsistencies in ESG reporting.

"Companies can guard against ESG litigation risk by proactively and comprehensively identifying the sources and types of ESG legal risk that could exist internally, as well as external factors that span well beyond the four corners of a company's ESG report," Chell said.

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