Introduction
Environmental,
Social and Governance (ESG) has now become integral in business strategies and
operations. It is no longer a nice-to-have agenda for companies. ESG
contributes towards value creation, in both financial and non-financial
aspects.
Acknowledging
this, is important, but we need to also take account that ESG also recognizes a
new risk type i.e. Sustainability Risks. Companies are still strengthening
internal processes towards managing Sustainability Risks and this includes
enhancing its governance structure, strategies, business goals, initiatives and
also on disclosures.
Sustainability
Risks (and opportunities) are relevant for both businesses and operations, and
sit across companies’ functions. That is why, having a robust structure with
clear roles and responsibilities across the three lines of defense is
imperative, to ensure ESG is managed holistically and aligned with overall
business model.
One of the
questions that has been discussed lately is – what is the role of Internal
Audit in ESG?
But before that,
there is a need to reiterate the importance of ESG for stakeholders.
Stakeholder pressure – regulators and investors as main drivers
A robust and holistic ESG strategy and roadmap
has now become essential to address regulatory requirements and stakeholders
expectations. ESG strategy and roadmap also serves as competitive advantage,
and catalyst for overall value creation. Companies are constantly under the
scrutiny of regulators on the ESG resilience in addressing the evolving changes
and requirements over short, medium and long term. On top of that, stakeholders
are expecting clearer and more meaningful alignment of ESG strategy and roadmap
with companies long term corporate strategy. Internally, stakeholders namely
employees, are setting higher standards on the Sustainability agenda at
organisations they are working with, that would impact talent recruitment and
employee satisfaction. One thing to note
here is that, the primary source for stakeholders to understand on a company’s
ESG strategy and roadmap, is through reports and disclosures.
Internal Audit’s Role in ESG
Internal audit
is now becoming more and more critical in ensuring quality of ESG disclosures
as a whole, as they can provide objective assurance and advisory pertaining to
the credibility of ESG data and information. As with financial reporting, the
independent and objective assurance that internal audit can provide should be
an integral part of a company’s ESG disclosures.
Sustainability Assurance
·
Sound and robust ESG
disclosures require maturity in ESG systems and controls and internal audit
should be one of the very first parties to have oversight prior it goes to
external third party auditor
·
Internal audit should always
aim for ESG disclosures to be based on metrics that are relevant, accurate and
consistent that would benefit the stakeholders and organization
·
Internal audit should embed ESG
into regular periodical audit plans and should be business-as-usual
Sustainability Advisory
·
Assess scope and areas that are
less well-defined and build an ESG control environment towards meeting
regulatory expectations and industry best practices
·
Propose ESG reporting metrics
(internal and external reporting) and data management processes, to ensure the
coverage of meaningful and accurate ESG data for the organization and its
stakeholders
·
Advise for better ESG
governance to ensure organization has relevant synergy across departments and
functions
Conclusion
Internal audit
should by now looks beyond identifying risks and controls in place. There is a
need towards integrating ESG within the scope and methodology, and there must
be linkages towards organization strategy, risk management and governance
structure to facilitate internal initiatives, programmes, KPIs, controls as
well as infrastructure are effective towards supporting organisations’ ESG
agenda.
All views and opinions expressed on this site are by the
author and do not represent any particular entity or organisation
