How Does Internal Audit Help ESG?

ESG is more than the encouragement of sustainable practice within your company – it’s about resilience and risk, both corporate and environmental. It’s about growth in our new normal, and how you can be a market leader on sustainable operations.

If any industry is focused on corporate resilience, risk, sustainability and future proofing, it’s the auditing industry. Few other internal services offer the breadth of analysis and risk factoring than internal audit, so teams at the core of it can provide an incredible amount of insight into how ESG methodology can evolve.

ESG, much like Auditing, is under the microscope more in the post-pandemic world: stakeholders, workers and consumers want to align more with how businesses operate outside of their industry. They want companies to prove they exist for more than a profit margin and they want clear communications on businesses’ community placement, beliefs, and ethics, as well as their sustainable value proposition.

ESG is still a growing “field” with regards to reporting and impact, and despite moves from governments to standardise ESG reporting, many companies are improving their reporting and focusing on how it helps their service independently.

Europe remains the region with the highest amount of reporting provisions (due to the European Green Deal), and change is afloat with regards to continent spanning regulations: the Non-Financial Reporting Directive (NFRD) is being tightened this year, and the Sustainable Finance Disclosure Regulation (SFDR) is standardising financial transparency. Alongside these is the EU Taxonomy for Sustainable Activities:  “a list of environmentally sustainable economic activities” that sets a framework for being considered economically sustainable.

But, as Morgan Stanley put it, good ESG management creates competitive advantage. Incorporating ESG into their investment services is a commitment to the long term – rather than react to fast changing situations, they aim to move their business into a sustainability-first footing to be ahead of both industry changes, but competitive movements too.

Harnessing your internal audit to draw better outcomes, align company values and help management improve governance should be a central component of any internal audit team dedicated to helping the environment.

So how does internal audit fit within ESG reporting and how can it help meet the challenges of an environmentally sound future?

Putting the advice in advisory service

• From communications with investors and stakeholders, to non-auditing issues, internal auditors can use their cross-business connections to better inform management and senior executives of achievables and realistic options with regards to ESG change management.

Consistency across the board

• Internal audit has to remain objectively non-committal to business decisions – therefore the professionals doing the auditing are perfectly placed to build systems of reporting both internally and externally that fairly reflect the company’s position in situ and in context of the wider industry, plus they will be first in line to augment and improve reporting systems in line with changes to supra-national arrangements.

Applicability

• What’s right for one won’t necessarily be right for another. ESG programmes have to be iterative and relevant, and above all else deliverable. Internal audit can help assess what ESG measures are workable and suggest a course of action.

Search other articles to learn about internal auditor careers:

How to Become an Internal Auditor – A Step by Step Guide, Internal Auditor CV, Template & Examples. Internal Auditor Qualifications & Skills, Internal Auditor Salary & Pay, Internal Auditor Job Description & Profile

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Photo by Karsten Würth on Unsplash