Internal Auditors are continuously expected to wear different hats when executing their roles. Regulators, investors and other stakeholders are directing their attention to ESG (Environmental, Social & Governance) reported information. As the regulatory focus on ESG continues to expand, ESG reporting is even more imperative. ESG is not only concerned with environmental matters, but it also encompasses an array of topics that are not typically captured by traditional risk management or financial reporting. Regulatory reporting aims to develop an extensive range of high-quality sustainability disclosure standards to meet investors’ information needs.
ESG standards and frameworks have been established to enhance transparency and to guide organisations in reporting on ESG requirements. On that account, stakeholders need to be presented with accurate and trustworthy information, which creates an opportunity for internal auditors to venture in. Organisations are grappling with these newly established and emerging ESG reporting frameworks. It is expected that entities implement robust policies, processes and internal controls that result in precise and consistent information. Internal audit can contribute to the whole value chain and provide confidence in the governance, processes, systems and data supporting ESG reporting, this will provide comfort to internal and external stakeholders.
Sound governance is at the heart of ESG.
“It’s important that companies respond to the call for more comprehensive and reliable reporting on ESG risks and opportunities to build trust with their investors and other stakeholders.”
A survey performed by PwC in April 2022 depicts the following statistics:
71% of the respondents have a high degree of confidence in assurance providers with the skills and experience of performing audits of complex organisations.
75% of investors have confidence in sustainability reports with an independent and reasonable assurance opinion.
3 out of 5 top priorities of investors are ESG-related issues such as reducing GHG (Greenhouse Gas) emissions and Effective Corporate Governance.
These statistics validate that internal auditors play a vital role in the ESG spectrum. As the ESG standards and frameworks continue to amplify, internal auditors can wear their ESG hats and add value to several aspects of ESG, including the following areas:
- Policies & procedures
- Data management
- Calculations & estimations
- Control design & review
- Consolidation & disclosure
Policies & procedures
Assess reporting criteria, metric definitions, metric processes and procedural guidelines. Assess third-party contractual requirements with ESG and internal policies.
Data management
Assess processes and tools related to data collection, quality, access and organisation - focusing on completeness and accuracy.
Calculations & estimations
Assess processes, inputs and assumptions used to calculate a metric, including estimation methodologies.
Control design & review
Assess internal controls around the data collection, calculation, and reporting of the ESG metric, including management review and IT systems.
Consolidation & disclosure
Assess the tools and processes to consolidate all metrics in preparation for external disclosure.
ESG is a collaborative spectrum, by actively participating in ESG initiatives, internal auditors contribute to the long-term sustainability and success of organisations in an increasingly ESG-focused landscape.
