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The audit committee’s role in sustainability/ESG oversight
The board and ESG oversight
Investors and regulators are placing increasing importance on sustainability disclosures, as they recognize the potential impact of environmental and social issues on long-term shareholder value. The European Union's Corporate Sustainability Reporting Directive (CSRD) and the SEC's climate disclosure rules are just a few examples of the growing pressure on companies to be transparent about sustainability issues.
Because ESG encompasses strategy, risk, and opportunity, the board plays a vital role. But ESG is a broad topic, and the board should consider assigning various aspects of oversight to specific committees.
Here we outline the role the audit committee can play in overseeing ESG disclosures.
In this paper we answer those questions and outline the audit committee’s role in sustainability reporting.
Sustainability, also known as environmental, social and governance (ESG), is not a new concept. But for a long time, sustainability efforts existed in silos, were not integrated into the company’s core business model, and were not disclosed. So, what has changed? Why is this topic shaping today’s business world?
In this paper we answer those questions and outline the audit committee’s role in sustainability reporting.
Disclosures
When overseeing management’s process for determining sustainability disclosures, audit committees may want to ask the following questions:
- What has management identified as the company’s sustainability risks and opportunities?
- Which sustainability frameworks or standards are the company required to use and which are it using voluntarily?
- Are other domestic or foreign requirements for the company on the horizon?
- And More...
Read more about other disclosure oversight related questions audit committees may want to ask.
Processes and controls
To oversee ESG processes and controls, the audit committee may want to ask the following questions:
- How is the company collecting sustainability information?
- What systems, processes and controls are in place to ensure that quality sustainability information is produced for both voluntary and mandatory disclosures?
- What additional resources may be necessary to implement new sustainability processes and controls?
- And more...
Read more about other processes and controls related questions audit committees may want to ask.
Assurance
To better oversee sustainability assurance, the audit committee may want to ask the following questions:
- Have investors or other stakeholders requested assurance over the sustainability reporting?
- If so, have they indicated what level of assurance they prefer?
- If the company includes sustainability information in its SEC filings, how has management considered the impact some level of assurance might have on stakeholder confidence in the disclosures?
- And more...
Read more about other assurance related questions audit committees may want to ask.
How audit committees can stay ahead of the curve
As a company continues to integrate sustainability into its strategy, management will need input from the full board. A board that leverages the audit committee’s financial disclosure oversight expertise by assigning it the responsibility to oversee sustainability disclosures can get ahead of the growing demand for this information.
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