Introducing Internal Audit into ESG

Organizations are increasingly judged by their environmental, social, and governance (ESG) performance by investors, stakeholders, and customers. These groups use ESG performance to measure the organization’s sustainability and ethical impact when making investing and purchasing decisions.

In the past, ESG or sustainability programs may have been led by Human Resources or Marketing departments and involved reporting around limited metrics and initiatives. As ESG has become a larger part of today’s culture, organizations shift this responsibility to finance, accounting, and even dedicated departments that understand the need for rigorous processes and controls.

As these programs evolve, so does the need for an outside review to provide valuable insight that may be overlooked. By incorporating internal audit into your ESG program, your business can identify and address any potential risks or opportunities associated with its ESG initiatives.

Let’s explore how your business can leverage internal audit to ensure it won’t be caught with a substandard ESG program.

Implementing Internal Audit Reviews

When determining how your internal audit teams can implement ongoing reviews, it is important to consider the maturity level of your ESG program elements.

For businesses in early adoption, a standalone program assessment review should be considered. This review is an effective way to integrate ESG into an internal audit plan, as it provides a base-level evaluation of all aspects of the ESG program and compares the program to current best practices.

Standalone reviews also allow your business to capture its ESG policies at a specific time while identifying roadmaps and areas of improvement to ensure it meets set goals. These assessments involve all aspects of the program, from leadership/board support all the way down to the evaluation of reporting metrics.

When a business is new to ESG, engaging an outside audit firm to assist with the initial stand-alone program assessment can be useful. They will have the experience to evaluate potential program gaps and provide best practice recommendations to help your business proceed on target.

As your organization’s processes around ESG mature, focused reviews are likely to become more common. These deep dives ensure that your business meets its ESG obligations and that its operations and reporting comply with general reporting standards.

The focused approach considers the impact of ESG on the business and assures that critical processes are being managed in a way that meets the highest standards of corporate responsibility and sustainability.

Incorporating internal audit or outside consulting during these focused reviews helps ensure your ESG reporting elements adhere to key accounting standards. Additionally, an outside firm can help to guide your business as financial regulations come into play.

‍Integrating ESG into existing audits can be as simple as identifying, considering, and documenting your organization's ESG activities. By adding ESG-focused questions to checklists for your internal auditors, your business can identify potential risk areas and provide assurance that it is taking the necessary steps to protect its assets and stakeholders.

Ultimately, by integrating ESG into your internal audit plan, or vice versa, organizations can ensure that their ESG objectives are aligned with their overall business strategy.

‍Contact Mike York to gain expertise in integrating Internal Audit into ESG for your business.