Internal Audit: A key element of an effective ESG strategy

Companies are becoming more vocal about ESG, the underlying impulse being clear: they need to maintain and reinforce their social license to operate, in the face of increasing attention being paid to ESG issues by a wide range of stakeholders. However, the lack of a clear reporting landscape with measurable benchmarks makes the newly supplied data vulnerable to being deemed misleading or distorted, hence increasing the risk of ESG reporting being perceived as mere greenwashing, both at the corporate level and at the level of investors claiming to focus on ESG.  

To gain investor and stakeholder confidence and avoid the risk of perceptions of greenwashing, ESG reporting needs to be at the same level of quality and rigor – and subject to the same level of scrutiny – as the financial information that users rely on. It must be based on the organization’s day-to-day operations and decisions driving the entity towards attaining its goals. It must develop in tandem with effective control activities that oversee the ESG reporting journey – from the operational steps to the collection and analysis of the data that will be used in reporting.

To avoid enforcement action, civil litigation and the negative financial impacts arising from reputational risk, organizations can use a critical line of defense when embarking on their ESG journey: the Internal Audit (IA).

Internal Audit teams, as independent risk-management professionals, can act as catalysts for furthering an organization’s ESG goals while helping to identify potential roadblocks. They support those in charge of governance in making ESG intrinsic to their strategy by defining, implementing, and refining a carefully constructed portfolio of ESG initiatives that connect to the core of what they do. A high quality internal audit will help companies to maintain a strong position in their respective markets and, in turn, instill trust among investors, the wider public, and other stakeholders.

We believe the phrase “forward-looking companies” seems the most appropriate to describe those organizations that recognize Internal Audit’s new role in their sustainability journey.