There’s an increasing demand for transparency and accountability in how organizations manage environmental, social, and governance (ESG) issues, reads an article in the Wall Street Journal written by two partners at Deloitte & Touche LLP. This call for action is driven by consumers, investors, employees, and other stakeholders who want businesses to embed, not tack on, ESG considerations into their operations.
As a result, companies are now focusing on incorporating ESG performance metrics into their corporate reporting. Internal audit teams play a critical role, applying rigorous financial discipline to ESG reporting and creating risk-based policies and processes for better functional oversight.
ESG integration involves more than mere compliance; it requires embedding ESG into ongoing risk and reporting activities and aligning it with long-term value creation. This alignment should foster sustainability, resilience, and financial viability.
The responsibility for ESG risk management and reporting spans organizational roles, including internal audit, executive leadership, and operational departments such as compliance, legal, and finance. Internal audit, in particular, is essential for integrating ESG into audit plans and ensuring control over related risks.
There’s a need for various approaches in ESG auditing, depending on an organization’s maturity in ESG programs. For those with well-developed ESG frameworks, standalone reviews are recommended, while others should integrate ESG questions into standard audits.
Ultimately, organizations are encouraged to view ESG as a long-term strategy reshaping their business models, emphasizing the need for internal audit teams to develop deep ESG expertise and competencies.