High time for internal audit to deep dive in to ESG issues
The role of internal audit in ESG governance has not been a significant topic of discussion in professional, regulatory, or industry discourse. Interactions with internal auditors generally suggest that ESG is not an integral part of regular internal audit plan. Additionally, the assessment and mitigation of ESG risks often rank lower on internal auditor’s priority lists compared to other risks such as cyber and data security or regulatory changes. Internal audit teams are also typically not equipped with cross-functional expertise needed to deal with ESG challenges, which are far more complex than traditional internal audit areas like financial, operational and compliance.
According to an ESG preparedness survey conducted by Deloitte in 2023, only 27 percent of Indian organizations feel adequately equipped to meet their ESG strategy and compliance requirements. Internal auditors can play a catalyst role in helping companies create an ESG perspective and integrate ESG considerations into their organizational structure, operations, and decision-making processes. Internal audit can both advise and provide assurance, ensuring that ESG does not remain merely a box-ticking exercise. It can act as eyes and ears of the board of directors, offering insights into ESG imperatives and their integration into the enterprise’s strategy, organizational structure, policies, systems, and processes. ESG has wide-ranging ramifications for a company’s financial, operational, and legal risk profile. A well-structured internal audit can assist companies in evolving an internal control framework to manage and mitigate ESG risks and integrating ESG efforts into their core business model.
For many, the term ESG (environmental, social, governance), conjures notions of investors chasing feel-good stories of sustainability, diversity, and ethics. But given the heightened interests from various stakeholders, corporate directors need to know that ESG is much more. Far from being just window dressing, there are real risks at play when it comes to ESG issues, and even more opportunities to be seized.
