Strange Bedfellows? Internal Audit Function Needs to Make Friends With ESG Metrics

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A company’s internal audit function is well-acquainted with exploring one type of green — money. But with the proliferation of ESG-focused disclosure requirements, it’s time for them to become immersed in that other type of green reporting, argues Diligent’s Adam Bailey.

Internal audit plays a crucial role in compliance, disclosure and oversight of organizations. Audit teams are responsible for overseeing reporting requirements, assessing the performance of underlying controls and helping an organization monitor and address risk.

Historically, internal audit oversight has focused on areas like finance and accounting, HR and health and safety. However, with mandatory sustainability disclosures on the rise, ESG issues have evolved from a sort of “alphabet soup” to matching International Sustainability Standards Board (ISSB) criteria, and now there is a growing need to tie ESG to international financial reporting. The board of directors needs to see that not only has ESG data been assured but that it has been connected to the organization’s strategy and to its financials.

Compounding this, regulators are now demanding more transparency on a company’s ESG initiatives. Just two examples are the Corporate Sustainability Reporting Directive (CSRD) that has already begun its rollout in Europe,…

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