Growing ESG concerns are clearly manifesting themselves in greater demands on boards. An EY survey found 73% of investors said ESG oversight would be a more important factor in how they evaluate and vote on directors than it was in 2021, with climate risk a key focus area.
When it comes to sustainable business practices, “underlying these expectations and areas of focus are investors’ conviction that more effective management of business-relevant environmental, social, and governance (ESG) issues will lead to better financial performance,” EY said. Efforts on sustainability reporting and disclosure are also coming into focus, with the U.S. Security and Exchange Commission’s proposed mandatory climate-risk disclosures and proposed sustainability and climate reporting standards issued by the International Sustainability Standards Board.
Internal audit has a unique role in governance as a source of objective assurance, independent of management. Opening up communications between internal audit and the board committee that oversees ESG ensures that this group has firsthand access to internal audit’s independent advice and
information on ESG concerns. Internal audit might typically report to the audit committee of the board, but it should maintain critical connections with other committees, as well.