ESG and Internal Audit: Board and Audit Committee Considerations

Which key considerations should the Board and Audit Committee be mindful of related to Environmental, Social, and corporate Governance (ESG)?

The Board’s role in ESG is to be the oversight mechanism for the implementation of the ESG program. The Board should be made aware of progress towards stated goals, ESG-related issues during implementation, and emerging risks and opportunities for the company. A key piece of the equation is how the Board interweaves ESG integration into the company’s larger strategy, inclusive of the identification of key issues over the short, medium and long term.

The Audit Committee maintains responsibility for governance of the implementation of the ESG program, the associated data and calculations that underpin its success, and the process and control architecture.

An audit plan that holistically integrates the review of disclosures and associated data, testing of controls, and verification of calculations for material ESG topics should be top-of-mind for the Audit Committee.

Going a layer down, the Audit Committee should verify that the assumptions anchoring the calculation and reporting of ESG data are not out of step with relevant ESG frameworks nor the company’s methodology for other publicly disclosed data. A good example of this is ensuring that the ESG data collection period reconciles with that of the financial reporting period.

ESG Questions for the Board and Audit Committee to Consider

Additionally, the Audit Committee should ensure that the Board has the right mix of ESG skills to properly evaluate risks, opportunities, and delivery of key objectives.  

Here are some additional questions for the Board and Audit Committee to consider:

  1. How is the Committee monitoring progress towards the quantitative and qualitative goals that have been set in public?
  2. What data governance processes are in place to ensure data received from internal and external partners can be confidently used?
  3. What measures are being taken to ensure calculated values are utilizing inputs and formulas in line with the stated objectives of the company?
  4. Is the disclosed data properly annotated to denote the different sources of raw data and any assumptions or transformations made during the calculation process?
  5. In the absence of jurisdictional regulation or proposed guidance, what is the decision-making process for areas that require assumption or proxy?
  6. What is the process to review new public disclosures and progress made towards existing ones?
  7. Are disclosures being made via channels that enable straightforward access for external stakeholders and minimize rote questioning of the Sustainability Team?
  8. Can qualitative claims be backed up by processes, procedures, and corresponding evidence?
  9. Have qualitative statements been independently evaluated for potential greenwashing or green bleaching?
  10. How is the Committee evaluating the practices of its audit and assurance professionals?

Environmental, Social and Governance Resources

About the Authors

Matt Hartman is the Senior Environmental, Social and Governance (ESG) and Sustainability Manager with the Schneider Downs Risk Advisory Practice. Matt has more than 10 years of experience in corporate sustainability and reporting, development of ESG programs and ESG data sourcing and governance and has previously delivered initiatives in line with the Task Force on Climate-Related Financial Disclosures (TCFD), the Global Reporting Initiative (GRI), and the Sustainable Finance Disclosure Regulation (SFDR), amongst others. Matt can be reached at [email protected].

Tony Ielase leads the firm’s Risk Advisory Services (RAS) practice for the Columbus market and has over 25 years of experience providing risk advisory and compliance services to a diversified number of retail, manufacturing, higher education, healthcare, technology, utilities and financial services clients. His areas of expertise include internal audit strategic planning, internal audit co-sourcing, enterprise risk management, compliance assessments, fraud risk assessments, business process improvement and SOX program implementation and optimization, among others. Tony can be reached at [email protected].

About Schneider Downs ESG Consulting

With our industry expertise and extensive knowledge of the risk advisory landscape, the Schneider Downs team can help your organization develop an ESG program, comply with ESG regulatory requirements and evaluate ESG risks and opportunities within the context of your ESG strategy.

For more information, please visit our ESG Consulting page or contact us at [email protected]

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