What is the importance of an ESG audit
A thorough audit can rate corporate strategies according to key environmental, social and governance metrics and ensure that ESG reporting meets government and industry standards.
Investors increasingly rank environmental, social and governance issues among their top priorities for companies.
For example, in the “Global Investor Survey 2022” from professional services firm PwC, effective corporate governance ranked fourth on a list of 10 priorities, at 49%, while reducing greenhouse gas emissions was fifth at 44%. Admittedly, both were far behind developing innovative products, services and ways of operating (89%) and profitable financial performance (69%), but other top-10 priorities speak to investor interest in ESG, including minimizing impact on nature and biodiversity; protecting worker health and safety; and improving workforce and executive diversity, equity and inclusion.
Despite the attention paid to ESG topics, investors say they aren’t seeing effective action on ESG or adequate information about corporate ESG Scores. The PwC report called on companies to “raise their game.”
One way to do that, according to experts, is through an ESG audit.
What is an ESG Audit?
Companies generally undertake and ESG materiality assessment to identify and prioritize issues that are most critical — or material — to their operations, products and services. Then, they determine how to quantify these ESG risks, opportunities and impacts, as well as how to report their findings.
Companies can use an ESG audit to verify that the risks, opportunities and impacts, as well as how they’re measured and reported, are accurate and aligned with accepted standards — a process commonly known as ESG assurance.
“An [auditor] comes in and looks at controls over the information being disseminated, tests those controls and opines on it,” said Joe Holman, principal and practice leader for ESG services at Withum, an advisory and accounting firm.
Holman and others said the ESG audit essentially mirrors the financial audit, a longstanding business practice in which auditors review financial data, business records and controls to validate that financial statements prepared by the business are accurate and complete as defined by international accounting and financial reporting standards.
