'Internal auditors, now is the time to show your value!'

Like external auditors, internal auditors also play an important role when it comes to ESG reporting. The involvement of internal auditors in embedding sustainability in organisations' governance, risk management and operational processes offers a huge opportunity for the profession, Muriël Hesselberg and Rob de Leeuw wrote in an extensive article a year ago. First, to strengthen the relationship between Internal Audit (IA) and its stakeholders, and second, to proactively demonstrate IA's added value at the strategic level. The article was intended as a call to action for internal auditors, as they have both the ability and the connections to embed sustainability in all layers of the organisation.

What new developments have you seen since the previous article?

Hesselberg: "ESG as a risk and as an opportunity is now much higher on the agenda than it was a year ago. Now that the reporting obligation is getting closer, the challenges are becoming more concrete. Consider, for example, the carrying out of the double materiality assessment and its strategic implications."
De Leeuw: "We see that even more is needed now than we predicted at the time."
Hesselberg: "The reporting obligation shows, for example, that underlying processes and IT systems of organisations are not yet sufficiently robust to be able to report reliably. For example, data is not always available, which entails the necessary risks."
De Leeuw: "And without data, assumptions are made that require extra checks.
Hesselberg: "Due to the increasing regulatory pressure, organisations are looking for proper control systems. At the same time, even companies that are not yet very involved in reporting are making all kinds of commercial statements and strategic sustainability promises. There is also an opportunity for internal auditors, to test whether these promises are substantiated and feasible."

You have developed three pillars that can help internal auditors develop into a reliable advisor in the field of sustainability, a partner who can participate at a strategic level. What are these pillars?

Hesselberg: "It starts with investing in knowledge building. Not only when it comes to developments in the field of legislation and regulations, but also knowledge about the organisation's sustainability strategy, such as the question of how ESG is reflected in the organisation's core strategy or what the current state of affairs is in terms of reporting to internal and external stakeholders."
De Leeuw: "In addition, sustainability must be embedded in all IA activities, including, for example, the annual audit plan and the existing risk assessment programme. This way, IA can enter into a valuable conversation with stakeholders and management as a strategic advisor."
Hesselberg: "IA people have information and insights that are important for the entire organisation. In other words, if they build up knowledge and integrate it into all their work, they have the information you need to get a seat at the table at a strategic level and be of added value."

A different way of thinking

De Leeuw and Hesselberg have noticed that IA departments are working on sustainability in very different ways. Although many position papers are being written on the subject, there is no clear idea of how IA should deal with this. As a result, it is still in its infancy in one department and solutions are already being worked on in another.

Why is that and what is needed to get more unity in it?

De Leeuw: "That typifies how IA is set up within organisations, each department has its own internal auditors. At the same time, it would be nice if there was more consistency about the approach. At the moment, we see a strong focus on the laws and regulations everywhere, rather than about the opportunities it offers to better position your IA department."
Hesselberg: "It therefore requires a different way of thinking about how you are in control as an organisation. Not only about your own processes, but also about the impact you have as an organisation on your environment. There are also opportunities for IA to make an impact on their stakeholders."
De Leeuw: "As an internal auditor, you are in a unique position to answer the question of the extent to which sustainability is sufficiently safeguarded throughout the organisation and at all levels (governance, risk management and operational processes)."
Hesselberg: "As an IA employee, you have a view on all the cross-sections of the organisation, also in this area. Sustainability is actually an add-on to everything that happens within a company and gives you the opportunity to do deep dives into the entire organisation from a new perspective. And to make an impact on both process and strategic level."
 

Be a forerunner

Have the courage to be a forerunner, Hesselberg and De Leeuw argue, but do so thoroughly by investing in knowledge about both the developments in legislation and regulations, as well as the sustainability strategy of your organisation. With an eye for both the risks and the opportunities.

What are the next steps that internal auditors need to take in order to add value?

Hesselberg: "Include the knowledge you gather in your risk assessment, and make it an integral part of your Audit annual plan."
De Leeuw: "As mentioned, don't just think in terms of laws and regulations, but look at opportunities and the impact the organisation makes. How is this in your organisation and is your organisation on its way to achieving its strategic goals?"
Hesselberg: "I work a lot in the financial sector and see that IA departments are far from always involved, while sustainability departments are looking for ways to strengthen their internal control. I therefore believe that auditors can play an important and positive driving role in the further professionalisation of the control systems."
De Leeuw: "The new laws and regulations are coming at us at full speed. Now is the time for the AI department to strengthen their relationships within the organisation and show their value.
Hesselberg: "That requires guts, but at the same time it is also your responsibility because of the unique position you have. So take that role and start the conversation!"