An ESG audit is an assessment of the practices followed by a particular enterprise and whether they align with the benchmark set for Environmental, Social, and Governance practices. Not just that, an ESG Audit can also help verify the validity of ESG-associated data that an enterprise divulges with its employees, consumers, stakeholders, and other organizations.
There has been a major evolution of ESG from a loosely asserted set of principles that should ideally direct corporate responsibility to a major determining factor for the behavior and corporate actions put forth by boards or stakeholders. Here are some of the reasons why ESG auditing should be the go-to option for business enterprises.
Benefits of ESG Audit
Increased Involvement of Stakeholders
ESG audits ease the passage of communication between a company and its stakeholders. Improved and increased communication with the stakeholders gives them a clear picture and complete knowledge about the social and environmental change or impact that the enterprise is making. This, in turn, enhances stakeholders' trust in the company and helps the company build its confidence.
Better Risk Management
One of the biggest reasons for businesses to trust ESG audits is that they assist in detecting the possible risks such as reputational and financial risks that the organization might face, thus helping them to keep up with the lightning-fast pace of changing economic landscape.
Building a Reputation
Benefits like increased stakeholder engagement and optimized risk management are bound to attract new customers and retain the existing ones. Consumers are getting increasingly invested in supporting companies that promote social and environmental responsibility.
Better Financial Management
One of the key factors governing the financial performance of a company is whether the company has gained the confidence of the investors. Implementing ESG audits can help
provide a sort of reassurance to investors and thus encourage them to increase the company’s access to capital.
Companies with strong ESG performance are more likely to attract investment from ESG- focused investors. This is because these investors believe that such companies are better positioned to succeed in the long term. In addition, companies with strong ESG performance may be able to access capital at a lower cost. This is because ESG-focused
investors are willing to pay a premium for investments in companies with strong ESG performance.
It goes without saying that ESG auditing will assist in reducing the environmental impact that a company has. Businesses that resort to ESG auditing reflect their priority to take care of social responsibilities. Thus, ESG-focused enterprises tend to become more sustainable, thereby cementing their success and growth in the longer run. While it takes more than just an ESG audit for a company to move towards a sustainable future, it can be a starting point.
There are several frameworks and standards that businesses can use to guide their efforts.
Some of the most popular frameworks include:
- The Global Reporting Initiative (GRI) Standards
- The Sustainability Accounting Standards Board (SASB) Standards
- The United Nations Sustainable Development Goals (SDGs)
- Business Responsibility and Sustainability Reporting (BRSR)
- The Task Force on Climate-Related Financial Disclosures (TCFD)
How to Prepare Your Organization for an ESG Audit
Understand your ESG risks and opportunities
Make a note of every procedure or policy that the enterprise requires for the ESG audit. These policies and procedures will naturally pertain to all social, governance, and
environmental issues. Auditors classify and divide the issues into broader and more specific categories – more like sub-issues.
For instance, environmental issues can get more specific, like water conservation, recycling management, etc. Similarly, human rights and gender inequality would be some of the sub- issues under social issues. Notably, ESG audits take their time to critically identify all relevant issues that the organization must cater to.
Establish ESG policies and procedures
Once you have a good understanding of your ESG risks and opportunities, you need to establish ESG policies and procedures. These policies and procedures should outline how
your company will manage its ESG risks and opportunities.
Your ESG policies and procedures should be comprehensive and should cover all aspects of your business. They should be specific, measurable, achievable, relevant, and time-bound.
Choose the right framework
There are many different ESG frameworks available. It is important to choose the right one for your company. Consider your company’s size, industry, and geographic location when making your decision.
Collect the right data
The next step is to collect ESG data. This data can be used to track your ESG performance and to identify areas where you can improve. The ESG data that you collect will depend on the specific ESG issues that are most relevant to your business. However, some of the key ESG data that you may want to collect include:
- Greenhouse gas emissions
- Water usage
- Energy consumption
- Waste production
- Employee turnover
- Diversity and inclusion metrics
- Product safety data
- Data privacy metrics
Report on your ESG performance
Once you have collected ESG data, you need to report on your ESG performance. This reporting should be transparent and accurate, and it should be made available to
Your ESG reporting should include information on your ESG risks and opportunities, your ESG policies and procedures, and your ESG performance metrics. You should also provide information on the steps that you are taking to improve your ESG performance.
ESG audits can work wonders when it comes to strengthening the relationship with customers, investors, and stakeholders. Evaluating an organization’s ESG-centric
performance calls for seeking the help of experts who specialize in assurance and ESG specific compliance requirements. . It is here that our expertise in Audit Services becomes a viable option for businesses.
Reach out to us today to get end-to-end assistance for all kinds of auditing services!