The role of internal auditors
IIA Guidance
Regulators, investors, stakeholders, and even the public expect more from companies beyond short-term profits. With a recent focus on issues such as diversity and climate change, it has become increasingly urgent for organizations to understand and manage Environmental, Social, and Governance (ESG) risks. This heightened awareness of socio-economic and environmental factors has created an opportunity for internal auditors to position themselves as trusted business advisors while supporting change within their organizations.
Additionally, internal auditors possess the necessary skillsets to better identify areas of potential risk and growth opportunities. A recent white paper from the Institute of Internal Auditors (IIA) stated, “Internal audit can and should play a significant role in an organization’s ESG journey. It can add value in an advisory capacity by helping to identify and establish a functional ESG control environment. It also can offer critical assurance support by providing an independent and objective review of the effectiveness of ESG risk assessments, responses, and controls.”
But as with any new initiative, sometimes getting started is the hardest part. The Touchstone Insights for Internal Audit found that 55% of respondents do not currently include ESG in the audit plan. The encouraging news is that of these respondents, about half expect to do so in the next two years. This clearly indicates a building momentum toward increased audit work on ESG issues.
Auditing suppliers
Pressure from investors
Responding to rising pressure from customers, ESG investors, regulators, and other stakeholders, more companies are auditing and working to improve the safety and sustainability of their supply chain.
According to CDP, McKinsey, and our own internal data, a company’s supply chain’s greenhouse gas (GHG) emissions are, on average, 5 to 25 times higher than its direct emissions, making value chain sustainability and Scope 3 critical priorities for organizations taking action to decarbonize, reduce their environmental footprint, de-risk their brand, and improve ESG performance.
Why are Supplier Audits important?
The data gathered from supplier audits is pivotal to creating an effective and efficient sustainability strategy. Auditing your suppliers ensures responsible environmental and human rights practices throughout your supply chain. You need to be actively aware of this, as you will be held accountable for it–both ethically and legally.
Auditing your suppliers is key to tracking your impact and making progress toward your sustainability goals. Not only does this keep your customers and stakeholders informed, but is also crucial in accurately reporting your carbon footprint and annual social environmental performance.
How to Audit your Suppliers
Prepare to carefully assess and measure your sustainability initiatives throughout the entirety of your supply chain with accurate numeric data. The most effective way to maintain consistent knowledge about your supply chain–and by extension, your credibility–is to gather the data firsthand. Before you leave for an in-person audit, prepare for collecting data by making a supplier audit plan.
Determine your supplier audit objective based on the areas you want to focus on most, such as social integrity or health and safety. Break these down into measurable categories, and turn these into a supplier audit questionnaire and checklist that you can fill out to gain a comprehensive view of your progress.
Who and When to Audit
You need to audit all of your suppliers, from material sourcing (Tier 4) to the final stages of shipping, to achieve true transparency throughout your supply chain. If you can’t reach all of them, audit your key suppliers and consider replacing your unreachable manufacturers. If you’re new to supply chain transparency, you may be unsure of how often should you audit suppliers and when supplier audits are used.
Seven steps to audit, assess, and improve the sustainability of your supply chain include:
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Achieve better supply chain transparency to set priorities, assess risks, and target opportunities
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Audit your products and conduct LCAs
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Identify efficiencies and optimization opportunities
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Set better standards (and help your suppliers meet them)
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Adopt and implement closed-loop and circular economy models
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Measure your environmental sustainability data
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Make sure your organization isn’t sabotaging its own sustainability efforts
Course Features
- Lectures 16
- Quizzes 0
- Duration 8 weeks
- Skill level All levels
- Language English
- Students 82
- Certificate Yes
- Assessments Yes
