The regulatory shift towards external attestation of green credentials is inevitable, says Protiviti
Internal audit departments should take a central role in evaluating the risks and opportunities associated with environmental sustainability, urged a new report.
As regulators, politicians, investors, employees and other stakeholders pay greater attention to corporate environmental sustainability, the Protiviti report asserted that it is only a matter of time before regulators insist that companies obtain external proof that the environmental policies outlined in their annual report are correct and adhered to.
There is enormous scope for internal audit to provide independent assurance about the quality of the risk management, internal control and governance in the area of environmental sustainability, said Protiviti.
Dene Burke, head of Protiviti’s UK internal audit practice, commented: ‘In the past, companies’ environmental policies were usually set with the objective of ‘looking green’. Now the risks and opportunities in this area have evolved to have broad and tangible effects on many critical areas of the business. The reality of both the potential negative and positive impacts of managing environmental risk mean that organisations cannot afford to let the processes go unchecked; there is too much at stake.’
Burke added: ‘Companies will come under increasing pressure to provide independent assurance regarding the environmental statements they make and that initiatives such as carbon off-setting schemes are reported appropriately, aligned to the goals of the organisation and funds are invested properly.’
According to the report, the relevance of environmental issues has now spread beyond public relations to other key areas of operational and strategic risk:
Failure to demonstrate good environmental practices can restrict an organisation’s ability to raise finances, or increase the cost of finance, as banks are now responsible for analysing environmental risk as part of their due diligence processes.
“The reality of both the potential negative and positive impacts of managing environmental risk mean that organisations cannot afford to let the processes go unchecked; there is too much at stake.
Dene Burke, head of Protivitiâ€™s UK Internal Audit practice
The number of investment funds committed to green investing continues to grow. Furthermore, general investors will consider a company’s ability to manage environmental risks and capitalise on the opportunities created by the growing market for green and ethical products.
Ensuring regulatory compliance
A growing raft of legislation exists in relation to environmental sustainability. For example, The Companies Act 2006 required that, starting in October 2007, quoted companies must ensure their business reviews and discloses, as part of the director’s annual report, information on environmental matters.
Attracting and retaining employees
Employees, both current and potential, have increasingly high expectations about corporate environmental sustainability. In order to attract and retain the best talent, an employer must be environmentally responsible, and be able to prove it.