From amongst the latest buzzwords global businesses and societies fancy a lot about, sustainability is one that has been discussed the most but somehow is the least understood. So why not let the internal auditors help you in grasping the concept in its true sense and practical manifestations?
Why? Because it’s not just that sustainability is of interest to us, but also because it’s mostly what we as professional internal auditors do! Read on to comprehend how we practice sustainability in all that we do.
Let’s first begin from deciphering sustainability and to do that, let’s review its 1987 definition from UN’s Brundtland Commission:
Sustainability is meeting the needs of the present without compromising the ability of future generations to meet their own needs.
Predominantly construed as being relevant to Environmental impacts, sustainability is based on 3 core components (3 Ps):
- Environmental (Planet): the ability of the planet to survive consumption and deterioration.
- Social (People): the ability of the people / community to outlive threats to its existence.
- Economic (Profit): the ability of the community to maintain access to resources.
In a nutshell, sustainability is survivability and thus continued existence. An entity’s existence is dependent upon the continued existence of its operating environment and for this dependence its imperative that the impacts of entity’s operations aid sustainability of its environment which in turn guarantee its own sustainability.
Though audit clients might wonder, if its survivability we’re talking about here, it’s hard to survive an audit, how come internal audit can help in sustenance?
Well once again my favorite go-to place; the internal audit definition has the answer, but this time I won’t reproduce it here. What we need to understand from it is that continual improvement is only possible once maintenance has been taken care of, meaning thereby sustenance precedes growth, evolution and excellence. Since the objective of internal auditing is continual improvement, it must have already assisted in sustenance.
Entities who have relegated their internal audit investments or have not invested in internal auditing altogether, should forget dreaming about their own sustenance!
In fact, the theme of sustenance is embedded in continual improvement. Through internal auditing an entity continually strives to be its best in terms of its governance, risk management and internal controls. The internal audit through assurance and advisory engagement strives to augment the overall governance and management systems of an entity aiming at sustenance and growth.
By providing assurance and advisory over an entity’s risk management practices / framework, internal audit:
- Helps an entity foresee, identify, assess and mitigate the downside risks it faces controlling them to sustain itself.
- Assists an entity foresee, identify, assess and capitalize on upside risks turning them into opportunities and exploiting them to grow.
By providing assurance and advisory over an entity’s system of governance, internal audit:
- Supports an entity continually review its frameworks, policies, monitoring and evaluation, external and internal compliances and reporting for deficiencies enabling sustenance.
- Aids an entity in continual review of its frameworks, policies, monitoring and evaluation, external and internal compliances and reporting for assessing their current states against desired future states, best practices and distinctiveness aiming growth.
By providing assurance and advisory over an entity’s system of internal controls, internal audit:
- Benefits an entity subjecting its controls embedded processes to a perpetual and comprehensive review for identifying non-compliances, deficiencies, ineffectiveness, inefficiencies and design anomalies targeting sustenance.
- Inspires an entity review its control embedded processes for technological interventions, removal of redundancies, re-engineering, re-definition of control objectives and new transactions preparing the entity for growth.
The key concept that needs to be grasped here is that professional internal audit services in their continual pursuit of improvement first provide sustainability to an entity’s systems, processes and operations before enabling evolution to support growth, this being the typical progression trajectory. It’s important to be mindful of ‘professional’ here. You can’t expect sustainability or improvement to come from internal auditors providing ‘pre-audit’ services!
So, let’s now delve into the other ways internal audit helps the global community in achieving sustainable development.
Through audit of mission entities / NFPs
Entities who have strategized sustaining life on planet (environmental, etc.), peoples’ well-being (welfare, etc.) and aiding economic uplift (development, etc.) can tremendously benefit from internal audit investment since their own systems, processes and operations need to be geared to and aligned with their strategic objectives.
Through integrated auditing
Entities who subscribe/attest conformance with global best practices or standards in domains such as environment, health & safety, energy within their scope of operations, would benefit the most from their internal audit investments if the audit of such domains is aligned and integrated within the overall audit strategies, planning, execution and reporting. More on that here.
Through compliance audits framework
Even the typical assurance services from internal auditing that review entity’s conformance / compliance with statutory and regulatory requirements covering sustainability aspects are instrumental in providing comfort to those charged with governance of the entity, the government and the community at large on the impacts of entity’s operations on environment, society and economic value creation.
Through performance management
Entities who place specific importance on sustainability may think of breaking down its components and adapting those relevant to it as its performance metrics and monitor its actual performance against these. Internal Audits’ assistance in this regard would be key in ensuring the entity has accurately and completely identified what needs to be monitored and evaluated and that the data used to substantiate compliance is independently reviewed. Internal Audit provides the best performance evaluation if entrusted and its own performance is also independently reviewed. My blog is insightful in this regard!
There’s one pre-existing framework that carries 17 Sustainable Development Goals from the United Nations. It is a very comprehensive framework to adopt for the purposes of performance management and monitoring of the Key Performance Indicators under each of these goals.
We also now have the International Sustainable Standards Board (ISSB) under the International Financial Reporting Standards (IFRS) Foundation. The board has issued two standards that require reporting entities to disclose sustainability related risks and opportunities they face and make climate related disclosures.
But who in your opinion is best suited to evaluate the accurate (relevant) adoption of the UN framework and the monitoring system developed to substantiate the performance against these goals? And who in your opinion can specifically help the entities in identifying their disclosure requirements and perfecting these?
Internal Auditing of course!