The Chartered Institute of Internal Auditors has issued a new guide intended to help company audit committees make better use of their internal audit functions in “identifying, managing, and mitigating the risks and opportunities associated with climate change.”
The guide, issued along with the British Standards Institution and titled “Harnessing internal audit against climate risk: a guide for audit committees and directors,” proposes a series of actions to help internal auditors provide independent, objective assurance over how well organizations are managing climate-related risks.
Key Recommendations
The guide makes several key recommendations, including:
- If they haven’t already done so, we urge company directors, and especially audit committees, to start having conversations about what action is being taken on climate change preparedness with their internal audit teams immediately.
- Company directors and audit committees must feel empowered to use their leadership position to direct their internal audit activity in relation to climate risk.
- Audit committees should begin by asking internal audit to undertake a climate risk audit engagement. To start with, internal audit should be asked to identify what the following say on climate change: the mission and purpose of the organization; its long-term strategy; its organizational and governance policies; its declarations to its stakeholders and the information associated with all non-financial and financial reporting.
- Internal audit should be utilized in auditing climate-related commitments, plans and actions, such as commitments to carbon neutrality and net zero. Internal audit can ensure it provides assurance over the completeness and accuracy of data on these targets and actions, as well as report on progress towards meeting them.
- As well as the need to prepare for the physical impacts of climate change, company directors must help their organizations adapt to the requirements of new national and international laws, regulations and standards that will embed sustainability in their products and services. Internal audit has a role in providing assurance that the changing regulatory expectations are being identified and assessed early; that revised policies and procedures meet the new requirements and that when implemented, they are working effectively.
- With mandatory climate-related financial reporting for larger organizations due to become a regulatory requirement from April 2022, internal audit activities have an important role to play in providing assurance that the organization is properly prepared to meet these new requirements.
“Climate change is the most acute challenge facing our planet right now. With COP26 just days away we urge business leaders to play their full part by prioritizing action on climate risk,” said John Wood, chief executive at Chartered IIA in a statement. “With its unrestricted scope and mandate, internal audit is in a strong position to work with company directors to help drive meaningful action on climate change, ensuring that their organizations are fully prepared for climate-related risks and on a sustainable footing for the long-term.”
The full guide is now available for download on the Chartered IIA’s website. 