Supporting greater attention on the important issue of sustainability, The Institute of Internal Auditors (IIA) delivered a message to U.S. Securities and Exchange Commission Chair Gary Gensler last week, encouraging uniform climate disclosure by corporations and recognition of the role internal audit plays in providing assurance around complete, accurate, and reliable information.
In a statement, the IIA, a member of the International Integrated Reporting Council, said it is committed to addressing environmental, social and governance (ESG) issues on a global level and advocating for independent internal assurance. Internal audit, because of its holistic understanding of risks, is uniquely positioned to provide assurance on effective governance structures and systems of internal controls.
“Business performance is no longer judged purely on short-term financial returns. ESG issues represent a broad range of risks, including to external supply chains, internal operations, third parties, general control weaknesses, data accuracy, human capital, and more,” writes IIA President and CEO Anthony J. Pugliese, CPA, CGMA, CITP. “A single system of climate disclosures would provide an opportunity for comparability among corporations and investors and allow for more informed business decisions that consider ESG impacts. This also would enable long-term organizational resilience.”
In March, the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement. The task force will be led by Kelly L. Gibson, the Acting Deputy Director of Enforcement, who will oversee a Division-wide effort, with 22 members drawn from the SEC’s headquarters, regional offices, and Enforcement specialized units.
The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules. The task force will also analyze disclosure and compliance issues relating to investment advisers’ and funds’ ESG strategies. Its work will complement the agency’s other initiatives in this area, including the recent appointment of Satyam Khanna as a Senior Policy Advisor for Climate and ESG.
Pugliese said internal audit, because of its holistic understanding of risks, is crucial to reliable and accurate disclosures and “would provide objective assurance, independent from management, that established control activities are properly designed and operating effectively, thus providing confidence and trust to stakeholders.”
“Listed companies that publish climate-related disclosures,” he said, “should acknowledge to shareholders whether they have an internal audit function that is sufficiently independent from management. This would contribute to confidence in the markets.” 