Chartered Institute of Internal Auditors and BSI work together to urge Company Directors to prioritise action on climate risk
With just ten days left to go until the historic COP26 UN Climate Summit in Glasgow, today the Chartered Institute of Internal Auditors (Chartered IIA) has worked with BSI, to urge business leaders to prioritise action on climate risk.
To support their call to action the two organisations have issued a new guide ‘Harnessing internal audit against climate risk: a guide for audit committees and directors’. The guide is aimed at encouraging company directors, in particular audit committees, to make better use of their internal audit functions in identifying, managing and mitigating the risks and opportunities associated with climate change.
With a broad remit and unrestricted scope to examine all parts of an organisation, as well as a direct line to the audit committee, internal auditors are in a unique and strong position to help drive meaningful action on climate change and its associated risks. However, the Chartered Institute of Internal Auditors is concerned that audit committee chairs, board members and senior leaders aren’t always using their internal audit functions to their full advantage, even though it is potentially one of the most powerful tools they have in their armoury. Providing independent, objective assurance over how well an organisation is managing climate-related risks.
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 organisation; its long-term strategy; its organisational and governance policies; its declarations to its stakeholders and the information associated with all non-financial and financial reporting.
- Internal audit should be utilised 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 organisations 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 organisations due to become a regulatory requirement from April 2022, internal audit activities have an important role to play in providing assurance that the organisation is properly prepared to meet these new requirements.
The guide is published after last month a new poll of over seven hundred Chief Audit Executives across Europe revealed that that around 9 in 10 organisations are not committing major time and effort to preparing for the rising risk of climate change.
John Wood, Chief Executive of the Chartered Institute of Internal Auditors said: “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 prioritising action on climate risk. 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 organisations are fully prepared for climate-related risks and on a sustainable footing for the long-term. Environmental sustainability must become a fundamental and intrinsic component of good corporate governance.”
Martin Townsend, Global Head of Sustainability and Circular Economy of BSI, said: “We believe that businesses have a responsibility to take action to reduce their climate-related risks and achieve sustainable growth. That is why BSI is committed to ensure global standards support climate action and achieve global climate goals. To deliver this, we are now embedding climate considerations into every new standard that is created, as well as retrospectively adding requirements to existing standards as they are revised. Internal audit has an important role to play in providing assurance to company directors and audit committees that these new and revised standards are being met, along with other aspects of climate risk.”
Sir Jon Thompson, Chief Executive of the Financial Reporting Council said: “The joint Chartered IIA and BSI guide for audit committees and directors on harnessing internal audit against climate risk could not be more timely, published on the eve of the COP26 climate conference in Glasgow. Internal audit absolutely has a key role to play in working with company directors and the audit committee to ensure that the organisation is managing and mitigating climate risk effectively. I echo the call for company directors to start taking climate risk more seriously and ensure they are prioritising action on it.”