ESG audit: checklist and keys to a successful evaluation

ESG auditing, an approach that combines environmental, social and governance factors, is vital for maintaining trust and transparency with stakeholders. Join us throughout this article to understand and apply ESG auditing correctly.

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What is ESG in Auditing?

Definition of ESG Audit

Before we dive into the meaning of ESG auditing, let’s clarify the question: what is ESG auditing? ESG stands for Environment, Social and Governance, and an ESG audit is a detailed analysis of how a company is managing these three critical factors in its operation.

Breaking down the ESG Elements

The ESG audit is composed of three fundamental areas that make up its initials:

Environmental: This part of the audit focuses on how the company interacts with the environment. Here, the company’s direct and indirect environmental impacts are assessed, including its use of natural resources, waste management, greenhouse gas emissions, and its contribution to environmental conservation and sustainability.

Social: This element of the audit refers to how the company manages its relationships with stakeholders, including employees, customers, suppliers, local communities and society at large. Aspects such as labour practices, health and safety, human rights, diversity and inclusion, as well as the company’s contribution and impact on the local and global community are assessed here.

Governance: This component of the audit examines the company’s structure and decision-making procedures. It reviews the company’s transparency, risk management, executive remuneration, fraud prevention and corporate responsibility.

ESG Audit Criteria and Standards

ESG auditing standards refer to the guidelines and frameworks established by various global organisations to assess a company’s ESG performance and transparency.

These standards ensure that companies are consistent in the way they report and manage their ESG practices.

TCFD: Understanding the financial transparency framework

There are currently numerous popular frameworks such as the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-Related Financial Disclosures (TCFD), Global Reporting Initiative (GRI), European Sustainability Reporting Standards (ESRS)…

However, there are many other frameworks available, and the choice of the appropriate one will largely depend on the specific industry in which the company operates and its own sustainability objectives.

During an audit, these criteria and standards are the basis for assessing the company’s operations. Auditors will examine the company’s reports and data against the ESG criteria to ensure that they are accurate and verifiable.

Why do an ESG Audit?

In a world increasingly aware of the environmental, social and governance impacts of business activities, conducting an ESG audit has become essential. Yet why is an ESG audit so important?

First, an ESG audit enables a company to identify and manage the risks associated with its environmental, social and governance practices. For example, a failure in environmental management could have serious financial and reputational consequences, while a lack of diversity and inclusion in the workplace can negatively affect productivity and employee morale.

Second, conducting an audit can have important benefits for a company’s image and reputation. Consumers, investors and other stakeholders are increasingly interested in companies’ ESG practices, and an ESG audit can help demonstrate a strong commitment to these principles.

Finally, the audit can generate opportunities for continuous improvement and innovation. By assessing current practices, a company can identify areas for improvement and develop new strategies and approaches to improve its ESG performance.

The ESG Audit Process

ESG auditing is a complex and nuanced process that requires a thorough understanding of ESG practices and how they are applied in a business context. This is where the question arises: how to audit ESG?

The following is a step-by-step overview of the ESG audit process.

Step-by-Step in an ESG Audit

Defining the Scope of the Audit: The first step is to define the scope of the audit. This may include specific ESG areas, such as environmental management, inclusion and diversity in the workplace, or transparency in corporate governance.
Data Collection: Once the scope has been defined, the next step is to collect relevant data. This may involve reviewing company policies and procedures, interviewing key personnel, and collecting data on the company’s performance in ESG areas.
Data Assessment: The data collected is assessed against ESG standards, best practices and the company’s goals and objectives.
Reporting and Recommendations: Finally, a report is prepared detailing the audit findings, including areas of success and areas requiring improvement. The report may also include recommendations for improving the company’s ESG performance.
Certification (if applicable): Some companies choose to obtain a certification. This certification, awarded by an independent body, can provide greater credibility and confidence in the results of an ESG audit.

Using an ESG Audit Checklist

An ESG audit checklist can be a valuable tool in the audit process.

This checklist can help ensure that all relevant ESG areas are being assessed, and can provide a structure for data collection and evaluation.

1. Defining the Scope of the Audit

Clearly state the objectives and scope of the ESG audit.

Determine the specific ESG areas to be audited (environment, social, governance).

2. Understanding the Organisational Context

Understand the environment in which the organisation operates.

Identify relevant stakeholders.

Understand the organisation’s ESG policies and objectives.

3. Data Collection

Review the organisation’s ESG-related policies, procedures and records.

Conduct interviews with key personnel.

Collect ESG performance data (e.g. greenhouse gas emissions, workplace accident rate, board diversity, etc.).

4. Data Evaluation

Evaluate the data collected against ESG standards and the organisation’s goals and objectives.

Verify the consistency and accuracy of the data.

Identify gaps and areas for improvement.

5. Reports and Recommendations

Prepare a detailed ESG audit report including findings, conclusions and recommendations.

Submit the report to the organisation’s management.

Plan and schedule a follow-up meeting to discuss findings and next actions.

6. Follow-up

Verify the implementation of corrective actions.

Conduct follow-up audits to ensure continuous improvement.

7. Certification (if applicable)

Apply for certification of an ESG audit by an independent certification body, if relevant for the organisation.

8. Communication and Dissemination

Communicate ESG audit results to relevant stakeholders.

Publicly disclose results, as part of the sustainability report or annual report, to demonstrate transparency and accountability.

This ESG audit checklist is a starting point and may need to be adapted or expanded depending on the specific circumstances of the organisation and its industry.

Conclusion

ESG auditing is a vital part of the modern business environment, serving as a barometer to measure a company’s performance in relation to environmental, social and governance criteria.

But beyond that, an ESG audit is also a powerful tool to drive improvements, provide transparency and build trust with stakeholders.
Accurate data collection is essential for any ESG audit, and our software in APLANET can facilitate this process by providing efficient data collection, management and analysis. Find out here how APLANET can revolutionise your ESG audit process and help you achieve your sustainability goals.

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