The rise of ESG and sustainability regulations represents one of the most significant regulatory shifts of this decade. From the European Union’s Corporate Sustainability Reporting Directive (CSRD) to the U.S. Securities and Exchange Commission’s climate disclosure proposals, organizations are being asked to report on far more than financial performance. Internal audit has a central role in ensuring that sustainability information is reliable, consistent, and aligned with regulatory expectations.
One of the first challenges internal audit must address is data quality. Unlike financial information, ESG metrics often draw from disparate sources such as energy usage records, HR systems, or supplier surveys. Internal audit should assess data governance frameworks, controls over data collection, and the reliability of underlying systems. This may involve reviewing processes at the operational level, including energy meters, travel logs, or vendor certifications.
Second, internal audit teams need to evaluate reporting frameworks. Different jurisdictions may require adherence to different standards such as ISSB, GRI, or SASB. Audit functions should help ensure that management’s chosen reporting framework is appropriate, consistently applied, and responsive to regulatory requirements.
Third, assurance expectations are increasing. Regulators and investors alike are demanding limited or even reasonable assurance on ESG disclosures. Internal audit can assist by performing readiness assessments, testing internal controls over ESG data, and identifying gaps that external auditors are likely to highlight.
Another key area of focus is supply chain transparency. Regulations increasingly demand that organizations disclose not only their own emissions and practices but also those of their suppliers. Internal audit should consider whether supplier onboarding, due diligence, and monitoring processes are sufficiently robust to capture and validate sustainability information.
Capacity building is also crucial. Internal audit professionals may need training in environmental metrics, human rights compliance, or carbon accounting. Many leading audit functions are partnering with subject-matter experts to strengthen their knowledge base and build credibility in this emerging field.
Finally, internal audit must communicate findings effectively. Boards and audit committees require clear, actionable insights into ESG readiness. Reports should not only highlight compliance gaps but also provide guidance on how organizations can enhance transparency and resilience.
In conclusion, sustainability regulations represent both a compliance obligation and an opportunity for organizations to demonstrate accountability. Internal audit functions that proactively build ESG assurance capabilities will be instrumental in navigating this evolving regulatory landscape.
