Regulators worldwide are actively working to boost corporate transparency when it comes to companies’ environment, social, and governance performance. In Singapore, corporates are also increasingly under pressure from regulators and investors to disclose their ESG performance and impact.

The Singapore Exchange (SGX) introduced the comply-or-explain sustainability reporting that mandates companies to exhibit how they manage their material ESG risks and opportunities. But as guidelines and standards for ESG reports continue to enhance, internal audits are advised for critical assurance support of the company’s ESG efforts and risk management. 

This topic was explored in a webinar hosted by Convene ESG entitled Coping with Increasing Requirements for Internal Audit. Invited are two of the most reputable experts in the industry: Chan Mun Wei, Founder and Principal Consultant for SustainableSG, and Shih Hor Lau, CEO and co-founder of Elixir Technology Pte Ltd.

Find out more about the increasing pressure towards ESG disclosure and transparency, and the importance of internal audit in the following sections.

The Role of Internal Audit in ESG Disclosures

Internal auditing plays a critical part in an organisation’s ESG journey. This objective assurance activity brings a systematic, disciplined approach to evaluating and improving the effectiveness of a company’s risk management control and governance processes. It is also found to be beneficial for adding value to the organisation’s operations.

According to The IIAs material on the Internal Audit’s Role in Tackling Climate Change, Internal Audit has three main functions: the assurance function, the advisory function, and the compliance function.

Functions of Internal Audit

So, what pushes ESG internal audit? Find the common drivers below:

  • Growing demand from stakeholders on how organisations are affecting society.
  • Increasing reporting standards and regulatory requirements, which makes reporting complex and prone to misinformation.
  • Greenwashing, that includes false advertising of ESG-related information often leading to reputational risks as well.

Considering such challenges, corporates need assurance to ensure that they are on track to get the best returns from their ESG efforts. In fact, the SGX Listing Rule suggests that the sustainability reporting process should be subject to internal review starting this 2022 reporting period.

In the SGX Listing Rule’s Practice Note, it says that “an internal review of the sustainability reporting process builds on the issuer’s existing governance structure, supported by adequate and effective internal controls and risk management systems.”.

As internal reviews are mandatory and conducted by the Internal Audit function, SGX notes that this must be implemented in line with the International Standards for the Professional Practice of Internal Auditing issued by The Institute of Internal Auditors (The IIA).

The ESG Reporting Principles to Consider During Internal Review

Speaking about the internal review for ESG reporting, SustainableSG’s Founder Chan Mun Wei pointed out how more internal auditors in Singapore are getting ready to take on such additional tasks. These include understanding the entire sustainability reporting process, evaluating supporting documentation, and preparing audit reports. 

To help internal auditors get started in reviewing sustainability reports, Mun Wei shared seven ESG principles, which are recommended by The IIA and consistent with globally accepted reporting frameworks:

  1. Do the disclosures present relevant information?
  2. Are the disclosures specific and complete?
  3. Are the disclosures clear, balanced, and understandable?
  4. Are the disclosures consistent over time?
  5. Are the disclosures comparable with other companies within a sector, industry, or portfolio?
  6. Are the disclosures reliable, verifiable, and objective?
  7. Are the disclosures provided on a timely basis?

In relation to the principles, Mun Wei gave simple advice to companies, “I always tell my clients to strike a balance between clarity and exhaustiveness. Some reports are just too long, which makes the key messages hard to digest. You’d want your sustainability report to not just present all the ESG relevant information but is also easy to read and understand”.

How to Prepare for Internal Audit of ESG Data

Every organisation now understands the risks and opportunities that come with ESG. As with sustainability reporting, an internal audit can provide the independent and objective assurance necessary to create an effective ESG response. The process will involve identifying risks, as well as the potential risk management strategies to take into account. 

But before putting out an ESG disclosure for internal audit, Mun Wei left a few tips on how to prepare the actual report:

  1. Document the process and timeline of creating the sustainability report
  2. Set clear responsibilities and division of work involved in the reporting process
  3. Engage with stakeholders and get their inputs
  4. Identify the materiality sustainability issues and strategise how to manage them
  5. Manage the collection, verification, and analysis of data for the report
  6. Store the ESG data centrally and securely
  7. Create the narrative of the report, considering your audience’s expectations and needs

According to Mun Wei, “The narrative, the messages, and the outline are the starting point that guides how the full report flows. We must always get that part right, so we can have a smoother journey to put the report together”.

Furthermore, Mun Wei highlights the importance of using technology solutions when preparing the ESG report and conducting the internal audit. He mentioned Convene ESG being one of the ideal solutions that follow the current global and SGX sustainability reporting requirements and can generate quality reports. Find out how Convene ESG can help you stay on top of all the increasing reporting requirements. 

Using Technology in Internal Audit of Sustainability Reports

An employee preparing for internal audit

Speaking of technology for sustainability reporting, panellist Shih Hor Lau of Elixir Technology Ltd shared companies should first consider the increasing scrutiny to be a journey in itself. He stated, “We should find a way to continually improve and address all the ever-changing requirements for ESG disclosures, and even other kinds of disclosures”.

Pointing out how capturing all information is the main challenge in reporting, Shih Hor believes that technology can help. Through the right technology and automation, collating and organising unstructured data can be done faster, and ensure information is accurate and traceable.

Shih Hor noted that technology is used to augment humans and not replace them, “I think one of the biggest crimes of technology is we tend to overhype what it can do. The AI you got is not going to replace everybody out there, and that’s not going to happen for a while. I look at technology as a way of augmentation while humans do the high value-added work”.

Mun Wei also shared his thoughts regarding the subject stating, “Having a platform only ensures that the different people involved can focus on the more challenging and highly value-adding tasks. Say, improving the quality of the writing rather than struggling over the formatting of the GRI Content Index and so on”.

Convene ESG: Your Go-To ESG Reporting Software for Easier Internal Audits 

Here at Convene ESG, we understand the struggle of conducting fast and accurate internal audits to produce quality sustainability disclosures. Our ESG reporting software supports an evidence or audit trail to suit your ESG assurance requirements. Convene ESG is the perfect tool to consolidate, centralise, and monitor data with evidence trails. 

Reach out to our team to earn more about how Convene ESG can help on your ESG journey