An Approach to Corporate Sustainability Auditing

Four Questions Internal Auditors should seek Answers to while Auditing Sustainability

When auditing sustainability efforts, internal auditors should first check whether their company has developed a sustainability strategy. If a sustainability strategy has been developed, an internal audit should focus on the following: whether sustainability has been integrated into business processes, whether measurable parameters have been set for the sustainability strategy, and whether there is a sustainability goal in the delivery of products or services produced by the business. Another point that internal audit should focus on is whether the company’s sustainability strategy and its overall strategy are compatible. The two strategies need to be compatible with each other.[1]

The three pillars of Corporate Sustainability

In 1987, the United Nations Brundtland Commission defined sustainability as “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”[2] It is generally accepted that sustainability has three main pillars: environment, social and economic. These three pillars are also referred to as Planet, People, and Profit (3Ps) or Triple Bottom Line (TBL), as author and entrepreneur John Elkington first mentioned in 1994.[3] TBL aims to assess the business performance by measuring its economic (not only financial), social, and environmental performance over a period. A corporation’s success or failure on sustainability goals cannot be measured only in terms of profit and loss. It must also be measured in terms of the well-being of billions of people and the health of our planet.[4] These three dimensions of sustainability are not independent. They are mutually binding and even interdependent. Neither can exist without the others in the long term.

1. The Environmental Pillar / Planet

The environmental pillar is often the most talked-about of the three pillars of corporate sustainability. Controlling the environmental pillar means managing, monitoring, and reporting your consumption, waste, and emissions. Examples include the amount of material that is recycled, amount of water withdrawn from local water sources, renewable energy use, energy consumption (direct and indirect), amount of GHG emissions, etc.[5][6]

2. The Social Pillar / People

The social pillar focuses on a company seeking the approval of its stakeholders, employees, and the local community. A big part of corporate sustainability is a company’s dedication to taking good care of people inside and outside of the business. Examples include giving back to the community, being a job-growth driver in your region, supporting local initiatives, growing the overall sustainability of your community/region, eliminating child labor, implementing fair hiring standards, etc.[5][6]

3. The Economic Pillar / Profit

The economic pillar involves implementing sustainable business practices to promote long-term profitability. For the purposes of this pillar, one should avoid the traditional interpretation of the word ‘profit,’ meaning the financial profit a company makes, but rather focus on the societal impact —and thus societal profit, which means making money and growing the company without negatively impacting the other two pillars. What organizations should do is adjust their profit targets and invest in programs that will promote sustainability. Examples include helping local suppliers stay in business, generating innovation, paying employees enough to stimulate economic growth and spending, choosing materials that are economically, socially, and environmentally a good investment, etc.[5][6][7]

Auditing Sustainability

The questions that internal auditors should seek answers to in their measurement, monitoring, and evaluation activities, are based on the following issues:
• Whether activities are in line with the corporate sustainability strategy,
• Whether activities are performed in a way that enables the business to achieve its strategic objectives,
• Whether activities bring about added value in terms of risk awareness and understanding,
• Whether it is competent enough to respond to changes in the risk environment.[8]

A sustainability audit is a check to see where your company stands with regards to the three pillars of sustainability and their intersections, as shown in Figure 1. A sustainability audit benefits a company by putting into light what matters, as well as engaging employees, finding areas for improvement, and setting goals, thus helping the organization improve its sustainability performance everywhere. This process ensures the company has all the information to improve the planning, execution, and follow-up process.

A sustainability audit is a powerful tool

In today’s business life, the practical elements that push businesses to work on sustainability are legal compliance, public trust, customer demands, and investor demands. A sustainability audit is a powerful tool to analyze the gap and maturity of these sustainability practices of an organization. Information provided by internal audits should support the company’s risk and control activities. It is meant to document ‘what you are doing and ‘to what extent’ across a wide range of sustainability categories. Upon completion, an organization will have a sustainability baseline it can use to track progress going into the future.[12]

References

[1] Burcu Özgül ve Doç. Dr. Banu Tarhan Mengi, Kurumsal Sürdürülebilirlik ve Güvencesi “İç Denetim“, s.153-154, İstanbul, Beta Basım A.Ş., 2016
[2] https://www.un.org/en/academic-impact/sustainability
[3] https://www.johnelkington.com/archive/TBL-elkington-chapter.pdf
[4] https://hbr.org/2018/06/25-years-ago-i-coined-the-phrase-triple-bottom-line-heres-why-im-giving-up-on-it
[5] https://unboxedtechnology.com/blog/the-difference-between-sustainability-and-corporate-social-responsibility/
[6] https://www.era-environmental.com/blog/sustainability-management-triple-bottom-line
[7] https://corporatefinanceinstitute.com/resources/knowledge/other/sustainability/
[8] https://www.coso.org/documents/coso-erm%20demystifying%20sustainability%20risk_ full%20web.pdf
[9]https://www.researchgate.net/publication/255965716_Clarifying_Societies’_Need_for_Understanding_Sustainable_Systems
[10]https://www.researchgate.net/publication/303457109_Evaluation_of_the_main_energy_scenarios_for_the_global_energy_transition
[11] https://www.stylewithmika.com/glossary/triple-bottom-line/
[12] https://crgsustainablesolutions.wordpress.com/2013/10/23/top-5-benefits-of-a-sustainability-audit/

Kerem Alikasifoglu
January 2022

Share This Post

Leave a Reply