Crescita sostenibile e finanza  Le responsabilità dei CFO. Pianificare strategie di crescita che tengano conto di molteplici fattori. Prestare attenzione non solo al profitto, ma anche al Pianeta e alle persone. Cercando di mantenere invariato il grado di indebitamento. Una crescita sostenibile anche sotto il profilo finanziario è possibile

“Come viene segnalato dagli studiosi più attenti ai temi di ‘frontiera’ e da alcune ricerche, sarà necessaria, rispetto al passato, una 3P growth strategy, dove la tripla P sta per Profit, Planet e People. In base a questo approccio si suggerisce di adottare una strategia di crescita che a livello aziendale presti attenzione: oltre ai risultati eco-fin e alla sostenibilità finanziaria della crescita (Profit), all’impatto ambientale della crescita aziendale (Planet) e alle conseguenze sociali della stessa (People).

Solo così si darà attuazione a una crescita sostenibile e duratura, anche quando il mercato tornerà a frenare.”

Auditing Sustainability

Auditing Sustainability and The Greater Good

Wei Chien Yoong, August 23, 2017.

Finance Transformation | Business Partnering | Risk Management | Control and Compliance | Performance Management

This article is co-written by Anders Liu-Lindberg and Wei Chien Yoong.

Is climate change a hoax? That has been a question debated by many. But for those of us living in the tropics, near the equator, temperature is rising, and raining season seems to be more erratic then before, and most peculiar would be some exceptionally cool weather which is hard to imagine near the tropics!

Now as finance professionals, we ask ourselves what the profession can do to make a difference to mother earth and humanity. While searching for an answer, we also realize climate change is not the only human survival issue, it is much broader – it is a question of how do we sustain our existence (in good quality) for generations to come. 

From research and work Wei Chien has done on the topic of sustainability audit, consensus appeared as: sustainability is an emerging risk area that is yet to be covered comprehensively by most traditional internal audit functions.  However, it is certainly an area of focus for the future. Most of the professional audit/ advisory services firms provide sustainability reporting and assurance services, focusing on reporting and regulatory compliance. There remain huge opportunities for internal audit to add value by partnering with businesses in addressing risks associated with social, environmental and economy and how to mitigate them.   

What is a Sustainability Audit?

Before we can answer the question, we probably need to have a conceptual understanding of what is sustainability.  There are many definitions, but the best will be a picture of 3 elements existing in perfect harmony, hence, ensuring life of our future generations are secured.

Now an audit can be an assessment of any of the above elements yet the most commonly focus area has been environment. However, an environment audit does not equate to a comprehensive sustainability audit hence businesses need to start exploring the other areas too.

Audit Approach

The delivery of such audit may take the form as what Anders and Maya Hotait have shared on the step by step model, from planning to contracting and recommendation. To do the sustainability audit effectively, an auditor certainly require those “internal audit master” characteristics that have been highlighted by Anders and Maya. However, a sustainability audit is certainly not a business as usual financial or operational audit! Below are the main differences you need to look out for if you want to audit sustainability. 

Strategic risk imperative and understanding of macro and megatrends: Sustainability is an emerging strategic risk for business, and an imperative for business survival. Audit has a role to call it out in a broader perspective, from changes in industry, consumer behavior; to much broader global public policy and agenda shift. To do this effectively, an audit master needs to collaborate with subject matter experts (both internal and external) to keep abreast of emerging trends. 

High level support: While connecting the external dots to specific sustainability opportunities or risks that a business is facing, the internal auditor is then able to conduct a progressive and productive discussion with the C-suite and audit committee, hence, lobbying for support. To effectively roll out the sustainability audit initiative in the organization, endorsement of senior leadership is absolutely critical.

Collaborative and using external help: A sustainability audit takes a snapshot of the current state, in terms of policies, procedures and practices in sustainability. To make the audit meaningful, the current state will be referenced against industry best practices, and the audit identifies risks/opportunities across a wide range of sustainability categories. To execute the audit effectively, requires internal audit to leverage and work with different functions, notably supply chain, which encompasses most of the goods or services movement. Given that the skillset may not reside within the internal audit function, leveraging on external consulting company is common. 

Communicate and impact change proactively: To effectively communicate the findings and impact, internal audit is required to put on hat of the business stakeholder and here strong business partnering skills will be helpful. What will make the business stakeholders buy in to your recommendations?

• Costs savings or waste elimination.
• Broader consumer demand preference, new segment or market opportunity.
• Reputation risk at stake.

If we get the above right, before internal audit knows it, there will be stakeholders knocking on the door for an audit visit, and that is the demand model internal audit should thrive for!  

Let’s Visualize it for You

As we started the post with weather changes at the tropics, let us talk about the role of sustainability audit in the world’s most controversial and rapidly growing industries: Palm Oil. 

A Malaysian conglomerate – IOI – has been under some external scrutiny on their sustainability practice last while. Specific areas under attack were – deforestation and labour abuses, which are the environment and society dimensions of sustainability. 

In hindsight, a sustainability audit driven by the internal audit team to evaluate customer demands or what is happening at the broader industry level would have benefited the company with an identification of opportunities vs threats. This is a great example of how internal audit by focusing on sustainability would be able to help you stay ahead of these issues and tackle them proactively. 

We Want to Hear from You!

While finance is exploring ways to better partner the business in midst of changing dynamics of profit, margin and risk, opportunities exist in the space of sustainability, where finance can be at the front line, influencing and driving on positive change to our community, environment and economic prosperity. 

What insight do you have on sustainability audits? What good practices have you observed? We encourage you to add it all in the commentary field and we will update the article as they tick in. If you disagree to some of the statements in this article what would you do instead? We look forward to feedback and comments to start a good discussion on sustainability, and how internal audit and Finance can pioneer the change.