ESG is a framework or set of guidelines that a company must follow regarding environmental, social, and governance compliance to evaluate business practices and an organization's performance on various sustainability and ethical issues. It also provides a way to measure business risks and opportunities in these areas; for example, improving social responsibility, driving long-term sustainability, meeting stakeholder expectations, managing and complying with regulations, and improving access to capital, among other aspects.

All this helps companies stay competitive and make better decisions.

In many countries, ESG is required by law. The laws are intended to make companies more transparent and accountable for their impact on the environment, society, and governance.

Thus, ESG has three main pillars, which are:

• Environmental: the impact the company is leaving on the planet.
• Social: the impact the company has on people (this includes staff and customers).
• Governance: how the company is governed.

ESG benefits include:

-Attracting more investment and obtaining favorable terms from lenders and investors: this typically results in a reduction in the cost of capital and increased shareholder value.

-Implementing more sustainable and ethical practices: for example, reducing energy consumption and developing greener products and services.

-Financial risk mitigation: strong ESG practices can help identify and manage potential risks, such as climate-related events, supply chain disruptions, and reputational damage.

The internal audit role in ESG is vital because it helps to comply with ESG regulations and can provide assurance on the data reported (that is accurate, complete and timely). It can also help companies identify and address ESG risks.

Do you want to know how to audit the ESG process? Or want to learn more about why is ESG so important for companies? Join us at our Auditing the ESG Process Masterclass on April 2-3, 2025.

Also, check out the upcoming masterclasses for the Finance Industry.

By Mónica Ramírez Chimal, International Speaker & Trainer, Writer, Consultant-Partner at Asserto RSC