The role of future internal auditors in ensuring sustainability

It is essential to understand how ESG (Environmental, Social, and Governance) criteria and sustainability standards can be integrated into company operations and audits. Ensuring that a company is environmentally, socially, and governance-responsible is crucial for sustainability.

Sustainability encompasses environmental responsibility, social responsibility, and governance. Environmental sustainability requires companies to demonstrate responsibility through actions such as reducing waste, using renewable energy, and adhering to environmental regulations.

Social responsibility involves businesses taking accountability for their impact on society, going beyond profit to contribute positively to their communities and stakeholders. A strong governance framework ensures that companies operate responsibly and transparently while being held accountable for their actions.

Evaluating company operations and practices is necessary to determine their environmental impact, including resource management, waste management, compliance, and risk management. This aligns with environmental regulations and promotes a sustainable approach. The Non-Financial Reporting Directive requires organisations to prepare and report sustainability information, highlighting the importance of ESG in organisational practices.

In Malaysia, the significance of ESG and sustainability audits is acknowledged, aligning with issues raised by BDO, Deloitte, EY, and The Institute of Internal Auditors. Future auditors must understand their role in ESG reporting, ensuring accuracy, completeness, and reliability in disclosures. Internal auditors play a crucial role in risk management and sustainability by reviewing and verifying sustainability data.

They assess environmental issues such as climate change, emissions, pollution, biodiversity, energy efficiency, and waste management. The social aspects of ESG include customer satisfaction, data protection, gender diversity, employee engagement, community relations, human rights, and labour standards. Governance focuses on board composition, audit committee structure, anti-corruption measures, executive compensation, company culture, political contributions, and whistleblower procedures.

Internal auditors add value by ensuring sustainability through advisory roles and establishing a robust control environment. They provide assurance and support in sustainability risk assessment and control. The advisory role of internal auditors helps create awareness of ESG development, offering insights and guidance on governance, control, and risk management. They ensure the accuracy of non-financial reporting and support external auditors in ESG-related audits.

To gain a general understanding of ESG, future internal auditors need education and training to develop knowledge, experience, and awareness of these emerging trends.

First, graduates need to build foundational knowledge of ESG by understanding key frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) Standards, Global Reporting Initiative (GRI) Standards, AA1000 AccountAbility Principles, International Standard on Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, International Standards on Auditing (ISA) 720: The Auditor’s Responsibility Relating to Other Information, and the Malaysian framework.

This can be achieved by incorporating ESG topics into accounting curricula and attending relevant webinars for both future graduates and academicians. This will equip them with a strong foundation in sustainability and relevant business practices.

Second, multidisciplinary learning should be encouraged to enhance knowledge development in environmental, social, and governance principles. This knowledge must also be aligned with emerging technologies such as Artificial Intelligence (AI) and additional certifications that prepare students for ESG-related issues from multiple perspectives.

Third, future graduates must acquire strong analytical skills, as ESG auditing involves complex and non-financial data. The application of case studies and real-world scenarios is crucial to simulating the ESG context using data analysis tools.

Fourth, communication and negotiation skills are essential for stakeholder engagement. Role-playing, presentations, and discussions should be incorporated into classroom assignments to enhance these skills.

Fifth, students and academicians should participate in community-based events such as waste management initiatives, energy conservation programmes, and other social-related projects. These experiences will provide practical insights into the role of ESG in real-world scenarios.

For auditing specifically, educating accounting students and academicians on evaluating company sustainability, internal control, and ESG principles is crucial for improving company practices and ensuring long-term sustainability.

First, accounting students should be trained to assess sustainability reports, ESG disclosures, and other measurement systems that help evaluate a company’s environmental footprint, social contributions, and governance standards.