Internal Audit

as an enabler
for ESG
reporting

Kevin Gould
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Learning Objectives
• Understand the key requirements of the CSRD

• Have an insight into the alignment of CSRD with

other reporting requirements including ISSB
standards

• Appreciate the different roles Internal Audit can

play to enable reporting in an effective control
environment

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Speaker
Kevin Gould

Kevin is a Chartered Accountant with a strong

background in Internal Audit and a current focus on
ESG. He has 25 years of experience as a consultant, Kevin Gould
adviser and auditor. Kevin has a long-held interest in Audit Committee Chair
sustainability and a Masters in Sustainability & Internal Audit Consultant
Environmental Management. He is now an
independent consultant, as well as being a non-
executive director and audit committee chair on
several boards.

4
Agenda • Evolution of ESG Reporting
• Corporate Sustainability Reporting
Directive (CSRD)
• Alignment with ISSB
• Roles for Internal Audit

5
Polling question Has your Internal Audit Department been involved
in auditing any ESG/Sustainability Reporting?

A. Yes – a full audit of GRI, TCFD or other reports

B. Yes – in an advisory role
C. No but it is planned
D. No current plans

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The Evolution of ESG Reporting

7 Internal Audit as an enabler for ESG Reporting

ESG Frameworks – 2022 : An Evolving Alphabet Soup!!

CDP ISSB DJSI

TCFD
SASB/IIRC – Value Reporting Foundation
ISO
CDSB
FTSE Russell
IRIS+
NFRD GRI UN SDGs
8 Internal Audit as an enabler for ESG Reporting
ESG Reporting – 2023 : Consolidation and simplification?!

CDSB SASB/IIRC – Value Reporting Foundation

TCFD GRI

ISSB CSRD

9 Internal Audit as an enabler for ESG Reporting

Polling question Have you engaged with management about current
or upcoming ESG/sustainability reporting
requirements?

A. Yes – we discuss regularly at a strategic and/or

practical level
B. Yes – we have tentatively started to discuss
C. No – there isn’t an appropriate forum, or they
aren’t really interested
D. No – we don’t have knowledge or expertise

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Corporate Sustainability Reporting Directive (CSRD)

11 Internal Audit as an enabler for ESG Reporting

CSRD – Framework

ESRS 1 ESRS E1 ESRS S1 ESRS G1

General Requirements Climate Change Own workforce Business conduct

ESRS S2
ESRS 2 ESRS E2
Workers in the value
General Disclosures Pollution
chain

ESRS E3
ESRS S3
Water and marine
Affected communities
resources

ESRS E4
ESRS S4
Biodiversity and
Consumers and end users
ecosystems

ESRS E5
Resource use and the
circular economy

12 Internal Audit as an enabler for ESG Reporting

CSRD – Scope?

• Who is in Scope?
• EU-listed entities, including SMEs (not micro-entities)
• Other large EU-based entities
• EU-based parent of large group
• Non-EU parent with >€150m turnover in the EU and has in-scope subsidiary/branch

• What needs to be reported?

• Material impacts (double materiality – financial and impact)
• SME’s will have more flexibility – standards to be developed

• Where should it be reported?

• Section of the Management Report

13 Internal Audit as an enabler for ESG Reporting

CSRD – Timeline

• Complex
• Adopted by member states by mid-2024
• Implemented from 1 January 2024 to 1 January 2028 (reporting 2025-2029)
• 2024 – expect updated standards, SME standards, non-EU (third country) standards
• Equivalent disclosures for third countries to be defined
• Industry-specific disclosures to be defined

14 Internal Audit as an enabler for ESG Reporting

Alignment with ISSB

15 Internal Audit as an enabler for ESG Reporting

International Sustainability Standards Board (ISSB) Framework

• Established by IFRS Foundation

IFRS S1 IFRS S2
General Requirements for Climate-related • Brings together VRF and CDSB
Disclosure of Disclosures
Sustainability-related • Supported by TCFD with intent to align
Financial Information

• Current consultations
• biodiversity, ecosystems and ecosystem
services
• human capital
• human rights
• integration in reporting beyond IFRS S1 & S2
• international applicability of the SASB
Standards

16 Internal Audit as an enabler for ESG Reporting

ISSB Timeline

• IFRS S1 & IFRS S2 must be adopted by each jurisdiction

• Implementation from 1 January 2024 (reporting in 2025)
• Some transitional provisions
• Further standards to be agreed

17 Internal Audit as an enabler for ESG Reporting

CSRD and ISSB: same but different?

Same Different
• Alignment of standards • CSDR further developed – 12 standards vs 2
• TCFD common input • ISSB has greater global reach
• Topics? • Stakeholders and definitions of materiality
• Within annual report • ISSB – single
• CSDR – double
• Scale of mandatory disclosure
• Industry-specific disclosures

18 Internal Audit as an enabler for ESG Reporting

Polling question Which of these frameworks do you expect your
organization to be subject to?

A. Corporate Sustainability Reporting Directive

B. ISSB (IFRS Sustainability) Standards
C. Both
D. Neither

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Assurance requirements

• Landscape • CSRD
• Most reports with are assured based on • Limited assurance from 2024
ISAE3000 (limited assurance) • 2026 – assurance standard expected
• Still a minority • Reasonable assurance from 2028
• Current consultation on sustainability
assurance standard • ISSB
• Determined by jurisdiction
• Limited assurance • Limited assurance likely from 2024
• Moderate level of assurance
• Limited testing
• Greater reliance on enquiry and review
• Reasonable assurance
• High level of assurance
• Positive attestation
20 Internal Audit as an enabler for ESG Reporting
The role(s) of Internal Audit

21 Internal Audit as an enabler for ESG Reporting

Key Risks & Controls

Risks Controls (examples)

• Non-compliance • Consistency/systemization
• Completeness • Systems controls
• Accuracy • Data mapping
• Misleading statements • “Chart of accounts”
• Reputation (greenwashing) • Clear responsibilities and segregation of
• Inaccurate data – capture, collation, duties
adjustments • Reperformance and reconciliation
• Management assumptions • Review
• Risk identification
• Effective governance and oversight

Has a control framework been defined?

22 Internal Audit as an enabler for ESG Reporting

Why Internal Audit should get involved

• Enhanced risk
• Is it new!
• Staff not familiar with controls and
assurance
• No blueprint or best practices
Internal audit has the skills
• Development of processes
We are good at change, assimilating
• Immature systems, use of information, assessing risk, understanding
spreadsheets control frameworks and finding ways to
provide assurance
• Developed for other purposes
• Distributed responsibility
• Frequent adjustments from
operational systems to reporting
• Digital coding requirements

23 Internal Audit as an enabler for ESG Reporting

Polling question What is the biggest obstacle facing Internal Audit in
playing a role for CSRD and/or ISSB reporting?

A. Lack of skills and/or knowledge

B. Lack of capacity in team
C. Not seen as a priority for my organization
D. There is no obstacle – we plan to be involved

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Internal Audit as an enabler

STRATEGIC REVIEW PROGRAMME RISK-BASED AUDIT - QUALITY OF DATA COMPLIANCE-BASED

ASSURANCE KEY PROCESS AND AND INFORMATION - AUDIT
SYSTEMS CONTROLS ANALYTICS

Some examples
• Audit existing sustainability/ESG reporting – systems, controls, compliance
• Pre-implementation review of systems
• Review design effectiveness of governance & control framework
• Assist dry run of reporting with a “practice” audit

A Consultancy Opportunity for Internal Audit?

25 Internal Audit as an enabler for ESG Reporting

Q&A

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Thank you

Kevin Gould
Audit Committee Chair
Internal Audit Consultant