Shift to sustainability: understanding the organization's CSR risks is the starting point for identifying areas where internal audit can add value.

Author:Lee, Mitch
Position:Governance Perspectives - Corporate social responsibility - Column

Did you hear it? Probably not. It came without fanfare. No bells, no whistles, no corks being popped. No one really knows exactly when the tipping point was reached. It's one of those shifts that can really only be seen clearly through the rearview mirror.

What am I talking about? It's the day sustainability became recognized as a mainstream pillar of corporate governance. The lack of fanfare in no way undermines the magnitude of the change on corporate boards throughout the world. Executives and board members are committing to measuring, managing, and disclosing their strategies for addressing the environmental, social, and governance challenges that often are core to their company's mission.

The Governance & Accountability Institute recently reported that 53 percent of S&P 500 and 57 percent of Fortune 500 companies are reporting on their environmental, social, and governance impacts through a formal sustainability reporting process. That's up from 19 percent and 20 percent, respectively, in 2011. The report goes on to state that, "Reporting on sustainability seems to increase the trust that investors, employees, and other stakeholders have in the companies that report."

Companies committing to increased transparency and accountability are being rewarded for their efforts. A global study by Massachusetts Institute of Technology's Sloan Management Review and the Boston Consulting Group in early 2013 reveals that the percentage of companies reporting a profit from their sustainability efforts rose 23 percent from the prior year, to 37 percent in 2012.

Company boards and managers on the leading edge of sustainability are shining a light on all aspects of their operations to search out innovative and practical solutions to challenging environmental, social, and governance issues. Sustainability initiatives are being pursued to differentiate market presence, attract talent, and build competitive advantages.

Understanding the corporate social responsibility (CSR) risks relative to the organization is the starting point for identifying areas where internal audit can add value to the sustainability process. The IIA's Evaluating Corporate Social Responsibility/Sustainable Developments Practice Guide (2010) provides internal auditors with a sound framework to audit risks and controls related to CSR. Many CSR risks are interrelated and may be found embedded within existing risk assessments. Risk factors to consider include:

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