Internal auditors have crucial role amid heightened ESG concerns


THE role of internal auditors in an organisation has become progressively important with the rising unethical practices coupled with pressures to meet the environmental, social and corporate governance (ESG) standards.

Institute of Corporate Directors Malaysia chairman Tan Sri Zarinah Anwar (picture) said to perform the role effectively, internal auditors must scale up their efforts to develop skill sets and reconsider approaches to execute good practices among businesses.

“In Malaysia, many issues and priorities have emerged, even with the Covid-19 pandemic, including the workers’ welfare and wellbeing, physically returning to work, disruption in supply chain and global chain, and working capital.

“Thus, internal auditors have to employ new technology that facilitates dynamic risk identification and prioritisation, broadening their focus detection to the prediction of control failures and risk triggers,” she said Governance in Audit Virtual Forum 2021 yesterday.

She added internal auditors are a pertinent element in managing an organisation by providing clear objectives given the ESG goals and risks, taking into consideration both stakeholders’ expectations and regulatory requirements.

“We recently saw how climate change and ESG considerations have provided shareholders and stakeholders immense leverage against major oil and gas companies, putting them under tremendous pressure to expedite the transition to renewable energy and reduce net carbon emissions.

“ESG consideration has become a crucial part of doing business as investors’ interest increase favouring companies with strong ESG practices,” she said.

As at end of the first quarter this year, about US$2 trillion (RM8.4 trillion) had been invested in more than 4,500 sustainable funds globally, she added.

She said as businesses’ complexity grows and risk landscape evolves, internal auditors are expected to be conversant with the ever-increasing number and wider range of risks and challenges that are affecting the companies.

“It is essential for internal auditors to have the most thorough understanding of the organisation and the changing environment in which the company is operating and the threats and challenges it faces with consequent implications on financial performance.

“As corporate leaders are pressured to “think outside the box” to secure the future of their businesses, internal auditors have to complement the efforts by bringing values in new ways,” she said.

Zarinah said there is little chance for companies’ failures to be addressed in line with the stakeholders’ expectations without having severe ramifications on its reputation and licence to operate.

“Internal audit has to be inclusive of the broad knowledge of business, view of the external market forces and a deep understanding of risk and internal business process that can help an organisation identify gaps and provide actionable insight to enable change and improvement.

“The risk arising from the global pandemic, from the historic weather changes and cybersecurity breach, all reinforce the importance of internal audit and for more innovative audit approaches to offer valuable risk-based insights to the businesses,” she said.