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Sustainability in your organization: How internal audit can help

Part I of a two-part series

RISK BULLETIN  | 

As more companies embrace sustainability, they find that doing so, is a significant and challenging undertaking. This article discusses how organizations may be able to tap into their internal audit departments for assistance in assessing benefit, efficiency and even measuring the organization's cultural sensitivity to sustainability.

We should start our discussion by defining sustainability using Steven A. Jesseph's,1 definition… "In the context of an organizational unit…, the capacity to meet its objectives of providing goods or services to its customers or constituents in the short and long term, and; …their capacity to achieve their objectives but not by compromising the ability of future generations to meet their needs." This definition conveys a goal, a philosophy, a belief. And yet most organizations fail to understand this. They often respond to stakeholder demands for sustainability by demanding specific department centric initiatives. Most of these initiatives are selected for their ability to generate a return on investment. Seventy-four percent of stakeholder respondents indicated cost reduction as the primary driver for sustainability activity2. Are these activities sustainability within the spirit of Jesseph's definition? Or are they nothing more than cost reduction programs with a sustainability label?

Bifurcating this discussion, if the answer to the preceding question is that the organization has little more than a few mislabeled initiatives it is touting as a sustainability program the question then becomes, how can internal audit assist? First, the full cost of sustainability reporting is often not considered in return on investment calculations. Reporting requires the complete and accurate identification, capture and calculation of metrics, often from numerous locations, requiring sharing and consolidation. Those familiar with the most commonly used sustainability reporting guidelines in the Global Reporting Initiative (GRI) will quickly appreciate that appropriate reporting and compliance can be laborious. The GRI requires numerous data points such as indicators for each Aspect, General Standard Disclosures and the Disclosure Management Approach. Internal audit can first validate whether the quantifiable benefits as measured by the GRI reporting standards are complete and accurate not only to ensure accuracy in external reporting but to confirm that the cost benefits are meeting the organization's expectations. Secondly, internal audit is also suited to assess the cost and efficiency of reporting. Direct cost of reporting as well overhead application can be measured. A review of the reporting process from source to report can identify inefficiencies. Often organizations already capture the information required and the simple task of sharing improves efficiency. Standardization of information capture and sharing is often elusive in large organizations. Internal audit is well suited to make these observations and often these procedures can be incorporated in audits that otherwise focus on other areas and functions. Inquiry alone is not only rapid but often very revealing. Brief targeted questionnaires can identify areas of opportunity in the sustainability reporting process of a given operation or location.

On the other hand, if you or your CEO have a belief or are unsure whether your organization is embracing sustainability, then how can you be sure? With 62 percent of executives indicating that the biggest challenge in sustainability is integrating it throughout the organization3, this question and its answer become very important. Important, clearly because adopting a few cost reducing projects that happen to involve aspects of sustainability is not the same as it being embedded in the organization's culture, a culture where executives, management and employees consider and incorporate sustainability on a daily basis throughout the organization. Can we measure culture? Probably not entirely, but certainly we can obtain enough evidence to draw a reasonable inference. Again, internal audit can do just that. Through inquiry and surveys, it can be determined whether the organization has a sustainability policy, whether there is awareness and knowledge of the policy. The existence of local sustainability initiatives no matter how small is also evidence of cultural sensitivity to sustainability. Whether executives consider and incorporate sustainability in operational business decisions is also telling. Does the organization provide preferred parking spaces for those employees who drive a hybrid vehicle to work? These are but a few examples of how internal audit through observation, inquiry and survey can assess to a significant degree, the organizations sustainability culture.

For an internal audit department to be able to measure an organization's culture and either confirm or debunk the CEO's beliefs about his organization can really elevate and underscore the department's relevance to the business beyond that of the traditional financial and regulatory spheres. Certainly, this is an opportunity not to be missed and accomplished with nominal effort.

1 Steven A. Jesseph "How Do You Define Sustainability" March 2013
2
Six Growing Trends in Corporate Sustainability, GreenBiz-Ernst & Young March 2012
3
Consumers Demand More Than CSR "Purpose", Cone Communications. October 2012