ESG, the acronym that expands the role of audit

ESG, acronimul ce extinde rolul auditului

ESG, the acronym that expands the role of audit

The importance of acronyms is demonstrated as their meaning is revealed. This is also the case with ESG, as it is known in English as Environment, Social and Governance (ESG).

ESG is a set of non-financial reporting requirements that show responsibility for the environment, responsibility for social impact and good corporate governance practices.

Auditors need to stay abreast of changing ESG issues and reporting requirements or risk being vulnerable to allegations of professional negligence.

Auditors have an important role to play in maintaining trust in corporate environments, alongside executives, audit teams, shareholders and regulators.

Where climate or other ESG risks are financially significant, auditors must consider whether these risks are adequately reflected in the accounts to report whether they provide an accurate and true picture of the company’s financial position.

If sustainability reports and ESG information are included in the company’s audited financial statements, the auditors will have responsibility for these statements.

The same applies when third-party assurance is based on the audit opinion, in particular on ESG-related annual reports or other significant ESG issues.

If a company or its shareholders suffer losses due to failure to adequately report on climate or ESG risk, auditors may be at risk of a civil claim, as well as regulatory intervention and shareholder pressure .

In addition, increased NGO activism to improve corporate reporting on ESG risks may lead to negative publicity, regulatory scrutiny, and instigation of civil lawsuits that companies should be aware of and auditors should expect.

Therefore, ESG has evolved from a vague concept related to corporate social responsibility into a major driver of board and shareholder behavior. Beyond the boardroom, it exerts an increasing influence on the decision-making of suppliers and buyers.

Shareholders and investors are keen to understand the long-term strategies of the companies they invest in and the role ESG plays in driving them.

With each passing month, there is a growing legislative and regulatory framework in both developed and emerging economies, such as Romania, that aims to legislate stronger ESG goals.

The regulatory framework in this area is evolving rapidly. In the last few years, an increasing number of reporting obligations have been created related to climate change and recognizing the benefits of harmonized alignment with European directives, increasing ESG data reporting transparency and avoiding double reporting, ESG reporting standards and strategy ESG sustainability.

Currently, the focus of Romanian companies’ efforts to comply with ESG rules has turned to the newly discussed CSDR (Corporate Social Responsibility Directive) revision of Directive 95/2014, which extends the ESG field to all listed large companies and SMEs.

ESG is the expression of sustainability regulation that makes the transition from option to obligation. At the same time, sustainability is undoubtedly a joint effort, of companies and civil society alike.

The coming months will be marked by intense efforts and transformations for companies as they move to responsible and transparent operating models according to non-financial reporting requirements – ESG. For this reason, the role of auditors is increasingly important.