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5 categories of risk: Internal audit: Strategic - Ernst & Young - United States

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Five highly charged risk areas for Internal Audit

Click the area to see risk details
 

1. Strategic

Risk areas | Strategic | Compliance | Financial | Reputational | Operational 

Companies face a myriad of strategic climate change and sustainability risks, such as:

  • Market positioning
  • Changing consumer preferences
  • Strategic investments (e.g., in cleantech and renewable energy)
  • Stakeholder communications/investor relations

Going beyond just "what could go wrongs"

However, companies should not just focus on what could go wrong. Senior management and the board should be asking: "Where do climate change and sustainability risk indicate opportunities for competitive advantage?"

Producing new green products or entering into new markets carries risks with it, but some companies may be better equipped to manage those risks and capitalize on them to gain competitive advantage. In other words, risk management is intimately tied to overall corporate strategy. Leading companies understand this link and are finding ways to turn climate change risks into opportunities.

 

What this means for Internal Audit
Internal Audit needs to have a seat at the table when climate change and sustainability strategies are being determined.

This will ensure that key risks are identified and prioritized and are a recognized part of the Internal Audit plan and overall risk management (i.e., climate change and sustainability-related risks are incorporated into the organization’s risk register).

An organization’s entire sustainability program needs to be audited to as certain that the program is not only meeting all established goals and targets, but also voluntary commitments (e.g., the United Nations Global Compact, or the US Climate Action Partnership).

 
Questions Internal Audit should ask
  • Has management discussed with the board the importance of a climate change and sustainability strategy to the company?
  • Does the organization fully grasp the strategic implications of climate change risk to the organization and are enterprise-wide programs in place to define, monitor and assess those risks?
  • Does the Internal Audit team have the necessary skills and people to evaluate these new risks?
  • Are climate change and sustainability risks captured in the company’s enterprise-wide risk-assessment process?
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