Independent environmental audits may benefit companies reporting sustainability goals

By Hemant Sethi, 

The world, as we know it today, needs to take radical steps to prevent environmental degradation. It has become necessary to put processes in place that can ensure sustainable growth.

The Indian government gained a global appreciation for announcing the net-zero goals at COP26 concluded in Glasgow, Scotland, last year. Since then, the government has been taking several steps to reduce the country’s carbon emissions. It is also encouraging industries to increase their contribution toward helping India become a carbon-neutral country. As a step towards encouraging sustainable business practices, it brought in the new environment, social and governance (ESG) reporting provision for 1000 companies that top the list in terms of market capitalisation.

This may be a good move to get more companies to embrace sustainability goals to reduce their carbon footprint. However, most companies still fall short of meeting global standards that allow the public and investors to evaluate how sustainable the company may be. What companies need is a robust set of sustainability-related reporting standards to enable investment. This is where environmental sustainability (ES) audits may prove beneficial.

How an ES audit can help overcome challenges in ESG reporting

An environmental sustainability audit can provide an unbiased third-party validation for an organisation’s current policies, processes, and practices. Companies can use the audit to examine in-depth their entire environmental management system and associated processes. This includes all sustainability policies, processes, and practices. Sustainability audits can help businesses assess their capacity to sustain in the future while preparing them to take the requisite steps to adapt to potential changes.

One of the challenges faced by Indian companies in sustainability reporting is the lack of independent verification and assurance of reports.

According to a study, only a fraction of the reports are independently assured. Independent verification goes a long way in providing comfort to stakeholders, management, and the board in mitigating the risks posed by sustainability issues.

Another challenge is that the performance of Indian corporate reporting is not up to the mark when compared with companies from the European Union, China, and Japan.

The same study points out that although Indian companies are proactive towards sustainable issues, there are still many areas that are not properly addressed. These include inclusive employment, education, employment creation, health, corporate-government collaboration, land and displacement, natural resource management, climate change, corporate governance, solid waste, and water management.

Most of the time Indian companies fail to come out with innovative approaches to addressing sustainable issues.

Benefits of an ES Audit

An ES audit can help companies put in a structured route toward continual improvement and best practice standards. They can use the audit to put in processes that help monitor current and changing environmental legislation.

Companies can expect improved environmental management systems and resource efficiency.

Assessment of current systems will allow companies to plan on how to meet standards. Overall companies can use such audits to demonstrate commitment to customers, employees, suppliers, shareholders, and the local community.

Audits help organisations get insights on developments within the organisation while checking systems and procedures. Environmental auditing can unveil weaknesses of an organisation’s strategy, therefore reducing the risk of unexpected events. A structured environmental sustainability audit will bring real benefits to an organisation committed to acting on the results.

Implementing ES audits requires commitment at all levels

An environmental sustainability audit can be undertaken by any organisation, irrespective of its size. However, implementation can be a challenge for companies undertaking such an exercise for the first time.

For companies planning their first steps in implementing environmental management, the audit can be used as a road map for both short- and long-term plans for environmental performance improvement. However, for an audit to be successful it will require participation at all levels within the organization.

Typically, an audit involves an on-site review of relevant documentation followed by interviews and discussions with relevant stakeholders (including top management). It helps to benchmark and validate ongoing initiatives in sustainability.

The assessment may be based on a host of areas including assessing ESG risks, planning control measures, allocating roles and responsibilities, implementing and maintaining controls, communication and training, monitoring effectiveness, and reviewing and revising arrangements. This will require coordination and support from various departments within an organization.

With the changing outlook on sustainability reporting, companies would need to go beyond traditional environmental management systems such as ISO 14001.

An independent environmental sustainability audit can help demonstrate environmental credentials to customers, supply chain, and other stakeholders. It can also be beneficial by being more resource-efficient and cost-effective. 

(The author is Country Head, British Safety Council, India. Views expressed are personal and do not reflect the official position or policy of the FinancialExpress.com.)