Risk managers and internal auditors must work closer with boards on sustainability, says Ferma

Boards of directors need to work more closely with risk managers and internal auditors to meet sustainability challenges faced by corporations, finds a new report by Ferma and other industry bodies.

It concludes that there is a heightened risk of failing to meet legal obligations and market expectations if cooperation is not improved.

The new report was published by Ferma, along with ecoDa (the European confederation of directors’ associations), and the European Confederation of Institutes of Internal Auditors (ECIIA).

It was issued shortly after the European Financial Reporting Advisory Group (EFRAG) issued its first set of advice on upcoming European Sustainability Reporting Standards (ESRS).

One key aspect of sustainability reporting is the concept of double materiality. This adds the risks a company’s activities pose to the environment and society to those that it potentially faces internally.

“Risk managers and internal auditors are needed for their expertise when it comes to anticipating the effect of double materiality,” said Béatrice Richez-Baum, director general at ecoDa, on the publication of the joint paper.

“The two professions can also help the board in the dialogue with relevant stakeholders. Companies should first assess their level of maturity in terms of overall approach to sustainability,” she added.

In a statement accompanying the new paper, the three European federations stressed that the EFRAG’s new standards underline the urgency for European corporations to meet the sustainability challenge. More in-depth knowledge of sustainability issues in business operations is now “imperative” at board level, they stated.

“As a prerequisite, risk management and internal audit must support the board and senior management so that strategy, risk management, policies, governance and culture fulfil the requirements and expectations. In turn, the board and the c-suite must give internal audit and risk management the means to do this,” explained Pascale Vandenbussche, secretary general at the ECIIA.

Enhanced European legislation on corporate sustainability, including the EFRAG’s ESRS standards, demand greater cooperation between board members, internal auditors and risk managers, the three bodies stressed.

“A corporate culture that embraces enterprise-wide risk management is a fundamental factor in determining how organisations approach and deal with sustainability. Managing sustainability requires a mature risk management function and processes. And with our maturity matrix in the paper, we guide organisations to gain a better sense of their sustainability journey,” said Typhaine Beaupérin, Ferma CEO.

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