The boost given to the role of internal audit that followed the introduction of the Sarbanes-Oxley Act in the US is continuing as they are increasingly being seen as crucial to companies’ strategies to avoid further regulatory impositions and public ignominy.

The central importance of IA’s role I thought was well enunciated by an external auditor from Ernst & Young at the national conference of the Institute of Internal Auditors – Australia in Sydney last week when he was discussing sustainability.

Trent Van Veen said smart industry heads had long ago realised that to avoid further regulation, they had to recognise the importance of popular political movements early, and ensure they introduced measures to deal with the concerns if they felt they were valid, rather than avoiding them.

Ahead of the national greenhouse reporting requirements due to come into force in July, many had realised they must be addressing public concerns about the environment as ultimately “reputational risk is an outcome of all risks”.

To avoid being branded “green wash” I think many would agree with him that internal auditors as risk managers needed to be closely involved in any public statements about the sustainability of their company.

Many companies Van Veen said had released sustainability reports as they recognised reputational risk, and the mining sector had been one of the first to begin acting on this. However, he said often the responsibility for these was in the hands of “external affairs” and used as a marketing exercise.

As well as the national greenhouse reporting requirements, which will see energy consumption and greenhouse gas emissions for many large emitters become public by next year, a skills-short market means potential employees are making decisions on employers based on their green credentials.

“Every consumer group will start to pull down that information and say that company is a bad company because they are producing far too much CO2,” he said.

Before any of these requirements come in, he said it is vital for internal audit to be involved in checking the veracity of the claims their companies were making, and not just what they are required to by law or based on whether it was in an annual report or not.

“As a risk officer, you need to make sure that the data you put out there has substance and you can justify what [you are asserting].”

Before the emissions trading scheme came into place, Van Veen said internal audit needed to be involved in assessing “carbon business risk” specifically because “all of a sudden you have got a derivative – is it an asset, what are the controls around this, and who is going to be responsible for this?”. He said there are already a range of standards to check the procedures and company claims against. “But it’s not going to deal with risk management.”