Some 54% of board and committee members in Spain’s leading listed and non-listed companies regard the audit committee as the main body for submitting ESG (environmental, social and governance) matters to the board, and as having more responsibility in this respect than sustainability committees. This is one of the key findings of the report 'Role of Audit Committees regarding ESG issues'. This report, produced by the Esade Center for Corporate Governance, PwC Spain and the Instituto de Auditores Internos de España, analyses the opinions of more than one hundred board members with a view to pinpointing the present-day needs of audit committees and enabling them to fulfil their expected ESG obligations, in addition to associated trends and new challenges.
 
“The appearance of ESG issues on boards' agendas has changed their structure (due to the creation of new committees) and the assignment of responsibilities. This has altered the previous status quo and forced companies to tailor the role and functions of each of their committees to cater for the new scenario” highlighted Mario Lara, head of the Esade Center for Corporate Governance and director of Esade Madrid. “This survey focuses on audit and control committees, probably the committee most affected by this new area.”

Training, liaison and awareness: key factors

The board members in the survey highlighted that whereas the definition of the ESG functions of their boards and committees is currently in the very early days, the respective legislation, regulations and standards are evolving rapidly. As a result, the survey stresses the importance of providing individuals and groups with training and experience in ESG, with particular emphasis on environmental matters. 

The authors of the study also emphasize the importance of better liaison between committees to avoid duplicating functions in different areas. In this respect, 92% of respondents say that non-financial reporting is the focal point of audit committees, but this overlaps with sustainability committees. Hence, boards must clarify this better and likewise the responsibilities assigned.” The next main areas in which audit committees operate are internal control systems (83%) and ESG risk management (76%). As a result, the study recommends a review and update of committee regulations in order to “clearly assign each body’s responsibilities and scope.”

Elsewhere, the report says boards of directors are responsible for raising the awareness of board members and also suggests the creation of in-house guidelines about non-financial information for listed companies. Likewise, the authors recommend heavier investment in technology and in the use of tools to increase automatic data collection and analysis. The final realm of improvement concerns the role of in-house auditors who must, say the experts, improve their ESG knowledge and expertise. The main role of these auditors, according to the survey, is to revise and check non-financial information (65%), followed by the assurance of ESG risks (56%) including materiality assessment, and the revision of ESG reporting and metrics.

Finally, due to the changes and complexity of this landscape, 68% of those respondents regard cyber security as the main non-financial risk. This risk, which has grown and could generate fall-out in the short term, may affect compliance and reputation, and could even bring operations to a standstill. “Cyber security may entail huge costs and could also seriously affect business sustainability,” upholds the survey. Other factors to be taken into account are corporate ethics (45%), including fraud, money laundering and anti-corruption; and emissions and carbon footprint (39%). The experts consulted also mentioned the increasing risk associated with human capital due to staff turnover, and also the recruitment and retention of talent.