What goes wrong with auditing and how to improve it

KPMG, the Swiss SGS SA, the German TÜV and 45 other auditing firms have ignored or simply missed environmental damage caused by their clients. The recently released report, Deforestation Inc. by the ICIJ, sheds light on the challenges of assuring ESG data and the impact it has on people and the environment. How can auditing be improved?

The report investigates audit firms’ roles in verifying sustainability claims of timber companies worldwide and highlights the complexity of the assurance process. As the demand for ESG reporting continues to rise, companies are facing increasing scrutiny and pressure to prove their sustainability efforts. However, as the Deforestation Inc. report reveals, loggers and other clients whose practices are certified as sustainable, are in reality far from sustainable. Thereby undercutting an elaborate global system meant to fight forest destruction, climate change and human rights abuses.

Indeed, audit firms face a difficult task in verifying sustainability claims, especially in regions with weak governance and limited access to information. The report highlights the importance of independent verifiers and anti-greenwashing measures. This serves as a reminder of the need for rigorous due diligence, independent verification in the assurance process and I would like to add the inclusion of the rightsholders’ perspective.

Including the rightholders’ perspective by meaningful stakeholder engagement allows companies to get a better understanding of what is happening on the ground. It serves as an early warning system as well as a monitoring system that provides indispensable information about how business activities affect people and the environment. Meaningful stakeholder engagement can be done through various channels, such as communicating with local civil society organisations or affected rights holders. This does not have to be challenging or complex. The Local Impact Hub can support companies through its network and expertise. Reach out to learn more.