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Supply Chain ESG Risks: Harnessing the Potential of Internal Audit

Supply Chain Risks

Geopolitical tensions, major risk events like the Covid-19 pandemic, the war in Ukraine and ESG (environmental, social, and corporate governance) issues, show how complex and interrelated risks are to the supply chain. Companies that fail to address these risks can face reputational damage, legal liabilities, and supply chain disruptions, all of which can impact their financial performance, competitiveness, and long-term sustainability. Supply chain risk management needs to be on internal audits' agenda, and they must also ensure they consider supply chains when analysing other organisational risks.

Recognising the importance of this issue, the Chartered IIA, in collaboration with AuditBoard, has launched an exciting two-part project focusing on supply chain risks. These reports will offer internal audit professionals and stakeholders, essential insights and guidance, equipping them to navigate this complex risk landscape effectively.

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About the report

In a business landscape increasingly defined by sustainability, ethical practices, and transparency, mastering the complexities of environmental, social, and governance (ESG) issues in supply chain management is crucial. The new report, "Supply Chain ESG Risks: Harnessing the Potential of Internal Audit," delves deep into this pressing subject, highlighting the role of internal audit in aligning supply chain operations with ESG values, targets, and overall business strategies.

To produce this piece, we held meetings with internal audit professionals from industries that are heavily reliant on global supply chains. We held a roundtable in September 2023 with Chief Audit Executives (CAEs), audit committee chairs and professionals with a background in ESG risk, supply chain risk and internal audit. We also held several one-to-one interviews to gain further insights on this topic.

Key Takeaways

  • Climate Change & Supply Chain: Boards and audit committees must actively work towards decarbonising their supply chains to achieve Net Zero goals. Internal audit should be used to scrutinise business continuity plans and assess resilience against climate-related disruptions.

  • Managing ESG Risks: Comprehensive due diligence is vital when selecting suppliers to address environmental, social, and governance (ESG) risks. Boards, senior management, and internal audit functions should collaborate to ensure effective due diligence processes across the supply chain.

  • Compliance & Technology: Boards and audit committees need to utilise their internal audit function for independent assessment of the organisation’s compliance with the increasing amount of environmental and social laws and regulations. Leveraging technologies like data analytics and AI can also significantly enhance the assessment of ESG risks within the supply chain.

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