ESG Auditing for Banks

ESG risks in banking originate from core business activities. Environmental risks include funding controversial projects or high carbon footprints. Social risks involve labor practices and improper product sales (mis-selling). Governance risks focus on greenwashing, executive pay, and complex tax mitigation structures.

Internal auditors must integrate ESG considerations into their existing risk assessment frameworks. By leveraging traditional audit areas—such as loan underwriting, data integrity, anti-money laundering, and executive compensation—internal audit can provide robust assurance and advisory support to address both regulatory requirements and evolving stakeholder expectations.

Banks face intense scrutiny from regulators, investors, and customers regarding ESG. The impact and prioritization of these issues vary depending on the institution's size, region, and specific business model, whether it be retail, commercial, or investment banking.