Kristen Sullivan of Deloitte Champions Integrating ESG Considerations Across the Business

Join Richard Chambers for a new episode of his Agents of Change video series, featuring conversations with internal audit leaders from some of the world’s most prominent organizations about innovation in the profession.

In this episode, Richard sits down with Kristen Sullivan, US Sustainability and ESG Services Leader, Global Audit & Assurance Sustainability and Climate Services Leader, Deloitte & Touche LLP, to discuss how internal auditors can seize ESG as an opportunity to become a catalyst driving integration of ESG considerations across the business to provide meaningful insights for strategic decision-making, as well as:

• Leading considerations for internal auditors ahead of the SEC’s proposed climate rule.
• Technology as a leading enabler of high quality, more controlled environment around ESG information.
• ESG talent opening a new universe of competencies and capabilities, both in terms of acquisition and upskilling. 

Watch the full conversation, and read the can’t-miss highlights below.

Internal Auditors as Catalysts Driving Integration of ESG Considerations Across the Business

Richard Chambers: Kristen, in my book, “Agents of Change,” I make the case that internal auditors must embrace change and seek to drive value in their organizations. I define agents of change as those internal auditors who are catalysts for transformation in the organizations they serve. What’s your view on internal auditors’ role as an agent of change when it comes to sustainability, and why is it more important now for internal auditors than in the past?

Kristen Sullivan: When you really step back and think about this whole sustainability and climate transition movement, it is one of the biggest capital market transformation opportunities in a generation. In order for capital to truly be unlocked and allocated towards long-term, value-generating opportunities, there has to be discipline, rigor, and a governance infrastructure within every organization.

Internal auditors become central to really driving an integration of ESG considerations into management systems and into the culture of the organization to provide meaningful information and insights for decision-making. So I completely agree, the catalyst role is such a tremendous opportunity for the overall internal audit profession.

Leading Considerations for Internal Auditors Ahead of the SEC’s Proposed Climate Rule

Richard Chambers: I think you’re right, and to me, it’s probably the most important opportunity in a generation. It’s kind of the convergence of the opportunity and the ability, and it’s great to hear your point of view on that. So, what should internal auditors be considering in advance of the SEC’s proposed rules?

Kristen Sullivan: Yeah, it’s a really far-reaching proposal. We don’t know where it will land. What is very clear is certainly a direction that puts an emphasis on the need to drive that integration that I mentioned, and really think about how you internalize some of these factors, these evaluations of performance and data that have largely been managed outside of the traditional internal management systems, as well as the monitoring and governance mechanisms within an organization. Regardless of where the final rule lands, the internal audit organization is going to be central to either establishing or enhancing the governance structure, which centers around the control environment. 

To truly integrate, in a systematic, disciplined way, an understanding around how climate-related risks and opportunities impact the business, create opportunities to capture, and then put in place mechanisms to actually establish very clear and defined processes and controls to generate access to information. I think that this is a tremendous, tremendous opportunity for internal auditors to play a catalyst role in driving that intersection of risk and compliance. The trend around regulatory policy requirements is only going to accelerate, but there has to be a systematic way to tie risk and opportunity to compliance objectives. 

ESG Talent: A New Universe of Competencies and Capabilities

Richard Chambers: One of the top challenges that leaders face in 2022 is recruiting and retaining talent. That’s true for internal audit, but it’s also true enterprise-wide. What strategies are you using to attract new talent in ESG and retain the top performers?

Kristen Sullivan: Talent is the critical priority, I think, for any organization, especially as we see this evolution in expectations of corporate entities, the infrastructure needed to deliver on a strategy that’s going to be resilient. Then when you start to think about the [ESG] capabilities that are necessary, it’s just a different universe of competencies and capabilities than internal audit or even external auditors have tapped into. I think we saw that trend start with investing more heavily into data science, data analytics to drive execution insights. I think that’s no different as we start to expand and better articulate and understand where those capabilities need to come in so that we can actually deliver on performing our services in a high quality way, in accordance with standards. 

We clearly have priorities in terms of talent acquisition to bring in those unique and different skill sets, as well as a very intense focus on upskilling, learning, awareness within our entire practice. We believe very strongly, as an organization, we need to mobilize our entire firm — the 400,000+ professionals that we have globally — to bring a command of sustainability, climate-related issues, and equity-related issues, to everything we do. In particular as it relates to internal audit, external assurance, and external audit, we really need to bring that command of different types of subject matter that are being valued by stakeholders in the market.

Richard Chambers: That’s good to know. I think organizations are waking up to the challenges of recruiting and retaining top talent, particularly with the risks becoming more diverse and the skills that it takes to address them being more diverse.

Technology Enables High Quality, More Controlled Environment Around ESG Information

Richard Chambers: Capacity multipliers is a term I use to talk about how organizations can achieve more capacity without adding a lot of additional resources. One of the most transformative capacity multipliers that can be deployed is technology. I would ask, how are you leveraging technology to help ESG clients and team members become more efficient and effective?

Kristen Sullivan: I couldn’t agree more. Technology is going to be the avenue to truly accelerate attention, rigor, and professionalization of integrating ESG considerations into management systems, into strategies, into governance, and then, ultimately, into the reporting process. We conducted a survey of over 300 C-suite executives to gain a pulse on the market in terms of preparedness as we start to see regulatory requirements really take shape. Over 90% of the respondents to our survey indicated that in their next reporting year, they will be investing in technology to enable a higher-quality, more controlled environment around ESG information. I completely agree that technology will be central. 

When you think about some of the challenges from a risk and data perspective that are central to internal auditors and external auditors, there’s so much that can be amplified and accelerated through definitional clarity within technology around data. Data uncertainties, assumptions that go into data around how you evaluate risk, and risk of misstatement and meaningful and fair presentation. 

ESG as an Opportunity for Internal Auditors to Take on a Strategic Advisor Role

Richard Chambers: Kristen, I often get asked for my predictions on what the future for internal audit looks like. If you had a crystal ball that you could look into for the future, what do you believe is the biggest challenge and the biggest opportunity for the profession in the next 10 years when it comes to ESG?

Kristen Sullivan: Boy, do I wish I had a crystal ball. Don’t we all? I think the biggest challenge, quite honestly, is: Can we move fast enough to really meet the moment in the market? We talk a lot within the external audit profession about continuing to solidify and drive the relevance of the profession in the capital markets, understanding what the capital markets and broader stakeholders are expecting.

I think that translates very well to internal auditors. Going back to where we started, [ESG] is an opportunity to really be a catalyst, an agent of change. We can encourage appreciation within the internal audit community around how to transition and use this opportunity to become that strategic advisor. It’s not going to be easy — none of this is easy — but I think if we fast forward 10 years, organizations are going to look differently at that audit, risk, and compliance part of the organization as a real accelerator.

Check out more audit leader interviews with Richard Chambers on our Agents of Change video series channel.