A Guide to ESG Audit: Checklist, Importance, and Best Practices

An ESG audit is part of running a business in the Philippines, especially with new regulations coming. But the real question is—are you prepared to handle them, or will they catch you off guard?

By 2026, companies will be required to submit sustainability reports, and hence, tackling ESG risks is essential. It’s also for strategizing that your company doesn’t get blacklisted, or worse, fined because of your negligence. So, what to do now?

One of the most important things is to make sure that your data is documented properly. To do that, you can use HashMicro ERP Software, since this software is the best at compiling the data from various departments in your company without problems.

And then, this article will also explain what an ESG audit is, which aspects are going to be examined closely, and how you can prepare for the upcoming audits. So, without further ado, let’s learn!

What is an ESG Audit?

An ESG audit checks how well a company manages environmental, social, and governance risks. It also helps confirm the accuracy of ESG statements.These audits can be internal or external.

During the audit, companies answer questions about their ESG practices, the reporting frameworks they use, and how they collect and report data. They may also need to provide proof for validation.

In the end, auditors often suggest ways to close gaps, strengthen controls, and improve benchmarking. It helps companies prepare for regulatory filings and create reliable ESG disclosures. Since investors and stakeholders use this information to make decisions, it’s important to tailor reports to their needs.

What’s the Purpose of an ESG Audit?

An ESG audit aims to answer key questions:

• Which environmental issues are most relevant to the company?
• What risks come with these issues?
• How are ESG policies, systems, and controls structured?
• How does the company communicate ESG matters with leadership, employees, customers, and other stakeholders?

It’s also important to note that ESG performance should be reviewed regularly, because external factors often change and can impact how a business operates. It also helps companies avoid the risk of non-compliance with laws and regulations.

What is an ESG Risk?

ESG risks refer to environmental, social, and governance challenges — though some believe governance should be treated separately. However, these three areas are closely connected. While the term ESG might evolve over time, the SEC’s focus on climate-related disclosures could signal future regulations requiring formal ESG reporting.

Here’s a closer look at each ESG risk category:

• Environmental risk covers pollution of air, water, or soil from production or distribution, along with climate risk, carbon footprint, greenhouse gas emissions, and energy consumption.
• Social risk involves threats to the well-being, reputation, or privacy of customers, employees, and suppliers. It also includes accessibility in product design and distribution, employee welfare, human capital management, and diversity, equity, and inclusion (DEI) initiatives.
• Governance risk relates to financial reporting, fraud prevention, executive compensation, and the company’s organizational structure.

These risk categories are still broad, and efforts are underway by countries and standards bodies to create clear taxonomies for ESG reporting.

Who Performs an ESG Audit?

ESG audits aren’t yet done the same way everywhere, including who performs the audits, but different standards are already being used. As more companies start ESG reporting, the need for audits will grow.

CPAs and auditors are a great fit for ESG audits because they know how to check if businesses follow different rules and standards. Auditors also understand how companies collect, analyze, and report data.

Their insight helps spot problems, evaluate risks, and recommend solutions for ESG issues. Since auditors already work with financial reports, regulations, and internal controls, they can easily apply those skills to ESG data.

Benefits of ESG Audits

ESG audits help companies:

1. Meet Regulatory Requirements in the Philippines

In the Philippines, the Securities and Exchange Commission (SEC) is strengthening sustainability reporting rules. Since 2019, publicly listed companies have been encouraged to submit sustainability reports with their annual reports under a “comply or explain” approach.

This means companies must either follow the guidelines or explain why they didn’t. By 2026, the SEC plans to make sustainability reporting mandatory, aligning with global standards and improving transparency.

2. Improve Social License to Operate

ESG audits help companies earn public trust by showing they take environmental and social responsibilities seriously.

By identifying risks, taking corrective action, and reporting progress clearly, companies improve their relationships with stakeholders like customers, employees, and the community.

3. Gain Market Advantage

Strong ESG practices can set a company apart from its competitors. As a result, companies will attract more sustainability-focused investors and conscious consumers. This also opens up new business opportunities and helps build a positive brand image.

Difference between ESG and CSR

At first glance, CSR and ESG might seem similar, since they represent a company’s attempt to be ethical. However, they differ in some areas:

CSR stands for Corporate Social Responsibility — a practice where companies integrate social and environmental concerns into their strategies, policies, and daily operations. By following CSR principles, businesses take accountability for their role in society and aim to act as responsible corporate citizens.

On the other hand, ESG (Environmental, Social, and Governance) focuses on measuring and evaluating how well companies uphold these responsibilities. Through ESG, businesses show their commitment to CSR by tracking, reporting, and being transparent about their environmental and social impact.

Examples of ESG Audit

ESG audits examine different parts of a business, from environmental impact to social responsibility and corporate practices. Here are some key areas that companies should review to strengthen their sustainability efforts:

• Facilities management to ensure buildings are constructed with environmental sustainability in mind.
• The company’s approach to social issues such as human rights, diversity, and labor standards.
• Environmental standards, including management systems and energy-saving efforts.
• A plan for monitoring carbon emissions.
• Practices around recycling, water management, and handling chemicals.
• Employee satisfaction, focusing on workforce diversity from a social perspective.
• Reporting on all activities that impact the environment and society.
• The product development process, manufacturing methods, and efforts to reduce waste during production.
• Use of hazardous materials or toxic waste produced by the company.
• Employee compensation, including benefits and working conditions.
• Compensation for environmental damage or community impacts.
• Corporate transparency, such as how the company handles freedom of information requests.

What is an ESG Audit Checklist?

As investors and stakeholders demand greater transparency, businesses must ensure their ESG efforts stand up to scrutiny. Audit and assurance engagements play a crucial role in this. To effectively manage ESG risks and establish strong controls, follow these five essential steps:

1. Assess the ESG Landscape

Before setting controls, it’s vital to understand the industry trends and benchmarking. So, start by researching those.

Just as important is considering stakeholder perspectives—how do employees, customers, and investors perceive your ESG efforts? A clear grasp of these factors will help balance ESG risks with other audit priorities.

2. Select the Right ESG Reporting Framework

Once you understand the landscape, the next step is choosing an ESG framework that aligns with your industry and company goals. If industry-specific guidance is your priority, the Sustainability Accounting Standards Board (SASB) offers tailored insights.

Meanwhile, the Task Force on Climate-Related Financial Disclosures (TCFD) is ideal for businesses focused on climate risk.

3. Prepare for ESG Assurance Engagements

Define clear ESG reporting standards to strengthen credibility and transparency. Conduct independent audits to ensure your ESG claims withstand scrutiny.

Start with limited assurance for a basic ESG data review, or opt for reasonable assurance for a deeper, financial-audit-level examination. Adapt your approach based on your company’s sustainability maturity and reporting needs.

Because businesses are at different stages in their sustainability journey, ESG assurance engagements can vary.

4. Incorporate ESG into the Annual Audit Plan

Integrate ESG into your annual audit plan to ensure consistent, reliable, and compliant reporting. Stay ahead of evolving regulations by aligning your disclosures with industry standards.

If your business is publicly traded, meet SEC requirements by reporting on human capital resources (HCR) and preparing for stricter climate-related disclosure rules. Strengthen transparency and accountability to build trust with stakeholders.

5. Use Audit Software and Guidance

As auditing evolves, professionals are embracing AI, data analytics, and cloud-based tools to streamline processes and enhance accuracy. With shifting tax regulations and accounting standards, automation is becoming essential for faster, more reliable audits.

Technologies like ERP software, cognitive computing, artificial intelligence (AI), and data analytics are becoming more popular, with many accountants investing in advanced tools to improve their audit services.

Make ESG Audit Preparations Effortless with HashMicro ERP Software

Companies need to track carbon footprint, labor practices, waste management, and still keep financials in check. Yet, most businesses still use separate systems for ESG reporting and finance, and everything else in between.

And what’s the result? The business ends up with double work, more errors, and waste time. However, why make life difficult when one system can settle everything?

With HashMicro’s ERP, ESG reporting seamlessly integrates with finance, compliance, and audit processes. No need to panic when regulators ask for reports; just generate them with a click.

The system auto-updates ESG data; whether BIR, SEC, or sustainability reports, one system settles all, so you don’t need to juggle between multiple software. HashMicro also has these features to help you:

• ESG & Finance Integration: Track sustainability efforts alongside financial performance.
• Automated Reports: No more scrambling; generate audit-ready reports instantly.
• Regulatory Compliance: Stay ahead of SEC & BIR requirements with real-time data.
• User-Friendly & Scalable: Whether SME or enterprise, grow without system headaches.
• Simple Bookkeeping: Automatically record transactions to generate accurate and easy-to-understand financial reports.
• Multi-Company Management: Manage various companies with different operational and organizational structures within one centralized ERP platform.

Conclusion

An ESG audit checks if a company follows environmental, social, and governance standards while managing risks properly. It ensures ESG data is accurate, helps companies improve, and strengthens trust with investors and stakeholders.

Managing ESG reporting manually is messy, time-consuming, and full of errors. So, why struggle when there’s a smarter way? With HashMicro’s ERP, you can track ESG data, finances, and compliance in one seamless system.

No more last-minute panic when regulators ask for reports; just generate them with a single click! Stay ahead of SEC and BIR requirements while focusing on sustainability, growth, and efficiency effortlessly.

So, go ahead and try the free demo now!

Frequently Asked Questions on ESG Auditing

• How do companies select the appropriate ESG reporting framework?

  Companies often choose ESG reporting frameworks based on industry relevance and stakeholder expectations. Common frameworks include the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-Related Financial Disclosures (TCFD).

• How do companies select the appropriate ESG reporting framework?

  Challenges in ESG audits include the lack of standardized metrics, fragmented data across departments, limited internal expertise, and insufficient stakeholder engagement.

• Are there established standards for conducting ESG audits?

  Yes, several standards exist to guide ESG audits, including the GRI Standards, SASB, UN Sustainable Development Goals (SDGs), and TCFD. These frameworks bring consistency and rigor to ESG audit programs.

• What role does IT play in ESG audits?

  The IT department is crucial in identifying systems that collect ESG data, determining the need for new systems to support ESG reporting, and ensuring data accuracy through strong governance practices.