ESG Compliance Audits: Building Legal Frameworks for Sustainable Corporate Governance

This shift in the global trend to incorporate environmental, social and governance (ESG) issues into the corporate systems of accountability has also realigned the boundaries of business compliance and governance. There is considerable difference between quality disclosure, the effectiveness of audit, and enforceable compliance despite the growth of voluntary ESG reporting over the last ten years. The paper will provide some insight into the potential of forming strong legal structures based on the incorporation of ESG measures into the mandatory audit of corporate activities to find ways to promote sustainable corporate governance and address the technical issues of systemic risk reduction. Following the facets of comparative legal analysis, stakeholder theory and regulatory compliance theory, the paper establishes practical models of the conduct of audit, which can be used across various jurisdictional contexts. Its insights rely on empirical learnings drawn across the European Union, where both the Bombardier and IKEA cases originated, and new U.S. initiatives in climate-related disclosure as well as ESG assurance pilots in low- and middle-income countries. Indeed, as the research proposes, statutory ESG audits that are based on effective standards, flexible regulation, and strong oversight can enhance disclosure, mitigate against greenwashing, and make corporate behaviour consistent with sustainability objectives in society. This study supports the academic literature and regulatory practice by proposing scalable models and phased implementation roadmap that would provide a basis of creating ESG audit legislation that could be flexible in face of the shifting standards and stakeholder expectations across continents.