Assessing the Importance of Internal Audit and ESG Factors in Mitigating Financial Risk

Abstract

This paper examines the role of internal audit and the incorporation of Environmental, Social, and Governance (ESG) factors within the corporate governance frameworks of Greek firms in mitigating their financial risk. Time series econometric analysis was performed to determine the factors that influence financial stability, transparency, and regulatory compliance in Greek Firms. Data were collected from 120 internal auditors and financial professionals employed in organizations across multiple sectors of the Greek economy. In line with existing literature, findings show that robust internal audit and ESG practices are essential in promoting financial stability, transparency, and regulatory compliance. The paper provides empirical evidence that well-structured internal audit mechanisms and effective ESG initiatives reduce financial risks, while enhancing organizational sustainability and resilience. The results emphasize the growing importance of ESG considerations in corporate governance and suggest that improvements in both internal audit systems, as well as robust ESG policies, can strengthen risk management strategies and improve long-term financial performance. While previous research has thoroughly investigated the impact of internal audits on financial stability and the influence of ESG on corporate sustainability, this paper specifically examines their combined effect on financial risk management. Using firm level data across various sectors of the Greek economy, this study provides insights into how internal audit and ESG policies can jointly contribute towards enhancing financial resilience, transparency, and regulatory compliance.