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

This paper examines the role of internal audit and the incorporation of Environmental,Social, and Governance (ESG) factors within the corporate governance frameworksof Greek firms in mitigating their financial risk. Time series econometric analysis wasperformed to determine the factors that influence financial stability, transparency, andregulatory compliance in Greek Firms. Data were collected from 120 internal auditorsand financial professionals employed in organizations across multiple sectors of theGreek economy. In line with existing literature, findings show that robust internal auditand ESG practices are essential in promoting financial stability, transparency, andregulatory compliance. The paper provides empirical evidence that well-structuredinternal audit mechanisms and effective ESG initiatives reduce financial risks, whileenhancing organizational sustainability and resilience. The results emphasize thegrowing importance of ESG considerations in corporate governance and suggest thatimprovements in both internal audit systems, as well as robust ESG policies, canstrengthen risk management strategies and improve long-term financial performance.While previous research has thoroughly investigated the impact of internal audits onfinancial stability and the influence of ESG on corporate sustainability, this paperspecifically examines their combined effect on financial risk management. Using firmleveldata across various sectors of the Greek economy, this study provides insightsinto how internal audit and ESG policies can jointly contribute towards enhancingfinancial resilience, transparency, and regulatory compliance.

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