SYSTEMATIC LITERATURE REVIEW: THE ROLE OF INTERNAL AUDIT IN FACING THE CHALLENGES OF ESG RISK MANAGEMENT IN THE WESTERN BALKAN COUNTRIES

Abstract

This review paper examines the role of internal audit in addressing Environmental, Social, and Governance (ESG) risk management challenges in Western Balkan countries. Through a systematic literature review, the paper analyzes the current state of ESG risk management in the region, explores internal audit practices, and identifies challenges and opportunities for enhancing internal audit's contribution to effective ESG risk management. The findings reveal that ESG risk management in Western Balkan countries is still in its emergent stages, with internal audit functions playing a limited role in addressing ESG risks due to capacity and expertise gaps, organizational priorities, methodological limitations, and broader governance challenges. Despite these challenges, opportunities exist for strengthening internal audit's role through leveraging EU accession processes, building on the three lines of defense model, investing in capacity building, and adopting collaborative approaches. The paper contributes to the theoretical understanding of internal audit's role in ESG risk management in transitional economies and provides practical recommendations for internal audit functions, organizations, and policymakers in Western Balkan countries.