Three-quarters of companies globally are not ready to have their environmental, social and governance (ESG) policies, skills and systems independently evaluated, according to a KPMG report released Sept 26. This is despite new sustainability reporting standards, like that of the International Sustainability Standards Board (ISSB), coming into force soon.
KPMG’s “Road to trust: KPMG ESG Assurance Maturity Index 2023” report captures the views of senior executives and board members at 750 companies across industries, global regions and revenue sizes, measuring the progress companies have made in key areas to gauge their relative maturity for being “ESG assurance ready”.
More than half (58%) of leaders who felt less ready say it is challenging to balance ESG assurance goals with the profit expectations of shareholders.
Yet, about half of all respondents (54%) — CEOs and board members in particular (47%) — say ESG assurance has the potential to increase market share, as the company’s values become more aligned with like-minded customers and investors.
The report also notes that those most ready for ESG assurance tend to have boards more engaged on ESG issues, conduct regular ESG training and have controls in place for ESG data. More than half (53%) say their board is knowledgeable about their company’s ESG assurance issues, compared to just 28% of less “ESG-mature” respondents.
Larger companies worth US$10 billion (US$13.71 billion) or more are usually more prepared on ESG issues. Meanwhile, just over half of all respondents are obtaining some level of external assurance over their current ESG disclosures, reads the report.
“While most companies have been doing some voluntary reporting on sustainability issues, they typically didn’t subject that reporting to the same rigour, controls and oversight that will be needed to meet the new regulatory requirements to be assured,” says Mike Shannon, global head of ESG assurance, KPMG. “Now there will be regulatory and assurance requirements to report accurate information, which raises the bar on controls and processes as well as qualitative statements that will need to be made around the data.”
In line with the new standards launched by the ISSB this June, listed companies and large non-listed companies here may be required to report climate-related disclosures by FY2025 and FY2027 respectively. The criteria for large non-listed companies in Singapore refer to firms that have an annual revenue of at least $1 billion.
Meanwhile, the UK, New Zealand, the EU and Switzerland have mandated climate-reporting requirements for non-listed companies, while China, Indonesia, Japan and Vietnam cover only listed companies.
“Being ESG assurance ready means identifying the relevant regulatory framework and having the right metrics with robust systems, processes, controls and governance for collecting and managing the data,” says Larry Bradley, global head of audit, KPMG. “Putting those pre-conditions in place now, in advance of the 2024 reporting cycle, will give companies an advantage not only when it comes to meeting new requirements but capturing the benefits of ESG assurance as well."
