Why are companies looking for assurance of their ESG disclosures?
Demand for confidence in sustainability disclosures is growing as government regulations grow and stakeholder expectations rise. Institutional investors and other capital market players are increasingly integrating ESG considerations into investment strategies and decision making.
Every business, from asset management to banking, from non-financial firms to public financial institutions are becoming subjects to sustainability and sustainable finance regulatory pressure, which often requires mandatory third-party external assurance on sustainability disclosures.
This overall increase in transparency requirements is part of a general ambition across sustainable and responsible investing to reduce risks of “greenwashing” and to raise investor confidence, which are key factors to channel more capital toward sustainable finance assets.
Why obtain third-party sustainability assurance?
Third-party assurance builds confidence on sustainability-related data and processes. Assurance adds value and creates trust in sustainability reporting, it leads to:
- Increased recognition and credibility
- Compliance with international standards and regulations
- Higher investor confidence and capital raising
- Increased competitivity and ESG market positioning
- Increased transparency
- Prevents “greenwashing”
Are your sustainability disclosures ready for assurance?
Before starting your assurance journey, it is important to determine whether the necessary preconditions for sustainability assurance are present.
In particular, it is necessary to examine your organization’s criteria for ESG measures and determine if you have the evidence that would be required to support the disclosures you want to make, regardless of the reporting framework. Being able to perform this work now will reduce your risk when you are required to have your information assured in the future.
KPMG can help assess whether your business is ready for full sustainability assurance. It is also a service that can be performed on new information that is added to your disclosures and as your ESG agenda and strategies mature.
What are the types of assurance engagements?
Third-party verification is performed by independent audit professionals according to international professional standards and internal methodologies defined by the auditor. KPMG relies on two main types of standards ISAE 3000, ISRS 4400 as well as proprietary methodologies.
Limited or reasonable assurance
ISAE 3000 offers two different types of assurance options – limited or reasonable assurance, depending on the level of evidence collected by the auditor to form a conclusion.
No-assurance assignment
ISRS 4400 is the standard for agreed upon procedures engagements. No assurance is provided by the auditor, but the users of the report will draw their own conclusions based on the auditor's work.
Building trust in ESG disclosures
Areas and topics covered by KPMG Assurance Services.
Assurance on Green/Sustainability Bonds Framework and Allocation report
Overview
The transition to a sustainable global economy has boosted interest in the financing of investments that provide a clear ESG benefit. This is reflected in the rapid growth of the fixed income market, in particular the use of bonds with a clear use-of-proceeds structure, such as green bonds, social bonds and sustainability bonds. The ICMA Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines have become the leading framework for the issuance of sustainability bonds. Although voluntary, this guidance recommends assurance of these bonds for transparency.
How KPMG can help and what we offer
KPMG can provide third-party assurance services by reviewing both the pre-issuance documentations, to verify the alignment of the issuance with the core principles issued by ICMA, and the post-issuance reports disclosing the allocation of proceeds and the impact generated by the projects or asset financed.
ESG investment process review
Overview
ESG investing continues to accelerate at breakneck speed. Socially responsible investing requires standardized sustainability disclosures that are assured and can be used by investors to efficiently evaluate ESG information and integrate it into their decision-making process. The verification of the sustainability component into portfolio composition and the compliance of the investments with the ESG policy and strategy of the assured entity is becoming a standard requirement.
How KPMG can help and what we offer
KPMG can review the ESG investment policy and process in order to verify its compliance with the ESG investment strategy of the entity and compliance with upcoming sustainable finance regulations (e.g. EU Taxonomy) or ESG labels.
Assurance on sustainability reporting
Overview
External assurance verifies and validates an organization’s performance as disclosed in its sustainability reports. This helps protect the interests of stakeholders and provides a level of comfort to key decision makers by giving them certainty that the information they will use for business decisions is reliable and in full compliance with relevant reporting frameworks.
How KPMG can help and what we offer
KPMG provides third-party assurance services to clients willing to issue a sustainability and impact report, by reviewing the accuracy, the completeness and the understandability of the text and data claims presented in the report. Our verification is based on the ISAE 3000 and/or ISRS 4400 and it can provide report readers and internal managers with increased confidence in the quality of the company’s sustainability performance data.
Assurance on SFDR reporting
Overview
The Sustainable Finance Disclosure Regulation (SFDR) imposes mandatory Sustainability disclosure obligations for asset managers and other financial markets participants effective 10 March 2021.
How KPMG can help and what we offer
KPMG can review your documentation to ensure compliance with SFDR including pre-contractual, website and periodic reporting. We can also perform a gap analysis of your ESG data, analytics and reporting capabilities against SFDR reporting requirements.
EU Taxonomy alignment
Overview
EU Regulation 2020/852 defines how an activity qualifies as sustainable. Commonly referred to as the EU Taxonomy, this regulation is the backbone of the EU Green Deal and it aims at tackling the problem of divergent classifications in sustainable finance and at preventing “green-washing”.
How KPMG can help and what we offer
KPMG offers external assurance on EU Taxonomy alignment for different types of clients not only to comply with the EU Taxonomy regulations per se, but also to comply with other regulations that require this type of alignment.
CSRD/ESRS readiness for reporting
Overview
On 5 January 2023 the Corporate Sustainability Reporting Directive (CSRD) entered into force. This new directive modernises and strengthens the rules about the social and environmental information that companies have to report. In addition to the requirements related to the NFRD, the CSRD requires new obligations concerning: the concept of double materiality, material subjects for stakeholders, obligation of reporting in line with other regulations (SFDR, EU Taxonomy). The CSRD introduced the obligation for companies to report on ESG information based on European Sustainability Reporting Standards (ESRS). The ESRS are ambitious and would have a significant impact on the scope, volume and granularity of sustainability-related information to be collected and disclosed by companies.
How KPMG can help and what we offer
KPMG can provide gap analysis comparing ESG data/information already reported by the entity and ESG data which will be required, assessing the materiality matrix and especially the integration of the double-materiality concept, monitoring future regulatory requirements to be developed such as ESR sector specific standards, EU Taxonomy delegated acts, social standards,… KPMG can provide ready for assurance service on CSRD ahead of the mandatory limited assurance requirement.
Assurance on climate action and CO2 mitigation pathways
Overview
Providing external assurance on climate actions and CO2 mitigation pathways demonstrates the accuracy and reliability of the data disclosed in the report. Furthermore, it demonstrates the willingness of a company to reduce its emissions, in relation to the transition to a net-zero GHG emissions economy by 2050.
How KPMG can help and what we offer
KPMG offers external assurance services on climate action and CO2-equivalent emissions mitigation pathways to accompany you in your transition to become carbon neutral.
Assurance on subscription tax reduction
Overview
The Luxembourg government introduced measures stipulating that the subscription tax rate for UCITS and UCI could be reduced by investing in sustainable assets. This may put UCITS and UCI on an equal level with other fund vehicles that already benefit from a reduced subscription tax rate.
How KPMG can help and what we offer
It is already possible to request a tax subscription reduction, but in order to submit this request, an external auditor should certify the percentage of sustainable investment disclosed by the entity in line with the EU Taxonomy.
Assurance on CSRD reporting
Overview
CSRD revises the Non-Financial Reporting Directive (NFRD), which determines the disclosure rules of non-financial information for large companies. If you are not currently disclosing according to NFRD, but you are considered as a large company you will need to comply with CSRD for FY 2025. If you are already reporting according to NFRD you must comply for the FY 2024 and disclose climate change impacts on your organization. In both these cases, external assurance on the reported information will be mandatory.
How KPMG can help and what we offer
KPMG offers clients under the CSRD scope limited or reasonable assurance services to verify and certify the accuracy and the reliability of the disclosed information, in order to comply with CSRD mandatory requirements.
Meet our team
The sustainability reporting landscape is changing rapidly, with new mandatory requirements being introduced and existing standards becoming more complex. Our team are at the forefront of these changes and can provide insight into the future of reporting. We are experts at delivering high quality assurance on ESG and other non-financial information within this changing landscape.
KPMG's sustainability team are dedicated, multi-disciplinary professionals offering a curated range of skills and experience which includes ESG strategy, sustainable finance, climate change and decarbonization, social and economic impact measurement, reporting and assurance.
