Environmental issues, social issues and corporate governance are key to being future proof across many sectors. That means ESG isn’t just a buzzword, rather a bona fide strategic topic. Especially as pressure from stakeholders and international regulators mounts.
KPMG expert Corina Wipfler, Head of ESG Assurance Services for financial institutions, discusses the importance of ESG. Her colleagues – Cyrill Kaufmann, Head of ESG Assurance Services for corporate clients, and Roderik Olde Kalter, Head of the Enterprise Performance Management team – also comment on the need to adopt ESG guidelines and reporting technologies.
The key takeaway? Companies must act now and embrace a smart approach towards ESG reporting requirements.
ESG reporting - a strategic approach to success
Download the complete interview in PDF format.
Sneak peek: Key questions from the interview
ESG is on everyone’s lips, but we’re also witnessing a bit of ESG fatigue. What’s your take on that?
Corina Wipfler: Ignoring its importance simply isn’t an option, especially since Switzerland has announced its ambition to achieve net-zero greenhouse gas emissions by 2050. This highlights yet again the need to incorporate ESG in your strategy. It’s understandable that some people consider the package of regulations demanding and are getting rather tired of it.
Preventing or overcoming this fatigue is essential, because it’s not so much about compliance as it is about remaining profitable in the future.
Cyrill Kaufmann: What we’re also seeing is that younger employees are thinking more about sustainability now than they did 10 years ago. And often in a way that goes beyond the basic requirements. I consider that a powerful driver for change.
Which regulations are the most pressing for Swiss companies?
Corina Wipfler: Under Swiss law, public interest companies must report on environmental matters, social issues, employee-related issues, human rights and combating corruption. There’s also a disclosure about climate risk, which establishes a link to the internationally recognized recommendations of the TCFD, the Task Force on Climate-related Financial Disclosures.
Additionally, the law requires companies to assess whether they need to report on child labor and perform conflict minerals due diligence. Further, the Swiss legislator just announced an expansion of non-financial reporting requirements.
Cyrill Kaufmann: Added to that, of course, is the new European regulation, the Corporate Sustainable Reporting Directive, or CSRD for short – including the EU Taxonomy. Most companies now focus on this set of regulations as it is the most comprehensive.
Other regulations can be relevant as well, depending on the size or the industry, such as the regulation on deforestation, the CBAM (Carbon Border Adjustment Mechanism) or the CSDDD (Corporate Sustainability Due Diligence Directive).
The million-dollar question is: how to deal with this complexity?
Roderik Olde Kalter: In my view, companies should opt for central coordination combined with local knowledge. If a firm is active in different countries, it essentially needs expertise in each jurisdiction related to the respective regulations.
Corina Wipfler: A good starting point is to assess in which country the company is affected, to what extent and which regulations are in force there. Once you have an overview, you can work out your approach and the standardized interpretations necessary for your group.
In which sectors is ESG reporting most difficult?
Roderik Olde Kalter: The consumer and manufacturing industries – which have complex supply chains – are the ones that face major challenges. But a bank, for example, can also invest in 200 different manufacturing companies and is required to disclose those stakes in its balance sheet. Things can get complicated there as well.
On the other side of the spectrum, the professional services sector is likely to be less burdensome because the complexity of supply chains hardly plays any role there. While all industries will be affected by new regulations, some will face bigger challenges than others.
One of the key issues is handling an overwhelming amount of data. Can you offer any good advice on this?
Roderik Olde Kalter: The first step is knowing what needs to be reported where and by which deadline. Specifying the organizational implications is next: How should the processing of ESG data be anchored in the company? Who will be in charge? Will it be the head of the respective country? Or will it be done at group level?
The third step is to clarify who will be accountable/responsible for collecting, consolidating and storing data as well as for finalizing the resulting ESG reports…
When a company starts collecting data automatically, which ESG data sources should be first on the list?
Roderik Olde Kalter: One of the first data sources to automatically interface will likely be greenhouse gas (GHG) emissions. For example, many existing systems already have built-in functionality that calculates GHG emissions and makes the data available for reporting purposes.
While significant efficiency gains can and should be achieved by automating data generation for the many different ESG data sources, I don’t believe it will be possible to achieve 100% automation. There will always be certain text, qualitative declarations or details that require manual work.
More topics covered in the interview
- The complexity of ESG reporting regulations and the need for regular updates.
- Strategies for efficient ESG reporting and overcoming regulatory challenges.
- The difficulties faced by different sectors in ESG reporting, with a focus on consumer and manufacturing industries.
- The importance of early auditor involvement and the concept of “limited assurance” in CSRD reporting.
- The role of automation and AI in enhancing ESG reporting processes.
- The challenges and opportunities for Swiss SMEs in ESG and digitalization.
- Advice on managing overwhelming amounts of ESG data and selecting appropriate reporting tools.
ESG reporting - a strategic approach to success
Download the complete interview in PDF format
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