KPMG research

• KPMG research finds only 25% of companies feel they have the ESG policies, skills, and systems in place to be ready for independent ESG data assurance. 
• Over half of those that feel least ready for ESG assurance say it is challenging to balance ESG assurance goals with the profit expectations of shareholders.
• 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.
• Many see benefits from ESG assurance beyond compliance; about half surveyed say it can lead to greater market share, spur innovation, strengthen reputation and reduce costs.

KPMG’s new report, Road to trust: KPMG ESG Assurance Maturity Index 2023 reveals that as many as 75 percent of companies globally feel they have a long way to go to be ready to have their ESG data assured and meet new regulatory requirements. In a matter of months, the first tranche of mandatory regional and international sustainability reporting standards will come into force.

“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,” said Larry Bradley, Global Head of Audit, KPMG. “Putting those preconditions 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.”

The index 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’. Respondents were ranked as either leaders (top 25%), advancers (next 50%), or beginners (bottom 25%) based on their maturity.

Key findings include:

• Larger companies (US$10B+) tend to be more ESG assurance ready, with an average score of 56.3 (on a 0-100 scale), compared to companies US$5-10B (45.3 average score) and under US$5B (41.7).
• Geographically, the ESG assurance readiness of companies is relatively close between the highest-ranking countries – France (50.4), Japan (50.0) and the US (49.4) and the lowest-ranking – Brazil (43.1) and China (43.0).
• Leaders ranked more than three times higher than other respondents (50% to 14%) for having processes and controls documented, in place and tested for environmental data, with similar leadership for governance data (52% to 19%) and social data (45% to 16%).
• 87% of Leaders are integrating their ESG data systems with financial reporting systems to gain the benefit of consistent financial controls over non-financial data, compared with only 35% of others.

From the survey just 52% of respondents are obtaining some level of external assurance over their current ESG disclosures. Of those just a fraction are obtaining reasonable assurance (14%) or limited assurance (16%) over all of their ESG disclosures that will be required under incoming regulations, signaling that there is still more progress to be made on their ESG assurance maturity journey.

“While most companies have been doing some voluntary reporting on sustainability issues, they typically didn’t subject that reporting to the same rigor, controls and oversight that will be needed to meet the new regulatory requirements to be assured,” said 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.”

The report identifies five critical steps that leading companies are doing to become ESG assurance ready:

1.      Determining applicable ESG reporting standards

2.      Building robust ESG governance and developing the right skills

3.      Identifying the applicable ESG disclosures and necessary data requirements

4.      Digitizing ESG data processes and ensuring high quality data

5.      Working with the value chain to collect ESG information

Robust governance sets the foundation for becoming ESG assurance ready. For Leaders, not only is ESG a CEO priority and on the board’s agenda, 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. It is also notable that at firms that are less ready for ESG assurance, 58% of CEOs and board members say it is challenging to balance ESG assurance goals with the profit expectations of shareholders. Yet about half of all respondents (54%), and CEOs and board members notably (47%), say that ESG assurance has the potential to increase market share, as the company’s values become more aligned with like-minded customers and investors.

Kypros Christofides, Board Member and ESG Assurance leader commented:

“With the regulatory deadlines fast approaching, the majority of organizations still feel unready to undergo an ESG assurance. Despite the challenges faced in preparing for a more regulated sustainability reporting, many companies now recognize its benefits beyond simple compliance”

About KPMG’s ESG Assurance Maturity Index

KPMG surveyed senior executives and board members with ESG knowledge at 750 companies across industries, global regions and revenue sizes. The Index examines the progress companies have made in key areas to gauge the relative maturity of assurance readiness measured on an index of 0-100. Based on their rankings, companies are classified as “Leaders” (the top 25^th percentile), “Advancers” (the next 50^th percentile) and “Beginners” (the bottom 25^th percentile). The five areas or ‘pillars’ designed to help companies measure progress include: (1) governance, (2) skills, (3) data management, (4) digital technology, and (5) supply chain.

Research was conducted between April – June 2023.

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