Climate continues to dominate
The latest findings reveal that businesses are increasingly recognising that they have a role to play in helping to achieve climate targets, with an impressive 71% of the N100 globally and 80% of the G250 setting carbon reduction targets. Reassuringly, most companies recognise that they must reduce their own emissions to achieve their carbon targets rather than rely solely on carbon credits. The number of companies reporting against Task Force on Climate-related Financial Disclosures (TCFD) guidance has nearly doubled, leading to better climate disclosures.
However, the report also reveals some key areas where faster progress is required. Only 64% of G250 companies formally acknowledge that climate change is a risk to their business, and less than half of companies currently recognise biodiversity loss as a risk.
Sustainability reporting through the ESG lens
This year’s report has also highlighted some further challenges the world’s major companies are facing reporting on ESG. Among the thousands of reports analysed, less than half of the world’s largest companies provided reporting on ‘social’ components (e.g. modern slavery; diversity, inclusion and equity; community engagement; and labour issues), despite an increasing awareness of the link between the climate crisis and social inequality. At the same time, less than half of companies disclosed their governance risks (e.g. corruption bribery and anti-corruption, anti-competitive behavior or political contributions.) In addition, only one-third of N100 companies have a dedicated member of their leadership team responsible for sustainability and less than one-quarter of these companies link sustainability to compensation among business leadership.
ESG disclosures continue to be overwhelmingly narrative-driven, rather than publishing quantitative or financial data regarding impacts. This is clearly an area of improvement for companies around the world.
On a positive note, around three-quarters of reporting companies conducted materiality assessments and are disclosing material topics.
John McCalla-Leacy, KPMG’s Global Head of ESG, said:
“Last year, scientists from the IPCC warned the world was on ‘Code Red’ for human driven global warming. It was followed by a number of commitments from political leaders at COP26. As we head towards COP27, immediate action is now needed to avert human and environmental tragedies on an ever-increasing scale.
“KPMG’s 2022 Survey of Sustainability Reporting reveals regulation is making a difference. My view is that it is critical to provide guidance and direction to companies and help drive cultural change. Business leaders have accepted they have a responsibility and role to play in helping to slow and potentially avert the unfolding crisis. What’s needed more than ever is globally consistent standards from governments and a collective effort from the world’s major companies to report on all aspects of ESG, recognising the clear links between the environment and wider social equality issues.”
Jennifer Shulman, report co-author and Global Lead for KPMG’s Global ESG Advisory Hub, commented:
“The COP26 summit offered the world a human face to the unfolding climate tragedy facing the planet. Representatives from some of the world’s most remote and heavily impacted nations and territories were present to share their story. But, despite that growing recognition of the human side of ESG, our latest survey continues to highlight a real challenge facing the C-suite — which is in how they demonstrate and reflect on their company’s wider societal impact.
“We should start to see some progress over the coming year as organisations like the International Sustainability Standards Board (ISSB) roll out new global standards for reporting. But, companies shouldn’t wait to be told. Leadership from the top is essential. The global pandemic and COP26 shone a light on the growing inequalities in society. Many major organisations are responding with proactive action that should be applauded. We’re seeing far greater action on gender equality, pay equity and community impact assessments. It’s time for organisations to be transparent in their reporting to highlight what they’ve achieved and hold themselves to account on areas where further progress is required.”
A call to action
New ESG requirements are driving a different perspective and set of conversations in boardrooms, driving business leaders to stretch their thinking and ensure that from the top down they are making strategic decisions that take climate and broader ESG considerations more into account.
The KPMG report outlines the tangible ways businesses can invest in sustainability reporting:
- Understanding stakeholder expectations
- Incorporating materiality assessments into reporting
- Aligning reporting to mandatory or voluntary frameworks
- Investing in quality non-financial data management
- Understanding the impact of climate change and social issues on business
The pressure on businesses to report on non-financial metrics is only expected to grow as regulations evolve. By acting now, companies can make informed choices to drive the change that is much needed to be a good corporate citizen in today’s world.
