A lot has changed during 2020. All of us will be taking a different perspective into 2021. As individuals, we’re all stakeholders for the companies which drive our economies and influence our lives – whether as investors, customers, suppliers, employees or simply as residents, dependent on the health of our shared planet. Those stakeholders are (rightly) demanding more of companies. They want to understand the purpose and values of the business and its long term ESG (Environmental, Social and Governance) commitments, and to see evidence of the business’s actions to achieve their targets, documented through relevant ESG metrics.
ESG reporting is not, however, straightforward. There are many frameworks that businesses can choose to follow, each with a different set of stakeholders in mind. How do you choose which is best for your business? On top of that, what is material to stakeholders will differ by sector and even by company. There is no one-size fits all. Stakeholders, particularly investors, are demanding more and more reporting because without a consistent global ESG reporting standard, it is difficult to compare and contrast ESG metrics and performance between businesses.
In order to respond to the changing demands and growing expectations of companies' financial and non-financial reporting, businesses need to act now on assessing ESG risks and opportunities and developing robust and complete ESG disclosures. Frameworks are aligning, but businesses cannot wait for a globally accepted framework to be published and mandated to improve their reporting.
What’s important is that companies identify and prioritise the ESG metrics that are material to their value creation strategy and to their longer-term purpose. What’s material needs to be driven by input from stakeholder engagement. And once a suite of metrics has been agreed, reporting (whether that be monthly to the Board as well as annually through the Annual Report or ESG Report) should be supported by both internal and external assurance, which is proportionate and meets the needs of your stakeholders.
The Taskforce for Climate-related Financial Disclosures (TCFD) is a good example of a prominent framework gaining significant international support since it was established in 2015. In the five years since the TCFD was launched, more than half of the world’s 250 largest companies now publicly acknowledge climate change as a financial risk (KPMG International survey: Towards Net Zero: How the world’s largest companies report on climate risk and net zero transition). And the UK government has recently announced its road map for mandatory TCFD reporting for companies through to 2025.
So, what are the key questions you should be asking yourself as you plan for the upcoming year-end reporting season? These are the most common ones:
- Have you done a robust and up to date materiality assessment over which ESG metrics you should be measuring and reporting?
- Are you up to date on global ESG reporting alignment? Are you clear on what is expected of you and what is mandatory to report?
- How comfortable are you with the accuracy and completeness of the underlying data sources used for your ESG metrics?
- Do you understand and have you documented the end to end processes and controls over the ESG data being collected and reported?
- Is the scope of internal and/or external assurance over your ESG metrics sufficient?
Whereas in the past these questions would have typically been addressed by the sustainability or external reporting team, it’s clear that this is now a Board level responsibility. Critically, the role of a CFO extends beyond being the gatekeeper of just the financials to key non-financial information. After all, “non-financial” information is increasingly financially material. It needs to be collated with the same rigour and ownership as financial information, and reported with appropriate prominence.
How we can help
KPMG has a dedicated ESG reporting and assurance team, which is led by George Richards and Helena Watson. The team works with different sized companies (including privately owned through to FTSE 100) across all sectors to provide a range of different services, including:
- Advising companies on current and future ESG reporting standards relevant to their business and sector.
- Reviewing ESG disclosures both within the Annual Report and in separate ESG reports, for compliance with existing reporting requirements and to benchmark against good practice.
- Developing roadmaps for future ESG reporting which align with where the Board wants to be and by when. And bringing these to life through interactive workshops.
- Performing gap assessments over current ESG reporting processes and controls versus best practice.
- Delivering external assurance over ESG and other non-financial metrics under ISAE (UK) 3000.