All eyes on: Tech-enabled ESG assurance

Sebastian Stöckle, Author | 25 April 2024

A new era of assurance over ESG and sustainability data is here. Technology plays a vital and growing role in the evolution of ESG, helping to drive strategy, operations, reporting and controls and governance. I had the opportunity to speak with KPMG colleagues Shahab Dayani, Director Technology & Data Analytics, KPMG Australia, Danielle Landesz Campen, Partner ESG Assurance, KPMG in the Netherlands, and Oliver Geier, Head of ESG Assurance Expert Group, KPMG in Germany on this trend and how it can benefit organizations in today’s fast-changing business and regulatory environment. Here’s a summary of our conversation., both of KPMG in Brazil. Here’s a summary of what we discussed.

Unlike assurance over financial data, which has been around for a long time, assurance over ESG and sustainability data is emerging rapidly. Technology is embedded in almost everything that is done today, and that gives KPMG member firms an opportunity to help transform assurance over ESG and sustainability data, integrating technology into assurance procedures right from the start.

ESG data – and the systems that maintain and govern it – are at the heart of this transformation, enabling companies to track their ESG progress, disclose accurately and on time and, crucially, manage risks like data privacy, security, reliability, and non-compliance. As a result, companies can support environmental sustainability, be more resilient to climate change and geopolitical tensions, and have the potential to become more attractive to investors, customers, employees, and job seekers. This comes amid increasing pressure to report on ESG performance, comply with regulations, and satisfy investors and consumers. Many regulators and capital markets now expect non-financial reporting to meet the standards of financial reporting.

KPMG member firms see clients facing challenges today around the availability and quality of ESG and sustainability data. The ability to interpret data, and assure areas that cannot be easily quantified, is difficult. One way to perform such assurance work that can be explained with minimal bias is to enable it through technology. And this is first achieved on the client side using modern enterprise technology solutions for data governance, data quality and cloud technologies. With the right quality data and the right technology infrastructure in place, KPMG professionals see an opportunity to help clients automate the ESG reporting process. And by doing that, KPMG firms are enabling their assurance professionals to create traceable audit trails and move closer to real-time auditing.

KPMG firms are embracing the advancement of technology as it relates to ESG activities. We recently released a standardized, cloud-based ESG assurance workflow that incorporates our assurance methodology which is aligned with global assurance standards and built on our smart technology platform, KPMG Clara. This is designed to provide a consistent user experience and assists KPMG professionals and clients in navigating the increasingly complex landscape of corporate reporting. With the help of KPMG alliance partners, member firms are also utilizing technologies such as AI and natural language processing to further enhance quality and deliver greater value to clients.

For example, KPMG firms are already using AI to help in areas such as sentiment analysis – implementing natural language processing and machine learning to read through clients’ climate reports and provide sentiment analysis that can help mitigate the risk of greenwashing. KPMG Australia recently worked with Microsoft to create capabilities leveraging OpenAI's large language models to evaluate structured ESG data in clients’ climate reports and compare them against regulatory reporting standards, such as the International Sustainability Standards Board (ISSB).

Given the complexity of existing regulations and the introduction of new ones, KPMG professionals believe there is an opportunity to build technology solutions that can help meet multiple regulatory requirements and that can be used across different processes, systems and geographies – helping to mitigate the risks of inaccuracy in reporting and tracking of ESG performance.

However, it’s a mistake to think this is just a technology challenge. You need a framework of strong controls (similar to financial reporting) encompassing an organization-wide effort from IT, ESG/sustainability, finance, operations, compliance, legal, product development, HR and sales and marketing. ESG-related risks have the potential to affect multiple areas of an organization beyond the ESG realm. Your technology must be incorporated into corporate governance using a holistic strategy.

There is still a long way to go before businesses can reach the same level of reliability and results that exist today in financial audit work, but the momentum is increasing.