For the first time in 2022, KPMG professionals analyzed the inclusion of E, S and G factors in sustainability reporting. We found that the E in ESG (defined as climate change for the purposes of this survey) is highlighted far more often than the S and G, with a handful of countries, territories and jurisdictions leading the charge in this form of reporting, mostly as a result of domestic legislation.
Climate change is a business risk
The acknowledgement among companies that climate change is a risk to the business has improved markedly since 2017, but its growth does not reflect the urgency spelled out by the IPCC’s ‘Code Red’ report in 2021, that called for urgent action to mitigate climate change.
In the past 5 years, the share of G250 companies reporting on environmental issues as a risk to the business has increased from 48 percent in 2017 to 64 percent in 2022, and the N100 from 28 percent to 46 percent.
Only 13 percent of the G250 adopt a leading practice of modeling the potential impacts of climate change using scenario analysis. Yet, most reporting is narrative led versus publishing quantitative or financial data regarding impacts. For example, 37 percent of the N100 use a narrative approach versus 3 percent disclosing financial data on climate change risks.
The social element of ESG
The social element of ESG is now becoming a focus for companies. However, the shift to addressing social issues has yet to be translated into a comprehensive set of disclosures.
Currently, almost half of the G250 (49 percent) acknowledge social elements as a risk to their business. A smaller share of N100 companies (43 percent) address social risks. The elements cover areas such as community engagement, safety and labor issues, which are key risk areas for most companies. Companies also prefer to use a narrative description to describe social impacts rather than provide quantified data.
Less than half of companies disclose their governance risks
Governance risks are reported risks that may impact compliance or the integrity of the business, such as bribery and anti-corruption, anti-competitive behavior or political contributions.
Our research showed that less than half of companies across the N100 and G250 disclosed their governance risks – 41 percent of the N100 and 44 percent of the G250.
At the regional level, among the N100, Africa, Western Europe, and the Asia Pacific region have the highest level of disclosure at 49 percent across all three regions. Only a third of companies are disclosing risks in the Americas: North America (37 percent) and Latin America (33 percent). The Middle East region lags with just a 13 percent rate of disclosure.
In the G250, Japan and Germany have high levels of disclosure: 92 percent.
Leadership-level representation for sustainability not yet prevalent
Leadership representation can help progress sustainable practices within a company by connecting strategy with sustainability issues. This brings sustainability closer to business operations and creates greater accountability. Yet only 34 percent of the N100 and 45 percent of G250 companies have this representation at the highest levels of the company.
The UK stands out as a leader (83 percent), jointly followed by Taiwan and France (75 percent), and South Korea (73 percent).
Compensation can help meet targets. Are companies leveraging it?
Sustainability-linked compensation at leadership levels can improve performance in areas such as meeting climate goals and increasing diversity. The inclusion of sustainability targets and metrics into compensation also sends a signal to investors and other stakeholders that the company’s leadership is serious about sustainability.
So far, 40 percent of G250 companies use sustainability-linked compensation for their Board or leadership. This is a positive indicator, as practices within the G250 tend to filter into the N100. Currently, less than one-quarter of N100 companies compensate their leaders based on attainment of sustainability-based goals (24 percent).
Key global trends in sustainability reporting
Sustainability reporting grows incrementally with movement towards the use of standards framed by stakeholder materiality assessments
An impressive 96% of the world’s leading 250 companies report on sustainability, a rate likely to increase as new regulations on non-financial reporting is introduced. Usage of global standards like GRI, SASB, and stock exchange guidelines have also increased, with the GRI the most dominant. A significant majority of reporting companies across both the N100 and G250 disclose their materiality.
Reporting on climate risk and carbon reduction
Increased reporting on climate-related risks and carbon reduction targets, in line with TCFD
Climate reporting is the most common form of disclosure ahead of social impact and governance risk. Nearly three-quarters of companies report their carbon targets and the number of companies reporting against TCFD has nearly doubled, leading to more consistent and comparable climate disclosure.
Reporting the risk from biodiversity loss
Growing awareness of biodiversity risk
2022 is a pivotal year for nature and biodiversity with international efforts stepping up to halt biodiversity loss. Despite growing awareness of biodiversity loss as a critical issue, less than half of companies recognize this loss as a risk to the business. On the positive side, most sectors now acknowledge this risk, even many of those that can be considered low risk. The launch of the Taskforce on Nature-Related Financial Disclosure (TNFD) and Corporate Sustainability Reporting Directive (CSRD) frameworks are expected to drive up reporting across countries and sectors in the immediate years.
Reporting on the UN Sustainable Development Goals (SDGs)
UN SDG reporting prioritizes quantity over quality
The majority of companies report on SDGs, with 10 percent of companies reporting against all 17 SDGs. Three SDGs remain the most popular for companies: 8. Decent Work and Economic Growth; 12. Responsible Consumption and Production; and 13. Climate Action.
Companies increasingly acknowledging ESG issues as risk areas
Climate risk reporting leads, followed by social and governance risks
An increasing proportion of companies acknowledge that climate change is a business risk. However, less than half of companies report on social and governance risks to their business. In general, the description of these risks are overwhelmingly narrative-driven and do not quantify the financial impact on these risks on companies or on society.
Sustainability continues to become a priority for company leadership but there is room for improvement. Only one third of companies in the N100 have a dedicated member of their board or leadership team responsible for sustainability matters. Compensation conditions related to sustainability outcomes for leadership teams are prevalent for only 40 percent of G250 companies.
Survey of Sustainability Reporting
