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KMPG study sets five steps to help businesses become ready for ESG assurance
KMPG study has set five steps to help businesses become ready for ESG assurance; namely determine applicable ESG reporting standards, build robust ESG governance and develop the right skills, identify the applicable ESG disclosures and data requirements across functions, digitize ESG data processes and ensure high quality data, and finally work with the value chain to collect ESG information.
About 75 percent of companies surveyed are in early stages of ESG maturity and therefore, less ready for ESG Assurance.
The KPMG ESG Assurance Maturity Index found that the majority of companies are still at the beginning of their ESG assurance journey and not ready to have all of their ESG data independently assured. While the top 25 percent of companies surveyed are characterized as “Leaders”, this is very much a relative designation. Leaders in the research are those that have achieved an average Index score of 64.8 (on a scale of 0–100) while Advancers saw an average score of 45.4, with 30.5 being the average score for Beginners.
The research – conducted between April – June 2023 – shows that although Leaders are more advanced in becoming ESG assurance ready, for the most part they still have a lot of work to do.
KPMG surveyed senior executives and board members with ESG reporting and assurance knowledge at750 companies across industries, global regions, with a mean revenue of $15.6 billion.
The KPMG ESG Assurance Maturity Index is composed of designed to help companies measure progress in each of these areas; governance, skills, data management, digital technology, and value chain.
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.
On an average basis the Index shows only a moderate difference in maturity according to industry. However, larger differences among industries emerge when viewed by the percentage of Leaders in each, Energy and Natural Resources, as well as Asset Management & Real Estate firms have a 33 percent share of Leaders compared with just 14 percent of Life Sciences and Healthcare organizations, for example.
“Assurance requirements are here. Soon, third-party assurance will no longer be a nice to have; it will be table stakes. While there are some larger companies that have been working to get ESG assurance ready, most companies haven’t built out much of the infrastructure that they need to have their ESG data assured. Now is the time for companies to establish their processes and become assurance ready,” said Maura Hodge ESG Audit Leader of KPMG in the US.
“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. 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,” Mike Shannon, Global Head of ESG Assurance of KPMG, said.
“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. 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,” Larry Bradley, Global Head of Audit of KPMG, said.
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