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Study: 29% of companies ready for ESG data assurance, 46% in advancers category
Assessing companies’ progress in preparing for the demands of ESG reporting and assurance, the research classifies organizations into Leaders (29%), Advancers (46%) and Beginners (26%) and calculates a maturity score.
Latest research from KPMG reveals that almost one third (29%) of companies feel ready to have their ESG data independently assured, up only a fraction from nine months ago, despite fast-approaching and evolving regulatory deadlines to report on ESG. In the EU, for example, reports are due to start appearing from the largest companies in early 2025, and this reporting wave will require independent assurance.
Despite the limited uplift in readiness, the research does show that some progress is being made. Not only has the percentage of companies in the Leader category grown, but the average score of those Leaders has also increased, with a 6 percent rise. The average score for the middle cohort of companies – Advancers – has also risen, by 3 percent.
However, there is a widening gap between these groups and Beginners – where the average score has fallen by 6 percent. The report warns that these companies are reaching the point where concerted action is needed.
“Getting ready for ESG assurance is a journey – and companies are finding that, the further they get in that journey, the more there is to do and learn. The goal-line is continually evolving. That is why progress may appear slow, even though many companies have truly been taking significant steps. This effort will pay off – Boards are increasing their focus on it and Leaders are reporting a growing range of benefits as the discipline involved in getting ready for ESG assurance permeates across systems, processes, controls and governance,” Larry Bradley, Global Head of Audit at KMPG International, said.
With regards to assurance, nearly two-thirds (63 percent) of organizations obtain limited assurance over some or all of their disclosures, while just over half (52 percent) receive reasonable assurance over some or all. However, this reasonable assurance is often over a very small number of critical KPIs. These limited and reasonable assurance figures have both increased from last year (50 percent and 47 percent respectively). Just nine percent of respondents do not obtain any external assurance currently. With external assurance due to be a regulatory requirement in many jurisdictions within the next couple of years, companies will need to move further along the process in order to be ready.
In the early years of required assurance, the researchers expect that there will be a higher number of instances of modified reports on ESG. But that is not necessarily a bad thing. A modification means that there is a matter that needs to be highlighted to stakeholders. In time, the collection and reporting of information will improve and as a result the number of modifications should reduce.
Obtaining and maintaining sufficient internal skills and expertise is the challenge most widely cited by respondents (44%), and applies across Leaders, Advancers and Beginners. Obtaining appropriately skilled and experienced people is set to be a challenge for all given that so many businesses are looking for the same skillsets at the same time and also that the skills required are very specialized. Over half of companies (54%) say they are planning to hire externally as a result – and indeed amongst Leaders the proportion is higher still, at 59%. This suggests that the further businesses advance in the process, the more skills requirements they discover they will need in order to reach full ESG reporting and assurance maturity.
With supplier information and data key to many aspects of ESG, such as calculating Scope 3 carbon emissions, companies are increasing their demands of suppliers. Amongst Leaders, over four in ten (42%) now place robust, product-specific requirements on their suppliers, up from 28% in 2023. More Leaders are requesting suppliers to provide ESG data into their own systems (64%) and integrating ESG screening into supplier onboarding (48%). There has also been a rise in Leaders requesting the supplier obtains ESG assurance, although this is still at relatively early stages, increasing from 10% to 23%.
But this is another area where the gulf between Leaders and Beginners shows through. Most Beginners (78%) still only have basic requirements of their suppliers, such as anti-bribery and corruption stipulations in contracts and legal documents – unchanged from last year.
“Deadlines are getting closer and the pressure is on. At KPMG, we are working hard to help our clients prepare. The report includes a five-step guide to getting ready for ESG assurance. It’s an area that is becoming an increasingly important focus for companies’ stakeholders – corporations now have to rise to the challenge,” Mike Shannon, Global Head of ESG Assurance of KPMG International, said.
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