Most businesses are unprepared for independent ESG data verification, even though they link ESG data with financial reporting systems.
Only 25% of businesses believe they have the ESG policies, personnel, and systems in place to be prepared for independent ESG data assurance, despite the fact that 87% of leaders surveyed for KPMG’s most recent index claim to connect ESG data systems with financial reporting systems.
According to the research “Road to trust: KPMG ESG Assurance Maturity Index 2023,” 75% of businesses worldwide believe they still have a long way to go before they are prepared to have their ESG data assured. particularly in light of the approaching deadline for new regional and global sustainability reporting criteria.
The index includes the opinions of board members and senior executives from 750 organizations in a variety of industries, geographical locations, and revenue ranges. In order to determine a company’s relative maturity for being deemed “ESG assurance ready,” it evaluates the advancements it has made in important areas. Based on their level of maturity, respondents were ranked as leaders (top 25%), advancers (next 50%), or beginners (lowest 25%).
Ready for ESG assurance
Significantly, the research shows that, with an average score of 56.3 (on a 0-100 scale), businesses valued at more than $10 billion are generally more prepared for ESG certification. On average, organizations valued between $5 and $10 billion scored 45.3, while those valued less than $5 billion got 41.7.
Geographically, the top-ranking nations are rather close in terms of a company’s ESG assurance readiness. Top three finishes are rounded out by the US (49.4), Japan (50.0), and France (50.4). In the meantime, China (43.0) and Brazil (43.1) are the lowest-ranked nations.
When it came to having processes and controls tested, documented, and in place for environmental data, leaders scored more than three times higher than other respondents (50 % vs. 14 %). Similar leadership was shown for governance data (52 % vs. 19%) and social data (45 % vs. 16%). Compared to just 35% of other leaders, 87% of leaders are connecting their ESG data systems with financial reporting systems in order to benefit from consistent financial controls over non-financial data.
According to Larry Bradley, worldwide head of audit at KPMG, “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.” “Companies will benefit from having those preconditions in place ahead of the 2024 reporting cycle, not only for meeting new requirements but also for reaping the benefits of ESG assurance.”
Path to Mature ESG
According to the poll, just 52% of participants are receiving some kind of external assurance over their present ESG disclosures. Only a small portion of those are receiving limited assurance (16%) or reasonable assurance (14%), respectively, regarding all of their ESG disclosures that will be necessary in accordance with upcoming rules. This suggests that they have further work ahead of them in order to reach ESG assurance maturity.
According to Mike Shannon, global head of ESG assurance at KPMG, “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.” “The threshold for controls and procedures as well as qualitative assertions that must be made around the data is raised by the regulatory and assurance obligations to present accurate information.”
Five essential actions
According to the report, top businesses are implementing these five crucial measures to get ready for ESG assurance:
- identifying the ESG reporting guidelines that apply
- establishing strong ESG governance and acquiring the necessary competencies
- determining whether ESG disclosures apply and what information is required
- Digitizing ESG data procedures and guaranteeing data of superior quality
- Engaging the value chain in the process of gathering ESG data
Strong governance lays the groundwork for preparing for ESG assurance. Not only is ESG a top priority for the CEO and a topic on the board’s agenda, but according to over half of executives (53%) their board is aware of the company’s ESG assurance challenges. This contrasts with merely 28% of respondents who are less advanced in terms of ESG.
Notably, 58% of CEOs and board members of companies less prepared for ESG assurance claim it is difficult to strike a balance between the objectives of ESG assurance and shareholder profit expectations. However, about half of all respondents (54%) and CEOs and board members in particular (47%) believe that ESG certification can boost market share. particularly when the company’s principles more closely match those of investors and customers who share those beliefs.
