Only 25% of the surveyed companies have their ESG policies ready for new auditing rules. These are the findings of a new report, “Road to Readiness: KPMG ESG Assurance Maturity Index 2023.”
The report, published in September 2023 by the multinational professional services network KPMG, analyses the companies’ current situations and highlights the areas to improve to be ESG assurance-ready.
ESG encompasses a holistic approach to sustainability, extending beyond the environment. Many companies voluntarily report on ESG-related topics — risks and opportunities in the environmental, social, and governance fields.
Nonetheless, the new ESG rules will require mandatory, third-party external auditing to present investors with a realistic landscape of the companies’ position on sustainability.
This is important to prevent greenwashing — the act of making false claims regarding the sustainability of a company or a product.
Before the new ESG rules, a patchwork of voluntary private sector regulations was in place. However, regulators contested that it was not enough to prevent greenwashing. In this context, stronger regulations will be put in place prior to the 2024 reporting season.
The KPMG ESG Assurance Maturity Index includes five areas of improvement: governance, skills, data management, digital technology, and value chain.
— KPMG India (@KPMGIndia) October 2, 2023
Of the 750 companies around the world that KPMG surveyed between April and June 2023, 75% are not ready for external ESG auditing.
By country, the countries best equipped for the change are Japan, the US, and France, while China and Brazil are the worst. Overall, bigger companies are generally better prepared for external auditing.
“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 ESG Audit Leader Maura Hodge.
@KPMG's latest report, "Road to readiness: KPMG ESG Assurance Maturity Index 2023," is here to reshape our perspective on ESG Assurance. 75% of global companies aren't fully prepared for ESG Assurance. Are you one of them? Read more here: https://t.co/F50IKcVf2a. @KPMG_US pic.twitter.com/408596hzHU
— Maura Hodge (@Maura_KPMGESG) September 26, 2023
For more than half of the unprepared companies, it is hard “to balance ESG assurance goals with the profit expectations of shareholders.”
“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,” said Mike Shannon, Global Head of ESG Assurance at KPMG.
For a proper assessment, the companies must “invest in and improve data quality by applying disclosure control and risk frameworks akin to those used in financial reporting,” the report says.
However, the benefits outweigh the downsides. Greater market share, shareholder value, reputation, and reduced costs and interventions are some of the advantages of having ESG data assured.
“There is an initial cost to becoming ESG assurance ready, but one of the potential benefits is that it allows the company to show how they will operate not only profitably in the long-term, but also sustainably, in a much more credible way,” said George Richards, Partner Head of ESG Reporting and Assurance KPMG in the UK.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Featured Photo Credit: Wikimedia Commons.