Just 25% of Companies are Ready for ESG Data Assurance – GWC Mag

Few companies say they are ready for environment, social, and governance (ESG) assurance as regulatory deadlines loom in the near future. 

That’s according to a recent report from KPMG that found just 25% of companies say they have ESG policies, skills, and systems in place for independent ESG data assurance. That means that the majority of companies still have a ways to go to meet upcoming ESG reporting requirements. It’s likely that the first-ever ESG reporting requirements and international standards will come into action in the coming months — and many companies could be left on their heels.

The findings come from KPMG’s Road to Trust: KPMG ESG Assurance Maturity Index 2023, which queried senior executives and board members at 750 companies across industries, global regions, and revenue sizes.

“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,” Larry Bradley, global head of audit, KPMG, said in a statement. “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.”

Earlier this year, the International Sustainability Standards Board (ISSB) issued its first-ever standards related to sustainability disclosures by companies. The standards aim to create a common language for ESG reporting, ensuring companies provide sustainability-related information alongside financial statements. The standards are being reviewed in the United Kingdom.

Index Highlights

The report found that, by and large, larger companies worth $10 billion and more were more prepared for ESG assurance compared to companies worth $5 billion to $10 billion and those valued less than $5 billion, with respective readiness scores of 56.3 (on a 100-point scale), 45.3 and 41.7.

Around the world, some countries were more prepared than others, with France being the most ready for ESG data assurance. The highest-ranked countries — France (50.4), Japan (50) and the US (49.4) and the lowest-ranking — Brazil (43.1) and China (43) — were fairly close overall, however. 

ESG data reporting also seems to be a top-down approach in most companies, the index indicated.

Among all respondents in the index, leaders were the most prepared across reporting standards. “Leaders ranked more than three times higher than other respondents (50% to 14%) for having processes and controls documented, in place and tested for environmental data, with similar leadership for governance data (52% to 19%) and social data (45% to 16%),” the report stated.

Nearly all — 87% — leaders said they were integrating their ESG data systems with financial reporting systems to gain financial controls over non-financial data. Just 35% of other respondents said the same.

“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,” said Mike Shannon, global head of ESG assurance for KPMG. “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.”