Despite high integration of ESG data systems, only 25% of companies feel they have the policies, skills, and systems in place to be ready for independent ESG data assurance.
The survey, Road to trust: KPMG ESG Assurance Maturity Index 2023, polled senior executives and board members at 750 companies across industries, global regions, and revenue sizes.
According to Larry Bradley, Global 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.”
The survey found that companies valued at over $10 billion tend to be more ESG assurance-ready, with an average score of 56.3 on a 0-100 scale. Meanwhile, organisations with $5-10 billion scored 45.3 on average, and those under $5 billion scored 41.7.
According to the report, 50% of ‘Leaders’ (ranked in the top 25% of companies in terms of ESG assurance maturity) have documented, put in-place, and tested processes and controls for environmental data, compared to just 14% of other respondents. The similar was seen for governance data (52% to 19%) and social data (45% to 16%).
The vast majority (87%) of those ‘Leaders’ are also integrating their ESG data systems with financial reporting systems, compared with only 35% of others. This is seen as important because it allows companies to gain the benefit of consistent financial controls over non-financial data.
The survey also found that almost half (52%) of respondents are obtaining some level of external assurance over their current ESG disclosures. But, of those, just a fraction are obtaining ‘reasonable assurance’ (a lower level of assurance) or ‘limited assurance’ (a higher level of assurance) at 14% and 16% respectively, over all of their ESG disclosures that will be required under incoming regulations. This signals that there is still more progress to be made on their ESG assurance maturity journey.
The news may be seen as somewhat disturbing, especially as the deadline for new regional and international sustainability reporting standards looms.
“While most companies have been doing some voluntary reporting on sustainability issues, they typically didn’t subject that reporting to the same rigour, controls and oversight that will be needed to meet the new regulatory requirements to be assured,” said Mike Shannon, Global Head of ESG Assurance at 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.”
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. Despite this, almost half of all respondents (54%) say that ESG assurance can increase market share, especially as the company’s values become more aligned with like-minded customers and investors.
Steps to Improve ESG Assurance Maturity
The report identifies five critical steps that leading companies are taking to become ESG assurance ready:
- Determining applicable ESG reporting standards
- Building robust ESG governance and developing the right skills
- Identifying the applicable ESG disclosures and necessary data requirements
- Digitising ESG data processes and ensuring high-quality data
- Working with the value chain to collect ESG information
