Global Companies Unprepared for ESG Data Assurance Despite Mandatory Reporting Standards, KPMG Study Reveals

According to recent research by KPMG, a significant majority of companies (75%) globally believe they are not adequately prepared for independent assurance of their Environmental, Social, and Governance (ESG) data, despite the forthcoming mandatory sustainability reporting standards. The study, which surveyed senior executives and board members at 750 companies across various industries, regions, and revenue sizes, aimed to measure the readiness of companies for ESG data assurance and categorized respondents into leaders (top 25%), advancers (next 50%), or beginners (bottom 25%) based on their maturity in this regard.

Key findings from the research include:

1. Company Size Matters: Larger companies with revenues over $10 billion tend to be more prepared for ESG data assurance, with an average readiness score of 56.3 (on a scale of 0-100). Smaller companies with revenues between $5 billion and $10 billion scored 45.3 on average, and those with revenues under $5 billion scored 41.7 on average.
2. Geographic Variations: The readiness for ESG assurance is relatively consistent among the top-ranking countries (France, Japan, and the US) and the lowest-ranking ones (Brazil and China).
3. Leaders Stand Out: Leaders scored significantly higher in having processes and controls in place for environmental, governance, and social data. They were also more likely to integrate their ESG data systems with financial reporting systems.
4. External Assurance: Only 52% of respondents currently obtain some level of external assurance for their ESG disclosures. However, only a small fraction of these receive reasonable assurance (14%) or limited assurance (16%) for all the ESG disclosures required under incoming regulations.

The report identifies five critical steps taken by leading companies to become ESG assurance ready:

1. Determining Applicable ESG Standards: Companies need to identify the ESG reporting standards that apply to them.
2. Building Robust Governance: Strong ESG governance and the development of relevant skills are crucial.
3. Identifying ESG Disclosures: Understand the applicable ESG disclosures and data requirements.
4. Digitizing ESG Processes: Ensure high-quality data by digitizing ESG data processes.
5. Value Chain Collaboration: Collaborate with the value chain to collect ESG information.

Robust governance serves as the foundation for ESG assurance readiness. Among leaders, ESG is a priority for CEOs and boards, and they have a better understanding of ESG assurance issues. In contrast, companies less prepared for ESG assurance find it challenging to balance ESG goals with shareholder profit expectations.

Overall, the research underscores the increasing importance of ESG in corporate strategies, with the potential to not only ensure regulatory compliance but also to enhance market share as values align with customers and investors.