Many companies lack the policies, skills and systems to ensure the environment, social and governance (ESG) data they pass to investors and regulators is accurate and clean, according KPMG’s inaugural ESG Assurance Maturity Index.
The index captures the views of senior executives and board members at 750 companies with an average revenue of $15.6 billion.
They hail across industries, global regions and revenue sizes, measuring the progress companies have made in key areas to gauge their relative maturity for being ‘ESG assurance ready’.
Respondents were ranked as either leaders (top 25%), advancers (next 50%), or beginners (bottom 25%) based on their maturity.
The KPMG survey found that larger and listed companies with annual revenue above $10bn were better prepared to have their data assured, mostly because they had mature ESG processes in place already.
However, three-quarters of companies were still in the early stages of their ESG maturity, and therefore had weaker assurance processes.
Within industries, the energy and natural resources sectors were most prepared, with an index score of 50.7.
Scores are calculated by considering the level of assurance preparedness that companies show in their governance, skills, data management, digital technology and value chains.
The report said banking, insurance and asset management companies scored a little lower but accounted for an equal proportion of “leaders” – those in the highest quartile of index performers.
Among leaders, companies based in France achieved higher index scores while those headquartered in Japan accounted for a higher proportion of firms in the top quartile.
The survey found that most companies were driven to assurance by regulatory pressures, but that a majority saw a business benefit in gathering and disclosing good quality ESG data.
Chief among those were gaining greater credibility with investors and stakeholders and winning market share.
“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, head of ESG reporting and assurance at KPMG in the UK.
The lack of assurance preparedness does not bode well for investors as they brace for a surge of new ESG data from recent regulatory changes.
Under EU regulations alone, over 50,000 companies are expected to be added to the list of those disclosing such data in 2024.
“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,” said Maura Hodge, ESG audit leader at KPMG in the US.
She added, “Now is the time for companies to establish their processes and become assurance ready.”
Data assurance is a central plank of the EU’s Corporate Sustainability Reporting Directive, the first reports for which are due next year.
Regulators in the UK and the US are also preparing to enact rules that require independent audits of data as part of incoming ESG disclosure rules.
The study also noted that ensuring better data for investors, assurance is seen as an important step in tackling greenwashing.
ESG has come under criticism due to the lack of comparability between datasets, partly attributable to poor-quality information.
With measures in place to ensure data are accurate and complete, participants hope that the likelihood of accidental greenwashing will be eliminated and deliberate obfuscation will become more difficult.
The report said that while the initial scores suggest a lack of readiness to meet the assurance demands of looming regulations, companies are at least aware of their responsibilities and most are beginning to put processes in place.
The report suggests five steps to improve assurance readiness, including the building of robust ESG governance and the digitisation of ESG data processes.
It also recommends developing the right skills, identifying the applicable ESG disclosures and necessary data requirements as well as working with the value chain to collect ESG information
© Markets Media Europe 2023
