Most companies not ready for looming ESG reporting

Recent KPMG research has revealed that only 29 per cent of companies feel ready to have their ESG data assured despite looming regulatory deadlines.

Editor’s note: This story first appeared on HR Leader’s sister brand, Accounting Times.

Less than a third of companies feel ready to have their ESG data independently assured, a figure which is virtually unchanged from nine months ago, according to the latest research from KPMG.

The findings are based on KPMG’s annual ESG Assurance Maturity Index, which analysed responses from 1,000 senior executives and board members at organisations across industries, global regions and revenue sizes.

The research classifies organisations based on their progress in preparing for ESG reporting and assurance into three groups: leaders, advancers and beginners. It also calculates a maturity score for each company.

It found that while there was a limited uplift in readiness, some progress is being made by companies concerning ESG reporting and assurance.

The percentage of companies in the leader category has grown, and the average score of those leaders has also increased, with a 6 per cent rise.

The average score for the middle cohort of companies, advancers, had also risen by 3 per cent.

However, it found a widening gap between these groups and beginners, where the average score had fallen by 6 per cent.

The report warned that these companies are reaching the point where “concerted action is needed”.

KPMG global head of audit Larry Bradley said getting reach for ESG assurance is a journey, and companies are finding the further they get in that journey, the more there is to do and learn.

“The goal line is continually evolving. That is why progress may appear slow, even though many companies have truly been taking significant steps,” Bradley said.

“This effort will pay off – boards are increasing their focus on it and leaders are reporting a growing range of benefits as the discipline involved in getting ready for ESG assurance permeates across systems, processes, controls and governance.”

The research also found that the higher a company’s revenue, the more likely it is to be advanced in its ESG assurance preparations.

“At companies with revenues of over $100 billion, the score peaks at 69.5 on a scale of 0-100, while for those with revenues under $5 billion, it’s at only 39.3,” KPMG said.

Assurance level

Close to two-thirds of organisations now obtain limited assurance over some or all of their disclosures, while just over half receive reasonable assurance over some or all.

The proportion of companies obtaining limited and reasonable assurance has increased from last year, according to the research.

“Only 9 per cent of respondents do not obtain any external assurance currently,” said KPMG.

KPMG said that with external assurance set to be a regulatory requirement in many jurisdictions in the next couple of years, companies will need to move further along the process to be ready.

Supply chain focus

With supplier information and data key to many aspects of ESG, such as calculating Scope 3 carbon emissions, companies are also increasing their demands of suppliers.

“Amongst leaders, over four in 10 now place robust, product-specific requirements on their suppliers, up from 28 per cent in 2023,” the firm said.

The research indicates that more leaders are requesting suppliers to provide ESG data into their own systems and integrating screening into supplier onboarding.

“There has also been a rise in leaders requesting the supplier obtains ESG assurance, although this is still at relatively early stages, increasing from 10 per cent to 23 per cent,” KPMG said.