Twenty-nine percent of companies feel ready to have their ESG data independently assured, according to a recent study by KPMG.
The data, which reflects an increase of only a fraction from nine months ago, come despite fast-approaching and evolving regulatory deadlines to report on ESG.
KPMG’s annual ESG Assurance Maturity Index is based on responses from 1,000 senior executives and board members at organisations across industries, global regions and revenue sizes, classifying them into Leaders (29%), Advancers (46%) and Beginners (26%) and calculates a maturity score.
Widening gap between Leaders and Beginners
Despite the limited uplift in readiness, KPMG's research reveals that some progress is being made. Not only has the percentage of companies in the Leader category grown, but the average score of those Leaders has also increased, with a 6% rise. The average score for the middle cohort of companies – Advancers – has also risen, by 3%.
However, there is a widening gap between these groups and Beginners - where the average score has fallen by 6 percent. The report warns that these companies are reaching the point where concerted action is needed.
"Getting ready for ESG assurance is a journey – and companies are finding that, the further they get in that journey, the more there is to do and learn," says Larry Bradley, global head of audit at KPMG.
"The goal-line is continually evolving. That is why progress may appear slow, even though many companies have truly been taking significant steps. 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."
Other key research findings include:
- 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 $100bn, the score peaks at 69.5 (on a 0-100 scale), while for those with revenues under $5bn it is 39.3.Â
- Benefits of becoming ready for ESG assurance go far beyond mere compliance – with key expected benefits including greater market share (56%), decreased costs (48%), and new business models (46%).
- For Leaders, the benefits are increasing the further they get in the process, with scores this year rising significantly compared to last year across benefits such as decreased costs (+18 ppts), better product/service quality (+12), reduced business risks (+11), improved staff engagement (+8), better credit rating (+8) and expanded market share (+6).
Assurance levelsÂ
With regards to assurance, 63 % of organisations obtain limited assurance over some or all of their disclosures, while just 52% receive reasonable assurance over some or all.
However, this reasonable assurance is often over a very small number of critical KPIs. These limited and reasonable assurance figures have both increased from last year (50% and 47% respectively).
Just 9% of respondents do not obtain any external assurance currently. With external assurance due to be a regulatory requirement in many jurisdictions within the next couple of years, companies will need to move further along the process in order to be ready.
In the early years of required assurance, we expect that there will be a higher number of instances of modified reports on ESG. But that is not necessarily a bad thing. A modification means that there is a matter that needs to be highlighted to stakeholders. In time, the collection and reporting of information will improve and as a result the number of modifications should reduce.
Skills and resources a key challenge
Obtaining and maintaining sufficient internal skills and expertise is the challenge most widely cited by respondents (44%), and applies across Leaders, Advancers and Beginners.
Obtaining appropriately skilled and experienced people is set to be a challenge for all given that so many businesses are looking for the same skillsets at the same time and also that the skills required are very specialised.
Over half of companies (54%) say they are planning to hire externally as a result – and indeed amongst Leaders the proportion is higher still, at 59%. This suggests that the further businesses advance in the process, the more skills requirements they discover they will need in order to reach full ESG reporting and assurance maturity.
