Only 25% of Companies Ready to Have ESG Data Independently Assured as Regulatory Deadlines Loom

In Singapore, listed and large non-listed companies may soon be required to report climate-related disclosures in line with new standards launched by the International Sustainability Standards Board (ISSB) in June.

Following this, the Monetary Authority of Singapore (MAS) launched a consultation on the industry code of conduct for providers of ESG ratings and data in Singapore.

However, according to the new KPMG report “ESG Assurance Maturity Index 2023,” only 25% of companies feel they have the ESG policies, skills, and systems in place to be ready for independent ESG data assurance.

Over half of those who feel least ready for ESG assurance say it is challenging to balance ESG assurance goals with the profit expectations of shareholders.

Those most ready for ESG assurance tend to have boards more engaged on ESG issues, conduct regular ESG training, and have controls in place for ESG data.

“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,” said Larry Bradley, Global Head of Audit, KPMG. “Putting those preconditions in place now, in advance of the 2024 reporting cycle, will give companies an advantage not only when it comes to meeting new requirements but capturing the benefits of ESG assurance as well.”

The index captures the views of senior executives and board members at 750 companies 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.

Key findings include:

  • Larger companies (US$10B+) tend to be more ESG assurance ready, with an average score of 56.3 (on a 0-100 scale), compared to companies US$5-10B (45.3 average score) and under US$5B (41.7).
  • Geographically, the ESG assurance readiness of companies is relatively close between the highest-ranking countries – France (50.4), Japan (50.0), and the US (49.4), and the lowest-ranking – Brazil (43.1) and China (43.0).
  • Leaders ranked more than three times higher than other respondents (50% to 14%) for having processes and controls documented, in place, and tested for environmental data, with similar leadership for governance data (52% to 19%) and social data (45% to 16%).
  • 87% of Leaders are integrating their ESG data systems with financial reporting systems to gain the benefit of consistent financial controls over non-financial data, compared with only 35% of others.

From the survey, just 52% of respondents are obtaining some level of external assurance over their current ESG disclosures. Of those just a fraction are obtaining reasonable assurance (14%) or limited assurance (16%) over all of their ESG disclosures that will be required under incoming regulations, signaling that there is still more progress to be made on their ESG assurance maturity journey.

“While most companies have been doing some voluntary reporting on sustainability issues, they typically didn’t subject that reporting to the same rigor, controls, and oversight that will be needed to meet the new regulatory requirements to be assured,” said Mike Shannon, Global Head of ESG Assurance, 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.”