Large corporations, according to KPMG, are "on the precipice of a new era" of ESG reporting
According to the most recent results of KPMG's Global Sustainability Report, sustainability reporting has steadily increased over the past three decades, while general perceptions concerning environmental, social, and governance (ESG) reporting have undergone significant changes.
As KPMG's report now covers three decades, Rob Fisher, KPMG's ESG leader, said on a webinar addressing the findings, that the data provides "some really meaningful insights about global progress toward sustainability reporting."
The N100 refers to a global sample KMPG conducted on the top 100 corporations in 58 countries, territories, and jurisdictions, whereas the G250 refers to the world's 250 largest companies by revenue based on the 2021 Fortune 500 rankings. According to Fisher, "KPMG’s overall perspective is that companies improve their financial performance when they embed ESG."
ESG engagement, according to Fisher, "is not just about meeting reporting requirements, it’s about making the underlying business more resilient, reducing carbon emission to thrive, and meeting stakeholder expectations."
Historically, environmental impact has been the main emphasis of sustainability reporting for businesses. However, since the introduction of ESG reporting, attention has shifted to the business's exposure to environmental risks and opportunities.
96 percent of the G250 companies currently report on sustainability in some way, which is consistent with the findings of KPMG's most recent study from 2020. All of the top 100 U.S. corporations that are relevant to the country report on sustainability or ESG.
According to Maura Hodge, the leader of KPMG's ESG audit, "that’s one sign that businesses are increasingly recognizing the importance of telling their ESG stories. We really are on the precipice of a new era of reporting. "
One of the report's significant results was that 64 percent of the G250 admitted that climate change poses a risk to their business, while only 49 percent said the same about social factors. But according to Hodge, American businesses are "quite far behind in terms of companies acknowledging the social and governance elements as risks to the business."
According to a press release from KPMG, 43 percent of U.S. corporations recognised climate change as a risk to the business in their annual financial or integrated report, while 13 percent did the same for social factors. Only 4% of respondents aknowlegded the risk of governance elements.
Positively, KPMG's investigation discovered that sustainability leadership in the United States is improving. According to a press release from KPMG, 23 percent of the top 100 American corporations have sustainability representation at the leadership level.
According to KPMG, "many companies are re-imagining their governance structures over ESG, creating steering committees composed of executive leadership and making strategic decisions about commitments, actions, and disclosures."
The data from KPMG also showed which sectors tend to be more mature with their reporting, with most of them aligning their goals with the Paris Agreement. The top three industries among the N100 that report their carbon targets are the automotive, mining, and technology/media/telecom sectors (TMT).
Between 2017 and 2022, the TMT industry within the G250 experienced a significant increase, with 89 percent reporting their carbon targets, up from 45 percent in 2017. Retail has also made great advances, with the percentage of businesses reporting their carbon objectives increasing from 70% in 2020 to 88% in 2022.
Construction and materials, financial services, and healthcare were the three industries at the bottom where Fisher found more consistent results. While the healthcare industry made great strides within the G250 (from 19% reporting carbon objectives in 2020 to 60% in 2022), he noted that it is "still quite far behind other mature industries in terms of target setting and reporting."
Among the report's other important findings are that 69 percent of the G250 define "material" issues as those that have an effect on the company, its stakeholders, and, in some situations, the larger community. In addition, 72 percent of the G250 reveal the results of their materiality assessments.
While the Sustainability Accounting Standards Board (SASB) is the most dominant reporting standard in the United States, with 75% of the N100 reporting against it, the Global Reporting Initiative (GRI) is the most widely used reporting standard globally.
34 percent of N100 businesses and 61 percent of the G250 have adopted the Task Force on Climate-Related Financial Disclosures (TCFD).
The overarching message, according to Hodge, is to "start now" and "start somewhere" for businesses who are just starting their ESG reporting journey and may feel overwhelmed. Regardless of how you define it, start with a materiality assessment. A excellent place to start, according to her, is to evaluate the effect ESG has on your organization, consider the risks and possibilities, and then further match them with the company's more general business goals.
Additionally, Hodge continued, "companies can start to establish a cross-functional governance structure. ESG can be used to create value for your organization, and so identifying what that strategy is on how to generate value out of ESG issues is really important to have a foundation and be able to create a vision for your organization to move forward."
The fact that "climate disclosures are not only about meeting reporting requirements, but also about having the data and insights to bring consistent, comparable, and decision-useful information to investors," according to Hodge, is another crucial thing to bear in mind. "So, as you’re crafting disclosures, as you are pulling all this information together, think about what story you’re trying to tell around what you are doing to address risks to the business of climate change—and potentially combat it, if that is part of your overall strategy."
By fLEXI tEAM