New ESG rules still too much for three in four companies

It’s the worry that plagues businesses across the globe as regulators get tough on how companies report sustainability: with all the new rules and requirements, do businesses realistically have the capacity to cope? 

We’ve seen data before suggesting there’s still a worrying amount of catch-up. And now, the latest figures come from a new KPMG report titled Road to trust: KPMG ESG Assurance Maturity Index 2023. 

It questioned senior executives and board members from 750 of various sizes and industries across the globe.

Only a quarter of surveyed companies think they have the necessary elements to be ready for ESG audits. 

The rest feel they are missing policies, skills, or other processes to be adequately prepared. Some believe they are missing a combination of these. 

The news comes ahead of an expected introduction of new ESG rules in some of the world’s most profitable business jurisdictions – the European Union and the United States. All expect more thorough reporting and audits going forward.

• As we should expect, readiness for ESG audits is higher among companies with ESG-oriented boards, more ESG controls, and devote considerable attention to ESG training. 
• Half the respondents see more value in ESG assurance than simple compliance. This cohort also thinks ESG assurance will “spur innovation, strengthen reputation and reduce costs”. The figures suggest significant overlap – many companies who feel they aren’t ready for ESG reporting requirements still recognise that they can benefit from getting better at it.
• Larger companies are more ready for ESG assurance than smaller ones.

KPMG’s global head of ESG assurance, Mike Shannon, said the new ESG reporting environment “raises the bar” on what companies need to do for adequate compliance. 

“While most companies have been doing some voluntary reporting on sustainability issues, they typically didn’t subject that reporting to the same rigour, controls and oversight that will be needed to meet the new regulatory requirements to be assured,” he said.

Not really. Regulators have been targeting tougher ESG data requirements for some time, and industries have openly flagged that they will struggle to keep up – at least in the beginning. 

In early 2023, research from Deloitte found that four of every five senior executives were not satisfied that their company could accurately report on ESG.

We need to rewind a step first. Worry shouldn’t be anyone’s initial question; rather, it should be, “Can my company conform to any new ESG rules?”

There’s little room to hide in this regard. The EU and the US are introducing new sustainability reporting standards that companies must follow. If you don’t do business in one of these jurisdictions, you might be connected to them indirectly. The impact is widespread. 

If you find that the new standards do apply to you and that your company can’t conform in its current capacity, the answer is yes, you should be worried.

Your company needs to reach a point where it has the confidence to adapt to the new normal. 

When it comes to ESG, adaption means having the right policies in place around ESG and the necessary skills among corporate leaders. 

For policies, this means ensuring ESG is appropriately integrated into corporate strategy. It’s not a side project or “something you’ll get to when you have time”. Instead, it sits alongside profit and development as a blueprint for how your company will thrive long term. 

For skills, it’s a question of good governance practice. You should be clear on what expertise you need on your board and executive team. Who is taking the lead on ESG? What can they achieve now?

If they need training, that’s okay! ESG is still relatively new, and the sector is changing constantly. Even the best and brightest can benefit from dedicated education. 

You can find more details here.