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Only 29% of companies ready for ESG assurance, KPMG finds

Only 29% of companies ready for ESG assurance, KPMG finds

Latest research from KPMG reveals that almost one third (29%) of companies feel ready to have their ESG data independently assured, up only a fraction from nine months ago, despite fast-approaching and evolving regulatory deadlines to report on ESG.

In the EU, for example, reports are due to start appearing from the largest companies in early 2025, and this reporting wave will require independent assurance. The findings, presented in KPMG’s annual ESG Assurance Maturity Index (link), are based on responses from 1,000 senior executives and board members at organisations across industries, global regions and revenue sizes.

Assessing companies’ progress in preparing for the demands of ESG reporting and assurance, the research classifies organisations 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, the research does show 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 percent rise.

The average score for the middle cohort of companies – Advancers – has also risen, by 3 percent. 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. The goal-line is continually evolving. That is why progress may appear slow, even though many companies have truly been taking significant steps,” says Larry Bradley, Global Head of Audit at KPMG.

“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.
  • Geographically, France leads the rankings (52.4) as it did in 2023, with Germany climbing to second place (52.3) and Japan securing third (50.2).

Benefits of ESG Assurance Readiness

The advantages of preparing for ESG assurance extend well beyond compliance. Key benefits include increased market share (56%), reduced costs (48%), and the development of new business models (46%). For Leaders, these benefits grow as they progress, with this year’s scores showing significant improvements over last year.

Notable increases include reduced costs (+18 points), enhanced product/service quality (+12), lower business risks (+11), improved staff engagement (+8), better credit ratings (+8), and expanded market share (+6).

Assurance Levels

Regarding assurance, nearly two-thirds (63%) of organisations obtain limited assurance for some or all of their disclosures, while just over half (52%) receive reasonable assurance for some or all. However, this reasonable assurance often covers only a small number of critical KPIs.

Both limited and reasonable assurance figures have risen from last year (50% and 47% respectively). Only nine percent of respondents currently do not obtain any external assurance. With external assurance set to become a regulatory requirement in many jurisdictions within the next few years, companies must advance further in the process to be prepared. In the early years of required assurance, we expect more instances of modified reports on ESG. This is not necessarily negative; a modification highlights an issue that stakeholders need to know.

Over time, as the collection and reporting of information improve, the number of modifications should decrease.

Skills and Resources: A Key Challenge

The most widely cited challenge by respondents (44%) is obtaining and maintaining sufficient internal skills and expertise. This challenge applies across Leaders, Advancers, and Beginners. Given that many businesses are seeking the same skillsets simultaneously and that the required skills are highly specialised, obtaining appropriately skilled and experienced people will be challenging for all.

Over half of companies (54%) plan to hire externally as a result, with the proportion higher among Leaders at 59%. This suggests that as businesses advance in the process, they discover more skills they need to achieve full ESG reporting and assurance maturity.

Supply Chain Focus

With supplier information and data crucial to many aspects of ESG, such as calculating Scope 3 carbon emissions, companies are increasing their demands on suppliers. Among Leaders, over four in ten (42%) now place robust, product-specific requirements on their suppliers, up from 28% in 2023.

More Leaders are requesting suppliers to provide ESG data into their own systems (64%) and integrating ESG screening into supplier onboarding (48%). There has also been a rise in Leaders requesting that suppliers obtain ESG assurance.

“Deadlines are approaching, and the pressure is mounting. At KPMG, we are working diligently to assist our clients in preparing. Our report offers a five-step guide to getting ready for ESG assurance. This area is becoming increasingly important for stakeholders, and companies must rise to the challenge,” says Mike Shannon, Global Head of ESG Assurance at KPMG.

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