Companies unprepared for new ESG rules

A recent report from KPMG has highlighted the worrying reality that three-quarters of companies worldwide are ill-prepared for the imminent overhaul in environmental, social and governance (ESG) regulations.

KPMG’s findings reveal the vast majority of 750 global companies surveyed are on the back foot as they grapple with the challenges of having their ESG data audited externally. This comes mere months before an array of new regulatory demands are set to reshape how businesses report on sustainability efforts.

The narrative surrounding ESG disclosures is set to undergo significant transformation. On the horizon is a slew of stricter guidelines set by the European Union, the U.S., and other global entities, predominantly coming into effect in the 2024 reporting cycle. This revamped regulatory framework aims to phase out the existing disparate voluntary practices, propelling listed companies towards more transparent climate-related disclosures.

Such meticulous external auditing of sustainability-oriented data, regulators argue, is paramount. While not yet mirroring the depth of financial auditing, its significance cannot be understated in its ambition to arm investors with authentic information and eliminate the menace of greenwashing.

KPMG’s comprehensive survey encapsulated diverse companies in terms of region, industry, and revenue brackets. The numbers are telling. A mere 52% of companies presently subject their ESG disclosures to an audit. Alarmingly, of this fraction, only about 30% have achieved “limited” or “reasonable” alignment with the impending audit standards.

Global disparities in preparedness

The proposed EU regulations mandate audited disclosures. Concurrently, nations adopting the International Sustainability Standards Board’s (ISSB) guidelines can mandate external verification.

“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, KPMG’s Global Head of Audit.

The level of preparedness, KPMG notes, varies starkly across geographies. Companies in France, Japan, and the U.S. appear more audit-ready, demonstrating a proactive approach. On the flip side, Brazil and China have showcased the least readiness, signalling potential challenges in these markets.

Stewardship, engagement, and the way forward

In these evolving times, the virtues of stewardship and engagement stand out more than ever. A robust ESG strategy is not just about compliance but encapsulates a company’s commitment to responsible business practices, transparency, and sustainability. Genuine engagement with stakeholders and proactive stewardship practices can shape a company’s ESG journey and its holistic growth trajectory.

Asset managers can guide companies through these waters with SI Engage. The platform offers a suite of tools designed to bolster ESG engagement efforts, and in these transformative times, leaning on technology can make the difference between leading the charge and playing catch-up.

Contact us to book a demo and find out more.

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