Three-Quarters of Firms Globally Are Not Ready for New ESG Rules: KPMG Report

October 16, 2023

Three-quarters of companies globally are not ready to have their environmental, social and governance (ESG) data audited externally months before new regulations kick in, according to a new report from KPMG.

Stricter European Union, U.S. and global rules are being introduced, mostly in time for the 2024 reporting season, to replace a patchwork of voluntary private sector practices for listed companies to make climate-related disclosures.

Regulators say external auditing of sustainability-related data – while not as extensive as financial auditing – is crucial for giving investors information free of misleading environmental claims, known as greenwashing.

The EU rules will require disclosures be audited while countries adopting the International Sustainability Standards Board’s reporting requirements can also demand external checking.

Yet of 750 companies surveyed by KPMG, only 25% feel they are sufficiently prepared.

“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.

KPMG’s ESG Assurance Maturity Index assessed the views of executives and board members across industries, regions and different firm sizes to measure companies preparedness.

Just over half of companies surveyed currently get some level of external auditing of their ESG disclosures, but of those, only 14% are obtaining reasonable assurance and 16% limited assurance for all of their ESG disclosures as new rules will require, according to KPMG’s research.

“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,” Mike Shannon, Global Head of ESG Assurance at KPMG, said.

Larger companies are better prepared for auditing than smaller firms, KPMG found.Among countries, France, Japan and the United States came out on top; Brazil and China ranked worst.