Most multinationals unprepared for forthcoming ESG regulations

The regulations, being introduced by the European Union, the US and globally, are slated for implementation in time for 2024’s reporting timeframe; they aim to replace the existing voluntary practices among listed companies on climate-related disclosures to establish more standardised parameters.

On one hand, regulators are largely in agreement over the need for external auditing of sustainability-related data. And while the measures won’t be as comprehensive as those governing industries such as finance, auditing is seen an essential means of giving investors and customers reliable, unbiased information. 

Among primary drivers is the desire to eliminate misleading claims regarding an organisation’s environmental credibility – a behaviour also known as greenwashing. Under the upcoming EU rules, disclosures will be subjected to auditing, and countries adopting the International Sustainability Standards Board’s reporting requirements can also mandate external verification.

However, the study conducted by KPMG shows that just 25% of polled organisations consider themselves adequately prepared for changes on the horizon. Explaining the situation, Larry Bradley, KPMG’s Global Head of Audit has underlined how being “ESG assurance ready” involves understanding the regulatory framework and having the right metrics, robust systems, processes, controls, and governance for managing the data.

Board members from various industries, global regions, and business sizes were also scrutinised by KPMG’s ESG Assurance Maturity Index in a bid to assess corporate readiness. 

Just over 50% of firms involved in the study are deemed to be going through a degree of external auditing for their ESG claims. However, just 14% of them would receive “reasonable assurance” and 16% would receive “limited assurance” for the extent of their ESG disclosures, as per the forthcoming requirements. 

As these new rules call for accurate reporting, companies are required to enhance their controls, processes, and qualitative statements associated with the data. Notably, bigger firms are better equipped for these audits compared to their smaller counterparts. 

In terms of preparedness, the US, France, and Japan, emerged as leading countries, while Brazil and China ranked the lowest. 

Know the risks

As the ESG regulatory landscape matures, it’s never been more important for companies to get their data houses in order so they can effectively measure and qualify their commitments to social and environmental causes. 

But this is a trust issue too, and reputations are on the line: customers need to know that the firms they do business are taking sustainability seriously and making a positive difference to the world we live in.

The issues take centre stage at #RISK London, where experts discuss how companies can embrace ESG, meet compliance standards and prioritise sustainable practices.