Impact Investing Conference

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Impact Investing Forum 2024

London. April 24-25, 2023.

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Momentum for environmental, social and governance reporting is building, creating an urgent imperative for boards, audit committees and management to strategically develop an ESG framework and report its impact to the capital markets and other stakeholders.

So how can leaders act today to prepare for rapidly approaching tomorrow?

Lead with purpose. Rally your team to truly embed ESG into strategy.

Traditionally, ESG is discussed as something companies react to. Whether it’s investor, talent or customer demands, or imminent regulation, the starting point too often centers on responding to others’ demands.

Leading businesses are recognizing that ESG is also an opportunity to unlock value today and tomorrow. Understanding what’s material to the business and developing and operationalizing a strategy that addresses those risks and opportunities head-on can align talent, investors, and customer passions to profitably tackle big societal challenges.

Successfully embedding ESG into strategy will require incorporating ESG into existing Enterprise Risk Management, policy making, strategic decision making and reporting processes. It’s not an easy task, but we’ve seen similar transformation exercises – digital and cloud – for example that may have felt challenging, but proved to be an invaluable differentiator on the other side.

Prepare now. Standards aiming for global scale are coming.

Momentum is palpable towards globally scaled standards. For example, the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) recently merged to develop a more harmonized global standard. Likewise, the International Financial Reporting Standards (IFRS) Foundation is preparing to launch an international Sustainability Standards Board at the UN’s COP26 climate summit. Lastly, on the heels of European Union’s Corporate Sustainability Reporting Directive (CSRD), the SEC is expected to release more information on its approach this Fall.

With standards and frameworks proliferating across the globe, KPMG supports the development of a baseline global ESG reporting standard to reduce complexity and achieve greater relevance, consistency, reliability, and comparability in ESG reporting.

We believe that development of a global reporting baseline will simplify disparate activity occurring in the market among standard setters. Today, 84 percent of the top 250 companies globally report using some standard, framework or guidelines. That includes GRI, TCFD, SASB, UN SDGs and stock exchange guidelines, among others.

Leaders should begin understanding the various standards, scenario plan for different outcomes, and begin tackling the implications.

Understand context to truly own your story. Benchmark peer reporting to understand evolving expectations. Already, more and more companies are reporting ESG impacts, but reporting strategies vary by industry, geography, and company.

For example, 58 percent of the top 100 North American companies report climate risks and 32 percent report using the Task Force on Climate-related Financial Disclosures (TCFD) guidelines. However, this varies greatly by industry with automotive and oil and gas leading the way globally.

Regardless of which standard they use, 71 percent of the top 250 companies globally, obtain independent assurance for their sustainability reporting, up from 30 percent in 2005. That assurance is driving comfort and confidence around the data, allowing business leaders to evidence they are moving toward achieving their ESG goals.

But, what to report? Where to report? And whether to assure? These questions are strategic choices for boards, audit committees and management to understand, evaluate, and discuss.

Within this context, it’s important for auditors, businesses, and regulators to consider three things.

First, the move toward a more global ESG standard should be grounded in expertise and due process to deliver a politically neutral and high-quality global standard. Scalability and transition periods to give companies of all sizes — all of which may be at different stages of their ESG journey – should be explored to ensure balance between cost and benefit for the capital markets.

Second, there is a natural trade-off between standards and innovation. We believe this trade-off can be mitigated through a “building block” approach that allows for jurisdictional differences, and also the space for privately developed disclosures.

Third, the data requirements for ESG reporting may supersede financial reporting, especially in the near-term. Today, auditors are focused on extracting and analyzing that data to provide more automated, consistent responses from enterprise resource planning systems across an organization. That challenge will be far greater for ESG data, which likely has not received the same level of investment as data driving financial reporting. Further, ESG demands and expectation will fluctuate more than financial reporting, placing a greater emphasis on a responsive data environment.

Most importantly, when I step back and review the audit profession, our ability to expand our mission in protecting the capital markets hinges on thinking about ESG ourselves. The profession must focus on diversifying our own talent pool, understand our own carbon footprints, and double down on ethics, integrity, and our independence. These will better enable us to understand our client’s challenges and engage productively with them on their ESG journey.

Momentum is continuing to build. There’s lots to do to be ready to meet this moment. Let’s all get started.

Scott Flynn is the Audit Vice Chair at KPMG.


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ESG Investing Conference