The environmental, social and governance (ESG) space has continued to develop rapidly – even in the midst of the Covid-19 pandemic – amplifying awareness and expectations among investors, regulators and consumers, and driving demand for enhanced ESG-related disclosure and data, according to a recent report.
However, inconsistency, poor verification and a lack of standards remain common problems for ESG data management and disclosure, states the report published by KPMG. With the number of climate regulations and carbon reduction targets continuing to increase, it noted, businesses will have to navigate an increasingly fractured regulatory landscape and enhance their collective commitment to the global climate agenda with carbon reduction plans.
Companies choosing to report using multiple standards or metrics may risk limiting their reporting effectiveness and impact, and increasing complexity and cost. The ESG disclosure landscape is evolving rapidly, the report states, and there will likely be development towards the harmonisation of ESG reporting frameworks and further coalescence towards a global corporate reporting system that considers the interconnectivity between non-financial information and financial reporting.
The report points out that it is time for companies' approach to reporting to evolve to provide a picture of how business value is being developed and protected. Increasingly, investors will push for better reporting, to see reports built around a company’s unique business model, addressing the unique factors that drive long-term value for that business.
Looking ahead, there will be greater need for companies to strengthen their leadership on social and environmental issues and enhance transparency to increase trust. Amid the disruptions and shifts in the business environment, the significance of ESG and opportunity for companies to build business resilience undoubtedly will continue to increase, the report predicts.
“The effects of climate change have been accelerating and will start to affect businesses’ operations, financial performance and competitiveness,” Irene Chu, partner, head of new economy and life sciences, Hong Kong, KPMG China, concludes. “Understanding and proactively addressing climate risks will not only help companies reduce business risks making them more resilient against future shocks, but also create new market demand and opportunities.”
ESG practices can help corporates become more resilient by getting them ready for the impact of emerging issues and helping them maintain robust governance, risk management and controls. As part of a continued focus on providing climate solutions for KPMG firms, clients and society, KPMG has announced its intention to become a net-zero carbon organisation by 2030 and signed up to a series of new climate actions.