KPMG 2023 Survey: Only 1/4 of Firms are Ready for ESG Reporting Requirements
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A recent KPMG survey found that just 25% of surveyed business leaders express confidence in meeting future ESG reporting requirements, despite an increasing reliance on ESG strategies for added business value. The "KPMG U.S. ESG Survey" involved over 200 business leaders responsible for their companies' ESG strategies, primarily from North American companies with revenue exceeding $1 billion across diverse industries.
Sustainability Goals are More Aligned with Corporate Objectives
The survey revealed that business leaders perceive a growing alignment between their sustainability goals and their corporate strategies. 43% of respondents reported that their company's business objectives and environmental goals are now more closely integrated than they were five years ago. Larger companies, those with over 10,000 employees, demonstrated an even stronger alignment at 66%.
Among the key findings, M&A effectiveness emerged as the top area where ESG activities added significant value to businesses, with 41% of respondents acknowledging that ESG engagement provided substantial financial benefits. Other notable areas of value included accessing new sources of capital (35%) and retaining customers (34%).
Indeed, despite economic uncertainties, many business leaders have intensified their focus on ESG activities. In contrast to a 2022 KPMG survey which indicated that 59% of respondents were considering scaling back or pausing their ESG efforts in light of a potential recession, the new survey revealed that 55% of businesses had actually increased their ESG efforts.
Rob Fisher, KPMG U.S. ESG Leader, emphasizes that ESG offers businesses a clear opportunity to stand out and to gain a competitive edge: “This past year was a classic moment in having to balance short-term uncertainty with long-term goals. Businesses that recognize they need to make investments today will be in a better position to capitalize on those investments, attracting new investors and customers while improving their resilience over the long term.”
Growing Pressure with Lack of Reporting Confidence
Although two-thirds of these businesses anticipate having to report in multiple jurisdictions, regulators were not cited as the primary source of pressure. Instead, 88% of respondents reported that they are feeling pressure from supply chain partners who are demanding increased ESG reporting and transparency. Other sources of pressure include employees (82%), institutional investors (81%), and customers (81%).
Despite the growing pressure, just 53% of respondents feel somewhat confident about meeting ESG reporting requirements in the U.S and only 25% are confident about meeting future requirements in the U.S., EU, and other regions. Additionally, more than 40% have slowed or entirely suspended their ESG reporting activities as they wait for the Securities and Exchange Commission (SEC) to finalize its own climate-related reporting regulations by the end of this year.
The most significant reporting challenges highlighted in the survey are recruiting the right talent for ESG initiatives, balancing ESG goals alongside other business priorities, and coping with the high resource and talent costs associated with managing reporting across various jurisdictions. Time constraints, regulatory uncertainties, and the need for effective stakeholder engagement add to the complexity.
Maura Hodge, KPMG U.S. ESG Audit Leader, highlights the need to address these challenges with ESG reporting requirements already in effect: “The very cautious confidence among companies on reporting underscores the urgency to align one’s reporting approach with business strategy today.”
Prospective Use of Generative AI for Achieving ESG Objectives
In terms of using Generative AI for achieving ESG goals, the survey reveals an uncertainty amongst respondents about its transformative impact. Approximately 77% of respondents are currently evaluating whether Generative AI can serve as a catalyst for sustainable initiatives, while only 18% are already certain about its potential. Over half do anticipate that Generative AI can help them achieve ESG objectives by reducing operational inefficiencies and waste. Tegan Keele, KPMG U.S. Climate and Technology Leader, states: “To fully realize the benefits of Gen AI, a strong foundation of reliable data is crucial. By pairing data and technology strategies, companies can unlock the full potential of Gen AI and gain a competitive advantage.”
Key Takeaways
The KPMG U.S. ESG Survey paints a dynamic portrait of the corporate world's journey towards a more sustainable future. While challenges with ESG reporting persist, there is an encouraging trend of businesses integrating sustainability goals with their core strategies instead of solely focusing on meeting the regulatory criteria. As stated by Rob Fisher, “The fact is there are many levers by which ESG can add financial value, but that also requires deep enterprise-wide engagement to maximize the potential and gain a competitive edge throughout the transition to a low-carbon economy.”
Screenshot from KPMG Survey
