WHILE three-quarters of companies surveyed are not ready to have their environmental, social and governance (ESG) data audited externally, the remaining one-quarter confident of ESG disclosures still have a lot of work to do, according to KPMG’s research.

For those least ready for standardised ESG disclosures, based on the inaugural KPMG ESG Assurance Maturity Index, challenges remain at balancing ESG assurance goals with the profit expectations of shareholders.

The index published on Tuesday (Sep 27) comprised five areas – governance, skills, data management, digital technology and value chain – in measuring the relative maturity of a company’s ESG reporting programme.

Among the 750 companies surveyed between April and June globally, only 25 per cent feel they have the ESG policies, skills and systems in place to be ready for ESG assurance. However, KPMG believed that these companies, with an average index score of 64.8 on a scale of zero to 10, still have much room to progress for the most part.

“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.

The consultancy indicated that now is the time for companies to build and improve their ESG reporting processes and become ready for external auditing with assurance.

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The International Sustainability Standards Board (ISSB) launched two new disclosure standards on Jun 26, which will be effective for annual reporting periods beginning on or after Jan 1, 2024.

“Soon, third-party assurance will no longer be a nice to have; it will be table stakes,” said Maura Hodge, ESG audit leader of KPMG in the US.

Almost 70 per cent of the surveyed companies said their firms must now report ESG data or will be required to soon. The percentage is even higher at 78 per cent for listed companies.

Slightly over half of the companies have external auditing of their ESG disclosures, but only 30 per cent of the half are obtaining reasonable or limited assurance for all the disclosures as the new rules will require, according to KPMG.

Tomokazu Sekiguchi, partner and head of the department of professional practice, disclosure of KPMG in Japan, highlighted that sustainability-related information is increasingly integrated into financial analysis of investors. “Companies should seriously consider how to ensure sufficient data quality (in ESG reporting).”

In Singapore, analysts have pointed out the strong interest of ISSB in the Republic and the wider regional market, expecting an accelerated adoption of the new reporting framework in South-east Asia.

Cherine Fok, a partner at KPMG’s ESG advisory arm in Singapore, said that both listed and large non-listed companies in the Republic will soon be required to report climate-related disclosures, in alignment with the ISSB standards. “Companies should anticipate (the) continued evolution of disclosure and assurance requirements, (and respond) to the fast-changing landscape.”

She added that during the policy transition, Singapore companies should ensure sound ESG governance, develop industry-specific reporting methodology, as well as align ESG disclosures with financial reporting.

She also recommended that companies begin preparing by conducting a readiness assessment to identify gaps, and developing a master plan to pace the transition. “Proactive steps today can facilitate a smoother transition for Singapore businesses, strengthening trust and confidence among investors and business partners,” she said.

Following the new ISSB standards in June, the Monetary Authority of Singapore (MAS) has launched a consultation on a proposed code of conduct that requires providers of ESG ratings and data to disclose how forward-looking considerations are factored into their products.

MAS is also working with the Singapore Exchange and the Secretariat of the Climate Data Steering Committee to enhance global access to the ESG reporting of Singapore Exchange-listed companies.