KPMG finds large companies ‘on the precipice of a new era’ of ESG reporting

Because KPMG’s report now spans three decades, the data provides “some really meaningful insights about global progress toward sustainability reporting,” Rob Fisher, KPMG’s ESG leader, said on a webinar discussing the results.

For the sake of this report, the G250 refers to the world’s largest 250 companies by revenue based on the 2021 Fortune 500 rankings, while N100 refers to a worldwide sample KMPG did on the top 100 companies in 58 countries, territories, and jurisdictions. “KPMG’s overall perspective is that companies improve their financial performance when they embed ESG,” Fisher said.

“ESG engagement is not just about meeting reporting requirements; it’s about making the underlying business more resilient, reducing carbon emission to thrive, and meeting stakeholder expectations,” Fisher added.

Historically, sustainability reporting has focused on a company’s impact on the environment. With the advent of ESG reporting, however, the focus has expanded to look at the risks and opportunities of environmental issues to the business.

Among the G250, 96 percent are providing some form of sustainability reporting today, mirroring the finding of KPMG’s last report in 2020. Relevant to the United States, all the top 100 U.S. companies report on sustainability or ESG.

“That’s one sign that businesses are increasingly recognizing the importance of telling their ESG stories,” Maura Hodge, KPMG’s ESG audit leader, said on the webinar. “We really are on the precipice of a new era of reporting.”

Key findings

Among the key findings from the report, 64 percent of the G250 acknowledged that climate change is a risk to their business, while 49 percent acknowledged social elements as a risk. The United States, however, is “quite far behind in terms of companies acknowledging the social and governance elements as risks to the business,” Hodge said.

Specifically, according to a KPMG press release, 43 percent of U.S. companies in their annual financial or integrated report acknowledged climate change as a risk to the business, while 13 percent acknowledged social elements as a risk to the business. Only 4 percent acknowledged governance elements as risk.

On a positive note, KPMG’s analysis found that leadership around sustainability is improving in the United States. Today, 23 percent of the top 100 companies in the United States have sustainability representation at the leadership level, according to the KPMG press release.

“Many companies are re-imagining their governance structures over ESG; creating steering committees composed of executive leadership; and making strategic decisions about commitments, actions, and disclosures,” KPMG stated.

Industry trends

KPMG’s data further highlighted which industries tend to be more mature with their reporting, with most aligning their targets to the Paris Agreement. Among the N100, the top three industries reporting their carbon targets are automotive, mining, and technology/media/telecom (TMT).

Among the G250, the TMT industry made a big jump between 2017 and 2022, with 89 percent reporting their carbon targets in 2022, up from 45 percent in 2017. Retail has also made tremendous strides, jumping from 70 percent of companies reporting their carbon targets in 2020 to 88 percent in 2022.

Fisher noted more consistent findings among the bottom three industries—construction and materials, financial services, and healthcare. Among the G250, for example, while the healthcare industry made significant progress (from 19 percent reporting carbon targets in 2020 to 60 percent in 2022), it is “still quite far behind other mature industries in terms of target setting and reporting,” he said.

Regulation and reporting framework trends

Among other key findings from the report: 72 percent of the G250 disclose results of their materiality assessments, and 69 percent define “material” issues as those that have an impact on the company, its stakeholders and, in some cases, the broader society as a whole.

While the Global Reporting Initiative (GRI) is the most popular reporting standard globally, the most dominant reporting standard in the United States is the Sustainability Accounting Standards Board (SASB), with 75 percent of the N100 reporting against it.

As it concerns the Task Force on Climate-Related Financial Disclosures (TCFD), 34 percent of N100 companies have adopted it, as have 61 percent of the G250.

Broader ESG messages

For companies just now beginning their ESG reporting journey that might feel overwhelmed, Hodge said the headline message is to “start now” and “start somewhere.” Start with a materiality assessment, however you define it. Assessing the impact ESG has on your business and contemplating the risks and opportunities, and further aligning those with the company’s broader business objectives, is a great place to start, she said.

“In addition to that, companies can start to establish a cross-functional governance structure,” Hodge added. “ESG can be used to create value for your organization, and so identifying what that strategy is on how to generate value out of ESG issues is really important to have a foundation and be able to create a vision for your organization to move forward.”

Also important to keep in mind is “climate disclosures are not only about meeting reporting requirements but also about having the data and insights to bring consistent, comparable, and decision-useful information to investors,” Hodge said. “So, as you’re crafting disclosures, as you are pulling all this information together, think about what story you’re trying to tell around what you are doing to address risks to the business of climate change—and potentially combat it, if that is part of your overall strategy.”