• KPMG research finds 29% of companies feel they have the ESG policies, skills and systems in place to be ready for independent ESG data assurance
• This is virtually unchanged from nine months ago (25%)
• Gap between leading companies and those in the early stages of Assurance readiness is widening
• Skills and resources seen as the single biggest challenge for all levels of maturity
• Focus on suppliers and supply chains is increasing – Amongst Leaders, over four in ten (42%) now place robust, product-specific requirements on their suppliers, up from 28% in 2023.

Latest research from KPMG reveals that almost one third (29%) of companies feel ready to have their ESG data independently assured, up only a fraction from nine months ago, despite fast-approaching and evolving regulatory deadlines to report on ESG. In the EU, for example, reports are due to start appearing from the largest companies in early 2025, and this reporting wave will require independent assurance.

The findings, presented in KPMG’s annual ESG Assurance Maturity Index (link), are based on responses from 1,000 senior executives and board members at organizations across industries, global regions and revenue sizes.

Assessing companies’ progress in preparing for the demands of ESG reporting and assurance, the research classifies organizations into Leaders (29%), Advancers (46%) and Beginners (26%) and calculates a maturity score.

Widening gap between Leaders and Beginners

Despite the limited uplift in readiness, the research does show that some progress is being made. Not only has the percentage of companies in the Leader category grown, but the average score of those Leaders has also increased, with a 6 percent rise. The average score for the middle cohort of companies – Advancers – has also risen, by 3 percent.

However, there is a widening gap between these groups and Beginners - where the average score has fallen by 6 percent. The report warns that these companies are reaching the point where concerted action is needed.

Larry Bradley, Global Head of Audit at KPMG, said: “Getting ready for ESG assurance is a journey – and companies are finding that, the further they get in that journey, the more there is to do and learn. The goal-line is continually evolving. That is why progress may appear slow, even though many companies have truly been taking significant steps. This effort will pay off – Boards are increasing their focus on it and Leaders are reporting a growing range of benefits as the discipline involved in getting ready for ESG assurance permeates across systems, processes, controls and governance.”

Other key research findings include:

• The higher a company’s revenue, the more likely it is to be advanced in its ESG assurance preparations. At companies with revenues of over $100bn, the score peaks at 69.5 (on a 0-100 scale), while for those with revenues under $5bn it is 39.3.
• Geographically, France tops the scores (52.4) as it did in 2023, while Germany has moved up strongly to second place (52.3) and Japan is third (50.2).
• Benefits of becoming ready for ESG assurance go far beyond mere compliance – with key expected benefits including greater market share (56%), decreased costs (48%), and new business models (46%).
• For Leaders, the benefits are increasing the further they get in the process, with scores this year rising significantly compared to last year across benefits such as decreased costs (+18 ppts), better product/service quality (+12), reduced business risks (+11), improved staff engagement (+8), better credit rating (+8) and expanded market share (+6).

Assurance levels

With regards to assurance, nearly two-thirds (63 percent) of organizations obtain limited assurance over some or all of their disclosures, while just over half (52 percent) receive reasonable assurance over some or all. However, this reasonable assurance is often over a very small number of critical KPIs. These limited and reasonable assurance figures have both increased from last year (50 percent and 47 percent respectively). Just nine percent of respondents do not obtain any external assurance currently. With external assurance due to be a regulatory requirement in many jurisdictions within the next couple of years, companies will need to move further along the process in order to be ready.

In the early years of required assurance, we expect that there will be a higher number of instances of modified reports on ESG. But that is not necessarily a bad thing. A modification means that there is a matter that needs to be highlighted to stakeholders. In time, the collection and reporting of information will improve and as a result the number of modifications should reduce.

Skills and resources a key challenge

Obtaining and maintaining sufficient internal skills and expertise is the challenge most widely cited by respondents (44%), and applies across Leaders, Advancers and Beginners. Obtaining appropriately skilled and experienced people is set to be a challenge for all given that so many businesses are looking for the same skillsets at the same time and also that the skills required are very specialized. Over half of companies (54%) say they are planning to hire externally as a result – and indeed amongst Leaders the proportion is higher still, at 59%. This suggests that the further businesses advance in the process, the more skills requirements they discover they will need in order to reach full ESG reporting and assurance maturity.

Supply chain focus

With supplier information and data key to many aspects of ESG, such as calculating Scope 3 carbon emissions, companies are increasing their demands of suppliers. Amongst Leaders, over four in ten (42%) now place robust, product-specific requirements on their suppliers, up from 28% in 2023. More Leaders are requesting suppliers to provide ESG data into their own systems (64%) and integrating ESG screening into supplier onboarding (48%). There has also been a rise in Leaders requesting the supplier obtains ESG assurance, although this is still at relatively early stages, increasing from 10% to 23%.

But this is another area where the gulf between Leaders and Beginners shows through. Most Beginners (78%) still only have basic requirements of their suppliers, such as anti-bribery and corruption stipulations in contracts and legal documents – unchanged from last year.

Time for action

Mike Shannon, Global Head of ESG Assurance at KPMG, said: “Deadlines are getting closer and the pressure is on. At KPMG, we are working hard to help our clients prepare. Our report includes a five-step guide to getting ready for ESG assurance. It’s an area that is becoming an increasingly important focus for companies’ stakeholders – corporations now have to rise to the challenge.”

On behalf of KPMG in Cyprus, Kypros Christofides, Board Member and ESG Assurance Leader, commented: «Many companies are still in early stages of preparation for ESG assurance as regulatory deadlines approach. The divide between leading companies and those at the beginning of their ESG journey is growing, with skills and resources identified as key challenges. However, there is noticeable progress in enhancing supply chain ESG compliance. The path to ESG assurance is complex and evolving, but with ongoing effort and focus, companies can meet these new requirements and achieve significant benefits».