ESG Assurance on the Horizon: KPMG Unveils a Landscape of Opportunity & Challenge for FTSE 100

With the Corporate Sustainability Reporting Directive (CSRD) looming like a back-to-school deadline, KPMG’s latest findings reveal who’s ready for the ESG exam—and who might be cramming at the last minute. The stakes are high, as companies not only face the pressure of ticking all the regulatory boxes but also the challenge of proving to increasingly discerning stakeholders that their sustainability efforts are more than just hot air. Those who are prepared are stepping up to the podium, while the less prepared scramble to catch up, knowing that in this high-stakes game, there’s no room for half-measures or last-minute cramming.

The numbers are in, and it looks like ESG assurance is no longer just a buzzword. In 2023, nearly 80% of FTSE 100 companies got their ESG metrics checked by an external auditor—up 4% from two years ago. This uptick shows that the corporate world is waking up to the fact that ESG isn’t just the new black—it’s the whole outfit. As companies strive to look good in front of stakeholders, ESG assurance is the tailor making sure the fit is just right.

But it’s not all about keeping up appearances. This growing trend reflects a deeper recognition that solid ESG reporting isn’t just a regulatory tick box. It’s a ticket to earning trust, attracting investment, and staying on the right side of increasingly savvy consumers, employees, and investors. In the race to be seen as responsible corporate citizens, a little assurance goes a long way.

Mind the Maturity Gap: Leaders vs. Laggards

While some companies are strutting down the ESG runway, others are still fumbling with their wardrobe choices. KPMG’s 2024 ESG Assurance Maturity Index reveals that only 29% of companies feel confident enough to have their ESG data independently assured. That’s barely an improvement from last year, and it highlights a growing maturity gap between the ESG leaders and the laggards.

So, what’s holding everyone else back? For starters, there’s a serious talent shortage. With everyone scrambling to hire the same ESG experts, the market for specialized skills is hotter than a midsummer heatwave. Over half of the companies surveyed plan to bring in outside help, but with so many businesses vying for the same talent, finding the right people is proving trickier than spotting a British tan in January.

If the talent shortage wasn’t enough, regulatory deadlines are looming like an overzealous office manager. The CSRD is set to hit the EU’s largest companies in early 2025, and it’s not messing around. The directive mandates independent assurance for ESG reporting, meaning companies better get their data in order—or risk being caught out when the bell rings.

For companies still dragging their feet, the CSRD is like a school principal handing out detention slips. It’s not just about meeting the deadline; it’s about doing it right. The directive demands detailed, accurate reporting, and there’s no room for half-hearted efforts. Companies that fail to meet these standards could face serious repercussions, from fines to reputational damage. The message is clear: the time to prepare is now, not when the CSRD is breathing down your neck.

Double Duty: The Rise of the One-Stop Shop

One trend that’s making waves is the increasing use of the same practitioner for both ESG assurance and financial audits. In 2023, nearly half of the FTSE 100 companies that sought ESG assurance went this route—a significant jump from previous years. It’s like hiring one tailor to handle both your work suit and your weekend gear—streamlined, efficient, and, let’s be honest, a little easier on the wallet.

But this isn’t just about convenience. As ESG reporting becomes more complex, with overlapping financial and non-financial data, having one auditor who knows both sides of the business makes sense. For instance, the European Sustainability Reporting Standards (ESRS) require disclosures on risk assessments that dovetail nicely with what auditors already do during a financial audit. It’s a trend that’s likely to keep growing as companies look for ways to simplify their reporting processes while keeping everything above board.

When it comes to ESG assurance, the Big 4 accounting firms—Deloitte, PwC, EY, and KPMG—are still the ones calling the shots. In 2023, 63% of FTSE 100 companies that got their ESG data checked did so with one of these heavyweights. It’s no surprise that the big dogs are dominating, but it does raise questions about whether there’s room for new players or fresh approaches in the ESG assurance game.

On the one hand, sticking with the Big 4 offers the comfort of experience and a proven track record. But on the other, there’s a risk that too much reliance on the same old firms could lead to a lack of innovation. As ESG assurance evolves, companies might find themselves craving a little more variety—or at least some new voices in the mix.

The Timing Game: Synchronizing Reports

Timing is everything, especially when it comes to ESG assurance. KPMG’s findings show that in 2023, only 52% of assurance reports were signed off on the same day as the financial statements. That’s a problem, especially with the CSRD requiring that the sustainability statement be included in the Annual Report itself. Companies that haven’t figured out how to align their reporting timelines are in for a rude awakening—and a possible scramble to get everything done on time.

For those lagging behind, it’s time to get the house in order. Aligning ESG and financial reporting isn’t just a nice-to-have; it’s a must-do. The consequences of missing the boat could be costly, both in terms of reputation and regulatory compliance.

Limited vs. Reasonable Assurance: Playing it Safe or Going All In?

When it comes to ESG assurance, most companies are still playing it safe. In 2023, a whopping 94% of assurance reports were limited assurance, with only one brave soul going for reasonable assurance across all KPIs. Limited assurance is like dipping a toe in the water—it’s less intensive, less expensive, and, for many companies, a more palatable option. But for those looking to make a big splash, reasonable assurance offers a higher level of confidence, akin to a financial audit.

The choice between limited and reasonable assurance isn’t just about cost; it’s about strategy. Companies that want to stand out might consider going all in with reasonable assurance, signaling a stronger commitment to ESG transparency and accountability. But it’s a big leap, and not everyone is ready to make the jump just yet.

So, what’s a company to do in the face of these challenges? KPMG has a few suggestions. First, companies need to get clear on which ESG reporting standards apply to them. Strong governance is crucial, as is building the right skills in data management and digital technology. Digitizing ESG data processes and ensuring high-quality data are also key steps toward reliable reporting.

For those feeling overwhelmed, KPMG offers a free maturity assessment benchmark to help companies figure out where they stand and what they need to do next. It’s a useful tool for any business looking to bridge the maturity gap and prepare for the future of ESG assurance.

Ready or Not, Here Comes ESG Assurance

With the CSRD deadline fast approaching, the pressure is on for companies to get their ESG assurance strategies in place. The trends and challenges outlined by KPMG make one thing clear: ESG isn’t going away, and companies that prepare now will be better positioned to thrive in a world where sustainability is front and center.

For those still on the fence, it’s time to take the plunge. The journey toward ESG maturity might be challenging, but the rewards—trust, credibility, and long-term success—are well worth the effort. And with the right strategies and support, companies can not only meet the challenges ahead but turn them into opportunities for growth and leadership in the ESG space.

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