The environmental, social and governance (ESG) agenda is rapidly changing how businesses assess their own purpose and performance; and it means that new standards for ESG disclosures and assurance are needed too. This is also the first time in my career that the audit profession is front and center in such a major initiative that is driven by widespread social and political passion.
As Larry Bradley, Global Head of Audit at KPMG, sets out in his recent blog, it’s a period of huge potential – it will be a game-changer, both for the audit and assurance profession and for companies themselves. ESG information and metrics should be gathered, measured, assured and reported with the same rigor and level of technical detail as financial information is today. Organizations will need to develop new processes, controls and data streams – and strive to ensure that they stand up to the scrutiny of an auditor’s lens in assuring them. There will likely be a significant – and rapid – learning curve for businesses to go on.
As auditors and providers of independent assurance, our profession will also be on a journey to meet this necessary change. The nature of assurance that has been provided over ESG information in the past should evolve to become more detailed and consistently structured. This process is expected to begin to take form with the exposure drafts (EDs) of new standards that the International Sustainability Standards Board (ISSB), and proposed rulemaking of the US Securities and Exchange Commission (SEC), both of which are likely to publish during the first half of this calendar year.
A roadmap for change
These should provide a good indication of the future direction of travel – a roadmap and a framework for us to base an approach on. The indications from two prototype standards that have already been published and that KPMG has analyzed are that ESG assurance and disclosure standards will broadly align both to the conceptual framework that underpins financial reporting and to the work already undertaken by bodies such as the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). However, the devil is in the details as they say – so KPMG professionals are keenly awaiting the publication of the EDs and will be contributing to the debate and discussion that follows.
It is expected for things to move quickly. Boards and audit committees should be preparing for change right now so that they are ready to react and respond – there is expected to be mandatory assurance and reporting requirements in place in some jurisdictions within just the next couple of years. Certainly, this would meet the demand for robust ESG information that already exists within the investor community. Prominent investor groups have been driving home the importance of such information to the companies they are invested in. The priority this receives is only likely to grow.
Investing in ESG solutions
KPMG firms are committed both to supporting clients and to fulfilling our public interest role in providing robust assurance that can benefit investors and other stakeholders. We know that whatever the eventual standards, the same level of professionalism, quality, consistency and trust should apply to ESG disclosures as to financial data. That’s why KPMG firms globally are making significant investments in putting ESG at the heart of the organization and developing an ESG assurance approach as well as other, related ESG solutions.
The intention is to integrate an ESG assurance methodology into KPMG Clara – our global, smart and intuitive audit platform – so that KPMG professionals can continue to drive “wing-to-wing” consistency and deliver robust and quality assurance in an existing process that is familiar to our professionals .
A focus on people
As always, our people are what drive KPMG forward – training teams, recruiting external resources where needed, and enabling collaboration between professionals to bring the very best of KPMG to ESG assurance engagements will be essential. The organization is also developing plans for dedicated ESG delivery centers around the world.
There are many moving pieces in what will be a complex puzzle. In my newly created role as the Global Head of ESG Assurance, I am full of anticipation and excitement for the future. There is so much passion amongst KPMG professionals for ESG-related issues, and so much that they can bring to clients and investors. The social purpose aspect of it is truly inspiring and can act as a powerful motivator for younger professionals in particular – driving a new excitement in the profession.
I am proud and honored to have been appointed to this new role and I’m eager to drive the global strategy and client delivery forward as the agenda moves on at pace.
A report prepared for KPMG International shows that green innovation and investments can improve the environment and the economy at the same time
A report shows that green innovation can improve the environment and the economy