Far from a nice-to-have or an embellished CSR strategy, ESG now demands a sea change by Irish business. It involves a transformation in how companies measure, capture and articulate enterprise value, says Conor Holland, Principal, ESG Reporting & Assurance at KPMG Ireland.
Imagine the demand on your organisation if it suddenly had to comply with a whole new set of accountancy standards? That’s the level of urgent transformation you need to consider when it comes to environmental, social and governance (ESG)reporting.
Up to now, organisations measured and reported their financial position through financial metrics only. With ESG reporting, we will move to a much more holistic assessment and measurement of enterprise value.
Our data underscores the importance for businesses to measure, manage and integrate these factors to be sustainable in the long term. The shift is partly driven by fundamental changes in corporate reporting, along with the recognition by global business leaders that change must happen.
Understanding the regulatory impetus
The EU Corporate Sustainability Reporting Directive (CSRD) governs this area and includes directives and regulations on non-financial reporting, sustainable finance disclosures, climate change mitigation and the reduction or elimination of carbon emissions.
Moreover, the EU Fit for 55 framework agreed in 2021 commits to a binding objective to cut greenhouse gas emissions by at least 55% by 2030 as compared to 1990 levels. This entails initiatives across buildings, climate, energy and fuel, forestry, land use and transport.
The scale of change required is enormous, and it’s relevant to every organisation and industry in Ireland. The time to prepare is now, so Irish businesses need to use the period before these ESG reporting changes are mandatory to get ready.
A sea change in corporate accounting
Under the CSRD, most public and private Irish organisations will have to comply with mandatory ESG reporting, and the scale of the metrics involved is significant.
It’s also worth noting that the ESG information will be subject to independent assurance.
Almost all companies recognise ESG as a significant agenda item now...most are not yet prepared for the quite significant ESG reporting obligations that are coming down the line.
What gets measured gets managed
Almost all companies recognise ESG as a significant agenda item now, but most have a lot more to do, and few have fully integrated it as they need to. Moreover, most are not yet prepared for the quite significant regulatory obligations that are coming down the line for ESG reporting, such as the CSRD and EU Taxonomy.
Given the scale of change coming in ESG reporting, businesses need to develop their strategies, policies, metrics targets and KPIs associated with ESG factors to ensure they can comply with the data requirements under the disclosure frameworks.
Supply chain demands and access to capital
Increasingly companies are recognising they need to devise and implement an ESG strategy due to demand from their supply chain, both upstream and downstream.
For example, customers and suppliers have started to look for information on how ESG is integrated into the organisation’s operations.
In addition, banks and private equity houses are increasingly integrating ESG requirements into financing.
How to take the first step
Before making any substantial business changes, carry out a materiality analysis to identify the topics material to your business. This helps to ensure you can integrate ESG in a meaningful way.
It’s important to undertake the analysis through a stakeholder lens by talking to employees, suppliers, advisers and customers to understand what matters to them. This varies – what’s material to a mobile services provider won’t be material to a bank, for example.
Doing this analysis helps inform how you calibrate or cultivate your strategy around what you need to measure. If, for example, you identify that data privacy and environmental matters are paramount for your business, you’ll direct resources to these areas for data gathering, strategy development and overall monitoring.
Moving from talk to action
Once the materiality analysis is done, organisations typically tend to do a gap analysis of what they currently report versus what they will have to report down the line. Once that’s understood, they can begin to address the gaps through policies, procedure, data capture and processes, and really signpost everywhere they need to change.
Get in touch
If you are ready to move from talk to action and want support with your ESG reporting, KPMG can help develop responsible and sustainable strategies, business models, operations and investments. Please get in touch with Conor Holland, Principal, ESG Reporting & Assurance at KPMG Ireland. We’d be delighted to hear from you.
Conor Holland
Partner
KPMG in Ireland
