As featured on BusinessMirror: Big shifts, small steps
The Survey of Sustainability Reporting 2022’s title ‘Big shifts, small steps’ acknowledges the many ways in which the world has changed over the past 2 years. Regulators and non-profit standard-setters around the world have taken significant action around non-financial disclosure during this period, as shown below. More importantly, corporations are evolving in real time with shifting priorities in the world around them. Events like the IPPC ‘Code Red for Humanity’ report, the COVID-19 pandemic, the Black Lives Matter movement, and the Russian government’s invasion of Ukraine have drawn strong reactions from the public, but now the public expects corporations to react to such events as well.
Over the past 3 decades, our surveys have shown that sustainability reporting has become an accepted part of disclosure and transparency for many large companies, with a continued uptake of sustainability reporting globally and increasing integration into mainstream financial reporting. With this increased transparency comes greater accountability for action around reducing carbon emissions, halting biodiversity loss, and tackling societal inequality. Yet, this work is challenging and growth in reporting has slowed as companies focus inward, assessing the investment necessary to mitigate their risks and take advantage of the opportunities that have come to light.
The survey spotlights five major emerging trends within sustainability reporting:
- Sustainability reporting is growing incrementally with movement towards the use of standards framed by stakeholder materiality assessments:
The rates of sustainability reporting among the world’s leading 250 companies are at an impressive 96 percent. The GRI remains the dominant standard used around the world, and nearly three-quarters of companies carry out materiality assessments.
- There is increased reporting on climate-related risks and carbon reduction targets:
Nearly three-quarters of companies report their carbon targets, while the number of companies reporting against TCFD has nearly doubled. This is in line with findings from the TCFD’s 2022 Status Report that states more than 3,900 companies, spanning 101 countries, covering nearly all sectors of the economy, with a combined market capitalization of $26 trillion, have pledged their support for the TCFD.
- There is growing awareness of biodiversity risk:
Most sectors, even low risk ones, acknowledge biodiversity as a risk to their business. However, despite growing awareness of biodiversity loss, less than half of companies recognize this risk.
- Reporting on the UN SDGs prioritizes quantity over quality:
The majority of companies report on SDGs, with 10 percent of companies reporting against all 17 SDGs.
- Climate risk reporting leads, followed by social and governance risks:
Since 2017, there has been a marked improvement in the number of companies that acknowledge climate change as a risk to their business. However, less than half of companies report on social and governance risks.
In light of the trends highlighted in this survey, here are some tangible ways businesses can begin to navigate the sustainability reporting landscape:
- Understand stakeholder expectations using stakeholder materiality assessments to inform your business strategy and prioritize your focus.
- Determine strategic imperatives against key ESG topics and define key metrics, considering impending regulations.
- Establish a cross-functional governance structure to collect, report and approve sustainability and ESG information.
- Consider investing in quality nonfinancial data management, including documenting process and testing controls over the information, or system implementation.
Each company’s sustainability reporting journey will be unique. Whether you report on climate-risk or biodiversity, align with the SDGs or SASB, or choose to report on 10 or 100 metrics, a successful program will comply with mandatory reporting rules, accurately and reliably reflect the material impacts the company has on the environment and society, and effectively describe how the company integrates ESG risks and opportunities into its business strategy. As we continue to see big shifts, you can be confident that KPMG is ready to walk alongside you as you take your next steps.
The excerpt was taken from the KPMG Survey of Sustainability Reporting 2022: https://assets.kpmg/content/dam/kpmg/xx/pdf/2022/10/ssr-executive-summary-small-steps-big-shifts.pdf