How does your ESG data and reporting compare to current UK trends?
  • Helena Watson, Director |
  • George Richards, Partner |
6 min read

Following publication of the 11th edition of the KPMG Survey of Sustainability Reporting Helena Watson takes a closer look at the current UK reporting trends for ESG.

At this time of year, we all focus on looking forwards to the 2021 reporting season. I wanted to take a few minutes though to reflect on the trends we saw in UK sustainability reporting last year, as this gives us useful insight into what we expect in 2021. The trends and data highlighted in this article are all extracted from KPMG’s Global Survey released in November, which included our review of the largest 100 UK companies by revenue.

Firstly, we found that the percentage of the UK entities reporting on ESG continues to be close to 100 percent. Given the mandatory requirements from the Companies Act, this was to be expected.

There is increasing focus amongst investors on the Taskforce for Climate Related Financial Disclosure (TCFD) and Sustainability Accounting Standards Board disclosures (SASB) but the Global Reporting Initiative (GRI) standards continue to be the most popular framework used for ESG reporting in the UK. Our survey found that only 7 percent already used SASB, and 34 percent of companies referenced TCFD. These percentage will certainly change going forwards, especially following the FRC recommendation for UK PIE entities to use TCFD and SASB, and the publication of the Government’s roadmap to making TCFD mandatory across the economy by 2025.

 Climate risk

The disclosure of climate risk and adoption of net zero targets have seen significant increases since 2017.

    2017   2020
Integrated Reporting Integrated Reporting 14.0% Down Arrow-2.0% 12.0%
Assurance of ESG metrics Assurance of ESG metrics 62.0% Down Arrow-1.0% 61.0%
GRI Guidelines GRI Guidelines 45.0% Down Arrow-2.0% 43.0%
Climate Related Risks Climate Related Risks 36.0% Up Arrow33.0% 69.0%
SDG Linking SDG Linking 41.0% Up Arrow27.0% 68.0%
Carbon Reduction Targets Carbon Reduction Targets 76.0% Up Arrow7.0%  83.0%
Mention Science Based Targets Mention Science Based Targets 8.0% Up Arrow60.0% 48.0%

Climate-related disclosure continues to evolve and is a vitally important element of corporate reporting; companies are under pressure from their investors, lenders and insurers to demonstrate their financial resilience to climate risk, particularly using the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). 

69%

Percentage of companies for which climate change is acknowledged as as risk in the annual report.

In fact, the UK has one of the highest global increases in acknowledging climate risk in financial reporting since 2017 – to 69 percent. A significant driver for this increase is regulatory: UK corporate law clearly articulates that Boards have a responsibility to consider their impact on the environment and the likely consequences of any business decisions in the long-term. 

34%

Percentage of companies reporting climate risks in line with TCFD recommendations.

Despite 69 percent of our sample acknowledging climate change as a risk in their annual report, at present, the consideration of the resilience of a company’s business model in relation to climate risk, and its risks, uncertainties and viability in both the immediate and longer-term, is mostly narrative, and only 34 percent of companies have been reporting partially or fully in line with the TCFD. Breaking this down by sector, as shown in the chart below, there is notable variance between sectors with Financial Services leading in the way. This is not unexpected - it reflects the risk that financial institutions face across their asset portfolios. But for those key sectors such as Financial services, Energy & Natural Resources and even Consumer Markets it feels too low. Their impact to the environment as well on communities is important and detailed disclosures are expected.

Financial Services

60%

Energy & Natural Resources

50%

Transport

50%

Telecoms & Media

37.5%

Industrial Manufacturing

33.3%

Life Sciences

33.3%

Consumer Markets

20.7%

Travel & Leisure

20%

So, although we should take a moment to praise those results, it is still expected that progress will continue to accelerate as companies become more mature in their TCFD reporting disclosures. The pace of adoption has certainly accelerated after the recent announcement in November 2020 that TCFD will be mandatory (comply or explain) in the UK for premium listed commercial companies and certain financial institutions for years starting on or after 1 Jan 2021. The government has also published a roadmap for this to be expanded to other companies by 2025.

 Carbon reduction 

The UK has committed to a Net Zero 2050 carbon target which is enshrined into law. The target will require the UK to bring all greenhouse gas emissions to net zero by 2050, and companies are expected to report on their own contribution (where they have committed) and progress towards net zero. Accordingly, more than 80 percent of the UKs largest companies reported carbon reduction targets during 2020; 47 percent of those reporting linked their carbon reduction targets to the global 2 degree target (aligned to the Paris Agreement) and 18 percent linked to national targets such as the UK 2050 Net Zero Target. 48 percent of companies had adopted or intend to adopt Science-based Targets, a 6-fold increase from 2017.

48%

Percentage of companies which have adopted and intend to adopt Science-based Targets.

Sustainable Development Goals (SDGs)

The SDGs have been an important way for companies to link and report their impact to a UN sanctioned global set of up to 17 indicators since their publication in 2015. In many ways, if companies are not linking their impact to the SDGs, they are not speaking the language of the global reporting landscape, and this can be seen through the 50 percent increase in reporting on SDGs by the UK100 population since 2017, to 68 percent in 2020. What is great to see is that, despite the increased number of companies linking their activities to the SDGs, companies are avoiding being accused of ‘rainbow washing’ by ticking off every SDG they can, instead focusing on the issues most material to their business. For example, nearly half of companies in the UK100 population link their impacts to between 4 and 7 of the 17 SDGs. The most reported SDGs were, perhaps unsurprisingly, SDG8 (Decent work and economic growth) and SDG13 (Climate action). The least reported SDGs were mainly biodiversity related, reflecting the immaturity and complexity of quantification of this area in corporate reporting. Biodiversity is an area we see as having greater focus in 2021.

Biodiversity

Only 39 percent of UK100 companies reported the impact of their business activities on biodiversity, and even fewer companies (around 20 percent) recognise loss of Biodiversity as a risk to their business - as shown in the graphics below. This is heavily skewed towards the companies operating in natural resource intensive sectors such as Chemicals, Construction & Materials, Food Producers, and Industrial Metals & Mining. 

20%

Percentage of companies which recognize the loss of Biodiversity as a risk to their business

28%

Percentage of companies which recognize the loss of Biodiversity as a risk to their business

39%

Percentage of companies which recognize the loss of Biodiversity as a risk to their business

However, biodiversity has seen increasing interest from stakeholders – led in part by the popularity of Sir David Attenborough’s recent ‘A Life On Our Planet’ documentary and subsequent heading of a campaign by conservation groups for the world to invest $500 billion a year to halt the destruction of nature. This is increasingly visible even at the national and global level, with Britain, Canada and others joining the European Union recently in pledging to protect 30 percent of their land and seas by 2030. Some commentators refer to biodiversity as ‘the next ‘climate risk’’, indicating that this area is increasingly moving into the mainstream.

Assurance

Our survey also looked at the assurance of ESG metrics. The reliability of ESG data is a huge concern for many of our clients. The number of UK companies obtaining independent third-party assurance over their sustainability data, metrics and KPIs is just over 60 percent. Among the companies engaging a third-party assurance provider, the scope of the assurance statement for more than 95 percent of companies is limited to specific indicators rather than that of the whole report. Similarly, the level of assurance provided by third-party assurance providers is primarily limited assurance (a negative form of opinion), for more than 95 percent of the companies having a formal assurance statement.

61%

Percentage of N100 companies in the UK having a formal assurance statement in 2020.

If you have any questions on ESG reporting, please contact Helena at Helena.watson@kpmg.co.uk

If you have any questions about ESG Assurance, please contact George at George.richards@kpmg.co.uk.

You can read a copy of the “The time has come report” here