Building trust in areas of public interest
We're guided by our purpose and Our Values to build public confidence in the areas that matter most.
We convene and collaborate with stakeholders across industry, not-for-profit and government to shape practical ESG solutions for our clients, our people, our communities and our planet.
Environmental risks have quickly risen to become a Board-level concern. And for businesses across the globe, managing and addressing these risks is a major challenge. Organisations of all sizes are having to reassess their business models to ensure the impact they make on the world is a positive one - it’s the commitment they make to future generations. But this is not something they can do alone. Collaboration is key to ensuring real change is made. And we’re playing our part.
We’re founding partners of the Sustainable Markets Initiative - a network of global CEOs, led by His Royal Highness The Prince of Wales, who work together to accelerate progress towards a sustainable future.
In collaboration with the Confederation of British Industry (CBI), our Future of Commuting series – which includes Connecting Communities, Commuting beyond the Coronavirus and Greener Miles: Delivering on a net-zero vision for commuting – highlights the need to improve commuter infrastructure across the UK and provides recommendations for how to make commuting greener, more affordable and more reliable for communities across the country.
Environmental behaviour change charity Hubbub took their first step into sustainable home-working in collaboration with KPMG. We piloted Hubbub’s Live Savvy Championship with 260 of our colleagues. The five-week series of challenges saw our colleagues take practical action to live more sustainably. We’ve also collaborated with Hubbub on our HomeHQ research, which gave colleagues the opportunity to share their views on living and working more sustainably, helping to shape the future of our environment strategy.
KPMG is a founding partner, and integral part of the secretariat, of the Sustainable Markets Initiative - a network of global CEOs, led by His Royal Highness The Prince of Wales. Working together to accelerate progress towards a sustainable future, our UK Chair Bina Mehta sponsors our strategic relationship that enables growth and scale, and facilitates impact, in support of this vision.
Our Global CEO, Bill Thomas, is a member of His Royal Highness The Prince of Wales’ Sustainable Markets Council - a global advisory body of public-private-philanthropic leaders, which aims to demonstrate the potential of sustainable market creation.
In support of the Terra Carta - a charter that puts sustainability at the heart of the private sector – we leverage: our market presence, to bring industries together; our tools, such as Dynamic Risk Assessment, to create new ways of thinking; and our deep expertise in reporting and assurance, to provide insight and guidance on how responsible business can be measured. This enables us to support industries and businesses in their transition to: achieving net zero greenhouse gas emissions; creating a nature-positive future; and scaling sustainability-focused investment.
The impact of the COVID-19 pandemic has been a stark reminder to businesses of their responsibility to their people and to their communities. It has shone a spotlight on social inequalities, on a global scale. Movements such as Black Lives Matter and Me Too have sent powerful messages to the world of the need for change. Collaboration is key to ensuring real change is made. And we're playing our part.
We've committed to taking collaborative action to drive greater inclusion, diversity and equity in our industry. We've publicly demonstrated this commitment by signing up to, and taking practical actions toward, the following charters and initiatives:
We're committed to boosting social mobility. In 2006, we became one of the very first businesses to pay the real Living Wage to its employees and contracted staff. We went on to become a founding member of the Living Wage Foundation and have continued to provide financial and strategic support ever since. Our Head of Inclusion, Diversity and Equity currently acts as Chair of the Living Wage Advisory Council. We've also signed up to the Social Mobility Pledge and play a key role in the Access Accountancy Patron Group, City of London socio-economic diversity taskforce, and Patchwork Foundation. We recognise that numeracy, literacy and lifelong learning skills are building blocks for social mobility, and that's why we work with external organisations to tackle these issues too.
Supported by Pro Bono Economics and in collaboration with the National Literacy Trust and BBC Tiny Happy People, we commissioned research seeking to understand the impact of poor literacy skills on the UK economy. The findings were staggering. 14% of three-year-olds are at risk of starting school with "vulnerable" levels of language skills. This will equate to a £1.2 billion cost to the UK economy, across all pre-school children alive today who are, or may become, "at risk of vulnerable language skills".
"The education and development of children in their early years shapes their prospects in later life and, as our latest research makes clear, cumulatively it has a material impact on our economy. The pandemic has exacerbated the number of children showing poor early language skills, with those from disadvantaged backgrounds likely to have been disproportionately affected. If businesses are serious about improving social mobility and boosting our economy, then supporting early years education and development is a critical place to start. By doing so we can lay the foundation for a more prosperous and fairer economy."
Bina Mehta / Chair, KPMG in the UK
To help tackle the nation's literacy gap, we're a lead business signatory of the Vision for Literacy Business Pledge – a public commitment from 83 businesses to drive change. In support of the Pledge, we've collaborated with the National Literacy Trust on the Reading the Future campaign, to provide Instant Libraries to 150 schools in areas with the worst social mobility outcomes.
From investors and regulators, to employees, customers and the public – corporate stakeholders are becoming increasingly aligned on their expectation of businesses to provide an accurate picture of their ESG performance. One that is credible, verifiable and comparable. But there's a problem. The ESG reporting landscape is complex. The range of ESG metrics and disclosure frameworks used is vast and varies by sector and size of business, as well as global location. With transparency and data being critical to building stakeholder trust, we're committed to helping drive increased consistency and comparability across the corporate reporting landscape.
In recognition of the complexity, inconsistency, and incomparability of reporting approaches taken against the 'S' in 'ESG', in collaboration with the International Regulatory Strategy Group (ISRG), we've published the report Accelerating the S in ESG: a roadmap for global progress on social standards. Using insights from International standard setters (including GRI, SASB) and other institutional bodies (including UN PRI, OECD, IMP) the report identified key market trends and challenges that the financial services sector must tackle in order to make progress. Bringing clarity to leading measurement frameworks and principles, the report provides recommendations for how public policy, companies and financial market participants could work collaboratively to achieve better social standards.
Our global colleagues are also supporting the Global Reporting Initiative (GRI) on the development of an updated and revised biodiversity Standard for sustainability reporting. The aim of this standard is to support more businesses to address their biodiversity impact, and meet stakeholder expectations for transparency.
Whilst businesses have been reporting on ESG for a number of years, what has been lacking is a consistent approach and the ability to compare across industry sectors and geographies. We've worked in collaboration with the World Economic Forum, the Bank of America and other Big Four accounting firms to tackle this problem.
Together, we've identified a set of universal and material ESG reporting requirements, that can be adopted as part of businesses' mainstream annual reporting. Known as the WEF IBC Metrics, the framework helps businesses to demonstrate how sustainable they are, how they create long-term value for society and how they ensure they are future-fit.
The metrics have received widespread support and have contributed to the considerable movement of standard setters and regulators to work intensively together toward convergence. This convergence, amongst others, now involves the International Financial Reporting Standards (IFRS) Foundation which is consulting on broadening its mandate to include sustainability issues. In addition, the five leading voluntary standard-setters have committed to working towards a joint vision with Sustainability Accounting Standards Board (SASB) and International Integrated Reporting Council (IIRC).
We're educating and encouraging businesses and clients to incorporate these metrics in their own reporting, to help bring consistency and comparability across industry sectors and geographies. And, we're leading by example by aligning our own reporting to these metrics too.
Audits play a crucial role in the UK and global economy. They are fundamental in bringing investment and enterprise together and generating trust; which in turn creates confidence in our markets.
We're responding to the changing expectations of audit and auditors and recognising the need to further build trust in what we do. In doing so, we're creating a stronger, more sustainable audit business. One that will support the UK's economic recovery and reshape the profession as we know it. As a firm, we have already made changes to build trust in audit which demonstrate how serious we are:
We've also engaged with stakeholders to continue to evolve the audit report, giving investors the insights they need, particularly while they deal with uncertainty. Our Public Interest Committee – which brings independent challenge and oversight – is supportive of this as part of helping us to refine our audit business further. You can read more in our Transparency Report.
Audit is increasingly an innovation and technology business – and innovation relies on diversity in our people. We've diversified our recruitment more than ever before, with a better mix of graduates, apprentices and offshore roles. We want to ensure that we make our Audit practice a place for every talented auditor, regardless of their background or identity, where people can build rewarding careers.
We are well advanced in our work to achieve operational separation and are committed to working with the FRC to help shape the future for a profession which delivers high-quality audits, acts in the public interest, and supports successful and attractive capital markets around the world.Cath Burnet / Head of Audit, KPMG in the UK
Audit Quality Transformation Programme
We want to be known for doing the right thing and protecting the public interest as well as having a highly successful, commercially sound business, which has audit quality and innovation at its core.
Having the right culture, as well as attracting and retaining diverse, confident and talented people, is crucial to our success. Over the past three years, we have invested significantly to enhance audit quality and reinforce our high challenge, high support culture that underpins it.
This has included simplifying and streamlining our audit methodology and procedures, implementing centres of excellence to draw on our people's deep expertise in certain complex procedures, and investing in technology to improve the quality, consistency and efficiency of our audit delivery.
Despite unprecedented challenges in 2020, the investments in our transformation programme, and the dedication of our colleagues has enabled us to continue delivering high-quality audits whilst working remotely.
External inspection results
Our continued drive and investment is reflected in improvements to our audit quality scores for FTSE350 audits in the FRC's latest Audit Quality Review (AQR) report, which includes our ICAEW Quality Assurance Department (QAD) inspection results. The report acknowledges our continued focus on audit quality initiatives and noted many examples of good practice.
However, we acknowledge the areas of improvement that the FRC highlights, particularly in our banking practice, and we're already working hard to make the necessary changes.
Much of the recent investment relates to our banking audits, where we recognise that the actions that we have taken as a result of previous inspections have not yet consistently yielded the standards that we set for ourselves.
The actions taken throughout 2020 were implemented for our 2020 year-end audits and will therefore be reflected in the 2021/22 AQR inspection cycle. Our 2021 improvements will include further actions and refinements. We are confident that the steps we have taken to date will result in improvements in our future inspection results in this part of our business.
Audit quality is our top priority and we believe we have the right strategy in place. We will not be satisfied until we consistently achieve AQR scores which reflect that progress and our commitment to audit quality.
We have submitted a response to the UK Government's consultation into Restoring Trust in Audit and Corporate Governance, which is a once-in-a-generation opportunity to reform the corporate regulatory landscape and positively redefine Britain's role in a post-Brexit world.
We support the broad direction of these reforms and welcome measures that enable the delivery of high-quality audits and better outcomes for investors, and we have already taken action to implement some of the suggested reforms such as operational separation. Establishing the Audit Reporting and Governance Authority (ARGA), with broader responsibilities, will be key, as will the introduction of a new framework for internal controls reporting.
The introduction of a resilience statement is also one of the most important innovations in meaningful corporate reporting in decades and will give shareholders the information they need to understand the threats to a company's business model.