2021 could be a big year for the planet – and all those who inhabit it.
Expectations of sustainable progress are high, ahead of the next annual climate change conference (COP 26) in the UK in November. Especially now that the US has re-joined the Paris Accord.
According to the most recent KPMG 2021 CEO Outlook Pulse Survey, a snapshot of global leaders’ views, an overwhelming 89 percent want to maintain and build on the sustainability and climate change gains their company made during the COVID-19 pandemic.
Sustainability is indisputably a top table priority, with half of the CEOs surveyed aiming to bring in more stringent ESG (environmental, social and governance) practices to their organizations.
And one of the key tools at their disposal is ESG reporting.
Once seen as a ‘nice to have’, reporting is becoming a cornerstone of major companies’ efforts to bring greater purpose to their activities.
Another KPMG report, The Time Has Come: The KPMG Survey of Sustainability Reporting 2020, found that 80 percent of companies worldwide now report on sustainability – rising to 90 percent when it comes to the largest corporations.
Yes, some of the pressure to report comes from emerging laws and regulations. Leaders will increasingly feel the heat from governments, consumers and NGOs to disclose performance and prove their corporate citizenship.
But, more importantly, companies that report are more likely to understand, and be prepared for, the growing risks from pandemics, climate change, human and material resource shortages and supply chain disruptions.
The investment community also ‘gets’ ESG reporting. It rigorously scrutinizes non-financial data and factor this into its assessments of companies.
Investors, asset managers and ratings agencies recognize that those businesses that measure and communicate ESG risks should also be better at managing these risks.
Forty percent of the respondents to our sustainability reporting survey say they acknowledge the financial risks of climate change in their reporting, and a significant majority align their business activities with the United Nations Strategic Development Goals (SDGs).
The figures I’ve quoted are promising, but they also show the different clock speeds of companies’ progress towards fully integrated financial and non-financial reporting.
There are considerable variations across geographies and sectors – as revealed in KPMG’s Towards net zero study, which takes a detailed look at how the world’s largest businesses are reporting on climate risk and net zero transition.
Just one in five has a net zero emissions target, and only a quarter clearly communicate whether they’re on track to meet decarbonization goals.
One of the reasons for this lack of consistency in reporting lies in the patchwork of standards. Thankfully, we’re seeing a move towards convergence, which should ultimately result in a single, global approach.
The World Economic Forum International Business Council (IBC), supported by KPMG firms, is pushing for harmonized reporting, further driven by the Task Force on Climate-related Financial Disclosures (TCFD).
So, expect to see an acceleration in the trend towards mandatory disclosure based upon common metrics.
But, as those who’ve been involved can attest, reporting is complex and dynamic, and can’t be introduced overnight.
In my experience, it can take up to 2 years or more to get to a point where climate and other sustainability risk information is comprehensive and up to date. Even the leading exponents would probably admit they’re not able to fully satisfy all the quality criteria.
The important thing is to make a start – and to be honest about any gaps.
Corporate reporting, investor relations and sustainability professionals are shaping their organization’s reporting. In doing so, they’re helping their businesses become more resilient to shocks and better placed to win the backing of the investment community.
By explaining their strategies and progress towards creating a sustainable, net-zero world, they’ll also be helping their organizations thrive in this future.