Dive Brief:
- A new KPMG survey of 550 board members, executives and managers at global public and private organizations with at least $1 billion in annual revenue confirmed a commitment to increase ESG-relevant spending through investments in dedicated personnel, software and education. Some 90% of respondents said they would increase investments in sustainability reporting over the next three years.
- While approximately eight out of 10 survey respondents felt they were ahead of their peers on ESG reporting, nearly half (47%) used spreadsheets to manage their ESG data — highlighting the data management, culture and technology impediments that stand in the way of delivering reliable ESG metrics to lawmakers and regulators.
- The top three challenges faced by survey respondents in allocating adequate financial resources for ESG activities included difficulty in measuring the return on investment for ESG; budget constraints or competing priorities; and limited support from senior management or boards.
Dive Insight:
New legal and regulatory requirements for sustainability reporting have forced organizations to improve systems and processes to gather and analyze ESG-relevant data. The challenge, according to Maura Hodge, KPMG’s U.S. ESG audit leader, is to adapt from voluntary reporting measures to meeting requirements that demand heightened rigor and oversight for ESG data gathering.
“Simply trying to check the box for compliance is actually what's creating the gap in execution,” Hodge said. “In the absence of regulation … everybody’s kind of taking their best guess and trying to best reflect what is happening internally, but there hasn't been the need to really put that level of investment in having that consistency of reporting.”
Data and technology issues
A key roadblock for many organizations is data management as data often sits in different places and isn’t integrated, Hodge explained. For some of the more complicated reporting requirements, organizations may still be figuring out how to make accurate calculations, she said.
“We're relatively comfortable with being able to calculate the percentage of females in leadership, or even scope one or two emissions when they're associated with electricity and natural gas, but if you think about category 15 financed emissions under scope three for a bank … there is not one system out there right now that does all those calculations automatically,” she said.
Organizations might be taking off-the-shelf systems and customizing them, or using spreadsheets in the absence of systems that can automatically perform complex calculations, she noted.
The problem with spreadsheets is that there are challenges over controlling the information, accuracy and completeness of the data, Hodge said.
The survey noted there was a “clear disconnect between perception and preparedness,” as most organizations look to invest in artificial intelligence and machine learning to improve their sustainability reporting.
Some 58% of organizations surveyed said they are improving data analysis and consolidation using AI and machine learning, while 49% said they were streamlining data validation and accuracy checks.
A best practice, Hodge said, is to introduce an overarching environmental reporting system, move all relevant data into a centralized repository, integrate it and layer on calculations. Once calculations are done, making them available through a last-mile reporting tool will ensure all relevant team members can quickly access accurate information required for reports, she said.
Data management best practices will ensure efforts to introduce AI or machine learning can be successful, she added.
“I think it depends on where you use AI,” Hodge said. “If you think that you're going to use it on data that you don't have or aren’t comfortable with, it’s not going to work.”
Spreading out ESG responsibilities across an organization
Companies surveyed also emphasized that they were restructuring operations to enhance capabilities to meet ESG reporting requirements. Some 83% of organizations surveyed said they were making either moderate or significant increases in ESG integration across non-ESG roles in the next three years. In addition, 76% of organizations surveyed said they were embarking on organizational restructuring to better align sustainability goals with business strategy.
“It’s still early on…all the different parts of the organization are kind of realizing, ‘Oh, I need to be involved in some way. How do I define my role?’” said Hodge. “Historically, sustainability [and] voluntary reporting has sat in a communications or a marketing team, and hasn’t really had that sort of input from other parts, like finance, legal, compliance CIOs.”
From the respondents surveyed, about 43% said they were looking to add employees focused on ESG factors, while 40% plan to invest in ESG-specific software and 38% are aiming to train or educate employees on the topic.
The survey was carried out in the fourth quarter of 2023.
