According to a new KPMG analysis released on Tuesday, 75% of companies worldwide are not prepared to have their environmental, social, and governance (ESG) data evaluated externally months before new requirements take effect.

In order to replace a patchwork of voluntary private sector practises for listed firms to make climate-related disclosures, stricter European Union, U.S., and international laws are being established, largely in time for the 2024 reporting season.

While not as thorough as financial audits, regulators say external auditing of sustainability-related data is essential for providing investors with information free of greenwashing, or making false environmental claims.

Audits of disclosures will be required by EU regulations, and nations adopting the International Sustainability Standards Board’s reporting standards may also impose external verification.

Only 25% of the 750 organisations KPMG questioned believe they are adequately equipped.

“Being ESG assurance ready means identifying the relevant regulatory framework and having the right metrics with robust systems, processes, controls and governance for collecting and managing the data,” said Larry Bradley, KPMG’s Global Head of Audit.

To gauge a company’s readiness, KPMG’s ESG Assurance Maturity Index evaluated the opinions of executives and board members from various industries, geographic regions, and firm sizes.

According to KPMG’s research, just under half of the companies polled presently have some level of external auditing performed on their ESG disclosures, but only 14% of those are receiving reasonable assurance and 16% limited assurance for all of their ESG disclosures, as future regulations will demand.

“Now there will be regulatory and assurance requirements to report accurate information, which raises the bar on controls and processes as well as qualitative statements that will need to be made around the data,” Mike Shannon, Global Head of ESG Assurance at KPMG, said.

KPMG discovered that larger organisations are more audit-ready than smaller companies, with France, Japan, and the United States coming out on top and Brazil and China coming in last.

(Adapted from Reuters.com)