Three-quarters of global companies are not ready to have their environmental, social and governance data audited externally, a KPMG study found.
The report comes amid stricter EU, US and global rules that require external auditing for companies’ ESG disclosure to get a stamp of approval.
The new rules are meant to replace patchwork voluntary frameworks that companies have historically used to make climate-related disclosures, a report by Reuters said.
The key point of contention is not that companies are avoiding data collection, the report found.
The issue is that this data is not fit for external auditing.
This is a growing concern as regulators say that external auditing is crucial to providing give investors with peace of mind that companies’ climate reports are authentic and not not all greenwashing.
In an effort to support investors, the EU went as far as requiring that climate disclosures are externally checked.
Member states adopting the International Sustainability Standards Board can also demand additional auditing.
Companies are still waking up to this new reality as only just over half are now getting their ESG disclosures audited. Of these, 14% are obtaining reasonable assurance and 16% limited assurance for all their ESG disclosures as new rules will require.
The pressure for companies to ensure their data is accurate is on, Mike Shannon, Global Head of ESG Assurance at KPMG, warned.
“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,” he said.
