With environmental, social and governance (ESG) a huge priority in the business community, increasing volumes of ESG-related information are being publicly disclosed to the markets. It’s a positive trend, and one that we all welcome. However, disclosures have to stand up to objective scrutiny which is why obtaining external assurance over the information is an essential part of the process. Ultimately, it will be a regulatory requirement to obtain assurance in many jurisdictions. More broadly, it gives the independent verification that’s needed if disclosures are to be trusted and relied upon by stakeholders.
As my colleague Neil Morris, Global Head of ESG Assurance Methodology, puts it: “The stakes are high: in some cases, ESG disclosures could receive even more scrutiny from investors and stakeholders than actual financial information itself. That’s why we’re putting significant investment into developing our methodology, processes, people and services relating to ESG.
To support with this, KPMG has developed a new service, Ready for Assurance, that can help determine whether your business is ready to make disclosures that stand up to assurance.
We’re already discussing the service with a range of clients and of course they have a number of questions! So, to help clarify what this is about, here are five of the most common questions they’re asking and some answers which I hope you will find useful.
What is KPMG Ready for Assurance service?
KPMG Ready for Assurance service is what we call ‘precondition readiness’ which determines whether the necessary preconditions are met for ESG assurance to take place over your ESG information. This will involve looking at whether your organization’s criteria for ESG measurement (the definitions of how aspects of ESG are measured) are specific and clear enough, and whether the evidence is available and supports the criteria expected to be used to measure it. It’s the first key step in the ESG measurement, disclosure and reporting journey.
Why should organizations do this?
ESG reporting will be a critically important activity for almost every organization going forward. It’s essential that what you report is seen to be – and can be shown to be – accurate, robust and credible. KPMG Ready for Assurance service gives you the opportunity to test the significant judgments you have made in determining the criteria against which you are measuring ESG metrics. Going through KPMG Ready for Assurance service can reduce the risk of not meeting the necessary criteria when your business goes through full ESG assurance in the future.
What will it cover – and what should I do to get prepared?
KPMG Ready for Assurance service can cover the full spectrum of ESG: the ‘E’ of environmental and carbon related information; the ‘S’ of social indicators such as HR information, diversity & inclusion, health & safety; and the ‘G’ of governance areas such as regulatory issues, modern slavery, and anti-corruption. It’s fair to say that KPMG Ready for Assurance service is designed as a comprehensive process and as such it’s likely that your organization will need to put some work in to prepare. For example, many organizations are currently relying on manual and/or unstructured sources to capture ESG-related information such as spreadsheets and emails. Better systems and processes may be needed. There may also be a need to invest in new hires to bring in specialist skills, or to form links with third party service providers in specialist areas. These are all issues that we can discuss and advise on as KPMG Ready for Assurance service work gets underway.
Is my auditor the right party to carry KPMG Ready for Assurance out and how does it differ from advisory work?
It is our view that the financial auditor is the party best-placed to carry out ESG assurance (and precondition readiness). KPMG firms will provide the Ready for Assurance service to their audit clients where we expect to assure. For non-audit clients, KPMG Advisory resources can assist you in getting ready for your ESG reporting. The knowledge of the business and its systems that the auditor develops, and the tasks that the auditor has to perform, mean that they can carry out the assurance with the greatest potential efficiency for the business. In today’s world, financial and non-financial information is increasingly inter-related. In our view, having responsibilities over assuring them separated (i.e. a separate party assuring the non-financial ESG information) would dilute the value to stakeholders in how the information is presented.
Assurance in an advisory context often includes advice on implementation and processes, and can be influential in areas such as management responsibilities. In KPMG Ready for Assurance service, we will not be designing any processes or procedures, or be involved in the implementation of them – we will purely be assessing whether your reporting is ready to go through the assurance process itself.
