ESG backlash notwithstanding, a recent global survey conducted by KPMG of 550 company directors and members of management showed that the vast majority of global organizations plan to increase spending on sustainability initiatives over the next three years. Why? KPMG’s US ESG Audit Leader told Bloomberg that the “key reason” at the moment for the increased interest in ESG “‘is really regulatory pressure.’ Regulations are forcing companies to ‘inject the same level of rigor into [their] sustainability reporting that is required of financial reporting….Historically, sustainability reporting has sat with a very small group of under-resourced people,’ [she said]. Now as requirements evolve, ‘the amount of effort and rigor that needs to go into reporting has changed substantially.’” But these expenditures are not designed purely for compliance, KPMG concluded; they are also considered “a valuable tool for enhancing financial performance both now and in the future.” Nevertheless, “organizations are facing real challenges in delivering against this objective”; as KPMG observed, there seems to a “a disconnect between perception and preparedness.”
In response to the survey, 90% of respondents reported that they expected to increase their ESG investments over the next three years, with 43% increasing expenditures on dedicated ESG personnel, 40% on ESG-specific software, 38% on employee training and education and 37% on data collection and management tools. About 32% planned to invest in external consulting or advisory services.
As noted above, KPMG observed “a disconnect between perception and preparedness”: while 83% of respondents indicated that they were ahead of their peers on ESG reporting, 47% said that they “still use spreadsheets to manage their ESG data.” KPMG observed that, with regulatory reporting as a driver, to “meet accelerated reporting timelines, the sustainability reporting process must become more controlled and efficient, which is difficult to accomplish in spreadsheets.” According to Bloomberg, KPMG’s US ESG Audit Leader remarked that the “‘biggest challenge that companies will have using spreadsheet reporting is just being able to accelerate their reporting to be on the timeline that regulation is requiring of them.”
KPMG suggests that, with data management critical to the process, “ESG data management software and advanced tech like AI enables organizations to efficiently track, analyze and report on ESG-related data, which is crucial for making informed decisions and meeting regulatory requirements.” To that end, the survey showed that most companies were undertaking measures to enhance their ESG data collection and management systems with new technologies: 59% of respondents reported using advanced data systems for ESG reporting and 49% were providing employee and management training to enhance ESG reporting quality; within the next three years, 58% plan to use AI to improve data analysis and consolidation, 49% plan to streamline data validation and accuracy checks and 46% plan to automate data collection and reporting processes.
To enhance integration of sustainability goals with overall business objectives, 45% said they were improving ESG data management and reporting capabilities, 35% said they were conducting regular ESG performance reviews and updates, 32% were expanding collaboration between departments on ESG-related activities, and 30% were incorporating ESG considerations into product/service offerings. In the survey, 83% said that they expected to see an increase in ESG integration across roles as a result of access to better information.
But the survey also found that the goal of integrating sustainability strategies with business objectives could well be impeded by structural challenges, including insufficient resources or capacity to collaborate effectively (44%), internal silos and limited communication between departments (41%), divergent priorities or goals across functions (30%), lack of clear ESG leadership or strategy (27%), limited understanding or buy-in for ESG initiatives among some departments (19%) and competing time and resource demands (15%). The top challenges to adequate financial resource allocation for ESG activities were difficulty measuring the return on investment for ESG (21%), budget constraints or competing priorities (19%) and limited support from senior management or board (15%).
The survey found that some companies are planning to address these challenges by restructuring or adjusting their teams to better align ESG goals with business strategy (76%). About 24% of companies plan to significantly increase integration of ESG responsibilities within non-ESG roles in the next three years, while 59% expect to moderately increase that integration. Only 25% responded that their sustainability goals and overall business strategy were “fully aligned,” while 54% reported that they were “mostly aligned.”
Many companies were “outsourcing the majority of sustainability reporting processes and using the reporting data gained to identify risks and opportunities for business growth.” According to the survey, 40% are currently outsourcing sustainability data collection and management and 33% are outsourcing ESG report preparation and writing. Within the next three years, 71% plan to outsource “core ESG reporting activities.” Many companies also were able to use insights from the data collected to support broader company strategy, including by identifying risks and opportunities for business growth (43%), developing new products or services with a sustainability focus (39%), guiding resource allocation and capital investments in sustainable projects (37%) and enhancing brand reputation and market positioning (37%).
KPMG concluded that “[d]efining clear roles and responsibilities, including identifying leaders and subject matter professionals, and deciding when to outsource or supplement existing resources is crucial for effective implementation and efficient reporting.” The survey provides more detail and also takes a deeper dive into these issues for various industry sectors.
