What to expect in ESG in 2024

It was an eventful year in ESG. In 2023, major regulations were passed or enacted, natural disasters called the public’s attention to climate change, and, in the US, the concept of ESG faced a backlash from state lawmakers.

And 2024 could shape up to be the year that companies prepare to report under new regulations, Maura Hodge, ESG audit leader at KPMG US, told CFO Brew. Reporting will become increasingly sophisticated and synchronized, she predicted. Here’s what she sees coming in the ESG space in the year to come:

Intense focus on new regulations: Companies have a whole slew of new regulations to contend with, including the EU’s Corporate Sustainability Reporting Directive (CSRD), IFRS 1 and 2, and the California climate disclosure laws. The SEC’s anticipated climate disclosure rule is now expected to come in early 2024, Hodge said.

Observers will be paying attention to how interoperable these regulations turn out to be, Hodge said, meaning if and how companies can use the same data and calculation methods for more than one set of regulations. Many are also watching reciprocity, or if one jurisdiction can accept data prepared under outsideframeworks.

Companies may also need to assess the need for assurance around the new regulations. “The data that is to be assured has expanded drastically” under the new standards, Hodge said, “and there’s just a lot more work to be done on the company side to be prepared”: 75% of companies , the 2023 KPMG ESG Assurance Maturity Index estimates, are only in the “early stages” of assurance maturity, she pointed out.

A more formalized approach to reporting: When reporting voluntarily now, companies could “pretty much grade their own papers when it came to ESG,” Hodge said, and their reporting could be more “scattershot” and “reputational in nature.” Companies can present ESG data in a fragmented fashion to different groups of stakeholders over a variety of media, including webpages, annual reports and investor communications, and responses to suppliers and vendors. “In some cases, you get the same information being presented differently and maybe even sometimes calculated differently across these different sources,” she said.

“That’s really changing rapidly under this regulatory regime,” she observed. Now, she said, companies are using technology to create a “single source of truth” or pool of uniform data that all their communications can draw upon. They’re also moving towards “more real-time web reporting” of ESG data, she said, developing “data hubs” where their metrics reside and doing “qualitative storytelling” elsewhere.

Changing terminology: The term ESG is out of vogue. “We’re certainly seeing a decline in the term ESG,” Hodge said. According to the 2023 KPMG CEO Outlook survey, 43% of US CEOs have changed the language they use around ESG. Instead of using that acronym, Hodge said, they might talk about “access to natural resources” or “understanding the risk of climate change to our business.”

Though the language around ESG might change, the discipline itself isn’t going anywhere, Hodge said. In the Outlook survey, she pointed out, 74% of US CEOs said they had “fully embedded ESG into their business as means to create value.”