When it comes to ESG readiness, companies are like the children of Lake Wobegon: They all think they’re above average. 83% of respondents think their companies are doing better than their peers when it comes to ESG, according to a KPMG survey.
Companies “think they’re ahead on sustainability reporting because they have set these ambitious goals and targets” such as achieving net zero emissions, Maura Hodge, ESG audit leader at KPMG US, told CFO Brew.
But there’s a gap between many companies’ aspirations and their abilities. “In a number of instances, they may not have done all the due diligence necessary to fully understand” concepts like how to undertake a greenhouse gas inventory, she said.
And some don’t have optimal systems in place for managing ESG data. In fact, 47% of the 550 respondents—including execs from both US and global organizations—said their companies are still using spreadsheets to process this data.
Some companies, Hodge said, collect ESG data in operational systems such as purchasing and ERP systems, and then have staff double-enter the data into spreadsheets for calculation. That’s not an ideal system: “There’s opportunity for a lot of error” when such data “is not being automated.”
It's understandable that companies are having growing pains when it comes to ESG reporting, Hodge said, because the area’s so new and rapidly evolving. In fact, 71% of respondents said vital ESG reporting is or will be outsourced over the next three years, a fact that speaks to how complex this area is. “It was an affirmation of how new all this information is and how much education and training and need for subject matter expertise there is,” Hodge said.
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The survey did show that companies are aware of the need to improve their ESG reporting capabilities. 90% of execs surveyed said their companies would be increasing their investment in ESG over the next three years. And 76% said they’ll restructure teams—a third (33%) extensively so—to increase alignment between their ESG goals and broader business strategies.
What CFOs can learn from the survey, Hodge said, is that “now is the time to build the processes and the systems needed for ESG reporting at the same level of rigor that your financial reporting is at. It’s going to take time, effort, investment, and people to do it.” And, given the timelines of the new regulations, “you don’t have much time to get it right,” she concluded.