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KPMG: What Does ESG Practise & Reporting Look Like?

As the urgency of climate change accelerates, so does the pressure to accurately report on sustainability. However, these can be challenging to keep up with, and maintain alongside sustainability initiatives. So, how are the world leading companies doing?

Global consultancy KPMG interviewed 50 Chief Sustainability Officers from 10 countries and territories to explore how ESG reporting is impacting sustainability in some of the world’s largest countries. The report, titled Anchoring ESG in Governance , found that companies are having to adopt a flexible approach to ESG strategy to be able to adapt to the evolving regulatory landscape. 

“Businesses have the opportunity to embed robust ESG and suitability governance by ensuring effective connectivity between functions — from finance to internal operations and supply chains –- which can both help to (RC) enable compliance with reporting requirements and the identification of sustainable value creation opportunities through enhanced operational transparency and data driven insights,” shares John McCalla-Leacy , Global Head of ESG at KPMG, which operates in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world.

“As one respondent put it in this survey- ‘if we want to exist as a company in 10 or 20 years from now, we need to transform’”. 

Prioritising ESG reporting and action

KPMG’s report found that around half of the companies interviewed view sustainability as a strategic issue that is embedded in core business operations. Many institutions are prioritising decarbonisation and achieving net zero, keen to have quantifiable targets for stakeholders. A quarter of the companies interviewed have a board level sustainability committee, with a further fifth discussing sustainability in other committees, most commonly the audit committee. Almost half of the organisations in the report see their CEO as responsible for sustainability, with others stating their dedicated CSO, but overall a wide variety of leaders taking command of the topic.

“Sustainability is growing in strategic importance for companies, with increasing reporting requirements on environmental, social and governance (ESG) as well as other demands on the organisation regarding sustainability,” says Nadine-Lan Hönighaus , Global ESG Governance Lead, KPMG International. 

“This creates challenges for the group sustainability units within organisations charged with ESG work. On one hand, such units must produce more material than they did 10 years ago while strategically developing and implementing work on a wide range of topics from climate to human rights. On the other hand, the framework conditions for this work have become much more complex and the standards for implementation, reporting, mandatory auditing and governance requirements increasingly require a robust approach.

“KPMG’s research highlights that companies should (RC) start developing a clear analysis of the characteristics, strengths and weaknesses of their existing sustainability-focused organisation and how effectively it supports their (A) ESG strategy, performance and reporting.” 

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KPMG Study Reveals Surprising Plan for ESG Spending by Companies

By Lily Meier

Despite the recent anti-ESG pushback in the US, many companies — roughly 90% in a survey by KPMG — plan to dedicate more financial resources to ESG over the next three years.

About 43% of those surveyed by KPMG are looking to add employees dedicated to environmental, social and governance factors, while roughly 40% plan to invest in ESG-specific software and 38% are looking to train or educate employees, according to the survey.

Most large companies are pressing ahead with plans to improve their ESG capabilities, even as almost two dozen Republican-led US states push through anti-ESG legislation. In Texas ...

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Embedding ESG in everything that we do and offer

KPMG , Bill Thomas, Global Chairman and CEO, KPMG

The world faces crises on multiple fronts and businesses have an opportunity to lead. That is why we are changing how we do business and helping our clients transform theirs by putting environmental, social and governance (ESG) issues at the heart of everything we do.

We believe the ESG agenda and how we measure progress against it is a key driver of long-term value creation for all businesses. To hold ourselves to account, we brought together our firm’s ESG commitments under one umbrella called KPMG: Our Impact Plan . We then separately announced a multibillion-dollar plan for our firm to help others achieve their ESG goals by embedding ESG in everything that we do and offer.

Cataloguing data across our global organization to measure, set goals, and report

KPMG: Our Impact Plan provides a roadmap for our organization to become net-zero by 2030, to create inclusive and fair workplaces, to drive sustainable and purposeful growth for our clients, and to build trust in and harness the power of the capital markets to spur needed innovations.

Mindful that you can’t change what you can’t measure, we catalogued current data across the global organization. We reported against metrics outlined in a report created by the World Economic Forum (WEF) and drafted in consultation with its International Business Council (IBC), titled Measuring Stakeholder Capitalism, which KPMG had a key role in shaping.

KPMG member firms throughout our organization are working towards these goals to change for better, and we will continue to strengthen the commitments outlined in Our Impact Plan and improve reporting on our progress in the months and years to come.

Investing $1.5 billion to help clients achieve goals on their own ESG journeys

We also plan to spend more than US$1.5 billion over the next three years specifically to focus on ESG and support our clients in making a positive difference. The collective investment will focus on training and expanding KPMG’s global workforce, harnessing data, accelerating the development of new technologies, and driving action through partnerships, alliances and advocacy.

The key to the transformation will be embedding ESG in the organization and client solutions to drive measurable change, and our global ESG investment will help equip our people to make a difference, as well as mobilize data and technology in support.

ESG will be the watermark running through KPMG

It is incumbent on all of us — as businesses and as individuals — to play our part in tackling the challenges that threaten the future of our planet and the quality of life of people throughout the world.

KPMG has a responsibility to help shape and lead on the many critical issues facing the world and to use our capabilities to make a difference. We have a rare combination of scale, expertise and technology that can help drive positive and lasting change throughout the world. To help us reach that goal, ESG will be the watermark running through our global organization; from empowering our people to become agents of positive change, to the services with our clients and our partnerships with critical stakeholders.

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KPMG: Majority of U.S. CEOs Expect Significant Returns from Sustainability Investments Within 3-5 Years

The majority of U.S. CEOs expect to see significant returns from their company’s sustainability investments within three to five years, and the corporate leaders continue to rank ESG as their top operational priority, even in the face of inflationary and supply chain challenges and Gen AI-related opportunities, according to a new survey released by professional services firm KPMG US.

For the study, the 2024 KPMG U.S. CEO Outlook Pulse Survey, KPMG surveyed 100 CEOs from large companies with annual revenue greater than $500 million, including one third with more than $10 billion in revenues, on the key challenges and opportunities in driving business growth and managing the combination of near-term risks and structural economic changes.

While examining a range of factors from generative AI to talent management, the survey revealed that the execution of ESG initiatives remains the top operational priority for CEOs, cited by 17% of respondents, followed by inflation-proofing capital and input costs at 14% and advancing digitization and connectivity, improving supply chain agility and resilience, and improving the customer experience, each at 11%.

Rob Fisher, KPMG US ESG Leader, said:

“CEOs are going beyond checking the compliance box on sustainability. They’re making it a core business imperative, leveraging cutting-edge data and AI capabilities to drive real-time strategies with measurable impact.”

The survey indicated that the CEOs continue to focus on ESG as the initiatives and investments are expected to yield financial returns. According to the study, 55% of CEOs reported that they expect to see “significant returns” from their sustainability investments in 3-5 years, with 19% anticipating significant returns as soon as 1-3 years. Another 25% expect a longer period, predicting 5-7 years.

Fisher added:

“With sustainability initiatives now seen as a path to profits, not just purpose, leaders expect their investments to deliver a serious revenue boost within the next three to five years. From operations to products to governance, they are catalyzing a shift toward a more sustainable and lucrative future for business.”

The survey also assessed CEOs’ key priority areas for their sustainability efforts, with Operations emerging as the top focus area, cited by 42% of respondents, followed by Products at 24%, and governance models and transparency protocols, such as best practice reporting, at 16%.

Other key findings in the survey included a high level of confidence by the CEOs, with 87% reporting they are confident in the growth prospects for the U.S. economy and 78% in the growth prospects of their own companies, and 72% expecting their companies to increase headcount over the next year.

The survey also examined the CEOs’ views on the opportunities and challenges of generative AI, with 41% planning to increase GenAI investment over the next year, while 38% citing ethical issues as a top challenge in its deployment. Addressing the responsible use of AI, CEOs are planning to implement a series of measures, including 81% reporting that they will use disclosures such as “made with assistance of 81% generative AI” to enable consumers to know the source of content, 63% implementing privacy measures including data anonymization techniques, and 49% planning the establishment of clear ethical guidelines for GenAI.

Paul Knopp, Chair and CEO of KPMG US, said:

“CEOs are thinking beyond complying with climate disclosure rules and focused on creating long-term value for their companies, ensuring the integration of sustainability into core business practices and operations. They see their sustainability strategy and reporting being supercharged by effective data management and GenAI, which can help their organizations make real-time, data-informed adjustments.”

Click here to access the survey.

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Impact Accounting: Raising ESG Reporting Standards

Sponsor content from Pure Storage.

by Charles Giancarlo

Environmental, social, and governance (ESG) frameworks began in 2004 as a concept from the United Nations to help investors assess a company’s global impact and drive corporate responsibility. In the 20 years since its introduction as a broad concept without strict guidelines, ESG has become politicized. Detractors argue that it introduces divisive social causes into corporate decision making.

Certainly, there are many areas for serious debate within the topics of social responsibility and corporate governance. However, anything done with greater efficiency is a general good. Reducing waste and pollution is positive for all concerned, and the reduction of uncontrolled costs to society is to be applauded.

Still, the ESG measurement landscape has become highly fragmented, marked by inconsistent standards and , making environmental reporting unreliable , often misleading, and difficult to interpret. Today, 75% of companies say they are unprepared for upcoming ESG audits, according to Reuters .

Confusing Calculations

Companies reporting ESG metrics must sift through many layers of supply and distribution chains over which they have little oversight and must deal with diverse methodologies, agencies, and reports. They must estimate the environmental impact of partners far out in their supply chains with which they have no direct business, leading to both scalability and accuracy issues, and to potential manipulation, as SEC settlements show. If unchecked, ESG compliance costs will rise sharply, risking report reliability, according to CNN .

The confusing comparisons of various ESG measurements’ environmental performance exemplify the challenge businesses and consumers face in evaluating products’ and companies’ environmental claims. “Greenwashing”—companies’ dishonest efforts to embellish their environmental credentials, engage in selective reporting, or use carbon credits with dubious effectiveness—has become a common problem.

No reasonable person would argue about whether companies should do better in addressing sustainability issues. Proponents say ESG has proved to be a compass for identifying companies that excel financially, demonstrating that prioritizing environmental sustainability, social responsibility, and governance is both good economics and good ethics.

However, disentangling ESG’s components into separate priorities would simplify and reduce needless complexity and disagreement. With the advancement of artificial intelligence, new energy and environmental challenges will also necessitate new dialogue among all stakeholders.

The Impact of Impact Accounting

So the question remains: How can organizations most efficiently and effectively reduce their corporate environmental impact with integrity and clarity?

Historically, market-based mechanisms and transparent corporate practices have driven global economic growth, expanding the middle class and enhancing living standards worldwide. Today’s environmental sustainability challenges stem from the absence of these market-based mechanisms in managing critical resources, pollution, and waste.

The good news is that the practices and tools exist to address this measurement gap through impact accounting . By using impact accounting standards, companies can:

• Use their existing cost accounting capabilities for externalities—the indirect costs (such as carbon dioxide or other pollution) that companies impose on society but that do not show up in their financial statements or products’ specifications;

• Use universal standardized measures for these indirect costs; and

• Employ standard audit practices and auditors to ensure fair, common, and supportable numbers and reports across companies and industries.

Impact accounting is transparent and scalable because it allows each organization to use the metrics its direct suppliers provide to its own accounts, and then to transform these inputs into metrics for their customers.

This is a far more efficient process than having every company analyze the many layers in its supply chain. It uses standardized metrics for each critical resource and integrates them into its financial reporting. And it allows companies to incorporate these costs into their product pricing and features. In so doing, impact accounting also creates a competitive market based on products’ environmental qualities, while fostering transparency through standard auditing oversight.

For public companies, impact accounting transforms the environmental landscape. It introduces a market-based mechanism that quantifies the environmental impact of production, packaging, and usage of products and services in monetary terms, creating a competitive market for the reduction of externalities, which in time will lead to a significant reduction of external costs to society.

Through impact accounting, each supplier can disclose to customers the true resource costs to manufacture and use their product, in addition to the product’s price. The practice expands traditional cost accounting to incorporate societal costs—addressing the gap where companies cover direct costs, like consumption of energy and materials, but not the environmental costs of emissions or waste disposal.

Integrating these costs into both product sales and corporate financial reporting allows companies to report profits alongside resource usage such as energy, water, precious metals, and even plastics, providing a true total cost of production and a true audited view of the environmental footprint to ensure fairness and comparability. Importantly, impact accounting is a scalable and efficient practice for businesses that aligns with increasing consumer demand for sustainable practices, marrying profitability with sustainability.

Leading Sustainable Change

Modern efficiency relies on accurate pricing and audited statements, fostering business trust. Impact accounting extends this trust by quantifying indirect costs, promoting efficiency, and allowing choices based on resource efficiency and product value. This approach is gaining traction among institutions like Pure Storage.

Adopting impact accounting and innovating to reduce the energy and carbon footprint of business takes society steps closer to a transparent, accountable, and sustainable future, which is beneficial for our collective well-being. Pure Storage is replacing outdated, energy-intensive hard disk drives with efficient flash storage, cutting energy use and power-related emissions by up to 85%, and setting the standard in environmental reporting in the data storage industry through impact accounting.

We call on technology leaders to help reduce the energy demands of data centers, which are projected to double to 4% of global electricity use in the next two years. Impact accounting will reduce the cost of and confusion in ESG reporting and benefit all customers, significantly strengthen our communities, and allow businesses to play a sizable role in leading us toward a more sustainable future.

Learn more about Pure Storage’s sustainable tech infrastructure and its impact on reducing energy consumption and minimizing e-waste.

Charles Giancarlo is the CEO of Pure Storage 

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WASHINGTON, DC - SEPTEMBER 23: Climate change protesters block traffic during a protest to shut down ... [+] D.C. (Photo by Mark Wilson/Getty Images)

This week we celebrate the 55 th anniversary of Earth Day. Perhaps the most serious challenge facing the earth is climate change, which reflects the industrial economy’s reliance on fossil fuels. To decarbonize, governments have enacted a range of mandatory policies. Alongside there is a proliferation of voluntary business efforts. Probably the most well-recognized of business initiatives is ESG (Environmental-Social-Governance), a metric to assess firms’ performance holistically, as opposed to relying predominantly on profits.

The theory is that decarbonization requires substantial changes in how businesses function. Decarbonization policies, whether mandatory or voluntary, tend to impose short-term private costs on firms to produce the global public good of climate mitigation. If firms focus on short-term profit maximization, they will have fewer incentives to pursue decarbonization. The ESG metric is a game changer because it recognizes firms for their pro-environmental efforts. ESG also has social and governance dimensions which are expected to motivate managers to consider the interests of all stakeholders, not only shareholders. This is a big ask because financial markets are programmed to focus on profits.

ESG also reveals a remarkable shift in American politics. Historically, conservatives have criticized government regulations and favored voluntary business self-regulation. In recent years, however, it seems conservatives have revised their opinion about regulations. They are opposing business self-regulatory efforts via ESG. Specifically, they see business leaders succumbing to the pressure of liberal groups and becoming “woke.” For them, ESG means that firms will sacrifice their profit goals to fund liberal priorities.

The ESG debate is moot if ESG supports firms’ profit goals. What if it does not, a topic of spirited debate among scholars? How might then firms respond? Even if they can resist the pressure from the stock market to deliver short-term profits, they might face legal problems for violating the fiduciary duty of serving shareholders. This issue is being employed by conservatives to attack ESG on legal-political grounds.

ESG and Cultural Wars

BlackRock’s CEO Larry Fink is considered to be the most prominent ESG advocate. Our recent research with Nela Mrchkovska shows that Fink, who began writing his “Dear CEO” letters in 2012 , used the term ESG for the first time in 2016. Google Trends reveals that in the U.S., ESG rose in prominence in 2019. During its heydays, ESG was a dominant theme in elite gatherings such as the World Economic Forum. Financial firms launched ESG funds and business schools introduced ESG courses.

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Interest in ESG peaked in 2023 and its sharp decline seemed to have begun. A recent Wall Street Journal news story was entitled, “The Latest Dirty Word in Corporate America: ESG.” Why did ESG have a relatively short shelf-life? We highlight two factors: cultural wars and the Ukraine crisis.

ESG outlines the vision of stakeholder capitalism. Fink notes : “Stakeholder capitalism is … driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper .” But Fink’s argument is losing its audience. ESG has become a victim of cultural wars. For conservatives, stakeholder capitalism is a smoke screen for liberal corporate managers to pursue political agendas using corporate resources. These managers can escape scrutiny because they can always find some “stakeholder” to support their preferred policy. While stock markets enforce profit-based accountability, stakeholder capitalism allows managers to escape from this discipline.

Firms have a fiduciary duty to maximize shareholders’ wealth. Using this argument, Attorney Generals of several U.S. states have sued financial companies that employ ESG. The U.S. House of Representatives Judiciary Committee has subpoenaed BlackRock and State Street Global Advisors to investigate whether they are colluding to promote ESG. In this politically charged environment, financial investors are backtracking on ESG funds .

ESG and the Ukraine War

For fossil fuel supporters, ESG is a de facto climate standard. The Ukraine war, which focused global attention on energy inflation and energy security, created the political opportunity for this group to strike at ESG.

How so? The Ukraine invasion has changed the political and economic fortunes of the oil and gas industry. It seems keeping gas prices low is a policy priority across the world. With the active blessing of both Democratic and Republican Presidents, the U.S. has emerged as the world’s top oil producer . Fracking has allowed the U.S. to become the top natural gas producer as well. The U.S. has stepped up its natural gas exports and is creating a massive new LNG pipeline infrastructure. Oil and gas firms are gushing in profits. Thus, financial firms have a hard time explaining why they are not investing in highly profitable oil and gas firms, which they are obligated as part of their fiduciary duty.

Just consider the changes in the political environment as the oil and gas industry has gone on the offensive. Exxon Mobil has sued investors to prevent a vote on their pro-climate proposal during the company's shareholder meeting. Larry Fink has retreated from preaching decarbonization to advocating energy pragmatism which involves both renewables and fossil fuels. In a recent S&P Global Energy Conference, Saudi Aramco CEO Amin Nasser predicted that fossil fuel demand will continue to grow and it is a “fantasy” that oil and gas will get phased out.

Was ESG a fad then?

Fads quickly gain prominence and quickly lose steam. The excitement around them is not rooted in reality. ESG was not a fad because the core ideas motivating it reflect the deeper issue of the social responsibility of businesses.

The climate crisis is real and capitalism is in danger due to public backlash to rising income inequalities and declining living standards. The fundamental questions about the social purpose of the firm are even more important today than ever before. In the 1970s, Milton Friedman wrote that the “Social Responsibility of Business is to increase its profits.” For Friedman, corporate social responsibility (CSR) is charity. In his perspective, firms are not in the charity business, and individual shareholders, as owners of firms, should individually decide how they want to spend their profits.

Yet, this approach has caused social and political upheavals and eroded firms’ social license to operate. The CSR movement seeks to reclaim this license. Bowen’s book, Social Responsibilities of the Businessman , outlined the intellectual rationale for it. In the 1980s, Freeman introduced the idea of stakeholder capitalism. Over the years CSR has gone through several iterations such as Triple Bottom Line and the United Nations Global Compact . ESG could be viewed as its most recent version, sculpted to meet the needs of the time. Yet, cultural wars and the Ukraine invasion have created a hostile political and legal climate for firms to embrace ESG.

To conclude, conservatives see ESG as woke capitalism. They are using the government to go after firms that self-regulate! Yet, the reality is that the climate crisis is worsening and the fundamental question about the social purpose of the firm is unresolved. It remains to be seen whether the ESG idea gets resurrected under a new acronym so that firms can explore ways to retain their social and political license to operate and combat climate change.

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