Insight

ESG agendas and reliance on the chief data officer is in full swing

ESG reporting is now widely recognized by financial stakeholders as a critical component of corporate reporting.

Steven Arnold

Steven Arnold

Principal, Advisory, Financial Services Solutions, KPMG US

+1 213-430-2110

Kevin A. Shannon

Kevin A. Shannon

Director Advisory, Financial Services Solutions, KPMG LLP

+1 973-912-6717

In December 2020, KPMG published its 11th edition of the Survey of Sustainability Reporting1. This detailed, insightful piece, aptly named “The time has come,” confirms that sustainability and ESG (environmental, social, and governance) reporting is now widely recognized by financial stakeholders as a critical component of corporate reporting.

However, as prominent as the topic itself, the data needed to power the ESG agenda is most often at the center of every conversation. The viability of corporate ESG strategies is wholly reliant on the chief data officer (CDO) to deliver this data, and it won’t be without its challenges.

ESG reporting is the norm

When KPMG began tracking sustainability reporting in 1993, only 12 percent of corporations were producing sustainability reports. Fast forward to 2021 and that number now stands at 80 percent. In fact, our latest survey1 further reveals that more than 90 percent of the world's largest companies are reporting on their contributions to global sustainability.

The trend is clear. ESG reporting is now the norm and it is here to stay. For those that have not yet started their ESG journey, time is indeed running out.

The lofty figures of 80–90 percent participation could lead one to believe the job is nearly done. But not so fast. While ESG reporting may be the new norm, we are still in the early stages of what is yet to come.

A large variety of data

The full spectrum of ESG reporting has yet to reach its maturity, and the breadth of the subject ranges across a wide variety of macro- and micro-economic indicators in the form of both sovereign and corporate indicative data.

Emissions and pollution control; disparity of banked and unbanked populations; human rights policies; child labor; health, wealth, and nutrition; working conditions; access to water; availability of power and the internet; employment diversity figures; fair pay; government corruption; natural resource availability—the list of needed information to address reporting needs is, to say the least, extensive. Add to this the compounding challenge that not only are corporations expected to have complete awareness of their own ESG footprint across such a wide array, but also expected to be fully attentive to that of the companies they do business with, whether they be suppliers or customers.

The data challenges

While ESG data availability from third-party providers is on the rise, the persistent issue with third-party ESG data resources is they are often opaque and significantly divergent. Even self-reporting of ESG performance by corporations is vulnerable to accusations of “greenwashing.” This occurs when a business is suspected of falsely inflating its environmental friendliness.

To maintain credibility, the responsible CDO must obtain all the necessary data needed to enable the organization to transparently measure ESG performance—as well as provide data to help make sound decisions about the companies they do business with. In fact, the KPMG Survey of Sustainability Reporting found that scrutiny over sustainability and ESG data has become markedly more intense and demanding over the last three years.

What you should be doing

No matter where you are on your ESG journey, chances are high you don’t have all the information you need to assess your own company’s ESG performance the way you’d like to. Now consider that in relation to the information you are depending on others to provide you about your suppliers and customers.

The vast majority of data available outside that which is provided by third-party ESG data vendors is unstructured. The means of access to this information varies significantly. Information often needs to be scraped from websites by automated crawlers that do so without violating terms and conditions. Social media provides a wealth of sentiment insight, provided you can integrate it into a usable format. This is the space where natural language processing, big data, the Internet of Things, robotic process automation, machine learning, and artificial intelligence shine.

The best place to get started is with an assessment of current capabilities:

  • Do you have the capability to acquire multiple terabytes of high-velocity unstructured content from external resources without requiring human intervention—and while assuring you are not running afoul of any laws, regulations, or other terms and conditions?
  • Do you have the capability to process massive amounts of unstructured, heterogeneous content into standardized, structured data that can leverage machine learning and artificial intelligence techniques that drive high value extraction, accelerated time to market, and produce reliable insights?
  • Do you possess the foundational proficiencies, such as mature data governance, data ethics, data literacy, and information lifecycle management frameworks, that are the essential ingredients to data success stories and the benchmarks by which regulatory reporting standards are measured?

KPMG can help you get there. We see what the industry is doing before most others do. KPMG has extensive experience working with the large varieties of data driving financial and nonfinancial reporting, including ESG. For more information about how KPMG helps companies deliver on their ESG strategies, visit KPMG IMPACT.