KPMG: Sustainability reporting gaining prominence, but recession a threat

KPMG has released its bi-annual “Survey of Sustainability Reporting 2022,” examining sustainability reporting trends around the globe – including Saudi Arabia and the Middle East region in this edition.

Over the past two decades, sustainability reporting has been largely voluntary. However, the reporting landscape is poised to change drastically today, given the adoption of mandatory and regulated sustainability reporting.

The report reflects on the current state of reporting, the gaps that should be filled to meet regulatory requirements and the overarching business strategy considerations that can allow companies to meet increasing regulatory expectations while still creating impact and generating value.

KPMG professionals analyzed financial reports, sustainability and environmental, social and governance (ESG) reports, and websites for 5,800 companies in 58 countries, territories, and jurisdictions. The survey provides information and insights for those preparing their own organization’s sustainability report, as well as for investors, asset managers and ratings agencies who now factor sustainability and ESG information into their corporate performance and risk assessments.

Regulators and non-profit standard-setters around the world have taken significant action around non-financial disclosure during the last two years, the report said. More importantly, corporations are evolving in real time with shifting priorities in the world around them. 

Over the past three decades, KPMG surveys have shown that sustainability reporting has become an accepted part of disclosure and transparency for several large companies, with a continued uptake of sustainability reporting globally and increasing integration into mainstream financial reporting. 

“With this increased transparency comes greater accountability for action around reducing carbon emissions, halting biodiversity loss, and tackling societal inequality,” commented Fadi Al-Shihabi, Head of ESG and Sustainability for KPMG Professional Services.

“Yet, this work is challenging and growth in reporting has slowed as companies focus inward, assessing the investment necessary to mitigate their risks and take advantage of the opportunities that have come to light.

However, the report states that the looming threat of a recession is raising concerns that ESG issues may be put on the back burner in favour of financial survival. The world has changed since the last recession and ESG provides insights into the long-term sustainability of a business.

The 2022 survey findings indicate global trends in sustainability reporting. It notes that sustainability reporting grows incrementally with the movement towards the use of standards framed by stakeholder materiality assessments. That includes increased reporting on climate-related risks and carbon reduction targets, in line with a global task force on these types of financial disclosures. Further, the report finds growing awareness of biodiversity risk among businesses, and in terms or priorities, climate risk reporting currently ranks first, followed by social and governance risks.

According to KPMG, there has been much progress over the past few years in climate-related reporting — the E in ESG — but this now needs to translate to social and governance. 

Companies continue to find it challenging to strike a balance in sustainability reporting, with a continued slant towards positive reporting and qualitative descriptions of impact and limited insight into the impact of the environment and society on the business itself. 

“Therefore, companies must find a way to address both their positive and negative impacts,” concluded Al-Shihabi.