79% of Companies Now Obtain External Assurance Over Some ESG Metrics: KPMG

• Growing Assurance Demand: 79% of FTSE 100 companies obtained ESG assurance in 2023, up from 75% in 2021.
• Auditor Alignment Trend: 47% of companies used the same practitioner for both ESG assurance and financial audits in 2023.
• Big 4 Dominance: 63% of ESG assurances were conducted by Big 4 firms, showing an 8% increase from 2021.

As the demand for reliable Environmental, Social, and Governance (ESG) reporting grows, FTSE 100 companies are increasingly turning to external assurance to enhance transparency and meet stakeholder expectations. This trend, driven by new regulations like the Corporate Sustainability Reporting Directive (CSRD), marks a significant shift in how the UK’s largest companies approach sustainability reporting.

Rising Demand for ESG Assurance

In 2023, 79% of FTSE 100 companies obtained external assurance over some ESG metrics, a 4% increase from 2021. “This means the vast majority of the FTSE 100 have at least some experience of the requirements of an assurance process,” notes KPMG. As regulations tighten, collaboration across different teams within a company is becoming crucial to support a smooth reporting and assurance process. This will become even more important under the CSRD, which mandates comprehensive ESG reporting from 2024.

Alignment with Financial Audits

Data from KPMG reveals that 47% of companies that obtained ESG assurance in 2023 used the same practitioner for both ESG assurance and financial statement auditing. This represents a 14% increase from 2021, reflecting a growing trend towards consolidating assurance and audit services. “This trend is expected to continue as the CSRD comes into force,” KPMG states, citing the overlap in disclosures required for the European Sustainability Reporting Standards (ESRS) and traditional financial audits.

Dominance of Big 4 Firms

The majority of ESG assurance services in 2023 were provided by the Big 4 accounting firms, with 63% of FTSE 100 companies choosing these firms, an increase of 8% from 2021. KPMG highlights that “more companies may seek alignment between their assurance and audit practitioner” as reporting requirements increase.

Timing of Assurance Reports

Only 52% of the assurance reports in 2023 were signed on the same day as the financial statements audit report, indicating a need for improved coordination. Under the CSRD, the sustainability statement, which is subject to assurance, must be presented within the Annual Report itself. Companies currently publishing separate sustainability reports need to plan ahead to align their reporting processes.

Limited Assurance Dominates

KPMG’s findings indicate that 94% of the ESG assurance reports in 2023 were for limited assurance, with only one company obtaining reasonable assurance for all its key performance indicators (KPIs). Limited assurance involves less extensive procedures than reasonable assurance, which follows a methodology similar to a financial audit, providing a higher level of confidence.