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KPMG outlines ‘ESG watermark’ ambitions

Author: ICAEW Insights

Published: 01 Nov 2021

Richard Threlfall, global head of KPMG Impact, tells ICAEW Insights about the firm’s plans to transform itself and stamp its mark on the ESG market.

KPMG recently outlined its strategy to promote sustainability and transparency within the organisation, underlined by a $1.5bn investment. In doing so, the Big Four firm is firmly tying its colours to the ESG mask, but Richard Threlfall, global head of KPMG Impact (the “accelerator” for the firm’s global ESG strategy) is clear the motivation is not just altruistic. 

Yes, this is about practising what the firm preaches and holding itself to the standards it is asking other businesses to follow as it strives for “purpose with profit”. But it is equally about tapping into a global ESG advisory market that according to the firm’s own analysis is worth an eye-popping $14bn and set to grow at around 13% per annum, making it one of the fastest-growing consultancy sectors.

“We’re responding to the overwhelming demand by organisations who are crying out for help in terms of what they need to do to transform to meet the changing societal expectations. And we’re also saying we need to transform our business at the same pace. Our colleagues expect it, our clients expect it and public opinion expects it,” Threlfall says.

In practical terms, the firm’s Impact Plan published in January sets out a host of internally-focused pledges – including commitments to reach net zero by 2030 and to move its offices to renewable energy supply by 2025 at the latest. On the social side, the firm is undergoing an audit of the human rights impact through its supply chain and upping D&I targets. 

Pandemic ‘turbo-charged’ ESG agenda

The unveiling of KPMG’s Impact strategy couldn’t have come at a more opportune time. With COP26 underway and with global efforts to thrash out sustainability reporting standards gathering pace, the focus on ESG has never been more intense, with the pandemic only serving to bolster attention. 

“There was something about the vulnerability we’ve all experienced over the last 18 months that turbo-charged the recognition that businesses needed to step up in terms of what they were doing not just in climate but across the whole ESG agenda,” Threlfall says.

KPMG’s strategy isn’t to set up a new specific ESG business. Instead, Threlfall explains that ESG will run “like a watermark” through everything the firm does. “We see a need to put ESG through every single product and service that we’re offering globally,” Threlfall says.

Mandated standards important to avoid greenwashing

But it’s the prospect of mandated sustainability reporting – and the opportunities that present for independent ESG assurance – that explains KPMG’s desire to stamp its mark on the ESG market. “Our expectation is that certainly by the end of this decade and probably sooner, every single business in the world will be required by regulation to transparently report on their ESG footprint,” Threlfall says. “That is clearly by definition a huge opportunity.”

Threlfall also accepts that the absence of mandated standards leaves too much scope for selective reporting and potential greenwashing. “That is why it is so important that the world moves as fast as possible to a consistent set of globally accepted standards.” Threlfall is optimistic that the momentum clearly gaining will soon pay off. “I think this is going to happen in four years, not 40 years, and it has to.”

However, he also believes that it would be a pity for ESG to follow the same path as financial reporting – and a divergence between European and US reporting rules. “Fundamentally, standards are not just about the business itself but its supply chain and the whole interconnectivity of business. Without global standards, it will be very difficult and very expensive for global businesses to be able to report accurately and in a way that is comparable with other businesses. The challenge is how we get an acceptable set of standards that meets the expectations of societies globally that doesn’t trip over differences of sensitivity or approach in different countries.”

Don’t wait until you’re pushed

Mandated standards may be a sticking point but Threlfall’s advice to clients, not surprisingly, is not to wait until you’re pushed. “You want to be showing that you are committed to this and you are embracing it voluntarily before it is forced upon you. That will require you to make some judgments now and it may not end up being exactly the same set of data and standards that you report on in two or three years’ time but you won’t have wasted much effort because of the learning process you will have gone through.” 

In the meantime, guiding clients through the minefield that is methodologies, data collection and meaningful reporting is already proving a huge growth area. At the same time, there are huge revenues to be earned from business transformation services that help companies in sectors most fundamentally affected by the drive to net zero – energy, transport and automotive to name but three – to reinvent themselves.

Threlfall accepts that the scale of KPMG’s business opportunity can’t be addressed by “creating a team in the corner and hiring a few people into it”, a strategy he describes as self-defeating and limiting. “We’re serious about getting to a situation where every colleague is comfortable about having a conversation about ESG and the UN Sustainable Development Goals and is comfortable being able to articulate what we’re doing as a business.” 

Alongside a commitment for basic ESG training for all 227,000 colleagues, KPMG will develop functional training - for example, audit team members trained in ESG assurance, and the expansion of some specialist teams in areas such as human rights and biodiversity. The firm is also building two global hubs housing hit squads of climate expertise, ESG reporting and general ESG strategy. “They are going to be relatively small teams designed to stop-gap the immediate demand we have and take the capability we have to whichever client is calling for it quicker than an individual country or network could build that capability up.” 

Meanwhile, the risk to corporates of not addressing ESG risks is mounting. Whether it’s consumers voting with their feet, the reputational damage caused by ESG failings being called out in public, the possibility that other businesses stop associating or working with you, private equity refusing to fund businesses that aren’t pivoting a path to net zero, banks offering lower margins to those that commit to certain disclosures and KPIs, or public sector projects stipulating a threshold level of disclosure and a clear path on ESG before you even get on the tender list. “Businesses that are ignoring this won’t be here in another 10 years,” Threlfall maintains.

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