Greening reports at leading large companies

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KPMG first published its KPMG Survey of Sustainability Reporting report on the reports of large companies in 1993. The research is published every two years. This year, experts evaluated the sustainability and ESG reports of 5,800 companies from 58 countries. 79 percent of the leading large companies prepare a sustainability report and more and more companies deal with the effects of climate change, according to KPMG’s Sustainability Reporting research. However, despite continuous development, the reports are often still not detailed enough and are incomplete in several areas. Although progress can be seen in the publication of carbon dioxide emission reduction results, progress is slow in other related areas. For example, barely half of the respondents provide data on the performance of ESG social and corporate governance areas. KPMG believes that instead of descriptive reports, companies should support their sustainability efforts with reliable data covering all areas of ESG, and that comprehensive, structured, transparent disclosures according to standards, supplemented by certification by an independent party, can reduce the risk of greenwashing. According to the KPMG Survey of Sustainability Reporting, more and more companies are producing sustainability reports – for example, almost all of the world’s 250 largest companies; 96 percent report on sustainability or ESG topics. Among the 100 largest companies in each country, continuous growth was also seen in this area – while ten years ago, about two-thirds reported on sustainability, this ratio is now 79 percent. In the past, only the financial results showed the success of a company in connection with reports, but nowadays, how it handles social and environmental problems, and how sustainable its operations and products are, also weigh heavily. Companies are increasingly expected to account for all of this and prepare their sustainability reports.

Climate change remains the focus

According to the KPMG Survey of Sustainability Reporting, companies increasingly recognize that they have a role to play in the fight against climate change. 71 percent of national large companies and 80 percent of the global top 250 companies set targets for reducing carbon dioxide emissions. The majority of companies also realized that they cannot rely solely on compensating emissions by purchasing voluntary quotas, they must also reduce their own emissions. The number of companies reporting according to the guidelines of the Task Force on Climate-related Financial Disclosures (TCFD) has doubled, thanks to which more accurate reports have been produced on the presentation of climate risks and opportunities affecting the company. At the same time, the research also pointed out that faster progress would be needed in some areas. Only 64 percent of the 250 large global companies officially admit that climate change is a threat to them, and less than half of them see the reduction of biodiversity as a source of danger.

Sustainability reports from an ESG perspective

This year’s KPMG Survey of Sustainability Reporting also highlighted additional challenges in relation to ESG reports. Although companies increasingly recognize the connection between climate change and social inequality, less than half of the evaluated reports touched on social issues such as diversity, inclusion, equality, labor problems or employee well-being. Also, not quite 50 percent of the companies published their risks and results related to corporate governance, for example in connection with bribery, corruption, anti-competitive behavior or political influence. Only about a third of national large companies have a designated manager dealing with sustainability, and less than a quarter have sustainability performance indicators related to executive compensation. According to KPMG, it is also a problem that ESG reports are still predominantly descriptive, instead of publishing quantified, non-financial performance data of companies, supplemented by their financial impact. This is undoubtedly an area to be developed worldwide. At the same time, it is positive that three-quarters of the reporting companies are weighted by importance and report on truly important topics.

Regional situation

Among the regions, Asia and the Pacific lead the rankings in sustainability reports, 89 percent of the companies here deal with this topic. In second place is Europe with 82 percent, in third place is America with 74 percent, and in the Middle East and Africa this ratio is 56 percent. Among the V4 countries, Poland leads with 82 percent, followed by Slovakia with 81 percent, Hungary in 3rd place with 79 percent. These results are similar to the European average – which is 82 percent. According to the findings of the KPMG Survey of Sustainability Reporting, regional differences are caused by different values ​​and regulatory differences. While North America and Western Europe lead the global field in reporting with 97 and 85 percent respectively, the results of the Middle East and Asia with 55 and 30 percent respectively are outstanding in terms of integrated reports. Meanwhile, Latin America stands out from the rest with its 50 percent in biodiversity, and Africa with 51 and 49 percent in social and governance reports.

Hungarian situation

In connection with the report, KPMG’s Hungarian company also reported on the domestic results at a conference on October 27, 2022. Although compared to the reporting rate in 2020, the 79 percent experienced in 2022 shows a small decrease, which can primarily be derived from the methodology, since the composition of the TOP100 included in the domestic survey has changed. At the same time, the reporting frequency of Hungarian companies corresponds to global trends, and can be said to be average in the Central and Eastern European region. Most of the Hungarian reporting companies – 78 percent – report through the parent company, which means that they do not prepare their own, unique sustainability report, but provide data for the sustainability report published by the foreign parent company. On the other hand, only 10 percent of the companies recognized that by publishing the sustainability report at the local level, the company can provide more relevant information and inform the stakeholders about its sustainability efforts in a more efficient way, as it more closely reflects the opinions of local stakeholders, the issues that directly affect the company, and the possible development areas and the successful implementation of measures.
“In Hungary, reporting according to GRI standards increased by 22% percentage points. Three quarters of reporting companies already follow this comprehensive sustainability framework. This is particularly important in connection with the ever-increasing demand for data, for example in providing data to financing financial institutions or partners with international interests.” – said Ágnes Rakó, Partner, KPMG.

The Budapest Stock Exchange also provides assistance to Hungarian companies in this area

“ESG compliance is a key corporate competitiveness issue that determines financing conditions and the role played in the supply chain. Accordingly, one of the main focal points of the strategy of the Budapest Stock Exchange is the support of the ESG compliance of the domestic corporate ecosystem, whether it is the listed issuers or the SME sector. ” – said István Máté-Tóth, deputy CEO of the Budapest Stock Exchange, at the KPMG event.

“Transformation is a process that points in the direction of a more sustainable future. At the MOL Group, we see that not only goals are necessary: ​​long-term commitment, hard work, discipline and flexibility are equally important for success. Progress must be continuously monitored. According to Peter Drucker, “What gets measured, gets managed” – this is also true for sustainability standards and reporting.” – explained Angéla Remsei-Papp, Group Sustainable Finance Senior Expert, MOL Group. The majority of the reporting Hungarian companies, 67 percent, prepare a materiality assessment, which enables the focus to be placed on sustainability topics and areas that have a significant impact not only on the company, but also on its stakeholders and the wider society.

“The cornerstones of our stability are responsible, ethical operation, our sustainable solutions and transparency. The OTP group has already recognized the importance of complying with sustainability requirements. Our reporting practice tries to respond to stakeholder expectations, which are also incorporated into our ESG strategy.” – said Dóra Szabó, head of OTP Bank’s CSR. Among the companies participating in the survey, in terms of industry distribution, the automotive industry and food retail companies are at the forefront, in the construction industry only one company out of three has a sustainability report.

“The construction industry is not at the forefront in terms of sustainability, but the KÉSZ Group wants to change this as a pioneer. It is no longer enough to pay attention only to the increasingly conscious internal operation, the growing expectations of stakeholders must also be met. In our sustainability strategy until 2030, we set smart goals and defined key actions and metrics to monitor progress. We will publish our first sustainability report in 2023 in accordance with the comprehensive requirements of the new GRI Standard,” said Zoltán Légrády, Head of Quality Management, KÉSZ Group. OTP, MOL and KÉSZ Group are also among the Hungarian companies that determine the topics relevant to the sustainability report by taking into account the impact on the company, stakeholders and wider society.

Featured steps

The new ESG requirements also require a different approach, proposals, and efforts from senior managers for strategic decisions. According to KPMG, in order to prepare successful, transparent and forward-looking sustainability reports, it is essential to understand exactly what the stakeholders expect from it. An order of importance must be set up and incorporated into the reports, and it must also be adapted to the mandatory and voluntary frameworks. In order to support sustainability steps and results, it is important to communicate quality, non-financial data, and to manage them, it may be necessary to create appropriate internal systems. In addition, it is important that the management of the given company understands and accepts the impact of climate change and various social issues on business. Today, the demands expressed by customers towards SAP are mostly grouped around three themes – business transformation, global supply chains and sustainability. Both legal and business expectations are increasing, so customers need efficient and fast solutions. The good news is that SAP, reacting to the needs early on, focused on the development of such solutions, effectively supporting them on this path. – said Gergely Jancsár, Chief Sustainability Officer CEE, SAP.