KPMG: push and pull factors make ESG inevitable
Sustainability as a business concept has been around for over a decade. ESG, which adds social and governance aspects to the environmental mix, is much newer but will become a dominant force in the way companies think, according to consultancy firm KPMG.
“Sustainability has been on our radar for 15 years, maybe more. The term ESG, and everything a little more complex around it, has been around for the past three years, ”Ágnes Rakó, diversity associate at KPMG, told the Budapest Business Journal.
“A lot of entities have done something on the sustainability side already, and they’re in much better shape to transform that kind of effort by focusing on SG now. “
And they will have to focus. International bodies such as the United Nations and the European Union increasingly require companies to respect ESG values of sustainability and diversity. Customers and employees, especially the younger generation, are actively looking for this. Multinational enterprises must respond to these forces, which both push and pull, and that means their SME suppliers will have to do the same.
Although there is a broad understanding of ESG, there are no agreed standards, but steps are underway to achieve it. As part of the United Nations COP26 climate change conference in Glasgow this fall, the International Financial Reporting Standards Foundation announced on November 3, 2021 that it and the International Organization of Securities Commissions will work to create the ‘International Sustainability Standards Board and provide a “comprehensive global benchmark of sustainability-related disclosure standards,” according to the ETF Stream website.
“This standardization would help entities meet requirements, because what they should provide would be clear and also help readers of this information to assess and compare,” Rakó emphasizes. “If we take a look at the auditing standards currently available, they don’t just focus on the ‘E’, but also the ‘S’ and the ‘G.’” This, she says, will be the trend in the future. .
“The EU is definitely a forerunner here, and I think in this case it will be an advantage for EU companies because it [ESG reporting] will also be an advantage in world markets. The frameworks, like the EU taxonomy, are already in draft form and will come into force within the next two or three years. “
The EU targets two groups, according to the partner. “One is the regulated sector because they believe that if they have a grip on it they can move the whole ‘E’ agenda forward. The other is entities with more than 250 employees.
In Hungarian terms that would mean the biggest companies, but at EU level it’s relatively small. It is interesting to note that the EU initially targeted companies with more than 500 employees. It is clear that he wants to integrate as many companies as possible, and not just directly. To meet their ESG requirements, suppliers of their value chains will also need to comply.
“This is expected to spill over into value chains,” says Rakó. Companies will have to respect the ESG criteria of sustainability and diversity to win contracts as multinational suppliers, but also to have access to cheaper “green” financing. The business case is already evident in this regard, says the KPMG partner.
Hungary, in many ways, is in line with its peers in Central and Eastern Europe when it comes to ESG reporting. “Perhaps a difference is that the National Bank of Hungary is very advanced with its green programs, and, for example, the relief of capital requirements, so the pressure from local regulators may be a little stronger.”
To learn more about ESG issues, see our article “ESG: It’s time to prepare for the new green era, it’s now” on pages 9 to 12 of our publication Invest in Hungary 2022, available for purchase. in the bbj.hu online store.
This article first appeared in the print issue of the Budapest Business Journal on December 17, 2021.