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1、Anchoring ESG in governanceTaking a strategic approach towards corporate governance,board-level responsibility and reportingKPMG IContentsKey findingsESG and the boardForeword0304Corporate ESG strategy0608Who makes decisions on ESG10Who runs ESG12Who leads on ESG reporting14Performance and pay16How

2、ESG is evolving in corporate structures18How to build successful and robust ESG governance20Methodology22 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.2|Anchoring ESG in governance ForewordSustai

3、nability is growing in strategic importance for companies,with increasing reporting requirements on environmental,social and governance(ESG)as well as other demands on corporate structures regarding sustainability.This creates challenges for the group sustainability units charged with ESG work.On on

4、e hand,such units must produce more material than they did in the past while strategically developing and implementing initiatives across a wide range of topics from climate to human rights.On the other hand,the framework conditions for this work have become much more complex and the standards for i

5、mplementation,reporting,mandatory auditing and governance requirements increasingly require a robust approach.Shareholders and bondholders are focusing on governance as a guarantee that sustainability commitments will be maintained and delivered over the long term.At the same time,corporates require

6、 flexibility and agility to discover and develop business opportunities linked to sustainability.KPMG has observed that both corporates at the beginning of their sustainability journey and those active in this domain for many years are asking themselves how they can best set up their sustainability

7、focused organization to work properly at all levels of responsibility,including the management and supervisory boards,executive committee and business functions.To understand this better,we conducted 50 interviews with chief sustainability officers and managers in this field to find out how sustaina

8、bility focused organizations in general and group sustainability units in particular operate.We examined how such units are configured at present,what makes them successful and,above all,how they plan to develop in the future.Businesses have the opportunity to embed robust ESG and suitability govern

9、ance by ensuring effective connectivity between functions(e.g.Finance and other functions both in internal operations and supply chains)which can both enable compliance with reporting requirements and the identification of sustainable value creation opportunities through enhanced operational transpa

10、rency and data driven insights.As one respondent put it in this survey “if we want to exist as a company in 10 or 20 years from now,we need to transform”we couldnt agree more and we encourage organizations to look at how their boards can lead the transformation journey through being equipped with th

11、e right knowledge and possessing the expertise to engage meaningfully on sustainability issues.We hope you enjoy reading this report.John McCalla-Leacy,Head of Global ESG KPMG InternationalNadine-Lan Hnighaus,Global ESG Governance Lead,KPMG International and Partner,KPMG in Germany 2024 Copyright ow

12、ned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.3|Anchoring ESG in governanceKey findings 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to cli

13、ents.All rights reserved.4|Anchoring ESG in governance Sustainability has arrived at the top of corporate structures.It is a board-level responsibility,led by chief executive officers in almost half of the corporates in this research.Almost all have made it a strategic issue or adopted a purpose-dri

14、ven approach.Sustainability-focused organizations are still developing in maturity,with changes continuing to take place.Even the most advanced corporates are having to adapt to increasing ESG reporting requirements,such as the European Unions(EU)Corporate Sustainability Reporting Directive(CSRD).Gr

15、oup sustainability units vary widely in structure,with some primarily functional and others more agile in their operations.Just under half of the corporates in this research discuss ESG through either a dedicated board-level sustainability committee or another specific committee,such as audit.Some h

16、eads of sustainability feel vulnerable alongside other departments that covet their increasingly high-status work.Group sustainability units usually lead on setting,monitoring and implementing ESG strategy and reporting.However,finance and accounting departments are becoming more involved in ESG rep

17、orting,with some taking some or all responsibility for the work.Group sustainability units can adapt to ESGs increasing importance by taking a more strategic approach,working with other departments and no longer trying to do everything connected with sustainability themselves.Despite its increasing

18、importance,the corporates in this research tend to have relatively small teams working on non-financial reporting with just over half having three or fewer full-time equivalent staff.The research finds that key performance indicators based on sustainability are mostly externally reported on an annua

19、l basis,although many corporates track them quarterly for internal purposes.Just under half of the corporates in this research link between 16 and 25 percent of variable executive pay to sustainability indicators.Source:Anchoring ESG in governance,KPMG International,2024 2024 Copyright owned by one

20、or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.5|Anchoring ESG in governance Corporate ESG strategyAlmost all of those interviewed for this research have high ambitions for ESG.Half see it as a strategic issue that is embedde

21、d in core business and strategy,and most of the rest say their corporates are driven by purpose and seek impacts beyond growth,revenue and profitability.Only two of the 50 aim only to comply with the minimum requirements of ESG reporting.Many respondents say their corporates are part-way through the

22、 process of becoming purpose-driven,with some seeing their future existence depending on this:“If we want to exist as a company in 10 or 20 years from now,we need to transform,”says one.However,several respondents say that progress varies based on topic,such as by doing what is strictly required in

23、some areas and going further in others.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.6|Anchoring ESG in governance Decarbonizing business models and reducing greenhouse gas emissions are the topic

24、s most often included in ESG strategies,with almost all respondents saying it is present to a great or some extent.ESG topics in business strategySource:Anchoring ESG in governance,KPMG International,20240%25%50%75%100%Net zero transition/decarbonizationDiversity,equality and inclusionHuman rights i

25、n the value chainCircular economy strategyGreen financeNature/biodiversityTo a great extentTo some extentA littleNot at allNot applicableThere are also differences within corporate structures,where in some cases senior management tends to show more interest in ESG than operational and local units.“W

26、e want to increase the positive impact we have on society,”says one respondent.“The difficulty is to have it embedded in the way we operate and make it part of the daily objective of the teams.”Another respondent adds:“ESG is an enabler,not fully in-purpose everywhere but that is the strategic direc

27、tion.”Decarbonizing business models and reducing greenhouse gas emissions are the topics most often included in ESG strategies with almost all respondents saying it is present to a great or some extent.The next most-mentioned ESG topics are diversity,equality and inclusion and human rights in the va

28、lue chain.Although not highly represented in strategy,a number of respondents recognized the increasing relevance of nature and biodiversity as a key ESG topic.Asked about ESG business strategy topics beyond those listed,eight respondents mention health,safety and environment,four cite cyber securit

29、y and data privacy,three include employee wellbeing and two list pollution.Topics mentioned once include water conservation,traffic safety,tackling homelessness and financial inclusion.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no servi

30、ces to clients.All rights reserved.7|Anchoring ESG in governance ESG and the boardAbout one-quarter of the corporates covered by this research have a board-level sustainability committee.A further fifth discuss it through committees that cover other topics,most commonly the audit committee,with one

31、respondent saying this because sustainability is seen primarily as a reporting requirement.ESG is also discussed on committees focused on management,innovation,remuneration,safety and culture.Three-fifths of respondents work for corporates with a two-tier board structure which,unlike corporates with

32、 a one-tier structure,are more likely to discuss sustainability through a committee that combines it with other topics.However,several respondents mention this as something that has recently changed or will soon change.One respondent from a two-tier corporate says that sustainability,at present cove

33、red by an audit and risk committee,will soon get a dedicated committee,although some aspects such as climate change risks will remain where they are.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.8

34、|Anchoring ESG in governance Among the two-fifths of respondents who work for corporates with a one-tier board structure,several say that sustainability is integrated into reporting,with one respondent mentioning that it appears twice a year on the boards agenda with the chief sustainability officer

35、 speaking.“A further fifth”of respondents discuss it through committees that cover other topics,most commonly the audit committee,with one respondent saying this because sustainability is seen primarily as a reporting requirement.ESG is also discussed on committees focused on management,innovation,r

36、emuneration,safety and culture.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.9|Anchoring ESG in governance Who makes decisions on ESGThe chief executive officer is responsible for sustainability i

37、n almost half of the corporates covered by this research,with a dedicated chief sustainability officer as the second most-popular option.Others have sustainability work led by people with a range of job titles(see chart on next page),with some assigning it to the head of supply chain and manufacturi

38、ng,the chief risk officer or the chief investment officer.More than two-thirds of the corporates in this research have a separate decision-making body for ESG,sometimes known as a sustainability committee or council.Where these exist,most include representation from finance,accounting and controllin

39、g as well as the group sustainability unit,and the majority also include human resources,legal and top C-level executives.One includes a representative of that corporates artificial intelligence ethics committee,while others involve communications,investor relations and sales.About one-quarter of th

40、ese are chaired by the chief executive officer with a similar proportion chaired by the head of the group sustainability unit.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.10|Anchoring ESG in gove

41、rnance The research revealed a wide range of specific approaches to structure.One corporate structure has both an established sustainability board and a new committee focused on opportunities to accelerate business that includes the chief sustainability officer,while another has a sustainability gov

42、ernance committee.Some report that they no longer have separate sustainability committees as the board takes full responsibility for sustainability issues.More than two-thirds of the corporates in this research have a separate decision-making body for ESG,sometimes known as a sustainability committe

43、e or council.Who takes board responsibility for ESG?Chief transformation officer 2Chief sustainability officer9Chief corporate affairs officer 3Chief executive officer23Chief financial officer5Chairman 2Chief operating officer 2Chief human resources officer 3Source:Anchoring ESG in governance,KPMG I

44、nternational,2024 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.11|Anchoring ESG in governance Who runs ESGJust over one-third of the corporates covered by this research have a separate group sust

45、ainability unit.The remaining corporates place ESG within other departments,with strategy being the most popular option,while others locate ESG work in environment,health and safety,communications,legal and corporate affairs departments.One corporate runs ESG as part of its work on transformation,wh

46、ile others combine it with innovation or human resources.Just under half of the heads of group sustainability units in our research have a direct reporting line to the responsible board member.The rest report to a wide range of executives,including five corporates to a senior leader focused on strat

47、egy.Group sustainability units tend to focus on strategic aims,with almost all dealing with ESG strategy,targets and performance indicators.“The responsibility of the sustainability department is developing the ESG strategy and related program,the actual day-to-day execution lies within business/reg

48、ions,”says one respondent.More than two-thirds of group sustainability units covered by our research have between zero and 10 full-time equivalent staff,with only a fifth employing more than 20.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide

49、 no services to clients.All rights reserved.12|Anchoring ESG in governance Responsibilities of group sustainability unitsSource:Anchoring ESG in governance,KPMG International,20240%25%50%75%100%ESG strategyESG goals and target settingSetting and monitoring key performance indicatorsESG reportingHuma

50、n rightsBiodiversityCircular economyESG in the supply chainDigital solutions for data collectionDiversity and inclusionFull-time equivalent staff working in group sustainability unitsSource:Anchoring ESG in governance,KPMG International,20240%25%50%75%100%Zero1-56-1011-1516-2021-2526-3031-4041-5051-

51、60 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.13|Anchoring ESG in governance Who takes the lead on ESG reporting Group sustainability units take sole responsibility for ESG reporting at more th

52、an half of the corporates in this research.Another quarter of corporates share ESG reporting between several departments,with written responses suggesting that most involve both sustainability and finance,with some also including communications.The remainder of the corporates in our research make fi

53、nance and accounting solely responsible for ESG reporting and a number of interviewees expect that trend to increase,except for one corporate that has a communications and government affairs department running the reporting,with an ESG unit in the finance group responsible for data quality.2024 Copy

54、right owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.14|Anchoring ESG in governance Departments responsible for ESG reportingESG reporting has generally been a voluntary exercise,but some jurisdictions are in the

55、 process of making it compulsory,most significantly the European Union through its Corporate Sustainability Reporting Directive(CSRD).Nearly half of the respondents say their corporates plan to report in accordance with the EUs CSRD for their 2024 financial year,with nearly a fifth more planning to

56、do so a year later.More than half of the corporates in this research have three or fewer full-time equivalent staff working on non-financial reporting.Just over half say they expect to see an increase in this number,with most of the remaining corporates expecting numbers to stay about the same.Full-

57、time equivalent staff working on non-financial reportingSource:Anchoring ESG in governance,KPMG International,20240%25%50%75%100%Zero1-34-67-1011-1314-1624-2627-30Not availableNo respondents said that 17-20 or 21-23 full-time equivalent staff work on non-financial reporting.Group sustainability unit

58、 fully responsibleShared responsibility between several functionsFinance and accounting fully responsibleOther54%26%18%2%Source:Anchoring ESG in governance,KPMG International,2024 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services t

59、o clients.All rights reserved.15|Anchoring ESG in governance Performance and payJust under half of the corporates in this research have ESG topics in their core corporate key performance indicators(KPIs),with more than a quarter more including them in management-level performance reviews.Some respon

60、dents say that they plan to increase such work,with one mentioning that they currently have a single indicator on carbon dioxide emissions intensity but plan to add more.Almost half of the corporates covered produce internal indicators on a quarterly basis and several use monthly reporting for some

61、measures.More than three-quarters report on this externally on an annual basis,with the majority of the rest doing so quarterly.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.16|Anchoring ESG in go

62、vernance ESG KPIs are used in calculating executive pay in a majority of the corporates covered by this research,with just over half using them for short-term incentives and two-fifths for long-term incentives.Just under half of the corporates have between 16 and 25 percent of variable executive pay

63、 linked to ESG indicators.Several respondents said they expect this proportion to increase,with others predicting that pay incentives based on sustainability indicators will be extended to mid-level managers.“The types of ESG targets are changing,”says one interviewee.“We see that the targets are ma

64、turing over time and they are expected to gain even more relevance in the remuneration.”Percentage of variable executive pay linked to ESG indicators0%25%50%75%100%6-10%11-15%16-20%21-25%26-30%30%+Not applicableSource:Anchoring ESG in governance,KPMG International,2024 2024 Copyright owned by one or

65、 more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.17|Anchoring ESG in governance How ESG is evolving in corporate structuresSeveral respondents summarize the evolution of sustainability in their corporate structures as moving from

66、 a few people in a department that has another focus(munications,environment)to a centralized unit that is embedded in and strongly connected to the business,that takes a strategic approach and has dedicated staff.One interviewee says that the last five years have seen ESG“moved from shop window to

67、core strategic initiative”with a budget,employees and board-level reporting.Another respondent says that investor pressure has led to the work becoming part of risk management,with plans to increase the size of the ESG team and the appointment of a chief risk officer to lead it.However,some responde

68、nts say that the trend towards the centralization of ESG work has reversed recently,such as through the establishment of sustainability networks and representatives throughout corporate structures.Sustainability“started as a top-down implementation,but meanwhile more and more ideas come from the reg

69、ions,”says one respondent.“It is a deliberate choice of the company to have a small sustainability function as the business model is to have sustainability fully embedded in the companys operations,”adds another respondent.2024 Copyright owned by one or more of the KPMG International entities.KPMG I

70、nternational entities provide no services to clients.All rights reserved.18|Anchoring ESG in governance ESG in corporate structures Several interviewees report moves towards delegating accountability and ownership when asked about how ESG is anchored within the wider corporate structure.These can in

71、volve a group sustainability unit working with ambassadors or champions in other business units to implement measures locally.One corporate in the research has an ESG reporting manager,attached to each business units chief financial officer,who looks at 30 core key performance indicators.Another int

72、erviewee says the group level acts as the central driver but with“considerable freedom”for business units.In the longer term,“we are convinced that sustainability or ESG will be part of everyones job with the sustainability team as an expert role,”sums up another respondent.This federated approach c

73、an present challenges.Some respondents mention difficulties finding enough people to carry out sustainability work,particularly those with specific skills such as financial and data-handling.One respondent says they need“someone who has done decarbonization work,a consulting-type talent who can unde

74、rstand business and technical ramifications”.Others talk about challenges managing the interfaces between the different parts of the corporate structure and ensuring consistency of performance.However,several interviewees stress that getting people across the corporate to consider sustainability is

75、the right way forward.“It is a journey,we dont want to make it a corporate thing,we want it to be part of the daily work,”says one respondent.Another adds that its use of a lean and focused ESG unit is deliberate:“Segments should from beginning have ownership to drive implementation as well as in ce

76、ntral functions there is a strong focus on enablement and decentralized autonomy.”Future of ESGFurther devolution of sustainability work to make it part of everyones job is mentioned by several respondents when asked about how ESG units will develop in the future.Some see the central function becomi

77、ng smaller as individual business units take up work.“We expect that the responsibility for implementation of the sustainability strategies will be transferred to the respective business units as they are able to build their own knowledge and capabilities,”says one interviewee.“We as a function shou

78、ld be focused on the strategy and oversight while the execution should be allocated and embedded as much as possible in the regular business functions.”Several respondents think that finance is likely to take over sustainability reporting given its increasing importance.“ESG reporting will become as

79、 important as financial reporting and will probably also fall under the finance organization,”predicts one interviewee.The result of these two trends is that group sustainability units should become more strategic in outlook so they can provide oversight and guidance across the business and to the b

80、oard.According to one respondent,group sustainability units need to become more agile,particularly when dealing with secondary topics,with another respondent predicting that ESGs current“climate-centric view”will change.“I understand that ESG depends on all,but I want to have a C-level sustainabilit

81、y director to support setting the tone and changing the culture of the company,”concludes another respondent.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.19|Anchoring ESG in governance How to bui

82、ld successful and robust ESG governance 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.20|Anchoring ESG in governance Corporates can start by developing a clear analysis of the characteristics,stre

83、ngths and weaknesses of their existing sustainability-focused organization.This may consider how closely the unit aligns with or diverges from corporate business and sustainability strategies.It can build on the existing structure and culture by seeing what is already successful in supporting cross-

84、functional work and enhancing it.The work can also include the development of a RACI(responsible,accountable,consulted and informed)matrix that defines roles and responsibilities and specifies cross-functional collaboration,as well as revising and enhancing the risk management framework and internal

85、 controls to embed sustainability factors.Corporates can involve people in sustainability work not only based on their decision-making power,but also because of expertise,commitment and access to relevant data.This can be supported by investing time and resources in involving employees and creating

86、ownership of the redesigned group sustainability unit and its roles through communication about ESG,education and training on its purpose,background and specific tasks.Corporates can gradually integrate sustainability work into relevant functions and business units.As levels of competence and maturi

87、ty grow,this can allow the decentralization of responsibility for ESG,particularly its reporting.Doing so means understanding,measuring and steering corporate culture to stimulate the implementation of a sustainability strategy.With gradual decentralization over time,corporates can allow the group s

88、ustainability unit to focus on its central strategic role to drive long-term commitment to sustainability goals.This includes equipping the chief sustainability officer or head of sustainability with maximum organizational power and sufficient resources to fulfill their role as a change agent who cu

89、ts across all services.Corporates can help ensure that their boards can lead the transformation journey by being equipped with the right knowledge and possessing the expertise to engage meaningfully on sustainability issues.This is likely to mean including sustainability metrics in the performance-r

90、elated pay of board members and executives that align with corporate sustainability ambitions to help drive an organizations long-term commitment.To increase alignment between sustainability initiatives and overall sustainability strategy,corporates can use technology,tools and data governance.It al

91、so makes sense to establish sustainability-related key performance indicators to assess and enhance an organizations performance and provide valuable insights to guide decision-making.Corporates can involve people in sustainability work not only based on their decision-making power,but also because

92、of expertise,commitment and access to relevant data.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.21|Anchoring ESG in governance MethodologyThis report draws on in-depth interviews carried out by

93、KPMG professionals with 50 sustainability executives,some with more than two decades of experience working in ESG.Interviewees:Chief sustainability officers,heads of sustainability or professionals with a management function in sustainability.Selection:Companies across a range of sectors from the fo

94、llowing countries:BelgiumBrazilCanadaFranceGermanyIrelandSri LankaSwitzerlandThe NetherlandsUnited Kingdom 2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to clients.All rights reserved.22|Anchoring ESG in governance The informat

95、ion contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.Although we endeavor to provide accurate and timely information,there can be no guarantee that such information is accurate as of the date it is received or that it wil

96、l continue to be accurate in the future.No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.2024 Copyright owned by one or more of the KPMG International entities.KPMG International entities provide no services to cli

97、ents.All rights reserved.KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited(“KPMG International”),each of which is a separate legal entity.KPMG International Limited is a private English company limited by guarantee and does not provide service

98、s to clients.For more detail about our structure please visit KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization.Throughout this document,unless otherwise indicated by quotation marks,“we”,“KPMG”,“us”and“our”refers to the global organ

99、ization or to one or more of the member firms of KPMG International Limited(“KPMG International”),each of which is a separate legal entity.The views and opinions of external contributors expressed herein are those of the interviewees and do not necessarily represent the views and opinions of KPMG In

100、ternational Limited or any KPMG member firm.Designed by Evalueserve.Publication name:Anchoring ESG in governance|Publication number:139206-G|Publication date:February Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.J

101、ohn McCalla-Leacy Head of Global ESG KPMG International E:john.mccalla-leacykpmg.co.ukSimon Weaver Global ESG Strategy,Transformation&Implementation Lead,KPMG International and UK Lead,KPMG in the UK E:simon.weaverkpmg.co.ukNadine-Lan Hnighaus Global ESG Governance Lead,KPMG International and Partner,KPMG in Germany E:Goran Mazar EMA and German Head of ESG KPMG in Germany E:Dong-Seok Derek,Lee Asia Pacific Head of ESG KPMG in Korea E:Timothy Stiles Americas Head of ESG KPMG in the US E:Contacts