The first thing that we wanted to ask is how do you envision the future of sustainability and resilience services evolving over the next few years, maybe five years, especially in light of this rapid technological advancement end and regulatory shifts that are taking place, especially coming from the US and Europe and Singapore and so on. How does KPMG stay ahead of the pack?

Sustainability is a broad concept. Personally, I focus primarily on the climate aspect of sustainability for various reasons. While I recognize that others in the sustainability field also consider non-climate-related impacts, I tend to concentrate on emissions and climate-related effects. My underlying assumption is that addressing climate issues will have positive ripple effects in other areas as well.

We are somewhat supported in our sustainability efforts by several factors. For example, the recent European regulations, specifically the Corporate Sustainability Reporting Directive (CSRD), have a global impact. This directive affects many companies, including approximately 3,000 US companies. Many of our clients subject to SEC regulations are also affected by the CSRD. Although we did not create this directive, it is one of the most comprehensive reporting standards, covering environmental, social, and governance (ESG) issues in great detail. We often tell our clients that if they comply with the CSRD, they will likely meet the SEC and California requirements as well. This effectively makes the CSRD a global standard, helping us achieve greater consistency in managing global clients.
However, there are significant differences in regulatory impacts. Some US companies are subject to the CSRD but not SEC or California regulations, and vice versa. This creates a complex regulatory landscape for companies to navigate. Despite this complexity, the need for regulatory triggers to enforce measurement across various sustainability topics is essential. Without these regulations, similar to how the SEC and accounting oversight boards were established following the Great Depression, we might lack the necessary data for investors to assess climate risk as a financial risk.
The SEC’s climate rule, for instance, is a direct response to investor demands for data to evaluate the financial risks associated with climate change. Investors have clearly stated that climate risk is financial risk, and they need adequate data to make informed investment decisions.

When thinking about the context of climate, whether it involves adapting or mitigating emissions-related issues, it’s essential to consider the evolution of sustainability services. Historically, these services have been driven by regulations, first in Europe and more recently in the US, with a primary focus on measuring emissions and climate risk. Despite significant progress, comprehensive emission measurement, particularly Scope 3 emissions, remains challenging and incomplete.

Advancements in technology have helped companies move beyond spreadsheets to more sophisticated tools for measuring emissions. However, the future focus should be on the actual impact—reducing emissions and adapting to climate change. Service providers that excel in this area will prioritize impact over mere compliance with measurement requirements.

There is a growing need for tangible impact rather than just measurement. Making a real impact is undoubtedly more challenging than measurement, especially as we move towards a more non-voluntary reporting regime. Some executives have expressed concerns about the complexity and burden of European-inspired regulations like the CSRD. One executive pointed out that every dollar spent on measurement is a dollar less available for reducing emissions, emphasizing that the ultimate goal is to effect change, not just to measure it.

Talking about policy:

The Inflation Reduction Act (IRA) is a significant game changer. We’ve seen it influence businesses just as intended, altering the business case for many companies regarding investments in new technologies, building renewable power on-site, and other sustainability initiatives. This shift is evident in corporate boardrooms, with executives now asking how they can secure their share of the available funding.

The IRA has made investments that previously might not have been financially viable more attractive due to the various credits and incentives provided. This has revitalized corporate sustainability agendas, especially for forward-thinking companies that view sustainability as a core business strategy rather than an incremental change. These companies aren’t just looking to cut costs with renewable power or find savings that reduce emissions; they’re rethinking their entire business models. They’re developing products that cater to consumer and business preferences for sustainability and finding new, innovative ways to operate.

We haven’t yet discussed the carbon border adjustment mechanism in Europe, but it has the potential to shift competitive advantages significantly. It’s more than just a tariff for exporting to Europe; it can make companies with less carbon-intensive value chains more competitive. This mechanism might prompt companies to reconsider their sourcing choices to enhance their cost positioning for goods landed in Europe, relative to their competitors.