A group of global businesses led by Bank of America on Tuesday put forward a universal set of standards for measuring and disclosing environmental, social and governance factors in nonfinancial reporting for investors, laying the groundwork for alignment on an issue that has proved slippery despite widespread acknowledgement of its importance.
Following a half-year open consultation with more than 200 cross-sector stakeholders, the World Economic Forum’s International Business Council released a common set of “Stakeholder Capitalism Metrics” and disclosures that it said could help companies align mainstream performance reporting with ESG indicators, ultimately leading to a more “coherent and comprehensive” global corporate reporting system.
“The IBC is seen as carrying great influence as a collective,” the group’s report said. “If members take the lead in reporting and promoting the metrics, it will encourage other companies and investors to participate in the collective action, creating greater momentum towards the convergence the project aims to realize.”
“Some” council members are expected to immediately begin incorporating the metrics into their reporting, Bank of America said, while 120 members showed “strong support” for ESG metrics at the forum’s January meeting in Davos, where the group released a draft for consultation.
“Companies have to deliver great returns for shareholders and address important societal priorities,” said Brian Moynihan, chairman and CEO of Bank of America, the country’s second-largest bank by assets, and chairman of the council.
The metrics are based on existing standards. To that end, the forum has been working with “the five leading independent global framework and standard-setters” to take a more unified reporting approach. Those institutions are CDP, Climate Disclosure Standards Board, Global Reporting Initiative, International Integrated Reporting Council and Sustainability Accounting Standards Board.
The standard-setting organizations said in their own report that a comprehensive reporting standard has been bogged down by sustainability information users’ competing objectives, the changing nature of sustainability topics and a “common misperception” conflating sustainability information with “the expanding ecosystem” of related ratings and tools that rely on disclosure.
“Having companies accepting, not only to measure but also to report on, their environmental and social responsibility will represent a sea change in economic history,” said Klaus Schwab, founder and executive chairman of the forum.
The group hopes members and nonmembers alike will adopt 21 core and 34 expanded metrics and disclosures, with the former being more established and primarily focused on a business’s own boundaries, and the latter conveying impact across a wider value chain in a more advanced or tangible way, for example, in monetary terms.
The metrics and disclosures are organized around four categories. “Principles of governance” speaks to themes like governing body quality and ethical behavior, through metrics and disclosures such as governance composition and anti-corruption efforts. “Planet” addresses themes like climate change with respect to greenhouse gas emissions and adherence to the Task Force on Climate-related Financial Disclosures. “People” examines employer dignity and equality, among other things, through diversity and pay equality, for instance. Finally, “prosperity” looks at product and service innovation and community and social vitality, for example, through research and development expenses and taxes paid.
The metrics also aim to help companies consistently track progress toward the 17 United Nations Sustainable Development Goals, which have been adopted by all U.N. member states and often serve as a marker for actions in this area. Ushering companies toward consistent ESG reporting is key to making progress against those goals, said Punit Renjen, CEO of Deloitte Global, which collaborated on the report with fellow Big Four accounting firms EY, KPMG and PwC.
“Stakeholders — including investors, but also policymakers, consumers and employees — need more rounded, comparable and robust information to make decisions,” said Bob Moritz, global chairman of PwC. “Get that information flowing, align market incentives against performance on these metrics, and a better tomorrow becomes possible."
The report is also especially timely, some noted.
"The combined impacts of climate change, COVID-19 and economic inequality contribute to the urgency for businesses to embrace long-term, sustainable value creation and prioritize the needs of people and planet and the creation of broad-based economic prosperity,” EY Global Chairman and CEO Carmine Di Sibio said.
The council will report on a timeline for members that intend to report on the metrics and disclosures at its January meeting.