Development of core universal ESG disclosures mooted
CEOs gathered at the World Economic Forum in Davos have expressed support for aligning on a core set of metrics and disclosures in their annual reports on the non-financial aspects of business performance such as greenhouse gas emissions and strategies, diversity, employee health and well-being and other factors that are generally framed as ESG topics.
Though business leaders increasingly see the topics of ESG and the SDGs as important to long-term business value creation, lack of comparable ESG reporting in mainstream reports hinders the meaningful benchmarking of sustainable business performance by investors and society.
Additionally, this prevents effective communication about a company’s long-term and sustainable value creation.
The IBC of the World Economic Forum discussed a proposal prepared by the Forum in collaboration with the Big Four accounting firms – Deloitte, EY, KPMG and PwC – titled Toward Common Metrics and Consistent Reporting of Sustainable Value Creation.
The proposal recommends a set of core metrics and recommended disclosures. The intent is for the metrics to be reflected in the mainstream annual reports of companies on a consistent basis across industry sectors and countries.
“For stakeholder capitalism to become a reality, we must be able to measure companies’ performance on environmental, social and governance metrics,” says Klaus Schwab, founder and executive chairman of the World Economic Forum.
“The International Business Council’s decision to endorse this principle, and their willingness to be measured in their annual reports on more than profits, is a crucial step to change our economic system for the better.”
The proposed metrics and recommended disclosures have been organised into four pillars that are aligned with the SDGs and principal ESG domains.
* Principles of Governance: Aligned with SDGs 12, 16 and 17, “principles of governance” focuses on a company’s commitment to ethics and societal benefit.
* Planet: Aligned with SDGs 6, 7, 12, 13, 14 and 15, “planet” looks at the themes of climate sustainability and environmental responsibility.
* People: Aligned with SDGs 1,3, 4, 5 and 10, “people” examines the roles human and social capital play in business.
* Prosperity: Aligned with SDGs 1, 8, 9 and 10, “prosperity” focuses on business contributions to equitable, innovative growth.
The metrics are drawn, wherever possible, from existing standards and disclosures such as GRI, SASB, TCFD, CDSB and others. Instead of reinventing the wheel by creating a new standard, they aim to amplify and elevate the rigorous work that has already been done by these initiatives, bringing their most material aspects into mainstream reports on a consistent basis.
“By aligning companies with asset owner and asset managers through common, limited and meaningful metrics, we will ensure sufficient capital is available to meet the Sustainable Development Goals,” says Brian Moynihan, chairman and CEO of Bank of America. “Companies can deliver great returns for their shareholders, invest in their employees, share their success with the communities in which they operate and drive progress on societal priorities.”
Adoption of such recommended universal metrics and disclosures by IBC companies is intended to be a catalyst for greater alignment and synergy among existing ESG standards and ultimately a system-wide solution, such as a generally accepted international accounting or other reporting standard drawn from best practice.
At the request of the IBC, the World Economic Forum will continue to consult with interested companies and other stakeholders to further develop and test these metrics and universal disclosures as well as to engage and collaborate with policymakers, businesses and civil society groups who wish to see this work progress.