At the World Economic Forum (WEF) in January 2020 the International Business Council (IBC) agreed that the purpose of business was to take account of all stakeholders, and not just shareholders. This marked the end of the mantra, ‘the business of business is business.’ Now, a collaboration between the WEF and the world’s leading management consulting firms is underway to make this initiative tangible and most importantly, measurable.
Not just another disclosure requirement
Globally, there are a raft of reporting disclosures and standards in use, but this framework is different. Here’s why:
- Forms the building blocks of a single, coherent global reporting framework
- Holistic in nature, tracking issues such as employee well-being, innovation and GHG emissions
- Leverages metrics embedded in existing mechanisms; e.g. Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Carbon Disclosure Project (CDP), Carbon Standards Disclosure Board (CSDB) and the International Integrated Reporting Council (IIRC)
- Unique collaboration between the Big Four.
- Endorsed by the IBC whose members are the largest companies in the world.
- Enables disclosures to become universal, material and comparable. A demand laid down by investors.
- Actionable and feasible to report on.
- Grounded in the UN SDGs, regarded as the roadmap to achieve the long-term goals of society.
- Goes beyond ESG to consider prosperity and the role of business in fuelling economic growth.
The age of transparency
Designed deliberately to be industry agnostic, the framework enables comparison across companies, an ongoing challenge cited by data owners and users. When organisations use different metrics to report on their non-financial performance they cannot be compared. In time, it will become clear who the leaders and the laggards are. Using the framework metrics will tell the holistic story of an organisations current status and show the market its prospects for future success. Traditional financial reporting, whilst critical, is based on the past, a narrow indication of future success. It needs marrying with ESG factors; for example, the approach to employee wellbeing and training, investment in innovation reducing negative environmental impacts and robust anti-corruption mechanisms.
The investor community are at the heart of this transparency demand. EY’s Institutional Investor survey found that 91% of investors are using non-financial reports as a basis for decision making. However, they are dissatisfied with the information they receive on company approaches to ESG risks and opportunities affecting their business. Therefore, the demand for more rigour, consistency, measurability and high-quality disclosures is growing. As companies adopt the framework, investors will have the ability to compare and use this information to inform their decision making. It will increasingly become evident who is committed to improving ESG performance and who is greenwashing.
2020 has also seen the European Commission undertake a revision of the Non-Financial Reporting Directive (NFRD). On the back of this, we can expect to see more stringent rules and oversight and, the potential for mandatory assurance of non-financial performance. This will make sustainability reporting even more necessary, with the stakeholder capitalism framework as the key tool for the way forward.
What needs to be measured?
The framework contains 21 core metrics, defined as critically important within an organisation’s boundaries, and 34 expanded metrics encompassing the wider value chain. The pillars are aligned with the UN SDGs and principles of ESG.