Stakeholder capitalism – finding common ground
To cater to the stakeholder needs and to build in-depth, meaningful, decision worthy disclosures that establishes continuous dialogue between stakeholders- both internal and external, there here has been gradual and parallel evolution in the global reporting landscape of ESG. The evolving reporting landscape demands increased granularity in data, enhanced metrics for performance measurement, forecasting, equal rigour of financial and non-financial assessment, and board level demonstration of commitment towards impact, its measurement and monitoring. This evolution has the potential to bring about the systemic transition in ESG reporting enabling best practices across boards and creating long term value.
An important initiative in this direction was launched at WEF’s fourth annual Sustainable Development Impact Summit in September 2020, where a set of universal ESG metrics and disclosures were released to measure stakeholder capitalism that companies can report on regardless of their industry or region. The ‘Measuring Stakeholder Capitalism’ Framework was endorsed by the International Business Council (IBC), a community of over 120 global CEOs, and developed in collaboration with Big 4 consulting firms including EY, after an extensive consultation process.
Measuring the long-term value
It has been broadly recognized that while we live in an era of new challenges and new priorities, most businesses worldwide continue to report to financial markets using decades old accounting principles and standards. These do not adequately capture the growing proportion of value which companies create across intangible aspects of their business model which can be captured through proper Non-financial reporting practices.
As a response to this challenge, Coalition for Inclusive Capitalism launched the Embankment Project for Inclusive Capitalism (EPIC) together with EY and over 30 companies, asset managers and asset owners, with approximately USD 30 trillion of assets under management. They came together in pursuit of a single goal: to identify and create new metrics to measure and demonstrate long-term value to financial markets. EPIC’s Long-Term Value Framework provides an outline companies can adapt to identify and measure company-relevant key value drivers and to develop non-financial metrics that can help gauge value and value creation.
The Indian context – business responsibility and sustainability reporting
The growing trend of interest in non-financial performance and reporting worldwide is reflected among Indian corporates too. The most common means of ESG or sustainability reporting among companies in India is through publication of annual sustainability reports and integrated annual reports, based on the GRI Standards and the Integrated Reporting Framework respectively.
While the push for increased disclosure is mainly being driven by customers and investors or on account of a company’s own sustainability agenda, the role of regulators has so far been limited. The principal regulatory framework driving sustainability related disclosures has been the Business Responsibility Report (BRR) driven by the markets regulator Securities and Exchange Board of India (SEBI), under which the top 1000 listed companies by market capitalization are required to annually file information against a prescribed format to the stock exchanges as part of their annual reports.