The organizers assembled a group of 31 participants from the top tier of global business: companies including Unilever, Novartis and PepsiCo, and asset managers and owners including BlackRock, Fidelity, Vanguard, Norway’s vast Government Pension Fund Global, CalPERS, MetLife and Allianz. Together, they embarked on an 18-month program of work – “by the market, for the market” in Ball’s words – to flesh out new ways of measuring business value.
Armed with a long-term-value framework, the EPIC members agreed to spend 18 months developing a number of metrics. The project was organized into seven working groups, each including companies, asset managers and asset owners, along with an eighth group to ensure a consistent methodology across the workstreams, and a ninth to examine complementary initiatives that EPIC could engage with.
In November 2018, the project participants unveiled the results of their work in a report that was launched in Washington, DC. This set out a detailed series of metrics to help companies measure and report on the nonfinancial value they create for multiple stakeholders, as well as recommendations for how the subject should be addressed in narrative reporting, across the seven areas covered by the working groups. Under each heading, the report describes what good practice should look like.
The result is a framework that represents a meaningful first step toward allowing investors and others to make like-for-like comparisons between companies’ nonfinancial performance in the same way that they compare financial performance using internationally accepted accounting frameworks.
The 63 specific metrics agreed on range from disclosures on workforce and leadership diversity, staff turnover and absenteeism rates, to a standardized survey that companies can use to assess organizational culture. Innovation metrics track R&D investment and success rates as well as a “vitality index” that shows the percentage of revenues from recently launched products, services or processes, and “societal value generated,” which sets out how much of the business’s innovation activity is addressing sustainability challenges such as the United Nations Sustainable Development Goals. In areas of deep social concern such as climate change, the report recommends standardized measures of the business’s energy intensity and its exposure to risks arising from future changes in the pricing of carbon emissions.
However, challenges exist for companies and their investors in changing the range of metrics they report on, beyond the task of agreeing the methodology and metrics. Matchaba says the major challenge for Novartis continues to be the lack of a common language and strong standardization.
“The key thing is to get system movement,” he explains. “You want a bottom-up, standardized approach from companies that is useful for internal decision-making and is picked up by investors and governments. But if it’s only coming from one party, and it’s not comparable, it doesn’t work.”