Progress Toward ESG Framework and Disclosure Collaboration
Navigating the disparate frameworks designed to promote integration of environmental, social, and governance (ESG) factors into corporate strategy and disclosure has caused challenges for corporations and investors.
ESG Framework Development
ESG frameworks developed mostly independently of each other throughout the last two decades, resulting in variations in the breadth and depth of the ESG metrics included in the frameworks. Corporate sustainability reports in 2020 often include data tables1,2,3 mapping ESG metrics to multiple sustainability frameworks. This task is no doubt time-consuming for companies and often confusing for investors.
Collaborative efforts between the frameworks have risen in the past few years4,5. In July, the Global Reporting Initiative (GRI) and the Sustainable Accounting Standards Board (SASB) announced a partnership6 that will “focus on delivering communication materials to help stakeholders better understand how the standards may be used concurrently.” In the same spirit of collaboration, GRI, SASB, CDP, the Climate Disclosure Standards Board (CDSB), and the International Integrated Reporting Council (IIRC) announced a “Statement of Intent to Work Together Towards Comprehensive Corporate Reporting” this month7.
While we wait for the consolidation and outcomes of collaboration between the ESG frameworks, this past week, the World Economic Forum (WEF), in consultation with over 200 corporations and investors, released a white paper, “Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.” Stakeholder capitalism, the idea that the private sector has the capability to “generate long-term value for shareholders, for all members of society and for the planet we share”, was first posed in the original Davos Manifesto of 1973 and restated in the Davos Manifesto in 20208. Earlier this month, the New York Times commemorated Milton Friedman’s 1970 essay on free market capitalism with business leader responses and commentary, several of which advocate for stakeholder capitalism and stakeholder governance. Interestingly, none of the responses refer (at least directly) to the role of ESG disclosure in stakeholder capitalism9. WEF’s work was motivated by 88% of WEF International Business Council (IBC) members agreeing that reporting on a set of “universal, industry‑agnostic ESG metrics and disclosures would be useful for their company”.
ESG Metrics
While the materiality of specific ESG topics varies depending on the industry,10 the paper details 21 core and 34 detailed ESG metrics, plucked from existing sustainability frameworks, which can be used by companies in disclosing material ESG information to investors in a “consistent and comparable” way, across all industries. Metrics are segmented into four pillars of (1) governance, (2) planet, (3) people, and (4) prosperity. The rationale behind each metric and helpful commentary related to each core and expanded metric, as well as mapping to CDP, GRI, and SASB are included the publication as well. The final version additionally includes updates to metrics related to (1) climate risks and (2) the importance of diversity and inclusion, reflecting increasing stakeholder concerns in these topics in 2020.
In a preface to the report, Brian Moynihan (Chairman and CEO of WEF) and Klaus Schwab (Founder and Executive Chairman of WEF) note that they “are heartened by the emerging consensus among IBC members toward their own adoption of these metrics and the commitment the group has made to realizing the ideals of stakeholder capitalism” while also encouraging “the wider corporate community to join us in this collective endeavour”. Companies starting to identify which ESG metrics to track and disclose can no doubt use this white paper as a handy guide to satisfy general stakeholder expectations. That said, companies may need to customize ESG metrics to reflect high priority topics to stakeholders, as well as update ESG metrics over time to reflect changing stakeholder priorities.
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References
1https://corporate.walmart.com/esgreport/esg-data#united-nations-sustainable-development-goals
2https://www.gapincsustainability.com/gri-table
3https://www08.wellsfargomedia.com/assets/pdf/about/corporate-responsibility/gri-index.pdfs
4https://www.cdsb.net/sites/default/files/sasb_cdsb-tcfd-convergingonclimaterisk-091317-web.pdf
5https://corporatereportingdialogue.com/wp-content/uploads/2019/12/The-Sustainable-Development-Goals-and-the-future-of-corporate-reporting.pdf
6https://www.sasb.org/blog/gri-and-sasb-announce-collaboration-sustainability-reporting
7https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wp-content/uploads/Statement-of-Intent-to-Work-Together-Towards-Comprehensive-Corporate-Reporting.pdf
8https://www.weforum.org/press/2020/01/stakeholder-capitalism-a-manifesto-for-a-cohesive-and-sustainable-world/
9https://www.nytimes.com/2020/09/11/business/dealbook/milton-friedman-doctrine-social-responsibility-of-business.html
10https://corpgov.law.harvard.edu/2018/05/10/materiality-matters-targeting-the-esg-issues-that-impact-performance/
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