SASB, TCFD, GRI ' keeping up with environmental, social and governance (ESG) frameworks can feel like swimming in a bowl of alphabet soup. This is exactly what the World Economic Forum's new ESG metrics were designed to address.
In September 2020, the World Economic Forum and its International Business Council (IBC) published a new, consolidated set of ESG global standards. This core collection of 'Stakeholder Capitalism Metrics' consolidates existing metrics (from SASB, TCFD, GRI) into a more consistent option for companies to measure and report on their progress in areas of the UN's Sustainable Development Goals (SDGs).
Organizations that are already using existing ESG frameworks should consider these new metrics an evolution ' not a reason to start from scratch. To understand exactly how the World Economic Forum's metrics incorporate SASB, GRI and other frameworks, this article recounts the IBC origin story and their progress thus far.
The metrics have been selected for their universality across industries and business models, but the intention is not to replace relevant sector and company-specific indicators. -World Economic Forum, Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation
Affirming a Commitment, Addressing a Challenge
In 2017, the IBC brought more than 140 CEOs together to commit to the World Economic Forum's Compact for Responsive and Responsible Leadership. The initiative aligned corporate values and strategies with the SDGs.
Two years later, in the IBC's 2019 Summer Meeting, members noted that multiple ESG reporting frameworks ' and the lack of consistency and comparability among them ' prevented companies from credibly demonstrating progress on sustainability goals.
In January 2020, the IBC launched a project to address these challenges head-on. The team presented a provisional set of metrics and disclosures during the IBC's Winter Meeting 2020, then rolled up its sleeves and went to work.
January-July 2020: Evaluating and Refining Key IndicatorsDuring the first half of 2020, IBC brought more than 200 companies, investors and other key players together in an intensively collaborative process comprised of:
- Socialization of the provisional metrics through surveys, one-on-one meetings and industry-specific workshops
- Market testing of adoption and reporting through deeper one-on-one discussions with 15 companies
- Systemization, which involved engagement with framework- and standard-setters, regulators, stock exchanges, data providers, accounting authorities, the European Commission, and other international authorities
- Feedback from IBC members and non-members regarding:
- The utility of the metrics, willingness to use them, and ability to report on them
- Cross-pillar issues
- Reporting challenges
- The definition of 'materiality'
- The need for more contextual commentary to complement quantitative data
August-September 2020: The Big Reveal
Metrics are drawn wherever possible from existing standards and disclosures, with the aim of amplifying the rigorous work already done by standard-setters rather than reinventing the wheel. -World Economic Forum, Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation
The collaboration yielded 21 core and 34 expanded metrics and disclosures, introduced to the world at IBC's August meeting and in a September white paper.
Core metrics focus primarily on activities within an organization's own boundaries. The information used for reporting is quantitative; many firms are already reporting on this data or can obtain it with reasonable effort.
Expanded metrics represent a more advanced way of measuring and communicating sustainable value creation. One example includes expressing ESG impact in monetary terms. These disclosures tend to be less well-established and have a wider scope across the value chain.
Companies are encouraged to report against as many of the core and expanded metrics as they find material and appropriate, on the basis of a 'disclose or explain' approach. -World Economic Forum, Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation
Metrics are organized under four interdependent pillars that align with SDGs and global ESG concepts: governance, planet, people and prosperity. Each pillar includes up to seven themes considered the 'most important to society, the planet, and the economy, and the most universally relevant to all companies.'
For instance, themes in the governance pillar include governing purpose, quality of the governing body, stakeholder engagement, ethical behavior, and risk opportunity and oversight. Metrics are quantified and reflect outcomes of governance structures, policies and processes. The disclosures also reflect specific outcomes but do so by calling on companies to explain how they applied governance in the relevant area.
Metrics draw from existing frameworks where possible. For example:
- SASB 101, the GHG Protocol and the Science-Based Targets Initiative for the Climate Change theme under the planet pillar
- The MIT Living Wage Tool and the Equal Pay International Coalition for the Dignity and Equality theme under the people pillar
- Chief Executives for Corporate Purpose Valuation Guidelines for the Community and Social Vitality theme under the prosperity pillar
- Various GRI standards for themes under the governance pillar
Catalyzing Momentum ' and Alignment ' in the ESG EcosystemThe IBC's project and resulting metrics have already influenced ESG standards and reporting. At the IBC Summer Meeting, the five leading voluntary framework and standard-setters detailed how their work and the IBC's project could form the natural building blocks of a single, coherent, global ESG reporting system. This united for the first time the visions of the Carbon Disclosure Project, the Climate Disclosure Standards Board, the Global Reporting Initiative, the International Integrated Reporting Council, and the Sustainability Accounting Standards Board. Also, over the past year, we've seen:
- The European Commission revising its Non-Financial Reporting Directive
- The International Organization of Securities Commissions accelerating the harmonization of its sustainability standards
- The US Securities and Exchange Commission amending its rules to enhance human capital disclosures
- The International Financial Reporting Standards Foundation broadening its mandate to include sustainability issues
- The International Federation of Accountants calling for the creation of a sustainability board
Operationalizing ESG: A Checklist for Boards
Operationalizing core ESG principles is a journey. While the process involves many stakeholders across the organization, the commitment to ESG starts with the board. In this ESG Roadmap, we offer next steps for boards that are wondering: Where do we go from here?