Investors want to see what you've said in the past about your ESG agenda, where it stands now, and if all your good governance procedures actually worked. - Paul Washington, Executive Director, ESG Center at The Conference Board
With heightened investor and stakeholder pressure, the COVID pandemic, and increased attention to global inequality and climate change, boards are feeling more pressure than ever to communicate progress on ESG issues. Yet proliferating frameworks and standards threaten both confusion and 'analysis paralysis.'
Which metrics are the best suited to a specific business or industry? What information do investors want to know? Where should the board begin?
The World Economic Forum's International Business Council (IBC) has devoted years of collaboration and effort to this challenge. Now is the time to put the IBC's new metrics 'designed to standardize ESG reporting like GAAP standardizes accounting ' on your board's agenda and into action.
Six Steps to Start Operationalizing ESG Principles
Step 1: Get Familiar With the IBC's Work
The full IBC white paper, 'Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation,' is 96 pages. But reading it is time well spent for even the busiest director.
Your board will gain foundational knowledge of the IBC metrics, how they were created, how they overlap, and what reporting might look like in your organization. Your board will also see how the metrics align with the United Nations Sustainable Development Goals across the following four pillars:
- Principles of Governance: Standards promoting agency, accountability, and stewardship across the board
- Planet: Impacts on sustainability and the environment across the entire length of the value chain, from resource extraction through the life of the product or service
- People: Actions that promote equality and opportunity for employees, customers, and other stakeholders
- Prosperity: Efforts that build economic and social prosperity for all populations
Step 2: Focus Your Reporting Efforts
With 21 core and 34 expanded metrics, the IBC metrics are comprehensive, expansive ' and can seem overwhelming. The good news is your board doesn't have to 'boil the ocean' by tackling them all at once. Start with the core. These 21 metrics are, in the IBC's words, 'well-established, universal, industry-agnostic and what we believe to be material to sustainable value creation.'
From here, winnow the list down even further by asking: Which areas are most material to the business? Which issues are most pressing on stakeholders' minds?
'Sustainability is broader than environmental issues,' Paul Washington, executive director of The Conference Board's ESG Center, said in a recent episode of Inside America's Boardrooms. Boards today may find a greater emphasis on employee health and safety, including mental well-being, and that sustainability includes supply chain reliability.
Ease of reporting is another, practical consideration for busy boards. Here it could be useful for boards to note that core metrics under the people, planet and prosperity pillars tend to be more quantitative in nature, like money/hours spent on training under the people pillar, and that many metrics draw from existing standards and frameworks.
Step 3: Develop a Plan
Now your board will need a system for retrieving these facts and figures from management on an ongoing basis and archiving them for quick access and future analysis. The good news is that your organization may already be reporting much of this information, though possibly in different formats. Principles of governance metrics, for instance, draw from the GRI Standards, and metrics under the planet pillar reflects existing standards including GHG protocols and Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
Step 4: When You're Ready, Widen Your Efforts
Expanded metrics and disclosures encourage companies to move from reporting outputs alone to capturing the impacts of their operations on nature and society across the full value chain, in more tangible, sophisticated ways.
- Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, IBC White Paper
Expanded metrics address emerging issues such as nature loss and gender/ethnicity pay gaps. These are urgent issues on many stakeholders' minds. However, many are not yet well-represented in formal reporting standards.
Reporting on them may require new systems for reporting and organizing data. Here, as with the core metrics, it's important to prioritize and focus in on the issues with greatest materiality to your organization and of greatest interest to your stakeholders.
Step 5: Start Sharing ' and Shaping ' Your ESG Story
The IBC urges organizations to include IBC metrics, with an analysis of risk and future goals, in their annual report'for instance in the MD&A notes. This sends a message that 'consideration of material ESG factors is on the board's agenda and is part of the overall corporate governance process.' Such disclosures also provide a foundation for additional ESG reporting in dedicated sustainability, ESG, and impact reports or industry-specific materials. They also help ensure that metrics are clear and coherent across communications channels.
Boards should also disclose the IBC metrics they believe not to be material to their organization, with an explanation why. This helps promote transparent communications with stakeholders and investors and potentially pre-empt the possibility of third parties disseminating invalid or damaging information.
Companies will need to talk with their shareholders with a high degree of transparency about, 'Here's where we are with sustainability: These projects are on hold, these are the ones we're going ahead with, and here are the reasons why.'
- Paul Washington, Executive Director, ESG Center at The Conference Board
Step 6: Continually Evaluate and Evolve
Once you've set up a process for collecting, digesting and disclosing data to stakeholders, keep the momentum going. This is vital to spotlighting opportunities to improve and keeping ESG and reporting efforts aligned with stakeholder and business priorities.
'Materiality is a dynamic concept, in which issues once considered relevant only to social value can rapidly become financially material,' the IBC white paper states.
Above all, consider ESG reporting a long-time commitment. In words from the IBC white paper: 'Corporations that align their goals to the long-term goals of society [...] are the most likely to create long-term sustainable value while driving positive outcomes for business, the economy, society and the planet.'