One of the frequent criticisms of ESG (environmental, social and governance) standards is the lack of consistency. Whilst this criticism has validity, it has often been used by critics to suggest that ESG is not an important issue for investors. Those same critics generally do not go further to suggest ways in which consistency could be created but rather stop with the criticism. And for too long there have been far too many competing initiatives to deliver consistent ESG reporting.
However, investors and financial institutions are realising that empty criticism and lack of standards are not sustainable. This topic was discussed at the the World Economic Forum based on a white paper published in January 2020. After a comment period, a new paper has been published last week: Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.
This paper had significant input from the large accountancies with their experience of setting standards for financial reporting. In addition the many initiatives that have been underway to drive consistent reporting in ESG areas have been supporting this effort. As noted in the paper, “the five leading voluntary framework- and standard-setters – CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB) – have for the first time committed to work towards a joint vision.”
Perhaps the most important conclusion from this report supported by the largest companies in the world is as follows:
(T)hose corporations that align their goals to the long-term goals of society, as articulated in the SDGs, are the most likely to create long-term sustainable value, while driving positive outcomes for business, the economy, society and the planet. This is the true definition of stakeholder capitalism.
