The KPMG Sustainable Futures team was delighted to be involved in the development of the recently published report: “Measuring Stakeholder Capitalism – Towards Common Metrics and Consistent Reporting of Sustainable Value Creation”, by the World Economic Forum in collaboration with the other Big 4 organisations.
The report proposes a universal set of Core and Expanded ESG metrics and reporting disclosures – across four pillars that are aligned with the Sustainable Development Goals: Principles of Governance; Planet; People and Prosperity.
The existing plethora of different frameworks for various dimensions of sustainability indicators can be confusing for companies that are on the early stages of their sustainability reporting journey. Furthermore, the increasing pressure for transparency in non-financial information disclosures can lead to companies falling into the temptation of “greenwashing” or going on a “framework shopping spree” – and adopt a selective or biased reporting approach by labelling their disclosures against a catalogue of frameworks.
In addressing these issues, the World Economic Forum (“WEF”) project reviewed hundreds of existing ESG metrics (e.g. GRI, CDP, SASB, Natural Capital Protocol, WBCSD, etc.) available through a co-ordinated effort and highlighted just 21 Core metrics that are well established, universal and industry agnostic to encourage as many companies as possible to start reporting on the recommended core metrics in mainstream annual reports and disclosures. The metrics are capable of verification and assurance, to enhance transparency, consistency and alignment among countries, industry sectors, corporations, investors and all stakeholders.
The report found that nearly 85% of corporate respondents agreed that reporting on a set of universal ESG metrics and disclosures would be useful for their company. Moreover, almost 65% are willing or able to report on the Core metrics and disclosures in their mainstream annual report. Most encouragingly, 90% of corporates said that they agree that reporting a set of universal and industry agnostic ESG metrics and disclosures is useful for financial markets and the economy.
As part of the technical working group on the project, members of the KPMG Ireland Sustainable Futures team provided first-hand experience to review various subject matters across multiple reporting frameworks – share our expertise, insights and analyse potential options for resolving common issues faced by companies in the Irish and international markets. We believe that the report will guide companies in the Irish market – by bringing awareness on how sustainability principles are becoming key economic instruments to build their resilience, as they progress from reporting simple outputs (“Core Metrics”) to capturing impacts in a more tangible way (“Expanded Metrics”). This includes cultivating an integrated-thinking mindset for businesses to have a deeper understanding of the interlinkages between the economic, environmental and social impacts of their activities to maximise returns.
The voluntary adoption of the metrics is based on a “disclose or explain” approach, underpinned by the principles of materiality and it is important to note that the set of proposed metrics is not intended to replace relevant sector and company specific indicators. Furthermore, this is complementary and in alignment with the other new developments in the sector (e.g. by the IOSCO, IFRS, IASB, NFRD, etc.) that are taking strides to accelerate the convergence of standard setters, facilitate harmonisation of sustainability standards and building blocks of a single, coherent, global ESG reporting system. The adoption of the metrics outlined in WEF report provides an insight into what a standardised ESG reporting framework could look like and offers the opportunity for companies to potentially get ahead and influence the development of emerging ESG regulations.
This report is a good starting point for companies that are only beginning to develop their sustainability reporting approach and adopting the Core Metrics based on their evaluation of ESG aspects that are important, relevant and/or critical to long‑term value creation would be a good first step. For companies that are already on the advanced-level of non-financial reporting, the Expanded Metrics will be instrumental for demonstrating a more comprehensive and outcome-based sustainability performance reporting. At the heart of this approach are the SDG principles – developed based on consideration of interconnections between the goals and resultant co-benefits or tradeoffs – and we believe adoption of the metrics would bring transformative impacts that accelerate the progress towards achieving the SDGs.
Please feel free to reach out to KPMG Sustainable Futures if you would like further insight into this exciting development.