Stakeholder capitalism is here to stay. Corporate success is no longer solely defined by profit, but also by your organization’s impact on society and the environment.
Corporate reporting used to be about seeking capital from public shareholders. But now it’s increasingly about gaining consent to operate your business. To show the world how you’re acting with purpose and contributing to a better future.
Consequently, the investment community – investors, asset managers and ratings agencies – is factoring ESG reporting into its assessment of corporate performance.
Consequently, the investment community – investors, asset managers and rating agencies – is factoring ESG reporting into its assessment of corporate performance.
An increasing number of today’s investors take non-financial data just as seriously as financial data. They believe that those companies that measure and report ESG risks are also likely to be managing these risks better and delivering greater long-term value.
This is particularly important in light of increasing shareholder activism, with some companies giving investors an annual vote to approve or disapprove of performance on climate-related and other ESG issues.
What to report?
There are a host of reporting standards, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), and the Taskforce on Climate-related Financial Disclosures (TCFD). Individually, these all represent steps in the right direction.
But it’s hard to decide which standard to adopt. And, for investors and other stakeholders, a lack of universal standards makes it difficult to compare different companies’ performance.
That’s why we are so excited about Measuring Stakeholder Capitalism, the new set of metrics from the World Economic Forum’s (WEF) International Business Council, as a step towards a uniform global reporting standard. Along with representatives from several other organizations, KPMG professionals have been involved in putting these together.
The 21 metrics are based on industry best practice from around the world and represent a major step towards a common, global approach. Among the key measures are carbon footprint, renewable energy, climate risk oversight, equal pay, diversity and inclusion, anti-corruption, and stakeholder engagement.
They can apply to any sector, making them relatively easy to adopt.
Where to start?
Companies are at different stages of maturity in their ESG reporting. For those in the early phase, the metrics are an ideal starting point, avoiding having to reinvent the wheel.
The prospect of setting up comprehensive ESG tracking and measuring may feel a little overwhelming. It’s worth remembering that investors are especially interested in those ‘material’ issues most likely to impact the long-term value of a business. So why not begin by focusing on a handful of these critical metrics and then build on them over time?
Doing nothing is really not an option.
One hot topic is how you calculate the effects on climate change on your operations. Investors and analysts expect to see practical net-zero ambition, in line with the United Nations Sustainable Development Goals (SDGs).
Don’t worry if you can’t report on all 21 metrics today. Do the best you can, publishing where you have solid data, and being honest about any gaps, in a spirit of ‘disclose or explain’. Presenting your journey in this way shows you’re honest about your company’s progress, which should add to your credibility. Doing nothing is really not an option. If you don’t present the data upfront, you can be pretty sure that an analyst, journalist or shareholder will be putting you on the back foot with awkward questions.
Do I need to replace my current ESG reporting?
There’s been a huge amount of interest in these new metrics, but also a lot of questions about how to integrate them into existing reporting.
We should emphasize that they’re not intended to replace what you’re already doing. Because they borrow from the best of the current guidance, published by recognized bodies, they’re designed to enhance or supplement your current ESG reporting.
However, you may need to acquire or access new skills, as ESG risks are different from traditional financial risks. A recent KPMG global report, Towards net zero, found significant gaps in companies’ climate change reporting, particularly around scenario analysis and forward-looking metrics, with a need for improvement in both the quantity and quality of disclosure.
Many of the principles of ESG reporting are similar to financial reporting: a need for strong governance, along with independent assurance from a trusted third party, to ensure that the data is reliable and accurate.
Risk management that reflects the new normal
Pandemics, climate change, workplace practices and corporate citizenship bring risks, as well as significant opportunities for enterprise value.
As key influencers, investors of all types need confidence in companies’ ability to quantify and manage financial, market and ESG risks, in order to assess their future prospects.
Although we don’t yet have a global standard, the new WEF metrics point us in that direction and will remain relevant as different standards converge.
Thorough, accurate and transparent ESG reporting really is a win-win. The new metrics bring greater consistency, transparency and comparability and play an increasing role in investors’ decisions on where to allocate capital.
Your company will be better prepared for risks like climate change, talent shortages and supply chain disruptions. Customers will be more likely to trust you and buy your products and services, and the best candidates will view you as a fulfilling place to work. And you’re likely to enjoy greater support from investors to manage your business for the long term.
Most importantly, you’ll be staying true to your purpose, to help the world grow and prosper sustainably, to treat people fairly, and to positively impact the planet and the communities in which you operate.