Companies commit to standardised ESG data
reporting

More than 140 of the world’s largest companies are set to sign up to new set of non-financial reporting disclosures, which will chart their performance on ESG metrics such as greenhouse gas emissions, diversity, and employee wellbeing.

The World Economic Forum’s International Business Council is co-ordinating the new reporting framework and announced plans at the annual meeting in Davos last week. The IBC said the exact metrics on which companies will be assessed, will be finalised in the coming months.

For those signed up to the new reporting commitments, including the so-called “Big Four” accountancy groups, it will mean disclosing significant non-financial information in a standardised format from next year.

“For stakeholder capitalism to become a
reality, we must be able to measure companies’ performance on environmental,
social and governance metrics,” Klaus Schwab, founder and executive chairman of
the WEF said.

“The IBC’s decision to endorse this principle,
and their willingness to be measured in their annual reports on more than
profits, is a crucial step to change our economic system for the better.”

Four key areas

The metrics and areas for recommended disclosures have been organised into four areas that are aligned with the UN’s Sustainable Development Goals and principal ESG domains.

These include principles of governance, which focuses
on a company’s commitment to ethics and societal benefit; the planet, which looks
at climate sustainability and environmental responsibility; people, which examines
the roles human and social capital play in business; and prosperity, which focuses
on business contributions to equitable, innovative growth.

The initiative aims to bring the most material
aspects of existing standards, such as the Task Force on Climate-related Financial
Disclosures (TCFD) and Global Reporting Initiative (GRI), into mainstream reports on
a consistent basis.

Tim Mohin, chief executive of the GRI, said using
the comprehensive non-financial disclosures in the GRI standards was a positive
step by the IBC.

“That’s important because impacts that are
financially material to businesses themselves, while important, are only half
the story. Companies need to consider all their stakeholders – and not only
shareholders,” he explained.

Mystery over
signatories

While the IBC has not disclosed
which companies are planning to sign up to the new standard, an anonymous poll
taken during the Davos event showed two-thirds of its members would embrace the
framework, according to a Financial Times report.

However, a separate poll
of WEF members revealed only a third were convinced that a fully workable set
of metrics would be developed in the next five years.

The WEF’s proposal follows rising investor
frustration over a lack of comparable ESG reporting in mainstream reports which
is hindering the meaningful benchmarking of
sustainable business performance.

The growing importance of ESG disclosures among investors was highlighted in the latest survey on non-financial reporting by accountancy giant EY. The survey found a significant 97% of investors said they conduct an evaluation of target companies’ non-financial disclosures, which includes ESG data. Only 3% stated they conduct little or no review of this data.