ESG criteria – Environment, Social, and Corporate Governance – are increasingly being used by socially conscious investors to evaluate potential investments, as they measure the sustainability and societal impact of an investment in a company or business. In a nutshell, environmental criteria assess how a company performs as a steward of nature; social criteria examine how a company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. (source: Investopedia)
ESG principles have been brought to the foreground with even more force and urgency this year due to various factors, to the effect that anybody listening is now sitting up and taking them seriously. While acknowledging the importance of the principles, previously companies were struggling to demonstrate long-term value creation of ESG and subsequently many Boards, executives, governance and compliance professionals remained resistant. Progress was made on 22 September 2020, when the World Economic Forum’s (WEF) International Business Council (IBC) published a consolidated set of global “stakeholder capitalism metrics” in its paper Measuring Stakeholder Capitalism , published at the fourth annual Sustainable Development Impact Summit.
Following the IBC’s proposed set of universal ESG metrics and disclosures at WEF in January 2020, IBC gathered feedback and suggestions from global companies and investors. The revisions have resulted in a set of 21 core ESG metrics and disclosures, and a set of 35 expanded metrics and disclosures. This publishing of these presents a significant step for the implementation of “stakeholder capitalism”. The metrics facilitate benchmarking sustainable business performance as well as a company’s contributions to the Sustainable Development Goals (SDGs).
From promises to action
More than ever, stakeholders are looking for ESG commitments and reporting, so acting now is imperative. The sooner companies become familiar with and implement the universal metrics developed by the World Economic Forum along with Bank of America, Deloitte, EY, KPMG and PwC, the better. “The companies within the highest performing top quartile are leaning in and reporting on ESG factors as evidenced by some of their specific actions and statements,” says Liam Healy, Managing Director EMEA at Diligent.
Companies are encouraged to report on the full set of metrics in their mainstream reporting, which are centred on these four pillars:
People: Reflects a company’s equity and its treatment of employees. Metrics include diversity reporting, wage gaps, and health and safety.
Planet: Reflects a company’s dependencies and impacts on the natural environment. Metrics in this pillar include greenhouse gas emissions, land protection and water use.
Prosperity: Reflects how a company affects the financial well-being of its community. Metrics include employment and wealth generation, taxes paid and research and development expenses.
Principles of Governance: Reflects a company’s purpose, strategy and accountability. This pillar includes criteria measuring risk and ethical behaviour.
A research report by Forrester and Diligent revealed that governance professionals’ greatest dissatisfier was “visibility into sustainability and ESG issues”. Boards need to be equipped with the right knowledge and accurate information in order to ensure effective ESG oversight.
Diligent’s ESG Solutions help organizations comply with ESG standards and regulations, evaluate risk controls, benchmark governance practices and educate leadership on new frameworks and developments. Read more about Diligent’s ESG Solutions here https://info.diligent.com/diligents-esg-solutions-luxembourg/