The world’s big four accounting firms have joined forces with the World Economic Forum to launch a set of universal environmental, social and corporate governance (ESG) standards.
The project was developed by Deloitte, EY, KPMG and PwC, in collaboration with the forum’s International Business Council, to reduce some of the confusion around ESG reporting and encourage its 120-plus member companies to adopt a common set of rules.
Announced this week at the WEF’s Sustainable Development Impact Summit, Klaus Schwab, the Forum’s founder and executive chairman said: “This is a unique moment in history to walk the talk and to make stakeholder capitalism measurable.”
“Having companies accepting, not only to measure but also to report on, their environmental and social responsibility will represent a sea change in economic history.”
Sustainable investing has continued to gain momentum during the coronavirus crisis, led by a growing public awareness and demand for more conscious investing. Companies with better track records on social and corporate governance issues have also proven more resilient in times of crisis.
But despite the sector’s growing popularity, there is still no global consensus on ESG reporting and benchmarks. Governments worldwide have developed guidelines, with the European Union so far taking the lead in developing a framework under its “Green Deal”.
“Right now, there is an alphabet soup of metrics,” Punit Renjen, Deloitte global chief executive, told the Financial Times. “It is important for us to have a common set of standards and if there is widespread adoption it will lead to change in behaviour.”
The term “ESG investing” is broad and encompasses different approaches, from a portfolio manager eliminating a company from his fund because of an objectionable industry it is in, like tobacco, to what is known as “positive screening” when a company is actively selected for having strong ESG metrics. But the criteria for these metrics is open to interpretation.
WEF said the metrics, outlined in its report “Measuring stakeholder capitalism” were organised around the pillars of principles of “governance, planet, people and prosperity”. People, for example, includes diversity reporting, wage gaps, and health and safety while prosperity reflects how a company affects the financial well-being of its community. Bill Thomas, global chairman and chief executive of KPMG International said:
“Reporting on ESG factors like carbon emissions and human rights and other key metrics will not only help inform investors while helping companies control their full corporate value, it has the power to realign capitalism for the benefit of broader society.”