The world’s new standard for measuring and reporting ESG (environmental, social, and governance) is the Stakeholder Capitalism Metrics. That document was published in September 2020 under the auspices of the World Economic Forum “in collaboration with Deloitte, EY, KPMG and PwC.” And to paraphrase an old advertising slogan, when the Big Four talk, public companies listen.
The Stakeholder Capitalism Metrics (the Metrics for short) frames ESG reporting and disclosure as four Pillars. They are Principles of Governance, Planet, People, and Prosperity. (Yes, they’re all “P” words.)
Under each Pillar are several Themes. The Themes are where ESG measurements are applied and, when taken together, produce an overall ESG result.
So, for example, the Themes for the Planet Pillar are Climate change, Nature loss, Freshwater availability, Air pollution, Water pollution, and Solid waste.
(I’m using upper and lower cases exactly as the Metrics does).
For the People Pillar, the Themes are Dignity and equality, Health and well-being, and Skills for the future.
For the Prosperity Pillar, the Themes are Employment and wealth generation, Innovation of better products and services, and Community and social vitality.
So that’s the structure. Pillars and Themes.
For the Principles of Governance Pillar (which is the first Pillar in the Metrics), the Themes are Governing purpose, Quality of governing body, Stakeholder engagement, Ethical behavior, and Risk and opportunity oversight.
And finally, under Ethical behavior are measurements and disclosure guidelines for Anti-corruption. The measurements cover compliance training and incidents of confirmed corruption, and the disclosure guidelines cover initiatives, remedial actions, and whistleblower issues.
So, where are we? Four Pillars and 17 Themes, with one Theme (Ethical behavior) under the Governance Pillar having measurements and disclosure guidelines for Anti-corruption.
Now, let’s remember from a prior post how we got here.
At the World Economic Forum in Davos two years ago, leaders of about a thousand global companies replaced shareholder capitalism (maximizing shareholder value) with stakeholder capitalism — that is, harmonizing “the divergent interests of all stakeholders.”
The 2020 Davos Manifesto restated the purpose of a corporation this way:
The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large.
Following publication of the Davos Manifesto, the World Economic Forum moved on to implementation. The WEF “in collaboration with Deloitte, EY, KPMG and PwC “developed the Stakeholder Capitalism Metrics that we’ve been looking at today.
Pillars and Themes by which to measure and report ESG. That’s how the Big Four shape today’s ESG disclosures.