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Big 4 Accountants Announce Alignment to SASB Standards

In recent times, we have witnessed an exacerbation of various world-wide issues such as climate change, deforestation, lack of diversity in the workplace and inhumane working conditions. Whilst such Environmental, Social and Governance (ESG) issues have been at the forefront of corporate stakeholders’ considerations, the corporate sector has nonetheless never created a unified approach to tackle such matters, until now. The announcement of the Stakeholder Capitalism Metrics (SCM) project, made by the International Business Council (IBC) of the World Economic Forum, has revealed a new collaborative approach from the largest global organisations, seeking to develop a universal, industry-agnostic ESG reporting regime to enhance transparency for all stakeholders.

The importance of ESG reporting

A concerted effort is required to mitigate the damage done to the climate and to prevent further harm to the social fabric of our community. The SCM project aims to kickstart such an effort by encouraging large corporations – likely to have more of an impact and success than any one individual – to commit to long-term sustainable goals and consequently drive positive outcomes for businesses, the economy, society and the planet, all of which is encapsulated by the concept of stakeholder capitalism. ESG reporting has become increasingly important to investors as there is clear evidence showing that in the long-run it helps to increase shareholder value thanks to its ability to help manage risk and execute strategies. The result is improved corporate governance therefore more engaged employees and ultimately, higher rates of return.

Demand for unified reporting methods

In the IBC Summer Meeting 2019, the lack of consistency and comparability of existing ESG reporting frameworks was flagged. In order to tackle this issue, IBC identified a set of universal material ESG metrics and recommended ways in which these could be represented in corporate disclosures in the aim of reaching a systemic solution to ESG reporting. The SCM project was further fuelled by the survey done by the Forum which revealed that 86% of executives agreed that standardized reporting ESG metrics would be beneficial for their firm, financial markets and the economy.

In particular, the Big four accountancy firms – KPMG, Deloitte, EY and PwC – have played an instrumental role in the construction of the SCM framework with each company spearheading the development of the ESG pillars. Thanks to them and the momentum gathered, the SCM project has drawn the attention of major global organisations such as the five leading voluntary ESG framework- and standard-setters: the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). At the IBC Summer Meeting 2020, they collectively issued a statement of intent highlighting the synergy between their and IBC’s project.

ESG reporting pillars

The metrics have been organised into four pillars – Principles of Governance, Planet, People and Prosperity – which cover the Sustainable Development Goals (SDGs) deemed essential to achieving long-term sustainable value. Each pillar groups together one or more metric as a measure of corporate performance and sustainable value creation (cf. 1).

Figure 1: ESG pillars(Table by Ingena; source of information,World Economic Forum)

The main purpose of the initiative is to encourage corporations to report on the recommended core metrics where possible in relevant corporate disclosures; the integration into annual reports will ensure ESG considerations are on the board’s agenda. This framework is not intended to diminish any ESG/sustainability reports that many companies today publish already, but instead enable synergy between such disclosures and annual reports in order to achieve further transparency. As companies traverse the path to more explicit corporate reporting, the expanded metrics present scope for more industry-specific indicators allowing additional depth in ESG reporting.

Challenges going forward

While achieving universality has been the primary focus, there may be instances where certain metrics are not feasible, relevant or easy to implement immediately. This could be down to reasons such as confidentiality constraints, legal prohibitions, data availability, geographic idiosyncrasies or lack of materiality (where materiality refers to something being relevant and critical to long-term value creation). In the case where companies must omit certain metrics from their corporate disclosures, they will be encouraged to adopt a “disclose or explain” approach, whereby reasons are provided for any such omissions within annual reports.

What does the IBC have planned?

In the next few years, regulations enforcing mandatory ESG reporting will likely take effect. Participation in the IBC-SCM project will provide a great opportunity for corporations to not only stay ahead of competitors but to also influence the development of such regulations before they are officially implemented. The IBC will seek to demonstrate that a globally coordinated reporting approach is in the interest of driving long-term sustainability. As for the immediate future, the IBC aims to present a timeline on the deployment of the current framework at their Winter Meeting 2021.

In conclusion, the arrival of this new ESG reporting framework highlights an influential shift in the corporate sector’s focus, from chasing short-term financial gains to instead achieving more long-term sustainable growth by considering a wider bracket of stakeholders and scrutinising their impact on both the planet and society. With IBC members keen to encourage non-members to collaborate with them in their efforts, one can forecast increasing support and expect this change to be implemented sooner rather than later, stamping ESG reporting firmly within the corporate’s sectors identity.

For more info on ESG reporting and ratings, please see our other articles below:

  1. ESG ratings, what next?

2. Editorial – The true value of ESG scores