ESG data reporting

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.

Last Updated: 31 January 2020
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