Author: Brian T. Moynihan, Chairman and Chief Executive Officer, Bank of America
- Companies can create business models to advance sustainable development.
- The private sector can help address the world’s biggest problems.
- Accounting firms developing metrics to measure performance.
“Society is best served by corporations that have aligned their goals to the long-term goals of society.”
That is according to the Compact for Responsive and Responsible Leadership, created by the International Business Council in 2017. More than 140 CEOs have signed the declaration which envisions that corporations and their major investors will work together to focus on long-term value and sustainability, using the U.N. Sustainable Development Goals (SDGs) as the roadmap for that alignment.
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The Sustainable Development Goals were agreed to by nearly 200 countries in 2015, and cover a range of issues from eradicating poverty and hunger to clean water and energy and gender equality. The United Nations estimates the cost of achieving these goals at about $6 trillion annually. Government does not have the means. The US operating budgets are among the largest in the world at $4 trillion per year. Even if you took all that you still wouldn’t meet the fiscal needs of the SDGs and you leave nothing for other obligations. Charity also cannot fill the need. Annual giving to charitable organizations in the world is around $800 billion; assets by foundations in the world are estimated at about $1.5 trillion. Even if we spent all that money in a single year, it would be insufficient to close the gap.
Governments and philanthropy have vital roles to play, but they can’t do it alone. The private sector can marshal capital and creativity to the task.
To fund the things society has said are priorities, we must, as business scholar Jim Collins puts it, embrace “the genius of the AND”. We can ensure that private sector capital is directed from asset owners and asset managers to companies that are committed to delivering returns AND to addressing these priorities. Public companies that employ and invest globally, and the investors that own those companies, have the capacity and will bring the innovation to address income inequality, clean energy, health care, and affordable housing. Relying on capitalism will be sustainable, too, as the returns to investors will lead to more investment.
Companies are aligned with stakeholders – including shareholders – in the importance of addressing these important objectives. Asset owners and asset managers increasingly are assessing businesses according to non-financial factors that extend beyond traditional financial reporting. In response, many companies are sharpening their focus on long-term value creation based on sustainable business models. One challenge for corporations and investors is that there are many competing standards, metrics and measurements and no well-established or generally accepted framework for assessing long-term viability as defined through the prism of societal value. This contrasts with the well-established methods for reporting and verifying financial performance.
For a half century now, the World Economic Forum has been a leader in advancing the concept of stakeholder capitalism, so it is well-positioned to help address this need. Within the International Business Council, we are developing a general framework for companies to demonstrate their long-term sustainability; a framework that integrates financial metrics along with relevant non-financial criteria such as material ESG (environmental, social and governance) considerations. A near-term objective is for industry sectors to agree to a framework that aligns performance against a specified set of existing third-party metrics and measurements with progress toward societal priorities as established in the SDGs. Investor expectations, individual industry practices, emerging regulatory requirements and the SDGs are all necessary considerations. By drawing from existing third-party metrics, this work will amplify existing efforts directed at greater disclosure and transparency around sustainability practices and the progress we are making.
This work has proceeded through an important partnership with the Big Four accounting firms. We look forward to the annual meeting in Davos for a discussion of a proposal for a framework of a limited set of metrics, common across all industry groups, aligned against the SDGs, to demonstrate to investors and other stakeholders our commitment to continued progress in serving our clients and communities, being a great place to work for our employees, delivering great returns for our shareholders AND driving progress on the most pressing societal priorities.