Investors are increasingly interested in banks’ and other public companies’ track records on environmental, social and governance issues, but one major challenge has been measuring and reporting progress on those goals in a uniform way.
A coalition of Bank of America, the big four accounting firms and the World Economic Forum, a nongovernmental organization that promotes the concept of stakeholder capitalism, recently released a framework for global ESG standards. The forum’s International Business Council, whose current chairman is Bank of America chief Brian Moynihan, outlined 21 nonfinancial metrics to measure how well companies are addressing issues ranging from the gender pay gap to environmental protection.
“We want to set a benchmark with the IBC work so that we can have metrics that are completely transparent to the world from all companies,” BofA Vice Chairman Anne Finucane said in discussing the project at a forum panel this week. “That will be a very effective starting point for all of us. It will be an immediate indicator of who is doing well by these metrics and who isn’t.”
The parties began to collaborate in January after gathering at the World Economic Forum in Davos. COVID-19 and protests over racial injustice across the U.S. have since lent more urgency and strength to the case for stakeholder capitalism, or the idea that corporations have broader responsibilities beyond producing profits for shareholders.
The IBC’s metrics are arranged around four distinct areas, or “pillars”: people, planet, principles of governance and prosperity. Under people, for example, the standards ask firms to disclose information like workforce statistics, pay data according to race or ethnicity, average training hours and workplace injuries. The “planet” criteria ask companies to report information like greenhouse gas emissions, water use in distressed areas or the number of sites a firm owns, leases or manages near designated biodiversity sites.
The framework also asks for information like the total costs associated with research and development and the percentage of company leadership trained in anti-corruption policies and procedures.
In a white paper titled “Measuring Stakeholder Capitalism,” the IBC encourages companies to include these core metrics “where relevant and possible in mainstream corporate disclosures,” such as proxy statements and annual reports to investors.
Proponents say the framework makes good business sense. It’s a way for a company to demonstrate that it’s seriously considering a wide range of potential risks and opportunities. And it will be a useful tool for investors, who want more transparency on ESG issues.
To be certain, there are already other frameworks for reporting ESG issues, many of which the IBC’s white paper drew upon in creating its own recommendations. The Sustainability Accounting Standards Board’s standards have been voluntarily adopted by many companies, and the Global Reporting Initiative is another example.
“The reason for all that is that the market is crying out for a uniform framework so investors can compare efforts across different companies and industries,” said Jim DeLoach, managing director at the consulting firm Protiviti.
DeLoach, who often consults with firms on shareholder demands, said he does not prefer one framework or another, that his comments are not meant as a criticism of any framework and that “they’re all great.” But right now, he added, it’s too early to tell whether the IBC framework will succeed in its goal of widespread adoption.
“What we don’t have is enough regulatory direction to assert that this is the framework we need to use,” he said. “I think the market’s in a quandary over this. There’s a crying out for comparability from the investor community, and at the same time everybody recognizes that no one size fits all.”
Companies may already be making certain changes, like reducing their water usage or greenhouse gas emissions, for other business-related reasons. For example, Finucane said that a green deal in the European parliament — a proposed pandemic recovery plan paired with a set of environmental objectives — would be “an immediate incentive” for some to reduce their greenhouse gas emissions.
Even if the U.S. doesn’t currently have parallel legislation, any multinational company operating in Europe will need to abide by it “as a practical matter,” she said.
Finucane went on to say the framework would benefit companies that already do many of these things, by raising their profile among increasingly ESG-conscious investors.
“We meet with institutional investors all the time, and the question of ESG did not come up five years ago,” she said. “It came up sort of four years ago, and in the last three years … that is front and center for every conversation.”