Metrics And Trust Are Keys To Adoption of ESG And Stakeholder Capitalism

Convincing companies to embrace “stakeholder capitalism” may rely on corporate leaders agreeing on a global standard of metrics and the ability of individual companies to build trust between all stakeholder groups, according to comments made by governance leaders during a recent webcast, “Measuring Stakeholder Capitalism.” Unfortunately, agreeing on metrics and building trust may be more difficult than one might believe.

The webcast featured Brian Stafford, CEO of board portal maker Diligent Corporation; Brian Moynihan, chairman and CEO of Bank of America; Klaus Schwab, founder and executive chairman of the World Economic Forum; and EY Global chairman and CEO Carmine Di Sibio, and moderated by Betsy Atkins, who sits on the boards of Wynn Resorts, SL Green and Volvo Cars. The panelists agreed that many boards have come around to the idea that their companies should be focusing on Environmental Social and Governance (ESG) principles and Sustainable Development Goals (SDG) in order to create long-term business value. However, determining actionable strategies that key stakeholders believe make most companies successful is difficult to pin down.

The concept of Stakeholder Capitalism involves measuring a company’s overall success by more than shareholder profits. It focuses on the benefits companies deliver to shareholders, employees, customers and the communities they serve to determine overall success.

“Today a narrow shareholder perspective is not sustainable,” Klaus Schwab said during the broadcast, noting that a company’s long term survival will depend on its board’s ability to 1) account for increased turbulence and unexpected events, 2) obtain and keep the public trust—the most important long term driver for corporate success, and 3) acknowledge the additional responsibility of operating in the age of information, Big Data and data responsibility. Developing strategies to navigate those three challenges requires allocating more resources into ESG.

The International Business Council (IBC) of the World Economic Forum is collaborating with the Big Four accounting firms to determine a core set of ESG metrics and disclosures that will help corporations be successful as they begin implementing ESG across business operations. Carmine Di Sibio said they have identified 22 core ESG metrics and 33 expanded metrics that are broken down into four general areas: People, Principles of Governance, Prosperity and Planet. The hope is to get enough feedback on the metrics to narrow them down at the August IBC meeting so that a finalized group can be presented at the World Economic Forum meeting in January 2021. The final number of metrics is still to be decided. The panel did discuss some of the key decisions that will go into determining the metrics and what the new system of ESG metrics might mean for corporate directors.

While measuring areas such as diversity, carbon footprint and board composition are important and may be easily agreed on, others will illicit more debate. But no matter how many metrics are decided upon, the key for boards will be to make sure that whatever they report is believed by the stakeholders—their shareholders, employees, customers and communities they serve. If the stakeholders don’t believe what a company is disclosing, it won’t matter if the metrics say the organization is doing a great job.

If the World Economic Forum meets the timeline they are shooting for, all companies will need to be prepared to address their performance in a number of ESG-related issues immediately. That will require simple and transparent communication with all stakeholders about any benefits ESG will bring to the company and easy-to-read explanations of what a company’s ESG scores based on the new metrics will mean. Boards should take the time now to strategize how they will communicate this information to each stakeholder group and designate a team of key executives who will craft and deliver any messages that need to be communicated. Communicating early, often and with transparency will build trust that will go a long way once the new ESG metrics are put into play and stakeholders start making decisions based on where your company measures up.