According to World Economic Forum (WEF) stakeholder capitalism is a form of capitalism in which companies strive to create long-term value while taking into account the needs of all stakeholders and society as a whole not only shareholders. However, although everybody seems to agree with regards to the concept’s importance, a crucial question arises: how can we measure its value?
The concept of stakeholder capitalism goes back to 1973 when the original Davos manifesto encouraged corporate managers to create long-term value by engaging all stakeholders to address the most pressing societal issues. Since that time, stakeholder capitalism has lacked a way to measure corporate performance and progress.
Support for stakeholder capitalism has gathered momentum in recent years with the emergence of environmental, social and governance (ESG) priorities for a more sustainable future. At the same time, the ongoing pandemic is accelerating the entire process of stakeholder capitalism. There is growing evidence that sustainability is having a big impact on the decisions of consumers, customers as companies are taking a long-term view regarding profits and impact, according to McKinsey & Company.
If you can’t measure it, you cannot evaluate it
The International Business Council (IBC), a community of more than 120 global CEOs, in collaboration with the World Economic Forum (WEF) have created a task force to develop a core set of common and transparent metrics for measuring stakeholder capitalism advancement that can be applied across industries and countries.
The proliferation of reporting standards seems to confuse companies and investors, thus leading not only to “reporting fatigue” but also to an inability to grasp the real benefits of stakeholder capitalism
Recently, we have observed many changes and developments in the disclosure and sustainability reporting landscape. One of the biggest challenges in reporting is a lack of consistency, as the lack of common metrics to measure and demonstrate long-term value creation is a challenge for all companies. The lack of comparability and consistency between corporate reporting frameworks and standards hinders companies from demonstrating their contributions to achieving the Sustainable Development Goals (SDGs) and making progress on sustainability issues.
To help achieve clarity and encourage harmonization of sustainability standards:
- The Global Reporting Initiative (GRI), CDP, Climate Disclosure Standards Board (CDSB), International Integrated Reporting Council (IIRC) and Sustainability Accounting Standards Board (SASB) in September 2020 issued a Statement of Intent to Work Together Towards Comprehensive Corporate Reporting.
- IIRC and SASB have announced their intention to merge in major step towards simplifying the corporate reporting system, the Value Reporting Foundation. The Foundation will provide companies with an integrated and comprehensive framework for sustainability reporting. It will also develop sustainability disclosure standards to streamline the reporting system, create value and drive global sustainability performance.
- WEF released a white paper titled “Toward Common Metrics and Consistent Reporting of Sustainable Value Creation“. The paper proposes a common core set of recommended metrics and disclosures that IBC members can use to align with the mainstream.
- The European Commission announced a review of its Non-Financial Reporting Directive (NFRD) to enable investors and stakeholders to evaluate the non-financial performance of large companies, and to encourage companies to develop a more responsible approach to business.
For common metrics and consistent reporting
In late 2020, the WEF published “Measuring Stakeholder Capitalism: Toward Shared Metrics and Coherent Reports on Sustainable Value Creation” report. The report proposes 21 core and 34 expanded metrics and disclosures to help companies measure and report progress towards shared economic, environmental and social goals.
- Core metrics: These are primarily quantitative metrics for which information is already reported by many companies and focus on activities within the organization’s own boundaries.
- Extended metrics: These are metrics and disclosures that tend to be less well-established in existing practices and standards and have a wider value chain scope or convey impact in a more sophisticated way.
These metrics are built from existing standards to achieve greater comparability and consistency in reporting ESG disclosures. The recommended metrics are organized under four pillars aligned with the SDGs and principal ESG domains: Governance Principles, Planet, People, and Prosperity. These pillars are in line with the core elements of the SDGs, and each of these pillars has an important impact on the company’s ability to create shared and sustainable value.
Source: Measuring Stakeholder Capitalism
Within each pillar, metrics and disclosures were chosen that best combine universality across industries and regions, enabling companies to demonstrate their commitment to creating sustainable value over the long term. Each pillar comprises of themes, considered the most important to society, the planet, the economy, and the most globally relevant to all businesses. They are as follows:
Pillar: Principles of Governance
- Governing purpose
- Quality of governing body
- Stakeholder engagement
- Ethical behaviour
- Risk and opportunity oversight
- Climate change
- Nature loss
- Freshwater availability
- Air pollution
- Solid waste
- Resource availability
- Rationales and additional commentary
- Dignity and equality
- Health and well‑being
- Skills for the future
- Rationales and additional commentary
- Employment and wealth generation
- Innovation of better products and services
- Community and social vitality
- Rationales and additional commentary
For a more inclusive and sustainable business community
There is a common agreement that Covid-19 is accelerating the process of stakeholder capitalism. When the pandemic erupted, stakeholder capitalism gained fresh impetus as it pushed countries all over the world to prioritize, give precedence to the collective wellbeing first and foremost, restored the importance of local communities and prompted discussion about inequalities in the workplace and in society. Therefore, more than ever, companies need to measure stakeholder capitalism to create more prosperous communities and a more sustainable relationship with our planet.
Stakeholder capitalism metrics is a step forward towards common metrics and consistent reporting for creating sustainable value. Companies can use stakeholder capitalism metrics to consistently align their performance reports against ESG indicators and track their contributions toward the SDGs. In addition, the metrics will enable investors and other stakeholders to align capital and resources towards the achieving the Sustainable Agenda and help drive long term value.
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