Standardizing Metrics to Measure Stakeholder Capitalism

Feb 21, 2023

Share

Copy Url

What is Stakeholder Capitalism?

While the concept of stakeholder capitalism has been gaining momentum in recent years, more and more companies are recognizing the significance of creating long-term value for all stakeholders, not just shareholders. Corporate reporting on stakeholder capitalism now involves a broader range of non-financial metrics that can capture the impact a company has on all stakeholders, including employees, customers, communities, and the environment.

There are several reasons why stakeholder capitalism is gaining popularity as a reporting framework. One reason is the growing investor focus on environmental, social, and governance (ESG) factors, which have a significant impact on a company's long-term financial performance. By reporting on these factors, companies can demonstrate their commitment to sustainability and social responsibility, which can help to retain and attract investors. Another reason is the increasing demand from consumers and employees for companies to take a more socially responsible approach to business. By reporting on their impact on all stakeholders, companies can demonstrate their commitment to creating positive social and environmental outcomes, which can help build brand loyalty and attract top talent.

Reporting on stakeholder capitalism can take various forms, from including non-financial metrics in annual and sustainability reports to issuing separate reports that focus on a company's impact on stakeholders. Integrated reports that combine financial and non-financial metrics are also a form of reporting on stakeholder capitalism and provide a more comprehensive view of a company's performance.

Standardizing Metrics for Corporate Reporting

The business landscape has changed due to climate change, social unrest, the COVID-19 pandemic, and shifting expectations of corporate responsibility. Companies must enhance their resilience and license to operate by prioritizing sustainable, long-term value creation that addresses the demands of both society and the environment.

The International Business Council (IBC) has been at the forefront of promoting stakeholder capitalism, sponsoring the World Economic Forum's Compact for Responsive and Responsible Leadership in 2017. The group's Summer Meeting in 2019 reaffirmed the importance of ESG factors in creating long-term value but highlighted the challenge of inconsistent reporting frameworks and metrics that make it difficult for companies to demonstrate progress on sustainability and SDG contributions.

As a result, the IBC enlisted the help of the World Economic Forum, along with accounting firms Deloitte, EY, KPMG, and PwC, to establish a set of consistent and verifiable ESG metrics and disclosures that could be incorporated into the annual reports of companies across different sectors and countries. The ultimate goal was for IBC companies to adopt these metrics collectively and promote cooperation and alignment among existing reporting standards, leading to a potential international accounting standard in this area.

The outcome of the process is a collection of 21 core and 34 expanded metrics and disclosures, which the initiative recommends for adoption by both IBC and non-IBC companies. The core metrics consist of established or critical quantitative metrics that are already being reported by many firms in various formats, focusing on an organization's internal activities. The expanded metrics consist of 34 metrics and disclosures that are less well-established in current practices and standards, with a wider value chain scope or expressed in more sophisticated or tangible ways, such as in monetary terms, and are a more advanced way of measuring and communicating sustainable value creation.

The Recommended Metrics

• Core metrics: A set of 21 more-established or critically important metrics and disclosures. These are primarily quantitative metrics for which information is already being reported by many firms (albeit often in different formats) or can be obtained with reasonable effort. They focus primarily on activities within an organization’s own boundaries.
• Expanded metrics: A set of 34 metrics and disclosures that tend to be less well-established in existing practice and standards and have a wider value chain scope or convey impact in a more sophisticated or tangible way, such as in monetary terms. They represent a more advanced way of measuring and communicating sustainable value creation.

These sets of recommended metrics are organized into four pillars, which align with the SDGs and primary ESG domains. They are:

1. Principles of Governance
2. Planet
3. People
4. Prosperity

These metrics are primarily sourced from existing standards and disclosures to amplify the diligent work already accomplished by standard-setters. The intention is not to substitute sector- and company-specific indicators, but rather to select metrics that are universal across industries and business models. Companies are encouraged to report on as many core and expanded metrics as they find appropriate and material, utilizing a "disclose or explain" approach.

The 5 Leading Reporting Frameworks

For the first time ever, the top five voluntary framework and standard-setters, namely CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB), have pledged to collaborate towards a shared vision. They presented a document at the IBC Summer Meeting in 2020 and later released a declaration of intent acknowledging the compatibility between their work and the IBC's initiative, which could serve as the basis for a comprehensive system. As a collective, the IBC is well-positioned to exert significant influence within the ecosystem, and if its members champion the metrics and promote their adoption, it would encourage wider participation and drive progress toward the project's goal of convergence.

Conclusion

The IBC holds significant power as a group. When its members step up to highlight and endorse the metrics, it can inspire other companies and investors to join in on the collective effort, generating more momentum toward achieving the project's goal of convergence. This endeavor relies on the interconnectivity of economic, environmental, and social factors and has become crucial to generating long-term value for an enterprise. Nowadays, investors and other stakeholders demand that companies report on non-financial concerns, risks, and opportunities with the same level of rigor and discipline as they do with financial information. By incorporating these suggested metrics into its primary report and integrating them into its governance, business strategy, and performance management, a company shows stakeholders that it thoroughly evaluates all relevant risks and opportunities in operating its business.

Furthermore, the trend indicates that investors and institutions who factor ESG considerations into their decision-making process usually yield higher returns over an extended period while mitigating overall portfolio risks.

As a firm specializing in corporate reporting, Report Yak recognizes the growing significance of ESG and responsible investments in India. Our GRI-certified content writers and creative design teams are responsible for conveying a company's sustainability narrative to its stakeholders in a clear and visually impressive manner. You can peruse some of our award-winning reports on our website or contact us to discover how we can enhance your next report.