We can now measure the progress of stakeholder capitalism. Here's how

The original Davos manifesto, which was released in 1973, encouraged managers of corporations to create long-term value by engaging all stakeholders to address important societal priorities. Stakeholder capitalism was born. But for the nearly half century since, we have lacked the ability to measure how well companies are doing that, across industries, so that investors and other stakeholders that share the same objectives can align capital and other resources and help drive progress.

To begin to address that need for measurement, in 2017 the companies of the International Business Council (IBC) signed a compact for Responsive and Responsible Leadership. We re-committed to long-term value creation through stakeholder capitalism and identified the United Nation’s Sustainable Development Goals (SDGs) as our road map. More than 150 companies have since joined that work.

We followed that by applying ourselves to addressing the need to measure our progress in achieving the SDGs. Clear signals that corporations are focused on environmental, social and governance (ESG) priorities at the same time they are providing great shareholder returns is what our employees, clients, customers and society need.

At the 2019 summer meeting of the IBC, we created a task force to develop an approach to common stakeholder metrics. We directed the team to do so by converging existing standards and develop a baseline set of common and transparent metrics that could apply across industries.

The World Economic Forum's Founder and Executive Chairman, Klaus Schwab, secured the commitment of each of the 'big four' accounting firms – Deloitte, EY, KPMG and PwC –to identify a set of universal and material ESG metrics and recommend how the disclosures could be made in the mainstream annual reports of companies on a consistent basis across industry sectors and countries.

The team delivered a first draft from the IBC CEOs at the annual meeting in Davos in January this year. Between January and July of 2020, the team conducted extensive consultation with IBC companies, non-IBC companies, investors, standard setters, and other key stakeholders.

The refined set of indicators was presented to the IBC’s Summer Meeting in August 2020, where the initiative attracted strong support, with the majority of participating IBC members committing to report against the metrics at the earliest opportunity.

A by-product of the work has seen movements toward convergence across a number of fronts, including:

1. The European Commission is revising its non-financial reporting directive.

2. The International Organization of Securities Commissions (IOSCO) has declared its intention to harmonize sustainability standards.

3. The US Securities and Exchange Commission (SEC) has amended its rules to enhance human capital disclosures.

4. The International Financial Reporting Standards (IFRS) Foundation has agreed to consult on broadening its mandate to include sustainability issues.

5. The International Federation of Accountants (IFAC) has called for the creation of an International Sustainability Standards Board to sit alongside the International Accounting Standards Board (IASB) under the auspices of the IFRS Foundation.

6. Meanwhile, the five leading voluntary standard-setters have for the first time committed to work towards a joint vision. This included a paper presented to the IBC Summer Meeting 2020 and a subsequent statement of intent, detailing how their work and the IBC’s project are fundamentally complementary and could form the natural building blocks of a single, coherent, global ESG reporting system.

With the IBC companies taking the lead in reporting and promoting the metrics, we hope to encourage other companies to participate and build greater momentum towards the convergence we all agree is needed. The publication of the Stakeholder Capitalism Metrics is a major step forward in providing a roadmap for companies to further align with investors and other stakeholders and drive meaningful progress in achieving the SDGs.