stakeholder

A new standard for measuring global sustainability

Stakeholder Capitalism Metrics help the private sector advance needed progress, from cleaner operations to healthier communities

The business community, from individual companies to entire industries and sectors, is undergoing one of the most fundamental transformations it has ever experienced. At the heart of this evolution is the critical idea that commerce, trade and exchange of all kinds must consider more than just profit maximization as a final goal. Additionally, business must take into account its impact on a variety of social and environmental factors, such as equality and sustainability.

Some 90% of major U.S. companies now issue corporate sustainability reports outlining their environmental, social and governance (ESG) practices, compared with just 20% a decade ago.footnote1 Yet even as companies work to lower their carbon footprints, invest in communities, and support diverse workforces and racial equality, as well as efforts to help protect the environment, what has been lacking is a common set of metrics and processes for measuring or demonstrating results. Amid an array of potential metrics, 25 well-meaning manufacturers might report environmental and social progress 25 different ways.

Brian Moynihan

Brian Moynihan  |  Chair of the Board and Chief Executive Officer

Standardizing progress

For the private sector, the World Economic Forum’s (WEF) International Business Council (IBC) unveiled a new approach in Stakeholder Capitalism Metrics (SCM). Released in September 2020, the SCM represent the world’s first standardized ESG measurements. With them, “we can spend less time worrying about what to measure and what measurement system, and more time measuring progress,” says Brian Moynihan, Bank of America Chair of the Board and Chief Executive Officer, and current Chair of the Stakeholder Capitalism Metrics Initiative. “This will help reward companies making progress, hold companies accountable that need to make better progress, and act on the major issues facing the world,” he adds.

Since their release, more than 200 companies have committed to implementing the metrics, and more than 130 have incorporated them into their annual or sustainability reports. Perhaps more important, collaboration and innovation by standards-setting organizations such as the International Financial Reporting Standards (IFRS) Foundation are helping accelerate the awareness and importance of sustainability-linked metrics. During COP26 in Glasgow, the IFRS announced the establishment of the International Sustainability Standards Board (ISSB), tasked with delivering a comprehensive global baseline of sustainability disclosure standards to meet the needs of global financial markets. These standards will set how companies disclose information about sustainability-related factors that may help, or hinder, performance. The need for such guidance was underscored in late 2021 when sixty global businesses representing over EUR 8.5 trillion in assets and employing over 5 million people released an open letter. That letter calls for close alignment between mandatory sustainability reporting requirements in the EU, and the global process to launch the sustainability disclosure standards of the ISSB.

A sea change in capitalism

Stakeholder capitalism holds that companies must support a wider array of constituents than just shareholders. The magnitude of current global challenges including the ongoing health crisis, persistent issues of racial and income equality, and an increasingly vulnerable environment have given stakeholder capitalism new meaning and urgency. “Capitalism can help solve these problems,” Moynihan says. “Companies have to deliver great returns for shareholders and address important societal priorities — aligning their activities and operations to drive progress on the SDGs. That’s stakeholder capitalism in action.” 

To do so, the United Nations identified 17 Sustainable Development Goals (SDGs), calling for urgent action by 2030 on issues such as climate change, global hunger and clean water and sanitation.footnote2 By disproportionately affecting vulnerable communities, the health crisis has amplified the challenges and driven many companies to accelerate their efforts to find solutions.

Klaus Schwab

Klaus Schwab, founder and executive
chairman of the World Economic Forum

“This is a unique moment in history to walk the talk and to make stakeholder capitalism measurable,” says Klaus Schwab, founder and executive chairman of the World Economic Forum. “Having companies accepting, not only to measure but also to report on, their environmental and social responsibility will represent a sea change in economic history.”

Finding the right metrics

The Stakeholder Capitalism Metrics represent the combined efforts of 120 corporate members of the IBC, along with the big four accounting firms — Deloitte, PwC, EY and KPMG. In honing the list, the group consulted with global stock exchanges, regulators, nonprofits and the European Commission.

The metrics pull from and expand on best practices in existing measurement frameworks, along with covering everything from a company’s anti-corruption practices to its greenhouse gas emissions, water use and the health and safety of its workers. The metrics are arranged into four pillars — People, Planet, Prosperity and Principles of Governance — outlined in the World Economic Forum’s report, Measuring Stakeholder Capitalism.

four pillars of stakeholder capitalism graphic

[Box 1]

[Headline Alt Text: Principles of Governance]

[Caption Alt Text: As stakeholder capitalism evolves, so, too, do the responsibilities of companies’ governing bodies, the report notes. Leaders must ensure the company adheres to its stated purposes, behaves ethically and uses its capital responsibly.]

[Box 2]

[Headline Alt Text: Planet]

[Caption Alt Text: A company’s commitment to “protect the planet from degradation,” the report states, including sustainable use of natural resources and efforts to help counteract climate change.]

[Box 3]

[Headline Alt Text: People]

[Caption Alt Text: The extent to which a company’s practices support an end to problems such as global poverty and hunger and help “ensure that all human beings can fulfill their potential.”]

[Box 4]

[Headline Alt Text: Prosperity]

[Caption Alt Text: Do a company’s practices support people’s ability to live “prosperous and fulfilling lives,” and do its innovations create both economic and social value for its customers?]

The way forward

The Stakeholder Capitalism Metrics represent just one way businesses are recognizing their mutual responsibility for a more sustainable future. The Sustainable Markets Initiative, formed by His Royal Highness the Prince of Wales and co-chaired by Moynihan, is working to help entire industries rethink their operation and grow in a way that preserves and protects the natural environment.

That can’t happen too fast, Moynihan believes. As one example, shifting to a low-carbon global economy is essential to reducing global greenhouse gas emissions by 7.6% per year — the amount the United Nations projects is needed to reduce the impacts of climate change and its associated rise in hurricanes, flooding and other disasters.footnote3

Business leaders understand embracing the Stakeholder Capitalism Metrics is an investment in their own future — as well as society’s. As Moynihan and Schwab note in the joint forward to Measuring Stakeholder Capitalism, “companies that hold themselves accountable to their stakeholders and increase transparency will be more viable — and more valuable — in the long term.”

Collaboration with the WEF, its IBC and SMI are one piece of Bank of America’s broader strategy to support social and environmental progress through investment, philanthropy and responsible business operations. Learn more about Bank of America’s commitment to advance sustainability and address some of the world’s toughest challenges through its global business strategy, support of employees and efforts to make its operations sustainable.

2020 S&P 500 Flash Report, Governance & Accountability Institute, July 2020

1

Sustainable Development Goals, United Nations Department of Economic and Social Affairs

2