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Boardroom spotlight on new global standards

Monday, June 22, 2020 @ 1:52 PM | By Ellen Pekilis


Ellen Pekilis %>
Ellen Pekilis
Environment, social and governance (ESG) factors have become key strategic boardroom concerns. A recent round table discussion, Measuring Stakeholder Capitalism  ESG, Metrics & the Board’s Role, featured global leaders discussing international efforts to harmonize ESG standards. 

The speakers included Klaus Schwab, founder and executive chairman of the World Economic Forum; Brian Moynihan, chairman and CEO, Bank of America and chair of the World Economic Forum’s International Business Council; Carmine Di Sibio, global chairman and CEO, EY; and Brian Stafford, president and CEO, Diligent Corporation. The session was hosted by Diligent and moderated by Betsy Atkins, an independent board member on numerous boards.

The panel was unequivocal that the economic and social upheaval driven by the confluence of COVID-19 and human rights concerns will only increase the pressure on corporate leaders to focus on ESG.

“ESG is the single most commonly asked set of questions we get from directors, particularly what standard to pick and confusion between them,” commented Stafford, noting that Diligent has more than 650,000 corporate directors on its platform. “People are looking for global leadership on this topic, and they want to know what other people are doing.”

“More and more people are talking about ESG,” said Di Sibio. “Companies are realizing that they can do things more efficiently that reduce their carbon footprint.” EY was planning on meeting its carbon neutrality commitments by purchasing offset credits. However, the COVID-19-driven reduction in air travel has made this unnecessary and led them to rethink future travel. Air travel costs EY $1 billion per year and was 80 per cent of their carbon emissions footprint. “We don’t think we need to be back to creating the carbon footprint that we had,” he continued. “I hope all companies take the time to think about the things they are doing that can help achieve carbon neutrality.”

Schwab noted the importance of younger generations in determining future corporate success. In addition, emergency government support for the corporate sector in the current economic crisis will cause taxpayers to put extra pressure on stakeholder responsibility.

“The trust factor will be key for companies in the future. This will mainly come from proven ESG factors,” said Schwab. “People will ask: ‘The taxpayer rescued those companies — what are those companies doing for us?’ COVID-19 has shown us that however we measure material success is not as important as well-being. The world will switch to well-being as a fundamental factor of success.”

There is a proliferation of measurement systems, including amongst others SASB (the Sustainability Accounting Standards Board), GRI (the Global Reporting Initiative) and the Taskforce on Climate-related Financial Disclosures (TCFD) led by Mark Carney and Michael Bloomberg. The International Business Council asked the Big 4 accounting firms to work together on a team led by Bank of America to compare and analyze the key existing standards initiatives related to four key ESG topics (people, governance, prosperity and planet) and develop a harmonized list of standards.

The goal is to identify the best of what is already in the market and create a single approach that will permit accurate and equivalent comparisons between organizations while reducing the burden of supporting multiple audits around the same concepts.

“Harmonized metrics will let you align the whole company, not just the environmental reports or the charitable foundation, but the entire corporate performance,” said Moynihan. “Alignment permits investors to make better investment decisions by allowing more accurate comparisons. It permits both societal movement and profitability. It is doable. It has been tested and is being put in place across the 130 companies in the International Business Council.”

The teams have identified 22 core metrics across the four basic topics. The team is currently socializing the metrics with the full membership of the International Business Council.

“Some want fewer metrics,” commented di Sibio, pointing out that their goal is to get as many companies as possible on board. “As board members, make sure your companies are having lots of conversations about ESG metrics.”

With increased pressure on public company disclosures, one fear is that some business activities might migrate to private companies. “That may be a short-term risk,” conceded Moynihan. “But if the private equity firms get their money from public pension funds and universities, the underlying investors in those firms won’t let it happen. They won’t put money into a company that doesn’t meet standards. Private equity has to think hard about this.”

Diligent’s Stafford had advice for other smaller, private companies. “Be an authentic organization. Put your values on paper and stand behind them. The leadership will come from the World Economic Forum, the International Business Council and the Big 4, but has the potential to cascade down to the rest of us.”

Ellen Pekilis, epekilis@hotmail.com, provides strategic advice and practical solutions to executive teams and boards of directors in complex regulated industries. She was general counsel of the Canadian Standards Association and executive director of Energy Exchange. She serves on the boards of the College of Optometrists of Ontario and the Canadian Agency for Drugs and Technologies in Health.

Photo credit / jm1366  ISTOCKPHOTO.COM

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