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World Economic Forum Aims to Make ESG Reporting Mainstream (2)

Sept. 22, 2020, 10:01 AM; Updated: Sept. 22, 2020, 8:29 PM

The World Economic Forum released a set of 21 sustainability metrics Tuesday, along with guidelines that call for companies to move details about their environmental, social, and governance impacts into the pages of their annual financial reports.

Introduced in a document at the forum’s Sustainable Development Impact Summit, the metrics and guidelines are the fruit of several years of work. They represent perhaps the biggest step yet to rally companies, regulators, and standard-setters around a single set of ESG metrics and integrate them into mainstream financial reporting.

The business community is looking for global consistency and comparability and hopes to avoid the alphabet soup of competing metrics and piecemeal reporting that exists today, said Bob Moritz, the global chairman of PwC, who spoke along with the leaders of the other Big Four accounting firms at the summit.

“These are the ones that we truly believe as a business community are the right measures to start with,” Moritz said. “We’re not looking for perfection, we’re looking for progress.”

The release comes as the European Commission and the international accounting standard setter consider whether to require sustainability reporting. In the U.S. a divided Securities and Exchange Commission adopted a rule in August that sets a framework for human capital disclosures but didn’t call for specific metrics. And proposed changes to SEC rules for management disclosures wouldn’t specifically address climate change risks.

Under the forum’s guidelines, companies should present metrics that are relevant to long-term value in what are called “mainstream corporate disclosures,” such as annual reports to investors or proxy statements. The information also should stand up to verification or assurance—investors expect ESG reporting to be just as reliable as financial metrics.

That sets a higher bar than what has become a common practice, where many companies report such information in separate, voluntary sustainability reports. Much of that information isn’t typically verified by a third party.

Staff from the Big Four firms and Bank of America worked with the forum to write the guidelines. ESG metrics from the Sustainability Accounting Standards Board and the Global Reporting Initiative, among others, shaped the final list of 21 common and 34 expanded metrics. Bloomberg Tax is operated by entities controlled by Michael Bloomberg, who is chairman emeritus of SASB’s board of directors.

The guidelines were divided into four areas: governance, people, planet, and prosperity.

The recommended metrics represent the most important standards that companies will agree to and be able to disclose, said Brian Moynihan, chairman and CEO of Bank of America. He also heads the forum’s International Business Council, which spearheaded the metrics project.

Members of the council, a coalition of 120 large multinational companies, were urged to take the lead in embracing the guidelines. They are expected to discuss a timeline for adoption at the council’s January meeting.

The coalition can influence not only regulators, but also ratings agencies and standard setters, Moritz said.

According to the report, their efforts could eventually result in a generally accepted international accounting standard.

The global chairs also acknowledged the rarity of their joint work, and appearance.

“I’m incredibly proud of the fact that we’re all involved in this,” said Bill Thomas, KPMG’s global chairman and CEO. “I can’t think of a time where we came together, and I think it just highlights the importance of the topic.”

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To contact the reporter on this story: Amanda Iacone in Washington at aiacone@bloombergtax.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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