- Improving non-financial reporting is essential to achieve necessary and systemic economic reform.
- Understanding the environmental and social impacts of an organization is essential for shareholders and stakeholders alike.
- PwC and the profession, in collaboration with the World Economic Forum, have developed a list of metrics and information that companies can use to improve their ESG reporting.
The market economy has evolved to meet the needs of society. But these days, the economy does not create inclusive and sustainable results for society. Too many people are being left behind.
At the aggregate level, this concern has great legitimacy. From climate change to inclusion, there are clear indicators that show that the market economy is not producing the results we want. Knowing, for example, that CO2 concentrations continue to rise in the atmosphere or that incarceration rates vary widely by race, tells us a lot about the issues that need to be addressed.
Strong non-financial corporate reporting is a crucial part of the systemic economic reform the world needs to tackle these issues. Stakeholders – including investors, but also policy makers, consumers and employees – need more complete, comparable and robust information to make decisions about companies.
At present, it is difficult to see to what extent a particular institution contributes to results that are important to society as a whole. There are incredible levels of specificity when it comes to reporting financial metrics; it’s easy, for example, to tell exactly how much a state-owned company has returned to its shareholders, and how that compares across borders and sectors. But if someone wants to tell a similar story of how a business meets the needs of its wider stakeholders, in many cases, they will be hard pressed. There is no globally accepted set of metrics to account for how a business responds to society and our planet.
This is important for shareholders, not just for the larger stakeholders. If you are making an investment decision, it is important to know whether that investment is in a business that uses more water than is sustainably available in the environment, or treats its employees in a way that increases risk. . For a market economy to work, market players need information. At present, there is not enough comparable and reliable information on the main factors of sustainable success, so that the market cannot allocate capital efficiently. Environmental, social and governance (ESG) reporting is important both from a business point of view and from a societal point of view.
By circulating this information and aligning market incentives with the performance of these metrics, capital will go to the right places and a better future will become possible.
That’s why PwC worked with the World Economic Forum International Business Council and the industry to define a set of priority non-financial metrics and disclosures that every business should report on. Aligned with the United Nations Sustainable Development Goals (SDGs), measures and disclosures fall under four pillars: governance, planet, people and prosperity. These pillars are underpinned by 21 metrics and baseline and 35 expanded information, drawn where possible from existing standards rather than reinventing the wheel.
Strong reporting on these metrics and information can increase consistency and comparability of broader information for all stakeholders. In doing so, it also provides a common baseline for ESG reporting – a baseline that companies can adopt at a minimum and then go beyond with more specific reports related to their industry and specific strategy.
Not a magic solution – but an important step
Seen from a historical perspective, the market economy is the greatest engine of social progress ever created. The challenge is that the link between growth and societal progress has frayed. Restoring a close alignment between business and societal success will require systemic change. Reporting is only one part – but it is a crucial part. We cannot effectively improve the things we don’t understand. This is why broader reporting is so essential to reinventing the current system.
PwC refers to the PwC network and / or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for details.