- Improved non-financial reporting is crucial to achieving necessary and systemic economic reform.
- Understanding an organization's environmental and social impacts is key for shareholders as well as stakeholders.
- PwC and the profession, working with the World Economic Forum, have developed a list of metrics and disclosures companies can use to improve their ESG reporting.
The market economy has evolved to meet the needs of society. But these days, the economy isn’t creating inclusive, sustainable outcomes for society. Too many people are left behind.
At the aggregate level, this concern has a great deal of legitimacy. From climate change to inclusion, there are clear metrics which show that the market economy is not delivering the outcomes we want. Knowing, for example, that CO2 concentrations continue to rise in the atmosphere, or that incarceration rates vary dramatically by race, tells us a lot about the issues that need addressing.
Robust non-financial corporate reporting is a crucial element of the systemic economic reform the world needs to address these issues. Stakeholders – including investors, but also policy-makers, consumers and employees – need more rounded, comparable and robust information to make decisions about companies.
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At the moment, it is hard to see the extent to which a particular institution is contributing to outcomes which are important to society as a whole. There are incredible levels of specificity around the reporting of financial metrics; it is easy, for example, to tell exactly how much any publicly-owned company returned to its shareholders, and how this compares across borders and sectors. But if someone wants to tell a similar story about how a company responds to the needs of its wider stakeholders, in many cases they would struggle. There is no globally accepted set of metrics for reporting on how a company delivers for society and our planet.
This matters for shareholders, not just wider stakeholders. If you are making an investment decision, it is important to know whether that investment is in a company that uses more water than is sustainably available in the environment, or treats its employees in ways that increase risk. For a market economy to work, market actors need information. At the moment, there is not enough comparable, reliable information on key drivers of sustainable success, and so the market cannot allocate capital efficiently. Environmental, social and governance (ESG) reporting is important commercially as well as from the perspective of society.
By getting that information flowing, and aligning market incentives against performance on these metrics, capital will flow to the right places and a better tomorrow becomes possible.
That is why PwC has been working with the World Economic Forum International Business Council and the profession to define a set of priority non-financial metrics and disclosures that every company should report on. Aligned with the UN Sustainable Development Goals (SDGs), the metrics and disclosures fall within four pillars: governance, planet, people and prosperity. These pillars are underpinned by 21 core and 35 expanded metrics and disclosures, drawn wherever possible from existing standards rather than reinventing the wheel.
Robust reporting on these metrics and disclosures can increase the consistency and comparability of broader information for all stakeholders. In doing so, it also provides a common baseline for ESG reporting – one that companies can adopt as a minimum, and then go beyond with more specific reporting related to their industry and specific strategy.
Not a magic bullet – but an important step
Set in historical perspective, the market economy is the greatest driver of social progress ever created. The challenge is that the link between growth and societal progress has now frayed. Reinstating a close alignment between commercial and societal success will take systemic change. Reporting is only a part - but it is a crucial part. We cannot effectively improve things we do not understand. That’s why broader reporting is so pivotal to the reinvention of 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 further details.