61 Companies Commit to Stakeholder Capitalism Metrics in Support of ESG

The long-time debate between stakeholderism and shareholderism is becoming far more in favor of stakeholderism due to the increasing importance of Environmental, Social and Governance (“ESG”) initiatives. Shareholderism is the traditional school of thought that the responsibility of a corporation is to the shareholders only. Stakeholderism has been challenging this view with the idea that the responsibility of a corporation is to benefit all of its stakeholders – customers, employees, suppliers, communities and shareholders. The Chairman and CEO of Blackrock, one of the largest asset management companies in the world, recently wrote a letter to CEO’s emphasizing the importance of ESG to investors and the public. (Larry Fink, Blackrock).

Since this letter, 61 global companies, including Bank of America, Paypal Holdings and Salesforce.com, committed to set company goals in conjunction with a uniform set of ESG metrics and report their progress annually to investors. (Saijel Kishan, Bloomberg Law News). While the push for ESG initiatives has become more prevalent over recent years, a standard metric used by companies to measure the success of these initiatives has been lacking. Id.

All 61 companies have committed to focusing annual reporting on 21 ESG-centered “Stakeholder Capitalism Metrics.” Id. These metrics not only create consistency, but also allow for companies to compare the success of ESG initiatives over time between and amongst competitors. Additionally, the metrics highlight which ESG related issues are essential, so companies can determine their ESG initiatives accordingly. Id.

Marc Benioff, Chair and CEO of Salesforce, one of the 61 companies committed, stated, “[This] is another step forward in the growing impact of stakeholder capitalism. It’s not just about words, but about companies setting clear metrics, measuring our progress and holding ourselves accountable. Only then can we provide long-term growth for our shareholders, build trust with all the stakeholders and truly improve the state of the world.” (Madeleine Hillyer, World Economic Forum).

The Stakeholder Capitalism Metrics center around four main pillars: people, planet, prosperity and governance. Id. These pillars are built on existing standards and are highly interconnected. Id. Thus, if a company sets a goal focused primarily on one pillar, any progress will likely create impact within the other pillars as well. The metrics, which include categories such as climate change, health and well-being, innovation and ethical behavior, are designed to be reportable regardless of a company’s industry or region. Id.

This core set of ESG metrics was established by the International Business Council (“IBC”), a forum created by the World Economic Forum (“WEF”). (Saijel Kishan, Bloomberg Law News). The IBC is a community of over one hundred concerned and committed business leaders. Id. The IBC realized the need for a universal framework for reporting ESG matters and worked with the WEF and the Big Four accounting firms to prepare the Stakeholder Capitalism Metrics. (Deloitte, EY, KPMG, & PwC, World Economic Forum).

There are only a handful of reputable ESG reporting agencies, which all serve to evaluate a company’s social responsibility. (Brendan Erne, Daily Capital). While every ESG rating agency has yet to agree to this particular reporting system, five sustainability-reporting agencies agreed to work together to create a global reporting system. (Saijel Kishan, Bloomberg Law News). Additionally, the International Financial Reporting Standards Foundation announced its efforts to form a global sustainability standards board, which is backed by BlackRock. Id.

The creation and implementation of ESG metrics on a global scale—coupled with the mainstream push for ESG disclosure by large institutional investors and public company shareholders—demonstrates that ESG is here to stay. ESG reporting is slowly replacing the Corporate Social Responsibility section in annual reports. Companies of all sizes, industries and regions will be looking to these ESG metrics to determine which best align with the company and are thus necessary to incorporate in their annual reports. Institutional investors are placing an emphasis on ESG ratings, forcing companies to realize their ESG rating matters.

While it should be enough that large institutional investors and public company shareholders are pushing for ESG disclosure, companies are now being pushed by the Biden administration and the Securities and Exchange Commission (“SEC”). Just a few weeks after these 61 companies committed to the Stakeholder Capitalism Metrics in support of ESG, the Biden administration announced that the SEC would begin to focus on climate change disclosures. (Kimberly Chin & Dieter Holger, The Wall Street Journal).

SEC Commissioner Lee furthered that the agency would “evaluate and speak with companies about the extent to which they are complying with current climate disclosure guidance, first issued in 2010, and eventually update it to build ‘a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.’” Id. The SEC is exploring whether it might propose standardized disclosures for public companies. Additionally, they are reviewing various reporting frameworks and examining developments in other jurisdictions, including the European Union. Id.

The purpose behind the push for ESG is to hold management teams and corporations accountable for their impact. Prior to these metrics, the range of ESG initiatives reported on varied greatly depending on the industry. Similarly, companies would pick and choose which metrics were disclosed based on initiatives already in place. The implementation of this global metric system is the first step to ensuring ESG goals are effective at holding companies accountable in how they weigh risks and shape business strategy in the context of ESG issues. Without a uniform standard backed by powerful companies, the chance of companies greenwashing is great.

This commitment to ESG goals is a step in the right direction. However, committing to a goal and executing a goal are two entirely different matters. It is ultimately up to the board or designated committees to oversee management’s progress to reach their respective ESG goals. The true test of whether or not ESG goals are effective depends entirely on whether these metrics can persuade companies to not only create ESG goals but also implement them, oversee progress made and make the requisite changes needed to meet the goals they set out to reach.