The chief executive of one of the world’s largest consumer goods companies warned of the danger of jurisdictions setting varied, onerous ESG standards that will impede thousands of small and medium enterprises (SMEs) from sustainability reporting. This comes on the back of regulators in North America, Europe and Asia trying to tackle how to ensure companies report accurately on their environmental, social and governance (ESG) performance.
Alan Jope, CEO of Unilever, speaking in a session dedicated to ESG disclosures at the World Economic Forum Annual Meeting 2022, said: “We are at a point of great danger right now of letting perfect get in the way of good, of letting complex get in the way of simple and of letting local get in the way of global.”
Unilever has assembled a large team dedicated to sustainability reporting, however, he said: “We are struggling with the most basic ability to measure these difficult-to-measure areas – and we’ve been at this for a while.”
Laura Cha, Chairman of Hong Kong Exchanges and Clearing, which first introduced ESG guidelines for businesses in 2013 echoed Jope’s message “What we need to do now is to go beyond and to make those disclosures meaningful,” she said, “and in order for those disclosures to be meaningful we need to have a harmonized standard. Right now there’s a plethora of different standards everywhere.”
While accepting the requirement for industry-specific ESG metrics, Cha encouraged the recently formed ISSB of the IFRS Foundation to release a standardized collection of global ESG disclosures “so that the disclosures to investors and the community would be measurable and clear and understandable”.
Emmanuel Faber, Chair of the ISSB commented “There is no CEO today not wondering about the mid- to long-term resilience of her or his business in terms of both environmental and social,” he said. “What’s really missing in the ability to execute is a language that allows that discussion to happen at a board level with shareholders and to connect with what matters because accounting doesn’t count what counts! The war in Ukraine and the COVID-19 pandemic have impacted companies in material ways and they need a common language to be able to discuss these impacts with investors’’.
Faber added that the work of the ISSB is to create a global sustainability standard providing help, underlining he wanted to keep it as simple as possible. “Materiality is absolutely fundamental”, he said: “in our proposal, we’re saying if it’s not material, don’t report it”. Faber cautioned that the journey to get companies on board would be a long one and called for capacity building, especially among SMEs in emerging markets. “You need to be super pragmatic if you want to involve everyone here.”
Brian Moynihan, Chairman and CEO of Bank of America stated that “The impact of common ESG metrics will start to be felt as global companies push this initiative out through their supply chains. It’s actually the operating companies that will make the change happen,”. The net-zero commitments by the operating companies around COP26 and the activities they force downstream are just unbelievable”.
Moynihan, as Chair of the Forum’s International Business Council (IBC), has guided the Stakeholder Capitalism Metrics process that amassed 21 core, universal sustainability disclosures from among the many hundreds of existing ESG metrics. To date, 150 major companies have signed up to report on the IBC’s metrics. “Take our 200,000 people, $3 trillion balance sheet, $60 billion of expenses – you start aiming that gun and you take that across all these companies – it’s huge,” Moynihan said.
He explained that the IBC’s metrics are “statements of what capitalism can do to solve what the world needs – the Sustainable Development Goals.” He added: “It takes $6 trillion to finance those a year and the only way you’re going to do it – charity can’t do it, they don’t have the money, governments don’t have the fiscal capacity, capitalism has to do it.”
Source: Sustainability Reports