Seeking Return on ESG - Advancing the Reporting Ecosystem to Unlock Impact for Business and Society - World Economic Forum
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White Paper Seeking Return on ESG Advancing the Reporting Ecosystem to Unlock Impact for Business and Society Produced in collaboration with Allianz SE and Boston Consulting Group January 2019
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2
Contents
Foreword 05
Executive Summary 06
Unlocking Impact 08
Community Movement 09
Issues in Common 12
Advancing the Ecosystem 16
Avenues for Further Exploration 23
Conclusion 25
Contributors 26
Project Team 29
Endnotes 30
TABLE OF CONTENT 34 FOREWORD
Foreword
The role of the private sector in society is evolving. As the global
community aims to deliver on the United Nations’ Sustainable
Development Goals for 2030, citizens, governments and investors
are looking increasingly to companies to take a leading role in
addressing critical societal challenges.
Maha Eltogby Fortunately, companies committed to tackling such issues need
not sacrifice financial performance. The evidence continues
Head of Investors, to mount that integrating environmental, social and governance (ESG)
Infrastructure and considerations into investment and company management helps deliver
Long-term Investing superior performance and long-term financial returns. In short, the
creation of societal value and the creation of financial value are linked.
Member of the
Executive Committee Today, stakeholders in public and private sectors are focusing
on company ESG performance for various purposes, with differences
World Economic Forum
in the ESG items of greatest interest. Yet despite the increased focus
on ESG performance, a significant amount of work remains to be
done by stakeholders across all communities—including investors,
companies, standard setters, data providers and regulators—to
advance ESG management practices and unlock the inherent value
of ESG for business and society.
The World Economic Forum, as the International Organization
for Public-Private Cooperation, is well positioned to bring together
public, private, and civil society actors to address some of the complex
Katherine Brown challenges within the ESG reporting ecosystem. To this end, the Forum
Head of Sustainable and has begun to explore this theme—through its System Initiative on
Impact Investing Initiatives Long Term Investing, Infrastructure and Development and its Centre
for New Economy and Society—in an effort titled ‘Building an Effective
World Economic Forum Ecosystem for ESG’.
The effort is a collaboration with a coalition of members and partners
from numerous stakeholder groups, industries and geographies. The
group utilises the Forum’s unique strengths in developing perspectives
on system-level and cross-sectoral issues to advance the dialogue
on the future of ESG. It will work closely with the community to
accelerate and amplify much of the work already under way, highlight
areas where further attention may be needed and support shared
action on key items.
Gemma Corrigan
Since its launch in September 2018, the effort has prompted an
Project Lead, inspiring uptake in community engagement. This paper, capturing
Inclusive Business findings from the first phase of this collaboration, increases attention
on the role of the ESG reporting ecosystem in enabling effective ESG
World Economic Forum
management, and sheds light on how we can advance the system
for the benefit of society.
We are grateful for the support and guidance of the Project Steering
Committee and Project Advisory Group, who have dedicated their
time, expertise and insight to this work, and in particular to Allianz SE
and Boston Consulting Group for taking a leading role in facilitating
this dialogue.
FOREWORD 5Executive Summary
Increasingly, the evidence demonstrates that The initial phase of this effort found a wide
a focus on strong environmental, social and range of views across the various communities
governance (ESG) performance can deliver of stakeholders. Despite those differences, the
both business and societal impact. consultation identified a number of common issues
that all groups recognise and are keen to resolve,
The ESG reporting ecosystem is the fundamental indicating significant cross-community backing
enabler to management of ESG performance. for change in the following areas:
The past few decades have seen significant
progress in the disclosure of company ESG –– The complexity and burden of ESG reporting:
information. However, meaningful limitations Companies face hurdles in navigating reporting
remain in how end-users of ESG data can standards, understanding how to report well on ‘S’
leverage that information. or ‘social’ measures and are overburdened with
data requests.
The ‘Building an Effective Ecosystem –– The incomparability of company ESG data:
for ESG’ effort of the World Economic Forum Companies report different metrics based on the
is a collaboration with members and partners specifics of their industry, their location and other
of the Forum, and looks to support other initiatives factors. Yet even when they report on the same
and the wider community to advance the state topics, the application of company-specific
of ESG management. classifications and the use of company-specific
denominators to calculate certain metrics (for
This paper summarises the initial findings example, ‘water consumed per unit of product
of an extensive consultation process under that manufactured’) regularly render data incomparable.
collective effort. The consultation process set out
to uncover, in a landscape of often divergent views, –– Poor understanding of and interaction with
opportunities for collective action to strengthen ESG ratings agencies: Investors and companies
key foundations of ESG management. It included note a distinct lack of transparency—and difficulty
numerous interviews with industry experts and in obtaining clarity—on what ESG ratings assess.
practitioners from across a range of stakeholder
groups, research and analysis on published Left unaddressed, these issues discourage meaningful
non-financial company reporting, and a review ESG disclosure using reporting standards, reduce the
of existing external work, consultations and ability of companies to focus on ESG performance,
research literature. The undertaking investigated and send misleading signals to the market. Perhaps
several important questions: most critically, they hinder the effective use of ESG
data to maximise business performance and drive
–– Which challenges within the ESG reporting societal impact.
ecosystem draw the strongest consensus
for action between all communities?
–– Building on the work of existing initiatives,
where is additional attention needed to
accelerate the development of a more
effective reporting ecosystem?
–– Looking ahead, what other opportunities
could this effort explore to further advance
a global dialogue on ESG performance?
6 EXECUTIVE SUMMARYA number of initiatives that help address some At the conclusion of this first phase, in addition
of these issues and aim to drive real advances in to providing continued support on these three
ESG reporting are under way. However, the overall action areas, the effort will begin exploring additional
drive to improve ESG reporting suffers from a avenues with the community to further advance
troubling lack of coordination and alignment— the dialogue on ESG management. Potential topics
a gap that can limit the impact of even the include the following:
best-designed reforms. Three key areas demand
greater attention in order to accelerate significant –– The extent to which ESG reporting should mirror
system-level progress: the norms and practices of financial reporting,
including how it is regulated
1. Improve transparency across the
ecosystem: Action is necessary to reduce –– How funding flows—including membership fees,
duplication and unintentional conflict between grants and donations—affect ecosystem activity
initiatives, better inform the market of current –– The ways in which new technologies, including
activities and available ESG information, and artificial intelligence, can improve ESG reporting
clarify where convergence of efforts could be
of greatest benefit. –– How companies and boards should be organized
to drive greater focus on ESG
2. Enable effective, active cross-system
dialogue: It is essential to take end-users’ –– Ways to improve the measurement and reporting
needs into account as the reporting ecosystem of social issues (the ‘S’ in ESG), and continue the
evolves. More collective, consistent messages evolution of wider metric reporting
from community to community on key ESG-
related topics—including from investors to As the effort moves forward, its participants
company management—is a critical need. welcome further engagement from the community
in identifying and leading opportunities for
3. Tighten and align methodologies for shared action.
metric measurement: Effort must be made to
reduce issues of non-comparability in disclosed
ESG metrics and enable more effective use
of ESG data—including in investment decisions
and in tracking progress toward societal
targets—through more consistent application
of methodologies in metric measurement.
On the basis of these findings, the ‘Building an
Effective Ecosystem for ESG’ effort will collaborate
with existing initiatives and the wider community
to facilitate action in all three of these critical areas.
Actions for 2019 include developing an interactive
ecosystem map to increase the transparency of
existing activity; using the World Economic Forum
platform to drive fresh, constructive dialogue
between stakeholder groups; and channeling
community insights on how to improve metric
comparability to other initiatives.
EXECUTIVE SUMMARY 7Unlocking Impact
Strong environmental, social and Strong company performance on ESG issues also
governance (ESG) performance has benefits society. Increasingly, regulators and
consumers are looking for companies to take a
the power to unlock significant positive leading role in achieving national targets and public
impact for investors, companies items of interest, including the United Nations’
and wider society. The reporting Sustainable Development Goals (SDGs). ESG
performance is an important barometer of company
ecosystem is the foundational commitment and progress toward those goals.
enabler—the mechanism that makes
this possible. Significant progress
has occurred in ESG disclosure over
recent decades, but the reporting
Companies that place social and
environment must evolve further to environmental impact at the heart
deliver data that better supports the of their strategies have the highest
potential benefits of an ESG focus. potential to be rewarded by the market.
Rich Lesser, CEO, Boston Consulting Group
A large and growing body of evidence links
company performance on particular ESG
dimensions to its ability to deliver financial value
for investors and to outperform the market over
the long term.i
Reporting Ecosystem as Key
Not surprisingly, more and more investors are
integrating company ESG performance into their Underpinning the ability to understand and manage
investment management processes. They see ESG-related issues is the ESG reporting ecosystem,
this as a way not only to improve returns but also to which forms the primary focus of this paper.
respond to client demand for investments that align
with their values. In 2016, $22.9 trillion of assets Today, more ESG data is available than ever before.
were professionally managed under responsible In 2017, 78% of the world’s largest companies
investment strategies, up 25% from the 2014 figure, integrated non-financial information in their annual
representing around a quarter of all professionally reports, up from 44% in 2011.iii The demand
managed assets worldwide.ii The wave of ESG- for ESG information, aided by the development
related investment practice continues to grow, of relevant reporting standards and frameworks,
and there are no indications that it will abate. has supported the proliferation of ESG information
in the public sphere. End-users of company
This shift has contributed to an increased focus ESG data include investors, companies themselves,
by companies on ESG performance. Many regulators and segments of wider society—
companies have seen evidence of the value including consumers.
of factoring ESG considerations into forward-
looking business decisions. This includes an However, studies highlight that issues of quality
enhanced risk management capability, improved in the available ESG data today act as significant
employee engagement, and the opportunity to impediments to ESG integration into investment
tap into new growth opportunities. These tangible decisions.iv End-users of the data often note that
benefits frequently translate into improved long-term the information available to them does not deliver
financial performance, including in the form a clear picture of performance and practice, either
of premium margins and valuations. on an individual basis or when comparing
companies with one another.
The system for reporting on company ESG
performance must evolve further.
8 UNLOCKING IMPACTCommunity Movement
‘Building an Effective Ecosystem for The perspectives shared in this paper do
ESG’ is a collaborative effort with a not necessarily correspond to each and every
of those expressed during the consultation
coalition of members of the Forum. It process, but aim to reflect a balance of views
aims to use the platform of the Forum captured through this effort.
to accelerate the movement to more
The consultation included:
effective management of ESG issues.
–– More than 60 one-on-one interviews with senior
The importance of having a system that enables representatives in investment, investor relations,
end-users to employ ESG data effectively is not treasury, sustainability strategy and the reporting
lost on the business community. A significant functions of organizations
talking point at the World Economic Forum’s –– Two public workshops and associated feedback
Annual Meeting 2018 was the role of business in from approximately 100 attendees, including
society, and ESG-related sessions at the Annual significant C-suite representationv
Meeting emphasised the demand by investors
and companies for change in the ESG reporting –– Regular project steering group discussions,
environment. This momentum is only building including input from more than 35 organizationsvi
within the agenda for the Annual Meeting 2019.
–– Collaboration and discussion with other bodies
Recognising the presence of an existing body representing more than 1,000 organizations from
of activity looking to improve ESG management, more than 150 countries
and aware of the importance of such a movement,
this effort seeks to collaborate with ongoing Bringing so many voices together has created
initiatives and the wider community to accelerate a powerful mechanism for identifying where
and amplify work that advances the state of ESG collective action may strengthen the foundations
management. It also aims to identify, research of ESG management.
and highlight activities that require greater focus
and which may further unlock the business and
societal impact that comes from an elevated
focus on ESG issues.
The findings summarised in this paper draw on
the results of an extensive consultation that the
‘Building an Effective Ecosystem for ESG’ effort The World Economic Forum as a
conducted. That process captured a spectrum
convening body has an important role to
of leading voices across key stakeholder groups—
including investors, companies, data providers,
play in ensuring collaboration towards
standard setters, framework developers and the common goal of “meaningful
regulators—as well as existing initiatives in the disclosure”, as the ESG landscape
ESG reporting environment. continues to evolve. There are a lot of
groups with strong efforts and differing
expertise, and by bringing them together
for insightful and structured discussions,
the Forum is contributing to an evolving
consensus that could be quite impactful.
Jeff McDermott, Managing Partner, Greentech
Capital Advisors
COMMUNITY MOVEMENT 9An Introduction to the Reporting Ecosystem
ESG refers to the environmental, social and companies to understand the best manner
governance aspects of organizations. Many of developing and presenting their disclosures,
organizations now report ESG-related information to how to consider reporting practice through the lens
reflect their non-financial story and the sustainability of long-term value creation, and the position and
or responsibility of their actions. This reporting importance of ESG in and alongside traditional
often attempts to clarify an organization’s risks, annual reporting practice. Examples include the
opportunities and impacts in relation to ESG factors. International Integrated Reporting Council (IIRC),
the GRI 10 Reporting Principles and the Task Force
Companies capture and track ESG performance for Climate Related Disclosure (TCFD).
and practices through metrics such as ‘total water
consumption’, ‘number of incidents of discrimination’ Assurance providers offer professional advice
and ‘percentage of employees that have received to companies on how to publicly disclose data,
training on anti-corruption’. Behind each metric is and they offer assurance on publicly disclosed
a methodology for measurement. non-financial information. Examples include Deloitte,
EY, PwC and KPMG.
A number of stakeholder groups exert significant
influence on the types of ESG information reported Data providers play an important role in the ESG
by companies, the way it is communicated and the information chain by aggregating the ESG information
way it is used. Key groups include the following: that is available on companies—often through public
reports, private research and company requests—
Companies across public and private markets, and making that information available to audiences.
ranging from large conglomerates to small and Users of such services include investors looking
medium-size enterprises (SMEs), generate ESG for information to aid in their investment decision-
data based on their practices and performance. making and, frequently, companies themselves.
They are responsible for the content and manner Data providers can present ESG information to users
of its disclosure to the public sphere. They may in different forms, including individual ESG metrics
also provide information on request directly to or rankings and indices.
other organizations—for example, to data providers
and investors. Some providers also offer ESG ratings on companies,
to serve as assessments of a company’s ESG
Standard setters publish detailed guidelines that performance. Today, investors and companies alike
support companies in understanding what ESG- commonly use this tool to support business decisions.
related information they should disclose, by topic.
Through their standards, they influence a company’s Players in this space offer different combinations
decisions about which ESG metrics to report on of the information services above. Among these
and methodologies used to measure those metrics. companies are Bloomberg, DJSI (formerly Dow
Well-known examples in this space include CDP Jones Sustainability Index), FTSE4Good, MSCI,
(formerly the Carbon Disclosure Project), the Climate Sustainalytics and Refinitiv (formerly Thomson
Disclosure Standards Board (CDSB), the Global Reuters).
Reporting Initiative (GRI) and the Sustainability
Accounting Standards Board (SASB). A wide Investment banks assess market trends and
array of industry association bodies also publish company performance—including the assessment
guidelines on ESG-related reporting for companies. of ESG information—to make buy, hold and sell
recommendations to investors. Examples include
Framework developers also influence the ESG- Bank of America Merrill Lynch, Citigroup, Goldman
related information a company publishes, Sachs, JPMorgan Chase and Morgan Stanley.
but they have a greater focus on principle-based
concepts for how a report is structured. They help
10 COMMUNITY MOVEMENTInvestors—a broad segment that includes Regulators represent a multitude of bodies that
asset owners, asset managers and private can demand ESG-related disclosure from companies
equity firms—leverage available ESG information under their jurisdiction. They can include local,
to inform their decisions on capital allocation, national and supranational governments, financial
engage with company boards on ESG-related regulators, and stock exchanges for companies listed
issues and aggregate ESG information on on the market. Equivalent regulators may stipulate
their portfolio companies into their investment very different requirements in different markets.
reporting practices.
Additional key players include a range of ESG-
The breadth and depth of ESG information focused organizations that offer various operations
analysed varies by investor, for example, and services to help companies understand how
depending on whether they are looking only to better measure, benchmark, improve or report
to issues of greatest perceived financial important aspects of their ESG performance.
importance or company contribution to wider They also encourage a heightened ESG focus in
societal causes, and running ESG ‘screening’ organizations. A few well-known examples include
or ‘integrated’ investment strategies. Ceres, Science Based Targets, World Business
Council for Sustainable Development (WBCSD)
and World Benchmarking Alliance.
Figure 1: Illustration of primary flow of company ESG data
Standard setter, framework developer
Regulator
Assurance
providers
Investment
banks
Public Investor
disclosure reports
Company Data providers Investors
Data flow
Note: Wider society, including consumers, have
access to ESG information made publicly available
Source: World Economic Forum Span of influence on data flow
COMMUNITY MOVEMENT 11Issues in Common
Today, the network of organizations and reporting philosophy. Companies also wrestle
that influence company ESG reporting with identifying the appropriate breadth and depth
of ESG topic coverage for their reporting.
is large and complex, and so are
the issues. As a result, different This complexity can limit firms’ eagerness to
stakeholders often have very different report in accordance with established standards,
particularly in the case of smaller or privately held
views about how to solve these companies. That, in turn, can limit the volume
problems. Despite that landscape, of ESG data that is both useful and available to
however, the consultation revealed the market.
a cross-community consensus Even many larger companies that are well versed
for action in a number of areas. in ESG reporting encounter difficulty in dealing
with ‘S’ or ‘social’ measures. Social issues are
The consultation process yielded intense debate particularly context dependent, varying significantly
and heated discussions. Yet despite the range across industries and geographies. That variability
of views, it was notable that stakeholders from makes it challenging for companies to understand
across all communities agreed on the need for which issues are most important to report, how to
change regarding three key issues: best measure them, and what good performance
looks like. Others note difficulty in understanding
–– The complexity and burden of ESG reporting how their reporting can best reflect the company’s
–– Incomparability of company ESG data contribution toward achieving the United Nations’
Sustainable Development Goals.
–– Poor understanding of and interaction with
ESG ratings agencies Reporting departments also complain of an
overload of unique data requests from external
data providers. These requests come on top
of the information-producing efforts that
The Complexity and companies perform in adhering to ESG reporting
standards—data that companies typically make
Burden of ESG Reporting publicly available. The requests are often for similar
sets of data, but come in slightly different forms,
Deciding what ESG information to disclose, how requiring reporting departments to dedicate
to disclose it and to whom is a regular problem additional time and effort to respond to each.
for companies. Besides the natural frustration that this causes,
the need to focus on responding to requests
Companies new to ESG or sustainability-related reduces employee capacity to work on improving
reporting often find it difficult to understand the company’s actual ESG performance.
which reporting standards they should use
to support their disclosures. In particular, they As a result, many organizations have to prioritise
frequently struggle with the different concepts the data providers they respond to. This can
of materiality vii proposed by different standards— be challenging, as meeting numerous data requests
which help companies decide which issues can be a drain on resources, but failing to respond
should be deemed significant enough for may result in a poor rating or ranking, or complete
reporting (‘material’ issues)—and how those exclusion from an index, even if the company has
concepts relate to a company’s particular context superior ESG practices. Ultimately this situation
puts the accuracy of market signals at risk.
12 ISSUES IN COMMONMateriality in the context of reporting denominators to calculate certain metrics (for
is a fundamental concept, intended example, ‘water consumed per unit of product
to generate information that is useful manufactured’) makes comparisons more difficult.
These realities mean it is impossible today to
for decision-making. But it can be a
easily answer the simple question: “Is Company
difficult concept to apply in practice, X better than Company Y?” on a given metric.
due to the range of ESG issues to be
considered, the range of stakeholders Consequently, data users cannot compare
whose views contribute to materiality company ESG performance on an apples-to-
assessments, multiple definitions of apples basis, even within the same industry.
They must either expend additional resources
materiality, its legal implications and the
in attempting to make the data comparable,
time frames over which the materiality or draw on results that are not comparable
of ESG matters might become evident. between companies.
Rodney Irwin, Managing Director, World
Business Council for Sustainable Development Without the ability to compare ESG performance,
investors find it more difficult to meaningfully
integrate ESG data into investment decisions and
management processes. In fact, a recent CFA
Institute survey of investors ranked “lack of
comparability across firms” as the number one
impediment to integration.viii
Incomparability of
Companies cannot benchmark themselves
Company ESG Data against their peers, and regulators and wider
society face challenges in trying to understand
The depth of ESG disclosures has steadily a company’s contribution to national or local
increased over the years, supported by targets of public interest.
developments in reporting standards and
their application. Nevertheless, intercompany
comparability remains elusive.
Companies rightly attempt to reflect in their
reporting the material topics specific to their
industry and context, so the metrics reported
by different firms vary significantly.
Having simplified, reliable,
However, even when companies report
consistent, and comparable data
on the same topics and adhere to the same is key for the financial institutions,
reporting standards, the data they report may governments, and the public to
not be comparable. That’s because guideline channel more capital into sustainable
methodologies for metric measurement are investment and consumption.
often too high-level to ensure comparability in
Axel Weber, Chairman of the Board
reported company information. Companies have
of Directors, UBS
considerable latitude, for example, to use their
own classification approaches when reporting
metrics. In addition, the use of company-specific
ISSUES IN COMMON 13Data on Diversity and Other Topics Is Not Comparable
Many people would assume that data Reporting on metrics for women as a
comparability on the topic of gender diversity percentage ‘share of all employees’ enabled
is relatively straightforward. But an analysis broad comparability across companies.
of 15 peers in the fast-moving consumer However, standards-compliant reporting on
goods (FMCG) industry indicates that even women ‘by position’ or ‘by geography’ regularly
when companies within a single industry and used different company-specific classifications,
with similar business models adhere to the leading to low comparability across companies.
same reporting standards, non-comparability
of published data remains a problem. Further comparisons across other social
metrics showed similar outcomes, including
The graphic below shows the percentage those for health and safety. On environmental
share, by category, of gender diversity metrics topics, the use of productivity and output-
reported by the assessed FMCG peer group. related denominators, while useful for intra-
company tracking across multiple years,
renders inter-company comparability difficult.
Figure 2: Analysis of gender diversity disclosure, from companies
in the fast moving consumer goods industry
% of total reported gender diversity KPIs,
by category type
4 2
By position
11 Peer group of 15 firms used 22
different employee classifications.
By position
Of these, 16 were for equivalents
As share of all employees of ‘senior management’
By employee type1
11
48
By geography
By contract type By geography
By new hires Peer group used 7 regional
classifications—all of which were
structured differently. Even similar
regions had unique country mixes
24
1. i.e. full-time vs part-time
15 firms studied, 13 of which referenced GRI
reporting standards
Source: World Economic Forum; Procter & Gamble
14 ISSUES IN COMMONPoor Understanding Given the lack of understanding in the
market about how ratings agencies assess
of and Interaction with companies, the end-users of ratings—in many
ESG Ratings Agencies cases, investors and companies themselves—
find it harder to trust the information they receive.
They find it challenging to determine whether
Difficulty in understanding the assessments that the ratings reflect an assessment of the
ESG ratings agencies perform and the inputs relevant aspects of companies in which they
that they use to do so hurts companies, are interested. As a result, those who rely on
investors and the ratings agencies themselves. the ratings to make capital allocation or
management decisions are at risk of making
ESG ratings agencies play an important role sub-optimal decisions.
in aggregating and processing ESG information
to provide perspectives on companies’ If left unaddressed, low transparency
non-financial performance. No single correct and confusion reduces users’ trust in ESG
methodology exists to assess the ESG information, and lessens faith in the ability of ESG
performance of a company, and today ratings to support meaningful decision-making.
dozens of ratings agencies exist, each using
its own approach to determine and process
the ESG data it receives from companies
and organizations.
However, many organizations report that it
can be difficult to obtain clarity on what ESG
information each agency is looking at and how Investors need to be clear about what
it analyses that data to produce its perspectives. the methodology they choose is actually
Consequently, when different ratings agencies measuring, and why. Otherwise ESG
produce divergent scores for a given company—
scoring risks creating a false sense of
as often happens—it can be difficult to
understand why. The result is confusion in the
confidence among investors who don’t
market as to what reality the scores reflect. really understand what lies behind the
numbers—and therefore don’t really
understand what they’re buying.
Financial Times, “Lies, Damned Lies and ESG
Ratings Methodologies”, 6 December 2018
ISSUES IN COMMON 15Advancing the
Ecosystem
A number of existing initiatives are Other notable efforts attempting to advance ESG
driving advances in the ESG reporting reporting standards include the Impact Management
Project, the United Nations’ Principles for
environment, including attempts to Responsible Investment (PRI) work on corporate
address the three issues outlined reporting, the United Nations Development Program’s
above. However, better system- SDG Impact initiative, and the work of the United
Nations Conference on Trade and Development’s
level collaboration, communication (UNCTAD) ISAR group.
and alignment are required to
maximise the positive impact of those One key aspect of the ecosystem that observers
regularly note is the relative difficulty of understanding
initiatives. The first phase of this what good social performance looks like and how
effort identified three critical areas best to capture it. It is encouraging that a number
in which action must be taken to of initiatives—including ShareAction’s Workforce
Disclosure Initiative, the Corporate Human Rights
accelerate system-level progress. Benchmark, and the Gender Equality and
Empowerment Benchmark of Equileap and the World
Action Under Way Benchmarking Alliance—are working to advance the
discussion of social performance and measurement.
The buzz of activity in ESG reporting provides Nasdaq Nordic recently announced an ESG data
hope for progress. Several leading organizations portal that provides ‘transparent, comparable and
and initiatives—representing different stakeholder actionable’ ESG data through standardised reporting,
groups and working through various mechanisms— in an effort to meet investor demand in the region.
are already under way. These efforts take aim at
the causes or consequences of one or more of From a regulatory standpoint, recent and
the three problem areas that consultation impending changes mandate disclosure of key
participants identified. items of interest, increasing the availability of ESG
information to the market. These include the 2015
From a reporting standards lens, the Corporate ‘transparency in supply chains’ provision of the UK’s
Reporting Dialogue has the potential to deliver Modern Slavery Act, recent ‘comply-or-explain’ ESG
widespread benefits to the ecosystem as it seeks disclosure requirements imposed by the Hong Kong
to create more coherence between leading Stock Exchange on its listed companies, and the
frameworks and standards. European Commission’s Action Plan for Financing
Sustainable Growth.
Making use of the Forum’s network and platform,
the ‘Building an Effective Ecosystem for ESG’ effort
will look to support some promising initiatives and
raise awareness of emerging efforts.
16 ADVANCING THE ECOSYSTEMThe Corporate Reporting Dialogue
The International Integrated Reporting Council businesses to start the journey towards better,
(IIRC) convened the Corporate Reporting Dialogue more effective reporting, irrespective of which
(CRD) to enable major standard setters and reporting framework they choose initially.”ix
framework developers to work together to deliver
greater coherence, consistency and comparability If successful, the project will reduce the confusion
between their respective corporate reporting of those new to reporting standards about where
frameworks and standards. and how to start, and will encourage increased
reporting of material ESG information through use
In addition to the IIRC, participants include CDP of established standards. For those reporting to
(formerly the Carbon Disclosure Project), the multiple standards, it will shorten the time needed
Climate Disclosure Standards Board (CDSB), the for metric calculation and reporting, as increased
Financial Accounting Standards Board (FASB), the alignment will lead to fewer unique metric requests
Global Reporting Initiative (GRI), the International between the standards bodies.
Accounting Standards Board (IASB), the
International Organization for Standardization (ISO) The dialogue has also helped to clarify reporting
and the Sustainability Accounting Standards Board concepts based on market demand, including the
(SASB). definitions of and approaches to materiality
supported by standard setters and framework
Announced in 2018, the CRD’s ‘Better Alignment developers within the group.x Increased clarity over
Project’—a two-year project—seeks to align a the nature and scope of the various frameworks
substantial number of metrics between the different and standards also helps companies understand
standards, where differences are not required for how to navigate them in order to deliver the
the standards organizations’ respective objectives. breadth and depth of ESG reporting that
The project intends to “give more confidence to companies consider most appropriate.
European Commission:
Action Plan on Sustainable Finance
The European Commission’s recent Action Plan First, it will increase ESG-related disclosures
on Sustainable Financexi adopts four legislative from investors. Second, it will sharpen the
proposals. One includes work on clarifying and focus on the sustainability and ESG-related
unifying definitions related to sustainability, the goal performance of companies looking to meet
of which is to ensure consistently applied market new “sustainable” guidelines.
taxonomies—an essential first step in helping to
channel investments towards sustainable activities. The increased focus on the ESG activities
of portfolio companies and potential investees
Another proposal will introduce obligations for will concurrently drive greater demand for company
institutional investors and asset managers to ESG disclosure. Such disclosures are also likely
disclose how they integrate ESG factors into their to be more transparent because of their alignment
investment decision-making. This package of with the aforementioned proposed EU taxonomies.
legislation is likely to have two tangible effects.
ADVANCING THE ECOSYSTEM 17System-Wide Change 1. Improve transparency
across the ecosystem
The wave of emerging initiatives is creating A wide range of organizations and initiatives
significant momentum in the drive to build a more are looking to make an impact in ESG reporting,
effective global reporting ecosystem. However, but many efforts are neither transparent nor well
the complexity and interdependence of the communicated. Without an accurate view of the
stakeholder groups through which ESG data system, there is a high risk—and evidence of this
flows—from companies to end-users—means danger exists today—that even the most well-
that isolated activity risks forfeiting the ability intentioned efforts might find themselves
to support ecosystem gains. Players must work unknowingly in conflict with or duplicating others.
together in a spirit of constructive collaboration In addition, as highlighted earlier, the confusion
if they are to solve the problems that hinder the surrounding ESG ratings contributes to limited
reporting ecosystem today. awareness of available ESG information. Ultimately,
the lack of transparency on activity across the
The consultation revealed the need for additional ecosystem risks undermining the system-wide
action, steps that help maximise the impact benefits many efforts intend to deliver.
of existing and emerging efforts to accelerate
progress in the ESG reporting ecosystem. As There is action in some quarters to address
a first priority, greater action in three critical areas transparency problems. The work of organizations
is required to accelerate system-level progress: such as the WBCSD in developing ‘The Reporting
Exchange’xii helps increase awareness of efforts to
1. Improve transparency across the ecosystem improve ESG reporting, providing a high-level
2. Enable effective, active cross-system dialogue overview of many of the players in this space.
Further development of open-reference repositories
3. Tighten and align methodologies for metric such as these can help provide actors with the
measurement knowledge base they need to shape a more
cohesive environment in the future.
This collective effort of the Forum and its
members encourages existing initiatives in Non-profit organizations, governments and
this space to adopt these aims and to work development agencies are a crucial force in
with the wider community in delivering on funding much of the work in the reporting
these objectives. ecosystem. Ensuring that they clearly understand
where their money is going, in the context of the
wider activities of the system, should be considered
a duty of the ESG community.
It is a common viewpoint that the ESG community
will witness a consolidation of some of the many
reporting initiatives over the coming years, and
that this could support greater coherence in the
ecosystem’s activities. By first shining a spotlight
on exactly what is happening in this space,
stakeholders can take an important step towards
clarifying where any potential convergence of efforts
could be most beneficial.
18 ADVANCING THE ECOSYSTEM2. Enable effective, active In addition, there is more work to do—particularly
cross-system dialogue within many emerging markets—in communicating
the business benefits that companies can reap
An effective reporting ecosystem must serve from high-quality disclosure, especially for
the needs of a broad spectrum of ESG data companies that are issuers on listed markets.
users and providers. It cannot function optimally Clear communication of the connection between
if each stakeholder group seeks solely to service improved disclosure and investment flows, led
its own immediate needs, as the actions of each by influential market bodies, is important to
group affect the wider data value chain. accelerate the development of a more effective
global reporting environment.
The community must work together to
ensure that data produced helps end-users A recent paper by the Global Investor Organizations
better meet their requirements, and that the Committee, which represents the voice of a wide
process of reporting is less burdensome on array of major investors, also endorsed the call
companies. Open-minded, effective dialogue for cross-system dialogue.xiii Published in 2018,
between stakeholder groups is important to the paper’s stated objective was to provide an
build an understanding of each group’s “investor perspective to the global Corporate
individual needs and frustrations, thereby Reporting Dialogue and its members”. This is critical
ensuring that decisions reflect the priorities because the CRD’s work influences corporate
of a wide range of organizations that are reporting standards that largely determine publicly
important to the ecosystem’s health. available ESG information in the market. It is
encouraging to see that the Corporate Reporting
The historical absence of dialogue in the ESG Dialogue’s ‘Better Alignment Project’ is now
community has contributed significantly to the consulting with the UN PRI.
system-level ineffectiveness of the current
reporting ecosystem.
In particular, effective dialogue between
investors and companies is essential. The
investor community has a growing number
of active voices on ESG, but companies still
note that what investors want to see from Key global investment players […] are
their ESG reporting and performance is often now calling for greater ESG transparency
unclear. Communication from the investor in emerging markets. They are bringing
community in a more collective and cohesive
their influential voices into the debate, and
voice would help address this, and support
a more proactive culture on ESG engagement,
indicating they are ready to invest as ESG
particularly if delivered by asset owners. reporting conditions improve. They agree
that ESG data can create levels of trust that
build deep and liquid local capital markets.
And that is vital for a thriving private sector.
Ethiopis Tafara, Vice President for Legal, Compliance
Risk and Sustainability and General Counsel,
International Finance Corporation
ADVANCING THE ECOSYSTEM 193. Tighten and align methodologies Next Steps
for metric measurement
Taking its cue from these findings, the ‘Building
For ESG data to truly inform decision-making— an Effective Ecosystem for ESG’ effort aims
including integration in investment, company to catalyse delivery on the three action areas
management or the tracking of societal targets— identified as critical to maximising system-level
greater comparability of reported data is a progress. To achieve this, the effort, in
necessity. This requires tighter and more rigorous collaboration with the community, will advance
methodologies for metric measurement. on a number of fronts in 2019:
Today, many methodologies proposed by 1. Develop and publish an interactive ecosystem
standards bodies to calculate metrics offer map highlighting vital stakeholder groups in
companies a certain degree of flexibility. This the reporting ecosystem and the activities of
includes the ability to draw on organization- organizations within those groups. The map
specific definitions of scope, and the use in should help the community better understand
reporting of denominators related to output the complex global system of players influencing
or productivity. The consequent divergences ESG disclosure—including those from non-
in reporting practices on even the same metric OECD countries—and enable players to act
make comparisons across companies difficult. in a more coherent, cohesive manner.
2. Draw on the World Economic Forum’s platform
There are ongoing efforts to align the overlapping to promote effective, active cross-system
metrics of different reporting standards, including dialogue between different stakeholder groups
through the work of the Corporate Reporting within the reporting ecosystem. This endeavour
Dialogue. It is also important for the standard can help inspire action towards shared goals,
setters to coordinate on developing tighter and better support the community in addressing
methodologies for metric measurement, leaving the fundamental ESG data needs of investors,
less room for the application of company-specific companies and other data end-users.
classifications or denominators.
3. Support actors and initiatives in the field
Because of the inherent value of more useable of ESG reporting that seek to advance
ESG data and its importance in helping solve the reporting landscape. This will include
pressing societal problems, this topic demands providing a community perspective on how
swift attention. However, standards development to better improve comparability of reported
has not always been a quick process, and the data through tightened and aligned
universe of metrics is large—expanded by topics methodologies for metric measurement.
that are material only to specific industries.
A practical starting point would be agreement
by the coalition of standard setters to align on
a set of metrics, compatible with their respective
guidelines, for shared methodology review and
adoption. This process could begin with metrics
that are most broadly applicable across industries
and deemed of high value to end-users.
20 ADVANCING THE ECOSYSTEMFigure 3: ‘Building an Effective Ecosystem for ESG’ support for community
action in identified priority action areas
‘Building an Effective …by working with other
Ecosystem for ESG’ effort initiatives and community
will support priority areas on a series of items
for action…
Improve transparency across Develop and publish interactive
the ecosystem ecosystem map
Enable effective, active cross- Draw on World Economic
system dialogue Forum platform to promote
effective, active dialogue
between stakeholder groups
Tighten and align methodologies Support initiatives that advance
for metric measurement reporting landscape, provide
community perspective on
improving comparability through
methodologies
Source: World Economic Forum
ADVANCING THE ECOSYSTEM 21Figure 4: Illustrative images of ecosystem map
The ecosystem map is
currently in development.
It intends to capture key
players from across
stakeholder groups
important to the ESG
reporting ecosystem,
globally
The map functionality
will allow users to
click through for more
details on individual
organizations, including
their purpose, services,
funding sources,
and direct links with
other organizations
captured on the map
Source: World Economic Forum
22 ADVANCING THE ECOSYSTEMAvenues for
Further Exploration
The ‘Building an Effective Ecosystem Keeping financial and ESG reporting
for ESG’ effort is just beginning, separate comes at a risk of speaking
and many opportunities exist for in two tongues and underappreciation
of company performance. We need a
improvement in the landscape of ESG
lingua franca for ‘FESG’ and decision-
management beyond those outlined useful metrics
above. Over the coming months, this Susanne Stormer, Vice President, Corporate
collective effort will look to explore Sustainability, Novo Nordisk A/S
some of these. The effort invites further
community engagement in taking
these areas forward, and welcomes
proposals for new areas of exploration.
In addition to continued work with the community How do funding flows affect
on the items highlighted earlier in this paper, ecosystem activity?
potential topics that this effort may explore further
include the following: Many organizations exist in the ESG
ecosystem, supported by significant contributions
from membership fees, grants and donations.
In what respects should the But today there are regular complaints that some
world of ESG reporting look of their activities are duplicative or conflicting.
more like financial reporting?
Are funders aware of the work their money goes
Today, ESG information is treated differently to support, in the context of wider ecosystem
from financial information, and the markets that activity? Where can increased coordination
serve the flow of data behave differently. Major or consolidation of funding from key bodies best
differences exist in regulations governing support ecosystem advancement?
standardised disclosure. The operating models
of ESG ratings agencies and credit agencies vary
significantly, from payment arrangements to data How can new technologies
collection. The use of audit and assurance on ESG be utilised?
information is far less regular, and the timeliness
of ESG reporting lags behind that of the Digitalisation of data is regularly mentioned
mainstream financial world. as a tool that could support the reporting
process, as are open platforms for publication
What elements and practices of the financial of standardized ESG data.
reporting system should ESG look to adopt or
avoid? Is coordinated regulation necessary to What is the role of digitalisation and artificial
mandate company disclosure on a minimum set intelligence in the ESG reporting ecosystem?
of ESG information? Is a longer-term mindset in How can it be used effectively to reduce the
investment and company management critical reporting burden and increase the quality of
to supporting effective ESG management? published ESG data?
How should ESG and financial information be
understood in a context of wider value creation?
AVENUES FOR FURTHER EXPLORATION 23How can companies How can the measurement of ‘S’
organize for success? be improved, and how can wider
metric reporting continue to evolve?
Organizational and governance structures, and
board management practices, play an important The ‘S’ or ‘social’ issues that are material to
role in determining an organization’s focus on ESG a company vary significantly by geography,
issues, as well as the influence that ESG industry and context, especially between mature
information has on company practices. and emerging markets. Societal values, science
and the growing desire to understand an
How can boards best engage with companies on organization’s impact will continue to shape
ESG issues? What ESG-linked board remuneration what are deemed material issues for companies.
practices have been effective, and in what context?
How can a company think about where to house How can the understanding of ‘S’ be improved,
ESG expertise within the organization? and what can be done to measure it more
effectively? How should the reporting ecosystem
incorporate new metrics to enable appropriate
measurement in an evolving global context, while
ensuring consistency, developing comparability
and supplying the breadth and depth of information
Systematically integrating
sought by various stakeholder groups?
environmental, social and
governance (ESG) considerations
and objectives across all business
activities is not just a matter of
operational excellence, it helps
businesses to succeed in a
sustainable way and to address
the world’s pressing problems
Prince Max von und zu Liechtenstein,
CEO, LGT Group
GrowInclusive
Other efforts of the Forum are already looking to support companies in capturing the value of the ‘S’ in ESG.
The Forum’s GrowInclusive platformxiv—an initiative launched in 2018 in collaboration with the International
Development Research Centre and the World Bank Group—aims to help organizations better understand how
to derive business benefits from more socially inclusive business practices.
24 AVENUES FOR FURTHER EXPLORATIONConclusion
The dialogue that this effort has sparked in just a few months is
very promising, with participants from across stakeholder groups
working past traditional barriers of engagement and trying to
identify core elements of consensus across communities with
often divergent views.
The findings of the first phase highlight a significant shared desire
to collaborate in resolving multiple issues. The effort, working in
close collaboration with the community, will look to catalyse action
in areas that support system-level progress.
Additional avenues remain to be explored beyond the issues
highlighted in this first paper, to better unlock the impact that
an ESG focus enables, building on the burgeoning work at
the World Economic Forum on sustainable investment and
the new economy.
The Sustainable Development Impact Summit 2019 in New York,
held during the United Nations’ General Assembly Week, along
with other regional conferences, will provide updates on and
interactions with the group’s work, leading up to the Annual
Meeting 2020.
As this collective effort continues, its participants welcome further
engagement from the community in identifying and leading
opportunities for shared action, and in advancing this important
dialogue on ESG management.
CONCLUSION 25Contributors
‘Building an Effective Ecosystem for ESG’ is a In addition, the Forum would like to thank
collaboration between the Forum and a coalition the wider members of the community who
of its members and partners, guided by a Project have contributed their insight in the development
Steering Committee and supported by a wider of this effort—including experts and practitioners
Project Advisory Group, dedicated to capturing across investor, company, data provider, assurance
leading insights and perspectives from across provider, standard setter, framework developer,
industries and geographies. and regulator stakeholder groups.
The World Economic Forum would like to thank the The perspectives shared in this paper do not
members of the Project Steering Committee and necessarily correspond with each of those
the Project Advisory Group to this effort for their expressed by the contributors noted below,
time, expertise and support. but seek to reflect a balance of views captured
through this effort.
Project Steering Committee
Member of the Board of Management,
Allianz SE Günther Thallinger Investment Management, ESG
BASF SE Dirk Voeste Vice President, Sustainability Strategy
Chief Investment Officer,
BlackRock Tariq Fancy Sustainable Investing
Boston Consulting Senior Partner and Managing Director,
Wendy Woods
Group Global Leader—Social Impact Practice
Greentech Capital
Jeff McDermott Managing Partner
Advisors
International Finance Vice President for Legal, Compliance Risk
Ethiopis Tafara
Corporation and Sustainability, and General Counsel
Manager, FES Impact Valuation,
Novartis Sonja Haut Integrated Reporting
Novo Nordisk A/S Susanne Stormer Vice President, Corporate Sustainability
Group Managing Director, Chief Investment
UBS Switzerland AG Simon Smiles Officer—Ultra High Net Worth
26 CONTRIBUTORSYou can also read
