How common metrics can drive long-term value creation

Metrics: The door to long-term value creation

In August 2019, 181 CEOs, including myself, signed on to support the Business Roundtable’s Statement on the Purpose of a Corporation – to create long-term value for all stakeholders. The WEF-IBC common metrics initiative is one way we could hold ourselves accountable to this commitment and for investors, and other stakeholders, to assess our performance against this commitment.

At the invitation of Professor Klaus Schwab, Executive Chairman World Economic Forum and Brian Moynihan Chair of the International Business Council and Chairman and CEO of Bank of America, the Big Four accounting firms collaborated to identify a universal set of metrics allowing comparable and consistent ESG reporting across geographies and sectors, while encouraging convergence toward a global standard for non-financial reporting. “Measuring Stakeholder Capitalism: Toward Common Metrics and Consistent Reporting of Sustainable Value Creation”, released in September 2020, identified 21 core and 34 expanded metrics (derived from existing standard setters such as SASB, GRI, and TCFD). This initiative is designed to be complementary to the traditional standard setters, not to replace them.

For companies just beginning to report on ESG metrics, these offer a meaningful place to start. For those with more sophisticated reporting, the metrics may provide an opportunity to highlight where and how a company’s approach is distinctive, ambitious and progressive.

In addition, all are integral to driving long-term value across interconnected pillars aligned to the United Nations’ 2030 Sustainable Development Goals (SDGs): planet, people, prosperity and principles of governance. Central to the mission of the initiative is the belief that when companies align their goals with society’s goals, as mapped out by the SDG’s, we’re all better off.

At their essence, the metrics are designed to help guide the business community’s transition from a primary focus on short-term, quarter-to-quarter financial performance toward a broader focus on long-term value across human, consumer, societal and financial outcomes. Ultimately, they provide a tangible way for companies to better serve their communities and become engines of broad-based prosperity.

That’s good for society, but it’s also good for our companies. There’s growing evidence focusing on long-term value creation is not only the ‘right’ thing to do – it makes sound financial sense. Recent research by JUST Capital revealed companies going ‘above and beyond’ to support their workforces during 2020 outperformed the market.

At EY, focusing on a purpose-led strategy aimed at long-term value creation is where we start. We think of it as a three-step process.

First, align your C-suite and Board around your purpose of creating long-term value for your people, customers, society and shareholders. Second, do the work to transform your business to deliver on your purpose and long-term value strategy, assessing and investing in business capabilities to create value for all stakeholders. Finally, demonstrate impact and build trust through measurement, reporting, and communication. An effective long-term value strategy embeds ESG considerations squarely into how you approach your business. And, with the WEF-IBC metrics, companies can compare and benchmark performance across sectors and geographies.

Our long-term strategy – “NextWave” – is aimed at executing around our purpose of building a better working world and creating long-term value for our clients, our people, and society. As part of this, we hold ourselves accountable through a set of metrics specific to each stakeholder and we are now integrating the WEF-IBC metrics into these disclosures.

Adopt to transform

It’s our hope the creation and adoption of the WEF-IBC metrics marks a pivotal moment in the working world’s shift to a more inclusive, sustainable and purpose-driven form of capitalism. The metric framework represents a new lens through which we can see and measure the creation of value well beyond the narrow focus of short-term results and purely financial reporting. It’s contributing to real change in the ecosystem of reporting, and it’s a lens through which we can reimagine what real value is, reframe our future and build a better working world for all.

Summary

The WEF-IBC project and metrics represent a baseline and stepping stone toward a universal ESG reporting standard. The strong support that the project has received and the actions taken by the private sector to adopt the metrics reflect the emerging consensus that long-term value is created by serving the interests of multiple stakeholders, not just shareholders.