“We should seize this moment to ensure that stakeholder capitalism remains the new dominant model,” said Klaus Schwab, the founder and executive chairman of World Economic Forum. Maximizing the shareholder’s value has long been the primary goals of corporations; however, the trend is changing. Endorsed by CEOs of large corporations, the idea that shareholders should not maximize their wealth at the expense of environment, society and customers is rapidly spreading.
On September 22, the World Economic Forum (the “WEF”) released a report titled “Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation” in which the WEF recommended a set of metrics for companies to use when reporting ESGs. Developed in collaboration with EY, KMPG, Deloitte and PwC, the metrics represent the new model of stakeholder capitalism and suggests standards for reporting non-financial disclosures. According to the article, the focal point of the metrics is to be used universally throughout industries.
The metrics are divided into four pillars: governance, planet, people and prosperity.
Taking a closer look, the governance pillar can be divided into five different metrics. Governing purpose measures whether a corporate purpose creates value for its stakeholders or not. It is related to how a company provides solutions to economic, environmental and social issues. Other pillars in governance include the quality of governing body, stakeholder engagement, ethical behavior and risk and opportunity oversight, which refers to the composition of the governance body, material issues that influence stakeholders, anti-corruption and integrating risk and opportunity into business processes respectively.
The planet pillar recommends three metrics: climate change, nature loss and freshwater availability. Impactful issues such as greenhouse gas emissions and water consumption are all discussed in this chapter and companies are recommended to disclose implementations on Task Force on Climate-related Financial Disclosures (TCFD).
The people pillar discuss dignity and equality, health and well-being and skills for the future. This section mainly focuses on equality on salary, gender and age groups. Safety and companies providing adequate training for its employees are included in this section as well.
The prosperity pillar is about employment and wealth generation, innovation of better products and services and community and social vitality. Components such as number and rate of new employment during the reporting period, economic value generated and distributed (EVG&D), investment contribution and total tax paid are material in this section.
The debate on stakeholder and shareholder capitalism is still ongoing. The economist Milton Friedman said fifty years ago, “The social responsibility of business is to increase its profits,” introducing shareholder capitalism. However, it is time that entrepreneurs and the management realize companies cannot solely be obsessed with generating profits. It is time for companies to realize that they cannot thrive without the society, environment, customers and employees. Since the metrics abovementioned identify Sustainable Development Goals (SDG) as the roadmap point of reference and aligns metrics with SDG’s core values, companies are strongly encouraged to adopt the metrics not only to provide a consistent reporting framework based on SDGs but also to pursue stakeholder capitalism.
Sharon (Saerom) Kim | LinkedIn
A graduate of Hanyang University in Korea, Sharon will complete her MBA at the Singapore Management University in December 2020. Before starting her MBA, Sharon worked in Korea as an investment project manager and in Singapore as assistant manager in an incubating center. She joined Zingforce Ventures in August of 2020 as an intern, hoping to broaden her view in venture building and impact investing.
