The leaders of the Big Four accounting firms have come together in an unusual joint initiative to unveil a reporting framework for environmental, social and governance standards.
The move — spearheaded by the International Business Council, run by Brian Moynihan, chief executive of Bank of America — aims to encourage the 130-odd large global companies in the IBC to adopt the standards for their 2021 accounts.
If the initiative is successful, it would mark the first truly co-ordinated approach to ESG reporting, and could prompt investors to move more money into the sector, which is currently thought to total about $32tn under the broadest definitions of ESG.
“Right now, there is an alphabet soup of metrics,” Punit Renjen, Deloitte global chief executive, told the Financial Times. “It is important for us to have a common set of standards and if there is widespread adoption it will lead to change in behaviour.”
However, it remains to be seen how many global companies will adopt the broad new standards. The framework has 21 core metrics and 34 extended metrics, covering issues ranging from emissions to social factors such as pay and gender ratios and governance targets.
While environmental factors are being measured by some companies, social metrics are considered harder to measure with precision. Some leading accountants warn it could be hard for US companies to report on social metrics since that could raise potential liability risks.
The drive to create a common accounting framework has been sparked by rising frustration among investment groups over the plethora of competing systems for measuring sustainability. In addition to metrics linked to the so-called task force for Climate-Related Financial Disclosures, spearheaded by Mark Carney, former governor of the Bank of England, there have been metrics created by the Sustainability Accounting Standards Board and the Global Reporting Initiative.
Financiers such as Mr Moynihan and Larry Fink, chief executive of BlackRock, have been pushing for a common framework for several years, hitherto without much success. A key complication is that practices vary in different regions, and authorities such as the European Commission are pressing ahead with separate initiatives.
However, with all four top accounting firms backing the standards, Mr Moynihan and others hope the initiative will finally get teeth.
“This is the first time we [the Big Four] have done something like this,” Carmine di Sibio, head of EY, told the FT. “This will take what the Business Roundtable put out last year [about stakeholders] and make it real.”
Bob Moritz, head of PwC, said: “[Society’s] struggles have only got worse with Covid and the only way we solve those problems is to get the capital to the right places. We need a framework to help investors get the information they need.”