Give Me A Minute – Stakeholder Capitalism Metrics Audits

Has anyone started auditing Stakeholder Capitalism Metrics and including results in annual reports? I’m curious if this is the next Sarbanes-Oxley. Here is a little more information on where these metrics came from.

At the start of each year, the World Economic Forum (WEF) organizes an annual event in Davos, Switzerland, for leaders from business, government, international organizations, civil society, and academia, to address what they view as critical world issues. (This is a conference for the super-rich.)

WEF claims that businesses are changing very dynamically as a result of,

  • environmental changes like climate change, 
  • social factors such as diversity,
  • the need to improve working conditions, and 
  • economic factors including shifting market demands and new laws and regulations. 

Using the COVID pandemic and climate change as critical issues, they argue that in order to create long-term value, companies cannot focus solely on the interests of their shareholders, but they have to orient themselves to serve the interests of all stakeholders and to adopt an approach called “stakeholder capitalism”. 

Stakeholder capitalism is based on five principles: (Note that profits are not mentioned.)

  • to change the mindset of the board from being focused on shareholders to the focus on stakeholders
  • to set and track environmental goals
  • to improve the sense of responsibility for consumers, suppliers, and their employees
  • to serve consumers’ long-term needs
  • to treat employees with respect and invest in their future.

In 2020, the Stakeholder Capitalism Metrics (SCM) was initiated and published by the International Business Council of the World Economic Forum. The metrics were created in collaboration with Bank of America, Deloitte, EY, KPMG, and PwC, with the aim for companies to report on key dimensions of sustainable value in a consistent and more comparable way. This reporting framework consists of 21 core and 34 expanded metrics and disclosures and is divided into four pillars: Principles of Governance, Planet, People, and Prosperity.

Personally, I think any attempt to move away from creating shareholder value to stakeholder capitalism will give big corporations far too much power and eventually leave shareholders with nothing. Also, a business metric called ESG is being put into place. ESG is used to measure the ethical and sustainable impact of an investment in a company or business. ESG considers three factors: environmental, social, and governance issues.

Since lenders are being evaluated by these metrics, they will use this system to choose to who they extend services or credit. Individuals will have their own ESG scores and if you don’t meet their criteria, you will not be able to secure loans or perhaps even basic banking features. We are all becoming like China.

This scares me to death.

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