To enhance corporate disclosure, there’s no shortage of ESG guidance and benchmarking frameworks to enable comparison between companies and supply externally validated information to various stakeholders. In this blog – we examine the role of one sustainability guidance framework – Sustainable Accounting Standards Board (SASB).
What is SASB?
To distinguish between guidance and reporting frameworks, it’s important to understand materiality – who is the intended audience of the framework, and how they intend to use the information disclosed (to make financial decisions, compare performance between organizations, or to ensure compliance).
The Sustainability Accounting Standards Board (SASB) is an ESG guidance framework that sets standards for the disclosure of financially material sustainability information by companies to their investors.
In total, SASB standards track ESG issues and performance across 77 industries as set out in the SASB Materiality Map.
Who is using SASB now?
Asset management companies, like BlackRock, Goldman Sachs, and Morgan Stanley, manufacturing giants, like GM and Nike, and even specialized industries with companies like Merck and JetBlue use SASB’s Standards to disclose ESG metrics. SASB also supplies resources such as the SASB Materiality Map to explain how investors across multiple asset classes use the standards. These tools allow organizations to be specific and report with a system that allows for transparency and relevancy with their investors.
Structure and the SASB Materiality Map
SASB’s approach is to first categorize industries and sectors and then use nuances of each industry to define the materiality of specific sustainability accounting criteria. This assessment of materiality is a key differentiator not offered by other reporting frameworks.
The SASB Materiality Map graphically displays the complete set of 77 Industry Standards (aligned to US based Sustainable Industry Classification System, or SICS) including specific industries within Finance, Food & Beverage, Healthcare, Transportation, and many more.
The industry-specific approach based on the SASB Materiality Map allows the Standards to cater to each type of business, supplying detailed guidance and examples of best practice to report 26 different ESG-related metrics of most any business that pursues this reporting framework.
How should organizations take on SASB guidance?
SASB asks companies to highlight specific disclosures and supply guidance on best practice for communicating those Environmental, Social, and Governance topics through standardized formatting. SASB’s requirements are focused on what information should be disclosed, but only supplies recommendations on where to disclose or how to share the ESG-related information. This flexibility aims to allow companies to share these data points through a means that makes sense for their organization, whether by Annual Report, Registration Document, or other financial reporting systems. Companies typically include a SASB index (or summary) within an annexure of their CSR or ESG report.
What level of “E” in ESG is covered in SASB reporting?
SASB’s Environmental Reporting covers a variety of quantitative metrics within GHG Emissions, Air Quality, Energy Management, Water & Wastewater, Waste & Hazardous Materials, and Ecological Impacts.
Each category gets specific, asking for disclosure of data points in Scope 1, Scope 2, and Scope 3 emissions, measured on a company-wide portfolio level. The Standards reference other established US-based standards and certifications systems, such as ENERGY STAR.
In the Standards, a building owner, for example, would fall under the Real Estate Industry within the ‘Infrastructure’ Sector. This specific set of Standards uses language that is aligned to the industry, describing their Accounting Metrics to relate to tenants, owner/operator, and floor area. Many of the Standards apply to data points that may be measured in ESG reporting software like Envizi.
How does SASB compare to other ESG frameworks?
SASB’s framework is built to support companies in sharing their outward ESG impacts through the language of investors, debt holders, and internal financial stakeholders.
Of the other ESG reporting frameworks, the Global Reporting Initiative (GRI) is most similar to SASB, but supplies more broadly material information for reporting to stakeholders who are not just financial.
What is the future of ESG Reporting?
ESG performance is now considered a key indicator of business health and long-term financial viability. Increasingly, governments, investors, financial institutions and the general public are using ESG guidance and reporting frameworks like SASB and TCFD to compare peers and distinguish the ESG leaders from the laggards.
Calls have been growing for a global standard to satisfy the needs of this wide range of stakeholders. With an eye towards reducing the reporting burden on companies, the Corporate Reporting Dialogue was convened by the International Integrated Reporting Council (IIRC) to strengthen cooperation, coordination, and alignment between key standard setters and framework developers.
Members of the Corporate Reporting Dialogue consist of CDP, GRI, SASB, the Climate Disclosure Standards Board (CDSB), the International Accounting Standards Board (IASB), and the International Organization for Standardization (ISO) with the Financial Accounting Standards Board (FASB) as an observer. Back in December Janine Guillot, Head of the Sustainability Accounting Standards Board (SASB) told Barron’s that ESG reporting standards ‘could converge within 12 to 24 months’.
ESG reporting convergence timeline
Indeed, the first steps of convergence into a unified corporate reporting system are now beginning to occur. In June, SASB and IIRC completed a merger to create the Value Reporting Foundation (VRF), which will support business and investor decision-making with three key resources, namely, Integrated Thinking Principles, Integrated Reporting Framework, and SASB Standards.
The formation of the VRF is expected to mobilize organizations to move from buy-in to action by making it easier for businesses to communicate their long-term strategy to investors and give a more comprehensive view of business performance. Given that the Integrated Reporting Framework offers principles-based guidance while the SASB standards provide further detail, the merger represents a key step forward in the process of simplifying complimentary tools.
With momentum building, the biggest step forward to date occurred with the announcement at COP26 of the formation of the International Sustainability Standards Board (IISB). The CDSB and VRF have both committed to merge with the IISB by June next year. The single framework will create baseline sustainability disclosure standards making information comparable across industries and financial markets.
However, a few pieces of the jigsaw puzzle are still needed. National regulators will need to adopt the standards for widespread adoption to occur, but this could come sooner rather than later if they receive backing from the International Organization of Securities Commissions.
Certainly, the pace is accelerating towards establishing a unified corporate reporting system, but the harmonization process will not occur overnight. As the nascent ESG reporting industry continues to mature, companies with a strong data foundation in place can set themselves up well to meet reporting requirements in a fast-evolving space.