Marc Siegel, a board member of the Sustainability Accounting Standards Board (SASB), a not-for-profit organization that sets standards for environmental, social, and governance (ESG) topics, recently shared his insights on increased investor attention to sustainability reporting and corporate interest in reporting sustainability information in a session at a New York State Society of CPAs event, “SASB: Overview, Trends in Adoption, Case Studies & SDG Integration.”
According to former Financial Accounting Standards Board (FASB) member Siegel, companies are being asked for sustainability information from many sides and are facing a bumpy road because they are under pressure due to pervasive market demand but do not have a mandated single set of reporting standards they must use. Requests may be narrow, notes Siegel, such as a climate change survey, but investors and rating agencies are increasingly interested and asking for more frequent and extensive reporting.
Although historically accountants may have been more risk-adverse and wanted to keep ESG information out of their external financial reports, Siegel encourages them to get involved and implement controls over ESG data so that the numbers are right and reported consistently to management and third parties. Sustainability reporting is not always located in one part of an organization, and it may reside within the CFO or legal departments or be its own separate function.
Siegel’s key takeaways for the accounting profession are:
- For companies receiving investor requests for sustainability reporting, SASB standards are a cost-effective place to start because they are industry-specific and have a financially material approach.
- Accountants can help with challenges of putting systems and controls in place to collect and report this data, along with how to interpret reporting requirements specific to a company’s circumstances.
- CPA firms can use SASB standards as suitable criteria to help companies needing assistance or seeking assurance over their reporting.
- ESG is becoming a core business issue, and companies are increasingly recognizing the connection between sustainability reporting and long-term value creation.
An increasing number of leading companies are using SASB standards to guide their investor communications. A full list of these companies and links to their disclosures are available on SASB’s Website. There are also more mentions of sustainability measures not only in corporate social responsibility reports but also within recurring corporate reporting, including 10-K annual reports, 8-K current reports, proxy statements, and regulatory filings.
Gap, Inc. was one of the example companies shared by Siegel. Gap identified ESG as a source of value creation, publicly expressed their commitment to sustainability benefits, and produced a global sustainability report as far back as 2003. They previously reported using the Global Reporting Initiative (GRI) framework but wanted to enhance their disclosures for investors. In their 2017 Global Sustainability Report, they implemented the SASB Standard for Apparel, Accessories, and Footwear and included references to their sustainability report in their 10-K. They saw SASB standards as a way to provide a common language for their internal conversations about sustainability issues and to increase collaboration across departments.
SASB’s disclosure standards were first developed in 2012 and are still evolving. Today, there is a codification covering 77 industries and 11 sectors that is being used by companies and investors worldwide. SASB created recommended disclosure topics and accounting metrics for each industry/sector so that there is a consistent framework for companies to use. Their Sustainable Industry Classification System (SICS) groups companies that have similar sustainability risks and opportunities, and their SICS Look-Up Tool indicates which SASB standard is applicable to public companies worldwide.
Use of these standards, however, is voluntary. This is different from FASB standards that are generally not industry-specific and are mandated. SASB’s intent is that companies present financially material information likely to affect their financial condition or operating performance within this framework. The five sustainability issue pillars are the environment, leadership and governance, business model and innovation, social capital, and human capital, and there are a total of 26 topics under these five broad issues.