SASB Unveils Guide for ESG Disclosures

Many companies already issue regular sustainability and corporate responsibility reports. For companies that want to take the next step, and integrate this reporting into existing 10-K or 20-F disclosure processes, the Sustainability Accounting Standards Board recently issued an issued a new reference document intended to assist that integration and enhance the traditional role of accounting.

SASB is an independent, nonprofit group that writes industry-specific standards for disclosing material sustainability issues. The newly released implementation guide is intended to help issuers achieve three objectives: identify the industry-specific sustainability topics most likely to be material to an investor; understand the current state of disclosure and performance on those topics; and enhance existing reporting processes to more effectively disclose material information on sustainability topics.

The guide addresses performing materiality assessments, analyzing disclosure readiness and alignment, against benchmarking against peer disclosures and performance.

“Companies have been requesting guidance on how to integrate SASB standards into their existing Form 10-K and 20-F preparation processes,” says Jean Rogers, SASB’s founder and CEO. That led to the creation of the guide, “which addresses the key steps issuers will need to take to evaluate the materiality of sustainability factors, assess their current state of disclosure, and improve internal controls as needed.” The goal is to ensure that companies “effectively disclose investor grade information on material sustainability factors to the capital markets, thereby reducing the need to respond to multiple investor questionnaires.”

The Implementation Guide for Companies is free and available here.

“The goal was to help companies understand the SASB standards, what they are trying to accomplish, and what goes into the process of setting the standards,” says Robert Herz, former chairman of the Financial Accounting Standards Board and a SASB board member [he is also a Compliance Week columnist]. The focus was on sustainability factors that “really matter in the context of a specific industry in terms of financial performance,” rather than “the full panoply of environmental, social and governance issues you might think of.”

The process of setting provisional standards began in 2012 when SASB divided the business world into 10 broad sectors comprising nearly 80 separate industries. “The standards were set industry-by-industry using materiality criteria, considering which ones really matter from an investment point of view,” Herz says. “You might get five or six issues that matter and within that maybe 10-15 metrics covering those issues. It is really a less is more approach that focuses on the ones that really do matter and where the focus should go.”

The emphasis is, and should be, on investors. “We are really interested in understanding the link to financial performance, stock performance and value creation,” Herz says. Ultimately, the disclosure of material sustainability information, including known trends, events, and uncertainties, is consistent with both the spirit of Management Discussion and Analysis (MD&A) and the regulatory framework established by the Securities and Exchange Commission. SASB standards offer an opportunity to continue to provide necessary, relevant, and reliable information to the capital markets.

That approach may ultimately prove to be more intuitive for companies already focused on business and financial performance. Stakeholders, especially institutional investors, benefit from having a systematic and consistent way so they can compare one company to another, something they were already been asking for.

A recent global survey of institutional investors by EY found that, during the past 12 months, an assessment of performance on ESG (environmental, social, and governance) issues “played a pivotal role [at least once] in their investment decision-making process” for 90 percent of the responding investors. Eighty-nine percent of global institutional investors reported that they will request sustainability information directly from the company, and 50 percent report they are “very likely” to sponsor or co-sponsor a shareholder proposal related to sustainability issues, approaches that are costly and time-intensive for investors and issuers alike.

Companies already incorporating SASB standards into their sustainability reports include Barclays, Delta Airlines, Hewlett-Packard, Microsoft, and Volvo.

Not everyone at the SEC has been enthusiastic about SASB’s efforts. Former Commissioner Daniel Gallagher once singled out SASB as an example of an outside entity trying to influence corporate disclosures. “We must take exception to efforts by third parties that attempt to prescribe what should be in corporate filings,” he said at a 2014 conference. “It is the Commission's responsibility to set the parameters of required disclosure.”

Those concerns may be somewhat soothed by the fact that former SEC Chairman Mary Schapiro and former Commissioner Elise Walters are members of SASB’s board of directors.

“This has to be a voluntary, market-driven thing,” Herz says. “I’m neither looking for nor expecting the SEC to mandate this in the near future.”

In addition to the guide, SASB expects to complete work on provisional industry standards, offering those documents for public comment, in the near future.