SASB recognizes the importance of context, incorporating it into our approach in several ways:
Peer to peer comparison. First and foremost, SASB standards allow for the comparison of a company’s performance on key dimensions of sustainability with respect to its peers. Benchmarking with respect to industry norms provides essential context for stakeholders, and helps investors to discern differences between how companies manage resources that are vital to the business and may be constrained in the future. Comparability and complete data sets allow for the totality of impacts and opportunities to be understood by investors and the public.
Industry to industry comparison. The second way SASB addresses context is by enabling industry to industry comparison, in terms of resource intensity and exposure to sustainability risks and opportunities. Our materiality map presents the relative materiality of sustainability issues within industry, which is essential information for those concerned with the effect of resource constraints on sustainable value creation. With this contextual information at hand, investors can weight portfolios and adjust investment strategies accordingly.
Materiality Adjustment. SASB incorporates a forward looking adjustment to its evidence-based materiality map, which considers long term, systemic risks such as resource depletion. This allows SASB to adjust the relative importance of an issue in response to risks posed to the long term stability of a resource.
Context Statements. SASB prepares Industry Disclosure Protocols as an outcome of each Industry Working Group. These industry briefs describe the attributes of a sustainable industry, the drivers of value, systemic material issues facing the industry (including resource depletion), and the key metrics by which sustainable value creation can be measured for material issues. Qualitative descriptions will be provided that interpret material sustainability issues in the context of each industry. For example, climate change may be material in real estate, insurance, and health care, but it means very different things in terms of mitigation and adaptation, and therefore business risks and opportunities, for each of those industries.
Proponents of context-based sustainability argue for the measurement, management, and reporting of sustainability performance in terms of impacts on vital capital resources. This view interprets sustainability performance as a function of the impacts of an organization relative to the carrying capacity of local, regional, and global systems.
SASB is setting minimum standards for an entity to report material sustainability impacts in their Form 10-K or Form 20-F. The data that will be included must be of similar high quality as financial data, and auditable. Therefore, SASB will not, as a rule, ask entities to report on the carrying capacity of local, regional, and global systems at this time. Use of SASB standards will provide excellent quality entity level data by which companies can be compared against one another. SASB believes that it is the role of the analyst and academic communities to establish capacity limits and to interpret this data relative to carrying capacity, and the role of regulators to effect policy if limits of capacity are endangered. SASB furthermore believes that asking companies to provide local, regional, and global data, because it is not under their control or influence, and because it is not standardized or auditable, would be redundant, cost prohibitive, and counter-productive. Therefore “full quotient metrics” will not generally be required. The purpose of the Form 10-K and 20-F is to provide investors with decision- useful information. SASB’s mission is to develop standards that reflect material issues for inclusion in the Form 10-K or 20-F. Therefore, what is of utmost importance is to be able to compare company to company on key dimensions of sustainability, and to trend performance over time. Entity level data serves this purpose well, and keeps the disclosure requirements to a minimum, while allowing analysts and other third parties to interpret it against aggregate data or capacity limits.
SASB values the perspective offered by sustainability context and is incorporating it into the process for developing the materiality map and characterizing material issues. More importantly, by developing disclosure standards for each industry, SASB enables the aggregation of data, which is needed to quantify the cumulative impact of companies and industries on natural and social resources.
