Why SASB, now?
Sustainability issues have increased in importance in the last 40 years. Megatrends such as resource constraints and population growth have intensified the importance of companies managing all forms of capital well to achieve economic success. Understanding how well companies are positioned to sustain value creation in the face of global sustainability challenges requires different information. To assess the long-term competitiveness and sustainability of companies, industry-specific performance indicators must be calculable and comparable. SASB standards enable peer to peer benchmarking on critical dimensions of sustainability, allowing companies to manage critical environmental and social issues, and investors to make informed decisions.
Why is SASB based in the United States?
In the United States, the Securities and Exchange Commission (SEC) mandates corporate reporting of material information through the Form 10-K and 20-F. SASB believes that vital sustainability information can be integrated into this existing reporting mechanism, foregoing the need for any new rules or regulations. Through SASB’s guidance on how to address the plethora of sustainability risks and opportunities in each industry, companies can disclose material sustainability information, allowing investors and the public to better evaluate the health and stability of any given company. SASB engages with U.S. stakeholders including the U.S. Congress and the SEC to acknowledge the importance of disclosing sustainability issues by U.S. publicly listed companies for the effective functioning of capital markets.
If SASB is concentrating on the U.S., why is international harmonization important?
SASB complements global initiatives including the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), the Global Initiative for Sustainability Ratings (GISR), the Carbon Disclosure Project (CDP), and others. As many companies publicly listed in the United States are global entities, and many global companies trade on U.S. stock exchanges and must comply with SEC regulations, any reporting mandated by the SEC will have a global impact. Hence, we seek harmonization of global standards for ease of use by all companies traded on U.S. stock exchanges that choose to do more than disclose the minimum material issues as defined by SASB.
What’s the difference between GRI and SASB? Are you doing the same thing?
No. GRI is global and provides hundreds of generally applicable indicators, for selection by the reporter in preparing a sustainability report. Each GRI report is unique. SASB is U.S.-focused and industry specific, designed for use in integrated disclosure in the Form 10-K and 20-F. SASB sustainability accounting standards are applicable to all companies within an industry, allowing peer to peer comparison. Any company that is publicly traded on a U.S. exchange can use SASB’s sustainability accounting standards in the Form 10-K and 20-F to disclose a minimum set of material issues to investors, and they can also choose to prepare a GRI report if broader communication is desired.
Materiality is central to SASB’s approach. SASB provides the minimum set of material issues and sustainability fundamentals that all listed companies should address alongside their financial fundamentals in order to minimize risks and capitalize on opportunities associated with sustainable value creation.
Why the emphasis on industry-specific?
We believe sustainability issues must be characterized, disclosed, and compared at the industry level to be relevant to companies in the U.S. market. Financial analysts cover industries and benchmark performance of companies within those industries. Therefore, sustainability frameworks must follow the same protocol in order for the information to be contextualized and interpreted by mainstream analysts.
Further, we believe all industries have unique material issues, and deserve specific guidance on sustainability issues. We acknowledge that most companies are resource constrained in many ways, and must focus on the most material issues in order to improve performance and realize value. We are mindful about what is cost-effective for companies to report on.
Will SASB rate or rank companies, or set minimum performance standards for companies?
No, we are establishing accounting standards. The market will decide how to evaluate and reward performance. With the standards in use, industry benchmarks will be available and comparative evaluation of companies on their sustainability impacts and opportunities will be simple for investors and the public.
Will SASB create a whole new set of sustainability performance indicators?
No. SASB is harvesting existing accounting metrics from many varied sources. Whenever possible, SASB industry standards will integrate accounting metrics that are currently being successfully used by best in class industry leaders.
Is SASB focused on disclosure or performance?
Performance. SASB is producing a set of minimum effective standards for each industry. These minimum effective standards have been identified, through an evidence-based process, to be highly material and strongly linked to long term value creation and sustainability performance. Public disclosure of performance of material sustainability data in a manner that enables peer to peer comparison will trigger a “race to the top” on critical issues that drive sustainable value creation.
What is the basis for assuming that disclosure will drive performance?
We believe that evidence-based materiality and relative prioritization of issues within any one industry provides much needed clarity at a systemic level: governments can direct funding and policies toward the most pressing issues, investors can channel funds to the most sustainable markets and corporations can focus their resources and efforts on the key issues that matter.
Full Disclosure, a book authored by three members of The Transparency Project at Harvard University (Archon Fung, Mary Graham and David Weil) have identified three principles that determine whether information will be incorporated into decision making: The information’s perceived value in achieving users’ goals (is it helpful in discerning differences in investment or purchase choices?); Its compatibility with users’ decision making routines (is it in a familiar format, accessible where expected – sustainability fundamentals alongside financial fundamentals); Its comprehensibility (is it relevant, comparable, in units that make sense?).
What is SICS?
The Sustainable Industry Classification Standard (SICS) groups industries into thematic sectors based on resource intensity and sustainability innovation potential. Toggling between the “traditional” (BICS/GICS/ICB) classifications and SICS, investors and analysts will be able to view industries through the standard sector lens and also from a sustainable and thematic perspective.
What is the Materiality Map? How is it useful?
SASB’s Materiality Map prioritizes material issues across all industries. Issues are tested for materiality across five categories and then adjusted for links to valuation and for innovation potential. SASB uses this map to determine the issues for which performance indicators need to be established in each industry. The Materiality Map sets the agenda for focused research and discussions by the Industry Working Groups. The Materiality Map is also useful for other purposes: investors can determine exposure to sustainability risks and opportunities according to asset allocation and policy makers can understand which industries are most affected by a particular issue, and compare the relative sustainability impacts of disparate industries.
What is materiality, anyway?
As defined by the U.S. Supreme Court, “material information” presents a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available. Evaluating the materiality of sustainability issues involves looking beyond conventional measures of assets and liabilities to those embedded in aspects of social and environmental performance and stakeholder relationships which may hold the key to future business success or failure. The use of comparable sustainability data is not only of interest to those concerned with the contribution of business to sustainable development. It is also important to those with their sights set firmly on the financial performance of their investments. SASB is the definitive voice regarding the materiality of sustainability issues within specific industries, effectively bridging the gap between financial reporting and sustainability reporting.
When will SASB’s sustainability standards be completed?
SASB projects that its sustainability standards will be completed within 2.5 years of the launch of the first Industry Working Groups in Q4 2012. SASB is convening Industry Working Groups at the rate of one sector per quarter. There are 10 sectors under the Sustainable Industry Classification System, which covers 88 industries.
Is there a fee to participate in the Industry Working Groups?
Absolutely not! All we ask is that you give generously of your industry expertise and knowledge of sustainability metrics and measurement so as to produce the highest possible quality sustainability standards. The estimated Industry Working Group commitment is four hours over a one month period.
How is SASB funded?
SASB is currently largely funded with grants and donations. Over the next few years, SASB is transitioning to an earned income model, based largely on licensing the intellectual property for education of the mainstream accounting community on the recognition and accounting of material sustainability information.