An interview with Curtis Ravenel

Global Head, Sustainable Business and Finance, Bloomberg LP
SASB Foundation Board Member


Curtis Ravenel

Q:  Bloomberg LP has been integrating sustainability into its products, services and operations for a long time, as a provider of Environmental, Social, and Governance (ESG) data on its Terminal, through its own corporate reporting as a private company, and in supporting SASB and other frameworks. What has been the motivation behind your leadership in this space?

A:  The ESG factors included in the analysis tools on the Bloomberg Terminal, and the SASB metrics we have incorporated, both address material issues that are important to the investment, lending, insuring and research work of our clients. While we believe that ESG factors are an important part of running a successful and lasting business, ultimately, what drives the information that is on the Terminal is what our clients need for their day-to-day work.

Bloomberg was built on the notion that transparency in financial markets is essential for growth and stability, and transparency on ESG issues is no exception. As such, we have a responsibility to provide the private sector with the right tools and information to analyze ESG factors that can bolster market growth and improve risk management.

We lead with our own reporting because the ESG factors that impact our business are important to how we run our business, to our employees, our customers and other companies with whom we work. Reporting transparently about these factors as well as our overall sustainability strategy allows us to build strong, lasting relationships with each of these stakeholder groups.


Q:  Does Bloomberg LP see itself playing a role in bolstering adoption of SASB standards?

A:  Bloomberg is a founding partner of SASB and now that the standards have been published our work will only continue. As a global investment platform we have an important role to play in providing financial players with access to the information that corporations are reporting in line with the SASB standards. The ESG tools on the Terminal are incorporated into our full investment platform and the SASB indicators are integrated into our ESG company profile template. By using these tools investors can understand a company’s performance on key SASB metrics and corporations can better identify their own reporting gaps and compare to peers.

Proliferation of the SASB standards, which help translate material ESG issues into financial terms, will enable our clients to see how ESG factors can significantly contribute to their investment and risk mitigation strategies. Our work to further the global adoption of the standards through advocacy and use on the Terminal will help bring more transparency around these important issues and enable investors and lenders to place capital with the leading sustainable companies.


Q:  How would you describe the value proposition of SASB standards to those in the European market?

A:  Although SASB was founded in the United States, the work that SASB has done to identify ESG factors that have evidence of materiality does not stop at the US border. In fact, some of the factors may prove to be more material to companies outside of the US where issues such as climate policy changes or more extreme weather are more likely to occur.

In the globalized world in which we operate most companies, large or small, have operations, or customer and supply chains that span more than one country. Using one standard, such as SASB, globally will help businesses align internally on ESG issues. Not only can this help businesses achieve their ESG goals more efficiently, but it will also reduce their reporting burden and allow for a more targeted and transparent approach to investor engagement.

Companies in Europe who begin to use the SASB standards may be able to attract capital from US investors that are already more familiar with the reporting. European investors that utilize the standards for analysis and engagement can get ahead of requests from US asset owners for more standardized and transparent reporting on material ESG issues. What is more, in Europe, where further regulation on ESG reporting is on the horizon, the standards can be used to satisfy new regulation.


Q:  What is your view on the harmonization of SASB with the framework put forward by the FSB Task Force on Climate-related Financial Disclosures (TCFD)?

A:  Both SASB and the TCFD are getting a lot of market attention now and we want to make sure their alignment is clear to both companies and investors. Because it exists under the G20’s Financial Stability Board, the TCFD is a global organization that takes a targeted approach at addressing one major ESG issue that is impacting global markets, climate change. It is not however, a technical guide on all aspects of accounting and reporting and it does not address all ESG issues. SASB can provide this technical guidance and will also help companies address other ESG issues that may be material to their specific industry. We believe that the harmonization between SASB and the TCFD will help SASB reach a global audience and it will help reduce the reporting burden for companies. Ideally, a company that reports in line with the SASB standards will also satisfy the TCFD recommendations.


Bloomberg LP is a Sponsor and Supporter of the 2018 SASB Symposium.

Matthew Welch President of SASB Foundation

Nearly five years ago, SASB released our first provisional reporting standard, the world’s first standard specifically for companies to communicate with investors on financially material sustainability topics. Since publishing that first provisional standard, we’ve consulted with companies and investors—hundreds of firms and thousands of individuals—to get feedback on the provisional standards and prepare the changes needed to issue the world’s first complete set of codified standards on financially material sustainability topics later this year.

During this process, we’ve learned many, many things from the market, but two important lessons will have a long-lasting impact on our activities:

Where a company discloses its sustainability data isn’t as important as the quality of that data.

There are many ways that companies communicate with their investors. While some companies choose to include SASB standards in their regulatory filings, other companies are sharing this data in other ways, like an online sustainability report or an annual report to shareholders.

What the market has told us is that regardless of where the information is disclosed, what’s most important is high quality, investor-grade data—and the governance and control environment around these disclosures should be similar to that used for traditional financial reporting.

Sustainability issues don’t have borders, and neither should our standards.

We have always believed that the SASB standards are relevant beyond US borders, because they are industry-based, not country-based. The material issues facing an industry in Germany or Japan are not fundamentally different from those in the US. SASB standards focus on sustainability information that is financially material—a fundamental concept important to investors and companies around the world. And there is hunger globally for our standards, which have been downloaded more than 122,000 times from across 38 countries; more than 50% of this interest comes from outside the USA.

However, we recognize that many stakeholders perceive SASB as solely focused on the US and our language over the years has supported that impression. We are working to change this perception and respond to growing global demand for and interest in SASB’s work.

So, what does this mean practically? Earlier this year, the SASB Foundation Board of Directors updated SASB’s strategic direction to reflect these two important lessons and better connect them to our daily work. We are busy recruiting for the newly formed SASB Sector Advisory Groups, which will help us actively solicit global market input. And our Standards Board will continue to actively consider the global applicability of the SASB standards. Later this fall, we will launch an updated website with language that supports our global outlook while making it easier for all stakeholders to find the information they need.

Earlier this year, SASB’s founder Dr. Jean Rogers wrote in this blog space that standard setting is a marathon, not a sprint. And with the codification of our standards just around the corner, I must admit it does feel like the finish line is in sight. But Jean also wisely wrote that codification marks a commencement, not merely an end. By taking these steps now and adapting to what the market has taught us, we should be well positioned for growing global interest in adopting SASB’s standards—our next marathon!

Heidi Soumerai, CFA Managing Director, Walden Asset Management

Walden Asset Management celebrates reports from the likes of KPMG that in 2017 found approximately 75 percent of 4,900 global companies published sustainability reports. With our four-decade lens incorporating ESG considerations into our investment process, one might assume that we are satisfied with the current state of sustainability disclosure. We are not. Our need for more relevant, reliable, and comparable information on company ESG policies, practices, and performance is as great as ever. That’s why we are eager to participate in, and encourage, the widespread adoption of SASB indicators in core company communications with investors.  Longer term, we believe investors will be better served if SASB metrics reside in company financial filings.

A case in point: Using data available through Bloomberg, Walden sought to analyze greenhouse gas emissions data (Scope 1) for energy sector companies, excluding service providers, in the Russell 3000 universe. We were disappointed to find data for less than 20 percent of the 91 companies, from primarily the largest firms. Yet we, along with SASB, have identified Scope 1 greenhouse gas emissions as a core climate risk metric for the sector. Clearly, we have a long way to go.

We believe that disclosure in company financial filings of SASB’s “material and decision-useful” sustainability accounting standards will enhance ESG integration throughout the investment industry.  Likely, only then will company presentations and reports to investors and analysts routinely include a consideration of ESG factors critical to long-term business prosperity.  High quality and comparable ESG information enables investors to benchmark performance, allowing for a more complete assessment of risk and opportunities to inform investment decision-making and company engagement.  More robust peer group evaluations fuels greater corporate accountability, in turn supporting improved performance over time.

Walden’s support of SASB does not diminish the value we place in other comprehensive or issue-specific ESG disclosure frameworks that call for more comprehensive transparency such as GRI, CDP, or the UN Guiding Principles Reporting Framework addressing human rights. In addition to investors, these frameworks serve multiple stakeholders–consumers, employees, local communities, non-governmental organizations, policy-makers, among others–and each is likely to have unique definitions of what constitutes material information. Indeed, that thousands of companies utilize such guidance for their public disclosures on ESG matters suggests that they find significant value in them. Moreover, these and other frameworks enable civil society to remind us of critical company impacts that are not captured currently in metrics or other information sources.

Defining materiality is both an art and a science. In our view, SASB’s industry-based materiality framework does not encompass some system-wide indicators that contribute to improved economic (and societal) outcomes long term. For example, Walden believes that all companies should report greenhouse gas emissions data and adopt science-based emissions reduction goals as a means to address climate risk system-wide.  We believe that universal reporting on greenhouse gas emissions can help foster the political will among policy-makers for a price on carbon—arguably the most important action needed to avoid catastrophic impacts of climate change. SASB’s industry-focused materiality framework incudes Scope 1 greenhouse gas emissions as a recommended metric in 23 of 79 industries.

We also recognize that materiality is dynamic—ESG factors that today are not deemed by SASB as financially material may be recognized as material tomorrow. Ten years ago, would a shareholder resolution asking ExxonMobil for a detailed report on climate change risk—including an analysis of the impacts of achieving the globally recognized goal to restrict temperature rise to a maximum increase of 2 degrees Celsius above pre-industrial levels—have garnered the 62.3 percent support it achieved at the company’s 2017 annual general meeting?  Certainly not. With new experiential and academic evidence, investor consensus on what constitutes decision-useful ESG information will evolve. We expect SASB will as well.

Virtually every day Walden asks existing or prospective portfolio companies to elaborate on ESG policies and practices as part of our due diligence research.  To meet our clients’ objectives and priorities, our line of questioning almost always transcends the boundaries of SASB accounting metrics. Yet we have found that our discussions with company representatives are enhanced significantly by reference to the industry-specific SASB metrics and its standards-setting process.  If SASB reporting becomes the norm, investors, and all stakeholders, will be beneficiaries.  From our perspective, that day can’t come soon enough.

Heidi Soumerai, Director of ESG Investing at Walden Asset Management, serves on the Sustainability Accounting Standards Board’s (SASB) Investor Advisory Group (IAG). IAG members encourage companies to utilize SASB’s industry standards to disclose material and decision-useful environmental, social, and governance (ESG) information.

Jean Rogers

Jean Rogers, SASB Founder and Chair of the SASB Standards Board

New years and new beginnings always seem to go hand in hand. However, for me and my colleagues on the Sustainability Accounting Standards Board (SASB), this one feels unique—a little like waking up and jumping out of bed on the morning of a big marathon. There’s energy. Excitement. Even a little anxiety. That’s because 2018 marks a pivotal year for the SASB as we codify our provisional standards and begin a three-year cycle of standards maintenance.

Of course, running a marathon involves as much hard work before the starting gun as after it—and we have put in that work. The SASB and its staff have spent six years developing and refining provisional sustainability accounting standards for 79 industries across 11 economic sectors. After all that effort, some might be tempted to take a breather and call it a job well done. However, markets never rest and our job requires unwavering dedication. Codification is only the starting line. It’s not the culmination of the past six years, but the beginning of the next three—and beyond.

As we begin this race, the SASB is aware that our pace will continue to be governed by competing tensions: timeliness and quality. On the one hand, we must respond to market needs in a timely way as new issues emerge, investor interest intensifies, corporate best practices are established, and market realities continue to evolve. On the other, we must produce world-class standards that facilitate the cost-effective disclosure of material, decision-useful information.

There is an oft-quoted African proverb that says, “If you want to go quickly, go alone. If you want to go far, go together.” In some sense, we want to do both, so we seek a happy medium. Our due process is designed to balance the need for timely outcomes with the need for comprehensive research and balanced stakeholder participation. It aims to produce high-quality standards and bring the market along in a way that is mutually reinforcing.

Broadly speaking, the SASB’s three-year process involves five key phases—research, stakeholder consultation, agenda setting, exposure drafts for public comment, and a board vote—none of which can be rushed or circumvented if we hope to produce world-class standards that both support and are supported by the market. Following this rigorous process is fundamental to our ability to create equilibrium amid the competing pressures that characterize sustainability accounting, an evolving field of practice that demands prudently applied professional judgment.

To ensure accountability as we follow our due process, the SASB has established an important alliance with the Center for Professional Accounting Practices (CPAP) at Fordham University’s Gabelli School of Business. Fordham will host quarterly public meetings of the SASB, as well as an ongoing speaker series featuring thought leaders in the fields of accounting, securities law, investment, sustainability, and more. By opening the SASB’s proceedings to in-person attendance, this alliance will enhance the SASB’s accessibility and market presence, thereby encouraging and facilitating deeper engagement with stakeholders. After all, as we promote enhanced transparency and accountability in the capital markets, we must uphold those same values in our own work.

Codification of the SASB standards is almost here. And, although it marks the culmination of nearly six years of work on the provisional standards, it’s really our “commencement”—a beginning, not an end. We welcome your engagement and participation as we move forward.

We’re ready. We’re set. Let’s go.

By Gabriella Vozza

I spent the last six months having conversations with senior corporate leaders in the retail and consumer goods industry as part of SASB’s process to develop industry sustainability standards. I gained an insight into the current state of corporate sustainability – how far it’s come in this sector, and how far it still needs to go. Here are three themes that emerged:

  1. Supply chain has come a long way, but has a long way to go

Arguably most of the environmental and social impacts in retail lie in its supply chain – the manufacturing of consumer goods. These include issues like labor practices and safety conditions in factories, air pollution from manufacturing, chemical discharge into waterways, deforestation for leather production, and water stress in areas where cotton is grown. The Rana Plaza building collapse in 2013 and human rights abuses linked to seafood sold at major retailers are a couple examples of the importance of these factors today.

Companies are working together and have come a long way in managing these issues. However, there still is no industry consensus around how they disclose their progress on these issues, and many companies still don’t know their full list of raw materials suppliers, opening themselves to risk. When you browse the websites and annual reports of consumer goods companies, you’ll notice that companies discuss the same topics, such as factory audits, but use different metrics and definitions. Some companies report the number of suppliers they audited, some report the number of audits, and some have their own rating system for violations. While their work should be commended, it is still difficult to make sense of how the industry is moving forward.

  1. Sustainability data is not integrated into financial reporting processes

During the consultation conversations, I heard many companies acknowledge the importance of material sustainability issues to their business’ success. The link between sustainability and financial performance can be seen in recent incidents like Chipotle’s 2015 foodborne illness outbreak, Wells Fargo’s 2016 unauthorized accounts scandal, and Valeant Pharmaceutical’s drug pricing policies that contributed to an 87 percent decrease in its stock price.

However, I repeatedly heard companies express the challenges they face with gathering and reporting sustainability data in time to integrate it into financial filings. The problem is that sustainability data is typically collected and reported months after the company’s financial filings are published. Further, it is not typically verified with the same rigor as financial data is. Because these sustainability issues are vital to company performance, this information needs the level of rigor given to financial reports, so investors can evaluate companies with the full set of information that is material to company performance.

  1. Accountability in an evolving world

Just this week Target resolved its 2013 data breach for $18.5 million – the largest multi-state data breach settlement in history.

In the wake of continued high-profile attacks, consumers are becoming more educated about the threat of cyber crime. Further, as the methods and tools of cyber criminals continue to evolve, data security will become increasingly important for companies to keep or gain market share. This is an opportunity for the most trusted brands to position themselves favorably in the eyes of consumers.

But when you look at company financial filings, most are not providing detailed information on how they are preventing incidents from occurring in the future. Companies already acknowledge the importance of data security – in fact 100% of the top 10 companies in the retail and e-commerce industries already disclose information about data security in their Form 10-Ks, but in vague language and with few quantitative indicators related to performance. This lack of quality disclosure does not reassure customers that their data is safe, and prevents investors from understanding who will perform best in the long term.

Where to go from here

Sustainability issues in retail like data security, raw materials sourcing, and chemical content of products are complex. SASB has developed metrics for companies to use when discussing sustainability in their annual reports to investors, and it actively seeks input from market players to make sure they are useful for decision-making. The next opportunity to provide feedback will be during a public comment period this summer.

As NRG’s Head of Sustainability, Bruno Sarda leads the development and execution of company-wide sustainability

SASBspeaks with Bruno Sarda, VPof Sustainability at NRG Energy, to understand NRG Energy’s process of implementing SASB standards. NRG Energy is a founding organizational member of the SASB Alliance.

While SASB believes material sustainability information should be disclosed in SEC filings, we recognize that some companies may first use the standards outside of the Form 10-K, and then may elect to incorporate them into their SEC filings.

Why did NRG Energy decide to use SASB standards to communicate with investors?

Today’s voluntary reporting space is crowded and complicated for both practitioners disseminating the information and stakeholders receiving the information. With that in mind, NRG supports transparency in reporting, especially when it directly contributes to generating comparable and consistent data within an industry.For stakeholders engaged in long-term decision making, such as investors, the SASB standards are a efficient tool for communing key information in a streamlined manner.

How do you see NRG Energy working towards providing this information to investors in SEC filings?

Once the standards are finalized further analysis will be conducted.

What were the challenges of using SASB standards for the first time?

At the time of NRG’s report publication, the SASB standards were only provisional, so there was some ambiguity around what the final version will look like. Therefore, we had to manage to a level of uncertainty about changing metrics and prepare to adapt as needed.As NRG is the first in the power sector to adopt the SASB standards, we required additional clarification surrounding which standards are most relevant to our business and as well as guidance on implementation. Other challenges included collecting some data earlier in our reporting cycle than usual as well as some changes to our third-party verification process.

How did you overcome these challenges?

Our SASB sector analyst (Infrastructure Sector Analyst Bryan Esterly) was a wonderful resource, providing key infrastructure around definitions and metrics. We also had conversations with a variety of experienced stakeholder groups on how best to present the information. The corporate sustainability manager responsible for voluntary reporting engaged internal business groups on what data was needed, and when, so that they were able to align on a timeline and process.

How were you able to compile the sustainability information in a timely matter, given NRG Energy’s existing disclosure processes for sustainability and financial information?

It was a challenge, but planning ahead helped us manage. The conversation around implementation of SASB standards started in 2016 and an analysis was done on alignment with other metrics we were already reporting in our SEC filings as well as other voluntary reporting frameworks. This helped us anticipate the level of effort needed to publish the new standards. Some of the information was already reported in our 10-K SEC filing, but additional environmental data had to be expedited as we had not previously reported the information in the particular format outlined by the standards.

Who were the internal players that were involved in the process?

Corporate sustainability, environmental compliance, investor relations, general counsel, chief of staff, CEO, communications, marketing, business operations.

To what extent were service providers involved in the process (e.g., data verification, outside counsel, etc.)?

As part of the starting process exploring the considerations and strategic implications of implementing the SASB standards, we sought advice from outside counsel. We collaborated with legal counsel who specializes in corporate governance and securities to conduct an initial analysis of NRG’s reporting practices with respect to sustainability. Additionally, select GHG and water environmental data was third-party verified by an independent accountant as stated in our 2016 Sustainability Report.

What advice do you have for companies that are beginning the process of integrating SASB standards into their disclosure processes?

It depends on where the company is in their sustainability journey. NRG’s vision is to create a sustainable energy future, therefore we are fortunate to have executive decision makers that see the value in reporting standards. It is important that you speak the same language (or a similar language) with your key internal and external stakeholders around ESG and sustainability reporting. This can take time, so as with any voluntary reporting project, start early and be organized. Talk to other companies that have gone through the process. Talk to your SASB sector analyst and utilize the published resources and the SASB Navigator.

For more insight on how to use SASB standards, please read SASB’s Implementation Guide for Companies.

Keynote Remarks Delivered by Dr. Jean Rogers, SASB Founder

April 27, 2017,Kent State University

It is an honor to be here at the Annual Meonske Professional Development Conference. I’m Jean Rogers, and in 2011, I founded an organization called the Sustainability Accounting Standards Board, or SASB. Today I will attempt to explain how sustainability accounting is relevant to your role as management accountants.

I know what you’re thinking: there’s financial accounting, tax accounting, forensic accounting, and of course management accounting, but sustainability accounting? Really? I’m here to tell you…it’s a thing. It is a lens through which corporate management can understand how critical dimensions of sustainability affect corporate performance. How global sustainability challenges, such as climate risk, resource constraints, changes in workforce composition, and stakeholder concerns, can affect a company’s ability to sustain and create value over the long term. And how dependent a company is on the forms of capital that it is competing for—beyond financial capital, which is often not a constraint to growth. Bain estimates that global financial capital has more than tripled over the past three decades and now stands at roughly 10 times global GDP. But access to high quality environmental capital and social capital can often be the overriding factor in securing a company’s future. Think Uber and workforce relations, or United Airlines and customer welfare. Sustainability accounting has evolved over the past several decades to describe a company’s performance on material environmental, social, and governance factors for the benefit of investors and society.

My aim today is to demonstrate that sustainability issues are in fact material to business, of interest to investors, and germane to management accountants.

Sustainability accounting shares several things with management accounting. First, it’s performance-based. The parameters being measured are often non-financial, not to say they are not related to financial performance, but they are measured in non-monetary units such as energy intensity in manufacturing, water consumption in beverages or agriculture, or safety data in transportation industries. Second, it’s quantitative and can be benchmarked. That means companies can establish a baseline, set targets, and track year-on-year improvements. That also means it can be subject to controls and assurance to produce reliable data from which to base decisions. Notice that I mentioned the industry where each parameter is particularly relevant. That’s another thing management accounting and sustainability accounting share: the measurements that yield the most decision-useful information are often industry specific.

Both a management accountant and a sustainability accountant measure a company’s risk exposure and its progress in implementing its strategy, and need tailored metrics to do so in a way that’s appropriate for each industry. SASB develops industry-specific standards that give rise to material sustainability data. Because topics like climate risk, product safety, and even human capital management, look different at an operational level from industry to industry—just like inventory, or the forecast of unit sales, or the impact of strikes are measured and reported in different ways.

Both management accounting and sustainability accounting provide a more holistic view of performance than financials can provide. In today’s knowledge-driven economy, a company’s ability to succeed relies increasingly on intangible assets—things like patents, processes, brand value, intellectual capital, and customer or supplier relationships. Among the S&P 500, for example, intangibles now account for more than 80% of market capitalization.

The measurements are directly related to value creation. You may be surprised to learn that sustainability accounting measurements are directly related to financial parameters and can be mapped to specific elements of a DCF. For example, for oil and gas companies, impact to current valuations can be approximated by discounting future expenses associated with carbon taxes or credit fees associated with direct emissions, as well as potential reductions in revenues, resulting from reduced demand and the associated commodity price impacts (such as those forecast by the IEA in its World Energy Outlook). Sustainability accounting data can be interrogated and interpreted (just like financial data) and used to better understand the relative health and competitive positioning of the organization. Like management accounting data, these are often leading indicators of financial performance.

The rigorous practice of sustainability accounting de novo allows a complete reappraisal of the relative significance of social, environmental, and economic risks and benefits to corporate performance. You might say that sustainability accounting is a subset of management accounting.

So, instead of asking (which I know some of you did when I came up on stage) why would we want to measure this, the real question is, why wouldn’t we want to measure this? Why wouldn’t we want to know where we stand on material sustainability related matters in order to mitigate risks and drive better performance? Why wouldn’t we want to know which form of capital (environmental, social, or financial) is the limiting factor to our growth or which form of capital has a higher cost to the organization?

The IMA has long been a leader in empowering management accountants to drive an organization’s strategy and value amid unpredictable circumstances. The IMA has also been an early supporter of the need to account for all types of capital. As a 2008 IMA report called “The Evolution of Accountability: Sustainability Reporting for Accountants” explained: “The management accountant who fails to identify the factors contributing to the sustainability of the organization is not providing management with a full picture of the organization’s value or of the breadth of risks that need to be addressed in maintaining and enhancing the organization’s value.”

Fundamentally, the IMA is founded on the premise that what gets measured gets managed. That’s exactly what we are doing at SASB. Creating a new literacy, for investors and corporate management alike, to manage topics that drive value, identify risks, and assess future prospects. Sustainability accounting can provide insight on where resources are being wasted and how a company can further improve its operational efficiency. It can help management accountants develop insight into cost drivers and create more robust activity-based costing analyses. And because SASB metrics are tied to specific value impacts, they fit neatly into a balanced scorecard approach to performance evaluation.

Now that I have hopefully convinced you that sustainability accounting is not just for Earth Day but for every day, I’d like to provide some specifics about SASB and how our standards are designed and enable the measurement and management of material topics related to business.

SASB is an independent 501c3 nonprofit based in San Francisco. Our mission is to develop and disseminate sustainability accounting standards that help public corporations disclose material, decision-useful information to investors in a way that is cost-effective. We accomplish this mission through a rigorous process that includes evidence-based research, broad, balanced stakeholder participation, public transparency, and independent oversight. We specifically develop our standards so that they are aligned with US securities laws and can be used in mandatory SEC filings. On average, there are just five topics per industry included in the standards.

We believe that all investors have a right to comparable disclosure on material sustainability factors without the need to source it from CSR reports and questionnaires or purchase it from commercial vendors. We also believe all investors should be able to type in a ticker and compare sustainability fundamentals to financial fundamentals – this is the world that SASB enables.

The vision for SASB was developed at the Initiative for Responsible Investment at Harvard University, based on research going back a decade and first published in a paper called “From Transparency to Performance.” In the early 2000s there was an explosion of sustainability reporting, the glossy reports that are ubiquitous today and prepared by many of your companies, but not always tied to business goals. Awards cropped up for “best report” but not best performance. Can you imagine a parallel in financial reporting?

Interestingly, there was a time when the accounting profession faced a similar crisis. In 1972, the Wheat Commission studied the relationship of accountants to their clients, and found a strong positive bias in opinions. Against a backdrop of significant M&A activity, accountants had become cheerleaders for their clients and opinion shopping was prevalent. This, among other factors, precipitated the creation of the FASB in 1973. Lacking accounting standards, the field of sustainability reporting faces a similar bias. Read any corporate sustainability report—it’s designed to share stories with a broad range of stakeholders, including customers, employees, NGOs, journalists, and vendors. It’s PR. It is not designed to provide a true and fair representation of performance for investors. In fact, a 2013 study by Olivier Boiral in the Accounting, Auditing, & Accountability Journal found that over 90% of known negative events are not reported by companies in their sustainability reports. It’s not uncommon for a company to spend several hundred thousand dollars on a sustainability report every year. According to Verdantix data, there is a $877M annual market in sustainability reporting services, and that doesn’t capture what companies themselves are spending. All this time and money is being spent on voluntary CSR reports, but investors still do not have the information they need to make investment decisions.

If these reports were doing the trick for investors, we wouldn’t be here today. I often hear from controllers and internal auditors that investors don’t seem to care about this information. Well, all I have to say is that you need to get out more. Investors are making their demands known from the boardroom, to investor relations, to the sustainability department, to the SEC. They are urgently asking for a market standard because the unreliable, unaudited, uncontrolled, incomparable and biased information they get in sustainability reports isn’t sufficient for investment decisions. Let me give you a few examples of investor demand, and the ways they are expressing investor interest.

Increasingly, mainstream investors are interested in this information. For them, the lens is materiality. If sustainability factors affect the financial condition or operating performance of companies, they therefore affect investor decisions on whether to buy, sell, or hold a security. In a 2015 CFA Institute survey, 73% of institutional investors indicated that they take environmental, social and governance issues into account in their investment analysis and decisions to help manage investment risks. 89% of the world’s top 100 asset managers are signatories to the Principles for Responsible Investment (PRI). This is not boutique investing. And what they need is data.

One example of investors expressing demand for improved sustainability disclosure is SASB’s new Investor Advisory Group (IAG). The IAG comprises 28 leading asset owners and asset managers with more than $20T in assets, including BlackRock, CalPERS, CalSTRS, and State Street Global Advisors. The IAG is educating companies about investor use of environmental, social, and governance information and asking companies to use SASB standards to guide ESG disclosure.

There’s a disconnect between investor demand for improved ESG disclosure and the corporate response to this demand: while 100% of corporates are confident in the quality of ESG information they report, only 29% of investors are confident in the quality of the ESG information they receive. Because of the lack of decision-useful information in existing sustainability disclosures, investors resort to other means of getting data and assessing performance. The number of sustainability-related shareholder proposals filed each year continues to rise. In 2016, 67% of resolutions filed related to ESG issues.

This situation isn’t working for companies either. Companies face disclosure fatigue from requests coming from investors, NGOs, and ratings agencies. For example, in 2014, GE reports that it developed responses to more than 650 requests from ratings groups alone. GE says the process took several months and involved more than 75 people across the organization with little benefit to GE and its shareholders. On a 2016 IMA webinar, close to 100 companies reported filling out more than 250 ESG surveys per year. This scenario is not uncommon, and is a tremendous waste of corporate resources, not to mention liability—if any of it is material, there is such a thing called Regulation F-D.

SASB is here to provide a solution. We take an industry-specific approach to sustainability accounting—provisional standards are available for 79 industries. This is essential because sustainability issues manifest themselves differently from one industry to the next. Take climate change as an example. Just seven out of 79 industries (the number of industries in SASB’s industry classification system, which is called SICS) account for 85% of the Scope 1 carbon emissions from public equities. The remaining 72 industries are certainly impacted by climate risk, but not because of the threat of a societal or regulatory response to their carbon emissions. For apparel companies, what is important is the ability to source cotton, a crop that is vulnerable to shifting weather patterns. For commercial banks, it is their financed emissions: loans to oil and gas companies, industrials, utilities, and other industries whose own risk exposures could threaten their ability to repay or refinance. For automakers, it is progress on developing alternative-fuel vehicles to respond to shifting consumer demand patterns.

SASB helps investors integrate sustainability considerations into their investment strategies at the company, sector, and portfolio levels. Ultimately, the standards enable investors to more efficiently allocate capital. For example, by breaking down climate change into its specific impacts, SASB helps investors understand which industries will be facing headwinds because of global sustainability challenges so they can diversify their portfolios through sector allocation. Meanwhile, comparable data allows investors to perform more robust benchmarking and valuation, helping to identify leaders and laggards on specific sustainability issues and to determine which companies are well positioned to address these material factors.

Securities law is very clear in its articulation of materiality as relevant to the reasonable investor, and that is what drives our analysis of material factors at SASB for the purposes of standards setting. If performance on a sustainability topic does not have a demonstrated link to value, it is not in our standards. These are the issues that are likely to be considered by mainstream analysts and investors. If they don’t see evidence of impact that would move the needle on a DCF over a 5-year time horizon, it’s not included. And that’s important because immaterial information does not belong in a 10-K.

And that leads us to the current state of disclosure on these topics. I’m often challenged by folks like you; if material information is required to be disclosed by Regulation S-K, are you saying that companies are breaking the law? Well, not exactly.

Recent research by SASB shows that 69% of companies are already addressing at least three-quarters of SASB disclosure topics for their industry, and 38% are already providing disclosure on all SASB disclosure topics. When companies address these issues in their Form 10-K or 20-F, it is a clear indication that they consider the risk to be material and the information to be relevant to investors. However, more than half of sustainability-related disclosures in SEC filings use boilerplate language, which is inadequate for investment decision-making.

Let’s look more deeply into the substance of our standards, with a few industry examples. These are material issues that often have poor disclosure and are likely not being well managed.

Counterfeit Drugs is a topic that is in our standards in both Pharma and Biotech. The World Health Organization estimates that the global market for counterfeit drugs has reached $431 billion, representing one percent of the US’s supply, and 10-15% of the world’s pharmaceuticals market. An International Policy Network report suggests that fake tuberculosis and malaria drugs alone cause 700,000 deaths annually. This is not only an issue in emerging markets. In 2012, fake Avastin was distributed to pharmacies and doctors in the US. Avastin, a cancer medication produced by Roche Holdings’ Genentech division, typically sells for $2,400 per 400-milligram vial. According to the Pharmaceutical Security Institute, cancer drugs currently rank eighth among the top ten types of drugs being counterfeited (the top is genitourinary followed by anti-infectives and central nervous system). Counterfeiters are beginning to target more expensive drugs (but any drug can be a target), presenting a significant threat to industry revenues in addition to consumer welfare.

Of the top ten Pharma and Biotech companies, only one provides metrics in their annual SEC filings. Let me give you an example of a typical disclosure (Pfizer 2015 10-K): “We undertake significant efforts to counteract the threats associated with counterfeit medicines…. No assurance can be given, however, that our efforts and the efforts of others will be entirely successful, and the presence of counterfeit medicines may continue to increase.” In contrast, here’s an example of a disclosure using metrics (GSK 2015 20-Y): “Patient and consumer safety… We strive to minimise the risk of counterfeit medicines. In 2015, we extended our end-to-end supply chain serialisation programme, Fingerprint, across 86 packaging lines in more than 18 manufacturing sites. The programme applies unique serial ‘fingerprints’ on products and logs them into a government-managed database, which they can be verified against at any point in the supply chain.”

Food Safety is a topic that’s in our standards in Restaurants. Recently, Chipotle’s stock lost 32% of its value ($7B) over 2½ months when the restaurant chain was struck by outbreaks of E. coli and norovirus that left more than 500 sickened across 12 states. But it’s not just an issue for Chipotle—looking at 60 companies throughout the food supply chain over the past 25 years, one report found that restaurant share prices are significantly impacted by food safety incidents. For Jack in the Box in 1993, Yum Brands in 2006, and Chipotle in 2015, same store sales declined in the quarter in which they faced an E. coli outbreak and remained depressed for several quarters after.

Regarding disclosure of the top companies by revenue, 40% use boilerplate to describe their food safety records. Consider this example of boilerplate disclosure, from the 2015 10-K pf BJ’s Restaurants: “Although we have followed industry standard food safety protocols in the past and continue to enhance our food safety and quality assurance procedures, no food safety protocols can completely eliminate the risk of food-borne illness in any restaurant. Even if food-borne illnesses arise from conditions outside of our control, the negative publicity from any such illnesses is likely to be significant. If our restaurant customers or employees become ill from food-borne illnesses, we could be forced to temporarily close the affected restaurants.”

Safety metrics are interesting. They can’t tell you when a serious event will happen, but they certainly can tell you if there is a pattern of volatility and whether it is on management’s radar. Analysts would adjust for a risk that is present but not being managed by a premium on the cost of capital.

Product Safety in Automobiles is also in our standards. There has been a lot of news lately about airbags, but did you know how significant this is across the industry? Can anyone guess what percentage of cars sold on an annual basis are recalled in the US? That’s a trick question – it’s not a percentage, it’s a multiple. For recalls between 2010 and 2014, six out of the nine major auto makers, at their highest point, recalled more than 3 times the number of cars sold in the US in the same year. One company recalled 9 times the number sold. What we have, in effect, is a US auto repair industry. But do you know what our auto industry analyst had to do to obtain this data? She had to get it from the National Highway Traffic Safety Administration, where it is routinely reported. But it is not a place that investors routinely go for information on material factors, when selecting an automotive stock.

Auto recalls affect both auto companies and auto parts manufacturers. Vehicles made by 19 different automakers have been recalled to replace airbags, made by Takata, in what is being called as the largest auto recall in history. Some of those airbags deployed explosively, injuring or even killing car occupants. Takata faces risk of bankruptcy for the air bag recalls. In January 2017, Takata pleaded guilty in the US; the criminal penalty alone is $1 billion.

The state of disclosure is 30% boilerplate on automotive safety issues. Here’s an example of boilerplate, from the 2015 10-K of Ford Motor Company: “Meeting or exceeding many government-mandated safety standards is costly and often technologically challenging, especially where standards may be in tension with the need to reduce vehicle weight in order to meet government-mandated emissions and fuel-economy standards.… Should we or government safety regulators determine that a safety or other defect or a noncompliance exists with respect to certain of our vehicles prior to the start of production, the launch of such vehicle could be delayed until such defect is remedied. The costs associated with any protracted delay in new model launches necessary to remedy such defects, or the cost of recall campaigns or warranty costs to remedy such defects in vehicles that have been sold, could be substantial.”

Lastly, let’s look at drug pricing in Pharma & Biotech. In 2016, concerns over pricing practices contributed to an 87% decrease in Valeant’s stock price, representing a loss of $85 billion in market value from its 2015 peak. Further, Mylan was forced to pay $465 million to settle allegations that it overcharged Medicaid for its EpiPen. The issue became a bipartisan rallying cry. In response, Allergan and Novo Nordisk announced that they would no longer raise individual drug prices by more than 10% within a year. While, Merck and J&J released reports on their pricing practices to enhance transparency.

How could our standards have helped to predict this material impact on stock price? By disclosing the rate of net drug price increases. Had investors had this data readily available, they would have seen that Valeant raised its prices 4 times the industry average in one year. Not 4% more but 4 TIMES the industry average price increase over its product portfolio, with one product being hiked 550%. Mylan was right up there too.

There’s a fine line between profitability and losing your license to operate when it comes to health care. Investors could have seen this one coming. Drug affordability is a material issue in health care, one that affects consumers, companies, and their investors. However, it is an issue with poor disclosure: in Biotech, 67% is no disclosure and 33% is boilerplate; and in Pharma, 30% is no disclosure and 40% is boilerplate.

SASB standards are a market solution to a market problem. In March 2016, SASB completed issuing provisional standards for 79 industries. Currently, SASB is in a period of deep consultation to gather additional input regarding the materiality of topics and usefulness of the metrics prior to codifying the standards in late 2017. Our process to codify and maintain the standards can be found in the SASB Rules of Procedure, a recently released governance document.

In conclusion, what’s next? Fortunately, everyone in this room can help move the markets. Management accountants have long helped lead their organizations in the ongoing quest to understand and measure what creates value, whether those factors are explicitly financial or not. SASB standards support both the evolution of business as it adapts to a changing world and the key role management accountants play in that evolution.

We must provide investors with the information they need to make informed decisions in today’s world. Sustainability accounting standards are the means to accomplish this goal. Through standards, we can modernize disclosure while protecting investors and facilitating efficient functioning of the markets and formation of capital. Through standards, we can ensure companies measure and manage the most critical sustainability issues of our time, creating a race to the top to improve performance. Managerial accountants’ focus on performance management and corporate strategy parallels sustainability accounting’s objective to draw the link between today’s performance and tomorrow’s ability to create value. The expertise and interest in this room represents a great opportunity to move this conversation forward. With standards, we can measure what needs to be managed, so that the markets can work efficiently and reward sustainable outcomes.

jet_blue_sophia-1803On April 10, JetBlue published a reportproduced according to the SASB Standard for the Airlines industry.

In this blog, Transportation sector analyst Nashat Moin speaks with Sophia Mendelsohn, Head of Sustainability at JetBlue Airways, to understand JetBlue’s process of implementing SASB standards.

While SASB believes material sustainability information should be disclosed in SEC filings, we recognize that some companies may first use the standards in reports outside of the Form 10-K, and then may elect to incorporate them into their SEC filings.

When SASB standards are codified in Q1 2018, we expect more companies to disclose via SASB standards in SEC filings.

Why did JetBlue decide to use SASB standards to communicate with investors?

As a publicly traded company, we have a duty to do what’s best for our investors. The questions that always came up as we compiled our past sustainability reports were, are investors really looking at or interested in the “feel good” CSR report? Do they care about how we are inspiring humanity as much as they care about cost-cutting initiatives? The SASB standard for the airline industry offered a reporting solution for us, as it allowed us to better target investors by focusing on the ESG metrics material to our industry, rather than reporting on broad metrics that are less applicable to aviation.

Reporting on material ESG considerations addresses investor interests; gets ahead of regulatory developments, and strengthens financial performance (further linking sustainability to strategy). Sustainability is planning now for the future, and real solutions require us to think beyond quarter-to-quarter financial impact and move towards long-term planning.

What were the challenges of using SASB standards for the first time?

The biggest challenge was getting internal teams familiar with the standards and comfortable with the idea of voluntary reporting. The general sentiment is typically to not report unless we have to. However, sustainability efforts have a valuable impact on our business, and it’s up to us to report the information that affects our long-term business plans in a way that is visible and of interest to investors.

How did you overcome these challenges?

We took care and time making the many departments and key internal stakeholders aware of the reporting process, why we are reporting according to SASB standards, and how doing so benefits JetBlue. We worked with relevant departments throughout the organization, drawing on them for information while also balancing and responding to any concerns on their end. It all came down to engagement and creating a space for collaboration. Having key high level individuals in support of the report was a key driver in its success—knowing there is buy-in from the top creates a sense of security in moving forward.

How were you able to compile the sustainability information in a timely matter, given JetBlue’s existing disclosure processes for sustainability and financial information?

Before diving into the data gathering process, we conducted a gap analysis between the SASB technical protocol and what we were currently reporting on. In evaluating the gaps in data, we determined which topics were going to be the most difficult to compile information on versus those that were easily captured. This allowed us to prioritize and reach out to relevant groups accordingly. For example, as we had previously reported according to GRI standards and submitted to CDP in 2015, we had a great deal of the environmental footprint data, or at least a methodology in place for how to capture such information for 2016.

Much of the work involved gathering up to date figures on metrics we already tracked. For information we did not have on-hand from previous reporting mechanisms, we worked closely with the teams that held that data to craft a management approach and answer all technical protocol guidance. The difficulty here was that much of the data required waiting for year-end reporting to be finalized to ensure all figures were in alignment. However, this wasn’t a significant hurdle for us at this point, as we released our SASB report as a separate white-paper document.

Who were the internal players that were involved in the process?

The relevant departments in each of the four disclosure topics in the SASB Airline Standard included:

  • Environmental footprint: Sustainability and fuel teams
  • Labor Relations: Crewmember relations team
  • Safety: Safety team
  • Competitive Behavior: Government affairs and legal teams

Beyond the data gathering phase (which relied heavily on these teams), we also worked closely with our C-Suite, financial reporting and investor relation teams.

To what extent were service providers involved in the process (e.g., data verification, outside counsel, etc.)?

We worked with iCompli Sustainability in guiding the vision of the report, aligning data with the SASB technical protocol, and developing concise narratives to support the SASB disclosures for the Airline industry. iCompli are SASB experts; they were part of the original SASB Advisory Partner program and offer a range of SASB services, including gap analysis of your Sustainability Reporting to the SASB standards for each industry, peer benchmarking, materiality assessment and implementation guidance.

What advice do you have for companies that are beginning the process of integrating SASB standards into their disclosure processes?

I suggest starting discussions with the relevant internal teams to understand interest, find allies, and preemptively address concerns. It’s important to understand potential concerns, and to propose solutions to mitigate these concerns upfront. More specifically, my suggestions are to:

  • Find high level support within your company and leverage them in gaining meetings with key internal players and verifying the value of reporting.
  • Build a strong internal case for why you are interested in reporting according to SASB standards. We had a variety of convincing reasons that helped to assure internal teams of the value of doing so.
  • Provide a platform for teams to talk about their work. Just as some teams or individuals may be weary of a new reporting mechanism, others are just as (if not more) excited to have their work acknowledged and tied to long-term strategy and performance. Engage the excitement and leverage that sentiment to encourage greater support.
  • Conduct a gap analysis to determine how much of a lift the reporting process will be. If you are already reporting or gathering much of the information required by the technical protocol, it may less of a time intensive process than initially anticipated.

For more context, watch Sophia Mendelsohn share her SASB story on a webinar with 3BL.

For more insight on how to use SASB standards, please read SASB’s Implementation Guide for Companies.

neffKilroy Realty Corporation is a real estate investment trust (REIT) that owns and operates over 14 million square feet of high quality commercial property on the West Coast. A REIT with a history of 70 years, Kilroy isa publicly traded REIT listed on the New York Stock Exchange.

Widely praised as a sustainability leader in the industry, Kilroy largely implemented the SASB Real Estate Owners, Developers & Investment Trusts provisional standard in its2016 Form 10-K.

Sara Neff, Senior Vice President of Sustainability at Kilroy, was interviewed by Bryan Esterly, SASB’s Infrastructure Sector Analyst, to discuss the implementation process, challenges, and solutions. Neff oversees all sustainability initiatives across Kilroy’s portfolio and manages sustainability reporting for the REIT.

Why did Kilroy decide to use SASB standards in its 10-K filing with the SEC?

We believe that several issues in sustainability are material issue to our business, and therefore it is our responsibility to provide externally assured sustainability data to our investors in our annual financial report.

What were the challenges of using SASB standards for the first time?

The timing was a major issue, as we did not have externally assured sustainability data in the reporting year. This forced us to use previous year sustainability data. The other issue was the unfamiliarity of our service providers with many of the terms in the SASB guidance.

How did you overcome these challenges?

The sustainability team worked closely with the accounting team and our external auditors to deal with these issues. We had at one time considered using more recent, non-externally assured data so that the sustainability reporting years would coincide with the financial reporting year, but in conversations with our auditors, it became clear that a year lag in the externally assured sustainability data was a better option. Our outside legal team gave us input on how best to clarify the terms.

Who were the internal players that were involved in the process?

Two members of our accounting team as well as our sustainability team were involved, with the blessing of our Chief Accounting Officer.

To what extent were service providers involved in the process (e.g., data verification, outside counsel, etc.)?

The outside counsel who otherwise assists with the annual financial report provided input, as they would for anything in the annual financial report. We also use a third party to do our sustainability data verification, separate from the auditors who verify our financial data.

What advice do you have for companies that are beginning the process of incorporating SASB standards into their SEC filings?

Remember that SASB is not binary; you are not required to report on all of the issues articulated in the SASB guidance. Rather, it is important to do a materiality assessment to determine which issues within the SASB framework are material to you and report only on those. For example, % ENERGY STAR certifications is material to us, an office portfolio. However, a portfolio with another asset types, say existing retail, does not have assets eligible for ENERGY STAR so this would not be a material issue for them and they would not report on it.

For more insight on how to use SASB standards, please read SASB’s Implementation Guide for Companies.


By Elisse B. Walter

SASB Board Member and Former Chair of the SEC

CPA Canada Event, March 30, 2017


Good evening and thank you, Joy Thomas, for that kind introduction. It is an honor to be here with all of you in Toronto, and particularly an honor to have been invited by CPA Canada, an organization that has demonstrated an unwavering commitment to the public interest in its efforts to facilitate economic and social development. As the daughter of a CPA, I always feel right at home when I am surrounded by accountants, so thank you for making me feel welcome.

We are here today to have a conversation about the evolving expectations for board and management oversight of sustainability issues. One shorthand for this topic is ESG, which stands for “environmental, social, and governance.”

Personally, I believe that that catch phrase doesn’t really capture the essence of the subject. What we’re talking about is information that is critical to a company’s success or failure but isn’t reflected in its financial statements. We read about these issues in front-page news every day—when oil prices plunge five percent in a single day; when motorists and passengers suffer injuries (or worse) while waiting for their defective airbags to be replaced; when food safety issues at a popular restaurant chain lead to hundreds of customers getting sick and dozens being hospitalized; and when a large commercial bank is fined for deceptive sales practices affecting millions of customers.

Today, I will discuss two reasons driving companies to pay attention to sustainability factors. One takes a macroeconomic perspective, and the other takes a microeconomic perspective, but they both point to a similar path forward.

From the 30,000-foot macroeconomic perspective, sustainability is about trust, which, in many ways, is the essence of corporate governance. In fulfilling their core functions, boards of directors aim to establish confidence and credibility among a variety of stakeholders—first and foremost the shareholders for whom they serve as fiduciary stewards, but also others, from employees to the communities in which they operate.

Meanwhile, from the narrower microeconomic perspective, sustainability is about risk and, significantly, its flip side—opportunity. By more effectively measuring, managing, and communicating about their performance on key sustainability issues, companies can not only avoid problems, but also open doors to new markets, new capital, and new pathways to competitive advantage.

So, let’s start with the big picture.

When you deal with financial markets—as many of us do—uncertainty comes with the territory. So much of our economic future depends on things we do not, or cannot, know. None of us would claim we have a great deal of certainty about where things are headed in today’s global marketplace, even in the short term. In fact, considering the sociopolitical sea change that we are seeing in many parts of the world, we may have less certainty today than we have had in quite some time.

So-called populist movements in the U.S., the UK, France, and elsewhere have reminded us of the old saying, “Everything you know is wrong.” For anyone willing to listen, this evolving—and, some might say, tumultuous—political landscape has sounded an alarm. Public trust in entrenched leaders and institutions has eroded, and the consequences can be highly unpredictable. Although much of the anti-establishment sentiment thus far has been aimed primarily at governments and political figures, business leaders who ignore it may do so at their own peril.

After all, in business, trust may be our most valuable asset. It underlies all our relationships—with investors, customers, suppliers, employees, regulators, trade partners, and so on. Even so, we have sometimes taken it for granted, and mismanagement has chipped away at its foundation. A fundamental premise underpinning the provision of a “license to operate” is that business exists to create value. However, in recent years, oil spills, bailouts, emissions scandals, data breaches, and climate change issues—to name just a few of the culprits—have undermined public faith in the ability of corporations to create value without undue cost. In fact, in a recent poll, fewer than one in five Americans reported high levels of confidence in big business.[1] Meanwhile, in Canada, trust in institutions has fallen to its lowest level in 17 years, including a drop of six percentage points for business institutions.[2] Through our own actions—as managers, executives, directors, and advisors—we have contributed to the erosion of public trust, and we must also be the ones to rebuild it.

As the media unleashes its army of fact-checkers to review and verify politicians’ statements, I would like to point out that this same basic function has been built into the business infrastructure for generations. For roughly a century, in both the U.S. and Canada, mandatory financial reporting and increasingly rigorous auditing practices have worked toward providing investors and the public with reliable, trustworthy information on corporate performance. This noble goal—to provide a true and fair view of a company’s financial condition—occupies many of you every day.

Financial information, of course, remains immensely valuable. However, it is also true that it increasingly tells an incomplete story. Naturally, the world of business has changed since disclosure requirements were established in the early 20th century. Indeed, seismic shifts have occurred even since the 1970s, when much-needed standardization introduced new levels of comparability and decision-usefulness to financial reporting in both the U.S. and Canada. If conventional financial metrics no longer provide a full picture, then disclosure must continue to evolve along with the world around it. After all, transparency engenders trust, but only insofar as it extends to the most important considerations.

In today’s knowledge-driven economy, market value is a multiple of book value because a company’s ability to succeed relies increasingly on intangible assets—things like patents, processes, brand value, intellectual capital, and customer or supplier relationships. Among the S&P 500, for example, intangibles now account for more than 80 percent of market capitalization.[3] However, these crucial assets are not sufficiently captured by traditional accounting methods and, in the absence of suitable metrics to aid efficient pricing, their value is especially vulnerable to impairment from mismanagement. If companies’ financial statements and financial realities diverge, they expose themselves to increasing scrutiny from a skeptical public, now primed to conclude that self-serving managers focused on short-term gains are quote-unquote “cooking the books.”

Against this backdrop, the U.S. Securities and Exchange Commission—the SEC, where I spent more than 20 years as a staffer, Commissioner and Chairman—has prioritized efforts to improve disclosure effectiveness. In a 2016 request for comments, the Commission sought public input on a variety of possible updates to Regulation S-K, including the disclosure of information on “sustainability matters.”[4] These include the environmental and social impacts of business, as well as their governance—which are the same aspects of corporate behavior that have increasingly tended to either build, or destroy, public trust and thereby influence a company’s social license to operate. The Commission received 276 non-form letters in response to this outreach, two-thirds of which addressed sustainability matters, 80 percent of those calling for improved disclosure of this type of information.[5]

This should not surprise us. Investors have made their position on sustainability very clear: When it is material to a company’s business, they believe it is important. (If that sounds like a tautology, I believe it is.) Today, approximately half of global institutional assets—about $60 trillion—are managed by signatories to the Principles for Responsible Investment (PRI), which promotes the incorporation of ESG factors into investment decisions. (And that figure is growing steadily every year, by the way.)[6] In the U.S. alone, sustainable, responsible, and impact investing assets have expanded to $8.72 trillion, up 33 percent from just two years ago, and now represent one out of every five dollars invested in the U.S.[7] Indeed surveys show that 73 percent of institutional investors take ESG issues into account in their investment analysis and decisions to help manage investment risks.[8] Increasingly, investors—and we are talking about mainstream investors here—are using this information to facilitate more effective risk management at a portfolio level, more accurate relative valuations at a fundamental level, and more useful benchmarking at an industry or index level.

For example, UBS Asset Management, which handles $670 billion in assets, uses sustainability information to augment more traditional, fundamental analysis—such as a discounted cash flow model—which allows it to identify equities that are both priced attractively today and poised to deliver returns over the long-term. Breckenridge Capital Advisors, managing $25 billion in assets, takes a similar approach, adding an extra layer of rigor to its fundamental analysis of fixed-income securities, where investments have longer time horizons and investors have less appetite for risk.[9] These are just a couple of examples from asset managers. We also see asset owners incorporating sustainability considerations into the evaluation and monitoring of their external managers, and private equity firms performing ESG analysis as part of their due diligence. The list goes on.

As many of you know, I serve on the Board of Directors at the Sustainability Accounting Standards Board (or “SASB”), a nonprofit organization that aims to facilitate more useful corporate disclosure with respect to the handful of sustainability factors that investors care about in each particular industry. I’ll talk more about the SASB in a moment, but right now I want to mention our work with investors. Last year, we formed an Investor Advisory Group, which is now working to articulate the importance of sustainability factors to their portfolio companies, and to stress the need for a market standard to improve the quality and comparability of this information.[10] Among the founding members of the group are two influential Canadian organizations, the Ontario Teachers’ Pension Plan and the British Columbia Investment Management Corporation (bcIMC). These investors, like many in Canada, are leaders in actively shaping the future of our financial markets. In fact, the Pension Investment Association of Canada, which represents more than $1.5 trillion in assets under management on behalf of millions of Canadians, was among those responding to the SEC’s call for feedback last year. In its letter, the association strongly advocated for “improvements in the reporting of material risk factors, including environmental, social and governance factors, so that [its members] can make better investment decisions.”[11]

As these and other institutional investors continue their rise to prominence and fiduciary capitalism grows in influence, there is an increasingly close relationship between public trust and investor confidence. Investor confidence in the quality of financial disclosures is what makes our markets work. Although this confidence is higher than it was five years ago, a growing number of investors are deeply dissatisfied with the quality of the sustainability information being provided to them. In a recent survey of U.S. institutional investors, for example, 71 percent expressed dissatisfaction with the quality of sustainability data.[12] In another survey of Canadian institutional investors, 70 percent said the ESG information companies provide is not good enough to help them assess materiality to the company’s business.[13]

Interestingly, many of the questions that arise today around the reliability of sustainability disclosures are the very same ones that made financial auditing an obligatory practice in the wake of the stock market crash of 1929 that helped usher in the Great Depression. They include questions about the completeness and accuracy of data and the existence and effectiveness of controls.

This comparison is instructive for at least a couple of key reasons. First, and most obviously, it recalls another period in history during which reform and regulation of financial markets served as an effective rallying cry. Equally important, at that time in history, independent audits became commonplace several years before they were mandated, because investors demanded it.

This bit of history—a voluntary reform of corporate disclosure practices in response to market forces—is almost perfectly analogous to what is happening now with the emergence and evolution of sustainability disclosure. The core principles that guided that reform—such as transparency, investor protection, and the use of materiality as a moderator—are still relevant today and continue to guide market regulation.

I have mentioned materiality several times, so let me explain why it is so important in this context. As everyone here likely knows, materiality is a legal concept in both the U.S. and Canada which recognizes that some information is important to investors in making investment decisions, while other information is not. By viewing sustainability through the lens of materiality and focusing on the narrow subset of sustainability issues that really matter to a company’s business, improved disclosure on these topics no longer needs to be viewed as corporate largesse. Rather, it is, as it should be, a way to align the long-term interests of companies, their investors, and society at large—a win-win-win of value creation. Materiality defines the line where sustainability issues become business issues.

After all, asking banks or professional services firms to measure, manage, and report data on their greenhouse gas emissions will contribute little to the alleviation of a global temperature increase. Rather, companies in each industry should zero in on the handful of issues on which they are uniquely positioned to gain the most traction and make the biggest difference. For software companies, addressing climate change involves the energy-intensity of data centers. For automakers, it is more about use-phase emissions than about manufacturing. For agricultural firms, it means managing withdrawals in water-stressed regions. In other words, different sustainability issues affect different industries in unique ways. Materiality helps make that distinction, focusing firms on the issues where they can affect performance in a significant way.

This brings us to our second answer to the question of why sustainability matters to companies. It matters because, when it is deployed effectively, it can reduce risk or beckon opportunity. As 21st century markets are reshaped by resource constraints, climate change, population growth, technological innovation, and globalization, sustainability is poised to be the next competitive frontier. In fact, research has already shown that companies can achieve superior results—including return on sales, sales growth, return on assets, and return on equity, in addition to improved risk-adjusted shareholder returns—by focusing on the limited number of materiality-based, industry-specific sustainability topics identified by SASB.[14]

This recognition—that sustainability performance and financial performance are intertwined—is why hundreds of industry-leading companies, representing trillions of dollars in combined market capitalization, have signed the Business Backs Low Carbon statement urging global leaders to implement the Paris agreement on global climate action.[15] It is why food companies are pouring resources into the organic market, where growth is outpacing conventional foods by almost 400 percent.[16] And it is why, according to an Accenture survey, 80 percent of CEOs think their companies are approaching sustainability as a route to competitive advantage:[17] They are cutting costs, they are changing markets with innovative inputs, processes, and products, they are attracting top talent, and they are strengthening their brands.

There is another key development that demonstrates the link between sustainability performance and financial performance: Companies are addressing key sustainability issues alongside their financial statements in public filings. SASB recently published an analysis of SEC filings that shows nearly 70 percent of industry-leading companies are already addressing at least three-quarters of the sustainability topics included in their industry’s SASB standards, and more than a third are already providing disclosure on every SASB topic. Undeniably, companies have acknowledged the existence of, or the potential for, material impacts related to these issues.

But, there is a catch. The same analysis shows that less than 24 percent of reported sustainability topics are being disclosed using metrics, while more than half use boilerplate language, which is nearly useless to investors. In fact, even in those cases where metrics are being used, they are non-standardized, and therefore lack comparability across industry peers.

The question, then, is no longer whether companies should disclose information on material sustainability risks and opportunities; it is how they can improve the effectiveness of the disclosures they are already making. In short, it is not about more disclosure; it is about better disclosure.

Considering the strength of investor demand for useful sustainability information, and the lackluster quality of sustainability disclosure in SEC filings, I would say what we have here is a failure to communicate. To me, this is a missed opportunity. I believe issuers should not view sustainability disclosure as an obligation, but rather as an opportunity to tell their full value-creation story.

In the U.S. and Canada, companies’ public filings include a section called Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A. Its purpose is quite simple: to “give the investor an opportunity to look at the company through the eyes of management.”[18] This makes MD&A an incredibly powerful communication tool, one that is invaluable to an investor’s assessment of his or her investment. For 35-plus years, companies have been using this section of their statutory filings to explain financial statements from an insider’s perspective, to enhance financial disclosure and provide context for its analysis, and to describe not just the “what?” and “how much?” but the “why?” so that investors can better understand whether past performance is indicative of future results. This is the core of what mandatory disclosure is all about.

So why, then, do we have investors getting their sustainability information from ad hoc reports that are neither comparable nor, in many cases, focused on the issues that really matter to that company? Or from questionnaires that are costly and time-consuming to prepare and respond to? Or from direct engagement, where the potential for “selective disclosure” might raise red flags with regulators? These are not the hallmarks of an efficient market.

There is a solution, and it does not require legislation or regulatory action. It requires only that all of us—investors, corporations, auditors, securities lawyers, regulators, and so on—work together to establish and maintain a market standard for the disclosure of this important information within mandatory filings.

Guided by existing, time-tested disclosure requirements, in 2012 SASB began developing that solution—sustainability accounting standards on an industry-by-industry basis. In my view, this approach is quite elegant. It takes cues from existing securities law. Thus, it requires no new regulation. It leaves the materiality determination in the hands of those most knowledgeable about each company, its management.

By using the materiality threshold for disclosure as a lens through which to view sustainability, the standards identify the small subset of industry-specific sustainability factors that are reasonably likely to have a material impact on a company’s financial condition or operating performance. This ends up being, on average, just five topics per industry. (For the sake of comparison, a typical sustainability report includes dozens—or, in some cases, even hundreds—of issues.) It is then up to each company to decide whether those issues are, in fact, material to its business. Furthermore, SASB selects or develops metrics to capture performance on those topics. Moreover, and this part may be most interesting to the auditors in the audience, these performance metrics are supported by rigorous technical protocols that can serve as the basis for suitable criteria in an independent, third-party assurance engagement. Finally, whenever possible, they are metrics that are already used in the marketplace, thus decreasing the cost of implementation. Thus, the SASB standards provide investors with a set of sustainability information that is more focused, more comparable, and more reliable than what they get today—and that can be reported by the issuer without undue burden.

The disclosure requirements are clear. And, now, the standards are out there. SASB standards are available in provisional form for 79 industries. We are working to codify the standards by the beginning of next year.

Of course, SASB is not the only organization working to improve sustainability disclosure. Just as SASB standards align with existing securities law, they also strive to harmonize with other disclosure frameworks. I won’t go into detail this evening. But, I would like to take a minute to highlight some of the key similarities and distinctions between the SASB standards and the work of the TCFD. The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures was established in late 2015 to develop recommendations with respect to climate-related disclosures. Climate is the Task Force’s singular focus, while the SASB covers the full range of industry-specific sustainability issues.

(A quick aside: Climate change is perhaps the most prominent sustainability issue for good reason: It is one of the few that qualifies not only as a systematic risk—in other words, something that investors cannot diversify away from—but also as a systemic risk—that is, something that could be a source of contagion that extends across markets. This is because it not only impacts most of the economy—72 of 79 industries, according to SASB research[19]—but it also involves long-lived, capital-intensive assets like carbon reserves that are subject to sudden and volatile price changes.)

When you consider these unique characteristics of climate risk, you begin to understand why it is being addressed by multiple organizations at different levels. First, let’s briefly consider how the SASB and the TCFD differ in their approaches to climate risk. The SASB is focused on disclosure to investors, while the TCFD is directed toward a broader range of stakeholders. The TCFD has a global remit, while the SASB has chosen to focus on companies that are traded on U.S. exchanges. The TCFD recommendations reach beyond current disclosure requirements and emphasize forward-looking scenario analysis—for example describing the potential impact of a 2-degree scenario. I could continue but I’ll stop here for now.

Because, despite these differences, what is most significant is that the work of the SASB complements that of the TCFD. In fact, the SASB has committed to harmonize its standards with the Task Force’s recommendations, including updating standards to align with those recommendations. With that alignment, investors will not only be able to understand what a company’s past and current sustainability performance indicates about its future performance (via the SASB standards), they will also be able to gain a clearer picture of how systemic changes in the broader economic environment are likely to impact expectations for that future performance (via TCFD-recommended scenario analyses). For the long-term investor—and, indeed, for the corporate director or executive focused on sustained and sustainable value creation–this represents a powerful combination of set and setting.

TCFD and SASB aren’t the only ones working on improving the disclosure of risks related to climate change. Just last week, the Canadian Securities Administrators (CSA) announced plans to review how large, public companies listed on the Toronto Stock Exchange are disclosing the risks and financial impacts of climate change. According to the CSA, the goal of the review is to help ensure issuers provide high quality disclosure of material information to investors, and will include a review of other efforts including those of the TCFD and SASB.

So now I’ve spent a lot of your time discussing sustainability, moving from the big picture of restoring confidence in the future of free enterprise, to a sharper focus on the opportunities for competitive advantage that can come from taking a materiality-based approach to sustainability, and finally back to the strength of the broader financial system in the face of systemic risks. As I mentioned earlier, uncertainty is part and parcel of financial markets, but it does not prevent us from taking action to move those markets forward, ushering in a new era of accounting, reporting, and financial analysis that presents a more complete picture of how companies create value over the long term. This would avoid unnecessary uncertainty by filling in informational gaps. To quote business guru Peter Drucker, “All economic activity is by definition ‘high-risk.’ And defending yesterday—that is, not innovating—is far more risky than making tomorrow.”[20]

So what does this mean for a company’s directors and executives? One of the most important roles the board plays is safeguarding the assets of the company—and that includes its social license to operate. Directors should therefore work with their executive team to do a few things. They should incorporate material sustainability factors into the firm’s core strategy. They should align on the story they want to tell—both publicly and internally—about how the company sustainably creates value. And they should clarify roles and responsibilities for all sustainability initiatives, including reporting. That may include performing a materiality assessment to determine the most critical sustainability factors, shifting oversight of sustainability reporting, perhaps to the audit committee, and expanding board oversight to the development and maintenance of internal control over sustainability-related objectives for operations, compliance, and reporting.[21]

After all, last year, two-thirds of shareholder resolutions were related to sustainability matters, up from 40 percent just four years earlier.[22] If it matters to shareholders, it should matter to us.

As I conclude, I would like to point out that Ontario has a proud tradition of thought leadership in the field of accounting. More than a century ago, the Companies Act of 1907 became one of the earliest pieces of legislation in the English-speaking world to mandate disclosure of income statement and balance sheet information by commercial enterprises to their shareholders.[23] I would say that spirit of transparency and investor protection is alive and well here today. Interestingly, that 1907 Act is also one of the earliest examples of an accounting organization demonstrating its influence on disclosure legislation, with the Institute of Chartered Accountants of Ontario providing the professional judgment and intellectual authority that guided its development. Looking at today’s corollary, sustainability reporting does not require new legislation, but it can definitely use the intellect and judgment of CPA Canada and of all of you who have been kind enough to join us here today.

I look forward to hearing your thoughts and answering your questions. Thank you.

[1] Gallup, Confidence in Institutions poll, June 1-5, 2016.

[2] Edelman, “Trust in Canada,” Edelman Trust Barometer 2017 (January 15, 2017).

[3] Ocean Tomo, Intangible Asset Market Value Study (March 5, 2015).

[4] U.S. Securities and Exchange Commission, Business and Financial Disclosure Required by Regulation S-K (April 15, 2016).

[5] Sustainability Accounting Standards Board, “Business and Financial Disclosure Required by Regulation S-K–the SEC’s Concept Release and Its Implications” (September 13, 2016).

[6] Principles for Responsible Investment, About the PRI, accessed March 2, 2017, at

[7] Forum for Sustainable and Responsible Investment, 2016 Report on Sustainable and Responsible Investing Trends (November 14, 2016).

[8] CFA Institute, Environmental, Social and Governance (ESG) Survey (June 5, 2015).

[9] Sustainability Accounting Standards Board, ESG Integration Insights (Q4 2016).

[10] Sustainability Accounting Standards Board, Investor Advisory Group, accessed March 2, 2017, at

[11] Pension Investment Association of Canada, Re: Concept Release: Business and Financial Disclosure Required by Regulation S-K – File Number S7-06-16 (letter to SEC dated July 17, 2016).

[12] PwC, Investors, corporates, and ESG: bridging the gap (October 2016).

[13] RR Donnelley and Simple Logic, 2016 Canadian Investor Survey: New insights into what investors want from disclosure (June 23, 2016).

[14] Mozaffar Khan, George Serafeim, and Aaron Yoon, Corporate Sustainability: First Evidence on Materiality, Harvard Business School (March 24, 2015).

[15] Business Backs Low-Carbon USA, accessed March 3, 2017, at

[16] Organic Trade Association, 2016 Organic Industry Survey (May 2016).

[17] Accenture, UN Global Compact-Accenture CEO Study on Sustainability (2013).

[18] Securities Act Release No. 6711 (April 17, 1987), Concept Release on Management’s Discussion and Analysis of Financial Condition and Results of Operations, 52 FR 13715 quoting Securities Act Release No. 6711, Securities Act Release No. 6711 (April 24, 1987) [ 52 FR 13715]., at 13717.

[19] Sustainability Accounting Standards Board, Climate Risk Technical Bulletin (October 2016).

[20] Peter F. Drucker, “Principles of Innovation,” The Essential Drucker, p. 279, HarperCollins (2001).

[21] Elisse Walter and Aulana Peters, “Directors Can Add Valuable Perspective to SEC’s View of Sustainability,” NACD (July 14, 2016).

[22] Sustainability Accounting Standards Board, Re: Concept Release on Business and Financial Disclosure Required by Regulation S-K (letter to SEC dated July 1, 2016).

[23] George J. Murphy, University of Saskatchewan, “Early Canadian Financial Statement Disclosure Legislation,” Accounting Historians Journal, Vol. 11, No. 2 (Fall 1984).