During its February 25 meeting, the Sustainability Accounting Standards Board (SASB) unanimously agreed to add a project related to raw materials sourcing in the Apparel, Accessories & Footwear industry to its standard-setting agenda. The project will seek to revise, clarify, and consider improvements to metrics associated with the issue.
The SASB standard for the Apparel, Accessories & Footwear industry contains a disclosure topic called Raw Materials Sourcing which aims to measure a company’s management of the sustainability issues—such as climate change, land use, and resource scarcity—most likely to impact the industry’s supply chain and its ability to source materials. Companies in the industry overwhelmingly recognize that a proactive approach to managing this topic will likely reduce exposure to price volatility of essential inputs and potential supply disruptions, while also improving brand reputation and developing new market opportunities. In fact, in 2019, companies in the Apparel, Accessories & Footwear industry made some of their most aggressive commitments to sustainable material use to date.
The SASB industry standard measures performance on this topic using the following metrics:
- CG-AA-440a.1: Description of environmental and social risks associated with sourcing priority raw materials
- CG-AA-440a.2: Percentage of raw materials third-party certified to an environmental and/or social sustainability standard, by standard
However, SASB has received feedback from several companies within the industry, as well as a third-party assurance provider and an NGO, suggesting that the metrics and underlying protocols provide insufficient guidance to ensure consistent calculation methodologies and comparable disclosures. Furthermore, although the metrics correspond with a range of widely accepted and commonly used industry standards, additional clarity around the guidance that is incorporated by reference to those standards may facilitate more complete, comparable, and cost-effective disclosure.
This standard-setting project will involve research and market engagement to achieve the following objectives:
- Understand methodologies for defining “priority raw materials,” as well as the possible implications of expanding the scope of the definition.
- Identify and understand commonly used social and environmental standards for certifying raw materials.
- Develop an understanding of existing frameworks aimed at calculating certified raw materials in products, associated strengths and weaknesses of such frameworks, and the level of alignment with the current SASB standard.
- Investigate potential positive or negative implications should SASB revise its guidance to integrate a loss rate into the calculation of metric CG-AA-440a.2, and/or clarify the methodology for weighing finished products.
- Determine if the industry has coalesced around a particular industry standard or framework and why. Examine whether said framework would address the market’s concerns and whether further alignment would enhance the comparability, completeness, and cost-effectiveness of disclosures.
- Understand if investors are aligned on SASB’s current definition of “priority raw materials,” and what positive or negative implications might arise should the SASB redefine the term to expand the scope of disclosure.
- Confirm that the information generated by the metrics is decision-useful for investors.
The standard-setting project will begin with research and market consultation on the objectives above. Should you wish to contribute to this phase of work, please contact SASB’s Consumer Goods Sector Lead, Taylor Reed ([email protected]). This work will ultimately lead to the publication of proposed updates, which will be available for public comment later this year.
Find the most up-to-date information on this and other active projects by visiting the Current Projects webpage on the SASB website. The next Standards Board meeting is scheduled for June 22-23.
Analyst Taylor Reed is SASB’s Sector Lead for Consumer Goods.