Understanding SASB Standards
Note: The SASB Standards have been consolidated into the materials of the IFRS Foundation as implementation guidance. This is consistent with [draft] IFRS Sustainability Disclosure Standard S1 General Requirements for Disclosure of Sustainability-related Financial Information, which requires companies to consider SASB Standards to identify sustainability-related risks and opportunities and to develop appropriate disclosures. (Certain elements of SASB Standards have also been incorporated into the industry-based requirements of IFRS S2 Climate-related Disclosures.) The IFRS Foundation’s International Sustainability Standards Board (ISSB) encourages companies and investors to continue to support and use the SASB Standards until they are replaced by IFRS Sustainability Disclosure Standards. The guidance in this Implementation Primer is intended to serve as a useful reference for entities applying the SASB Standards in any context.
Overview • Establishing a Foundation • Choosing the Right Tools for the Job • Deciding Where to Disclose • Understanding SASB Standards • Assessing Your Readiness • Developing Your Disclosures • Enabling Continuous Improvement
SASB’s standard-setting process is designed to surface the sustainability factors most likely to materially impact the financial condition or operating performance of companies in a given industry.
As such, the standards are well-suited to serve as a valuable input to a company’s existing approach to identifying, assessing, managing, and monitoring risks and opportunities. To begin this process, a company may wish to:
- Gain an understanding of SASB’s terminology and the structure of SASB’s
- Identify the company’s industry (or industries), using SASB’s Sustainable
Industry Classification System® (SICS®)
- Review SASB standards for the industry (or industries) most relevant to your
- Determine which industry standards and disclosure topics apply to your
Broadly speaking, SASB uses the word “sustainability” to refer to corporate activities that maintain or enhance the ability of a company to create long-term shareholder value. SASB groups such activities into five “sustainability dimensions”: the environment, human capital, social capital, business model and innovation, and leadership and governance. Sustainability accounting refers to the measurement, management, and reporting of such activities. Of course, the specific activities that drive long-term value creation will necessarily vary from one industry to the next, as well as from company to company. As a result, identifying what a given corporation should disclose requires thoughtful consideration of key issues within the context of the organization’s unique circumstances. SASB standards are intended to be a useful guide to this process.
SASB terminology and structure of SASB Standards
A company can begin this process by familiarizing itself with SASB terminology and the structure of SASB Standards, which can be downloaded free of charge. In reviewing SASB Standards, a company should familiarize itself with the following components:
- Standards Application Guidance: In reviewing its industry standard(s), a company should begin with this supplementary document, which provides universal implementation guidance applicable to all industry standards.
- Disclosure topics: Each SASB Standard includes a set of disclosure topics, which vary from industry to industry. The standard lists and briefly describes how management or mismanagement of various aspects of the topic may impact a company’s ability to create long-term value. On average, SASB Standards include 6 disclosure topics per industry.
- Accounting metrics: Each SASB Standard provides companies with standardized quantitative—or, in some cases, qualitative—metrics intended to measure performance on each disclosure topic or an aspect of the topic. On average, SASB Standards include 13 accounting metrics per industry.
- Technical protocols: Each sustainability accounting metric is accompanied by underlying technical protocols that provide guidance on definitions, scope, accounting, compilation, and presentation, and which may also serve as the basis for suitable criteria for an independent, third-party assurance engagement. The technical protocols help ensure that metrics are compiled consistently and enable comparisons across companies.
- Activity metrics: The standard also includes activity metrics to measure the scale of the issuer’s business, providing operational context and facilitating normalization of SASB accounting metrics, which is important for the analysis of related disclosures.
- Sustainability: Corporate activities that maintain or enhance the ability of a company to create long-term shareholder value.
- Financial materiality: SASB’s approach to materiality is based on a traditional, financially oriented definition that is well-accepted globally: information that is reasonably likely to be important to investors in making investment decisions.
- Sustainability dimension: SASB Standards capture information about corporate performance along five key dimensions of sustainability: the environment, social capital, human capital, business model and innovation, and leadership and governance.
- Sector and industry: SASB’s Sustainable Industry Classification System® (SICS®) groups companies into 77 industries across 11 thematic sectors based on their shared sustainability challenges.
- Disclosure topic: Each SASB Standard includes a set of disclosure topics, which vary from industry to industry. The standard lists and briefly describes how management or mismanagement of various aspects of the topic may impact a company’s ability to create long-term value. On average, SASB standards include 6 disclosure topics per industry.
- Accounting metric: Each SASB Standard provides companies with standardized quantitative—or, in some cases, qualitative—metrics intended to measure performance on each disclosure topic or an aspect of the topic. On average, SASB standards include 13 accounting metrics per industry.
- Technical protocol: Each sustainability accounting metric is accompanied by underlying technical protocols that provide guidance on definitions, scope, accounting, compilation, and presentation, and which may also serve as the basis for suitable criteria for an independent, third-party assurance engagement. The technical protocols help ensure that metrics are compiled consistently and enable comparisons across companies.
- Activity metric: Each SASB industry standard also includes activity metrics to measure the scale of the issuer’s business, providing operational context and facilitating normalization of SASB accounting metrics, which is important for the analysis of related disclosures.
Determine Which Industry Standards Apply
To determine which SASB Standard (or standards) apply to a company’s operations, it may be helpful to explore SASB’s Sustainable Industry Classification System® (SICS®).
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors and industries. Although this approach is valuable for a variety of applications, it does not always group companies that face similar sustainability challenges and opportunities in a rapidly evolving 21st century economy. As a result, SASB developed SICS® in 2012, grouping like industries based on their sustainability profiles. Thus, SICS® builds on and complements traditional industry classification systems by grouping issuers into sectors and industries in accordance with a fundamental view of their business model, their resource intensity and sustainability impacts, and their sustainability innovation potential. SICS® presents a new lens through which to assess companies and establish peer groups, by selectively reclassifying existing industries, surfacing new ones, and establishing new thematic sectors.
SASB Resources: SICS® Lookup Tool
Companies can find out where they are classified within SICS® by using the SICS® Look-Up Tool below, or visit the SICS® Look-Up Tool page for more information. By entering its ticker symbol, a company can instantly find its primary SICS® industry and download the appropriate industry standard. At this time, SASB classifies companies into a single primary SICS® industry, but that should not prevent companies from using multiple industry standards. In the future, SASB will include secondary industry classifications in the SICS® Look-Up Tool.
If you are unable to find your company or think the classification needs to be reviewed, please contact us using our classification request form. For any SICS®-related inquiries please email us at [email protected].
Search for a company using the SICS® Lookup-Tool below:
Questions to Consider:
✓ What is your company’s primary industry classification in SASB’s SICS® Look-Up Tool?
✓ Which other SICS® industry (or industries) may apply to your company’s operations?
✓ What other companies does your company consider to be its peers or key competitors? In which SICS® industries are they classified?
✓ If your company’s peers have reported using SASB Standards, which industry standards did they use?
✓ What differences—if any—exist between the company’s primary SICS® industry and its classification in other widely used industry classification systems? What can those differences tell the company about the sustainability risks and opportunities it faces?
Determine Which Disclosure Topics are Applicable
After determining your company’s appropriate SICS® industry or industries, the next step is to review the SASB disclosure topics for each industry and identify which disclosure topics are applicable to your company. Note that because SASB Standards are designed to address sustainability factors that are applicable to the typical company within an industry, in some cases they may:
- Include topics that, for certain companies, may not be financially material; and/or
- Not necessarily include every sustainability factor that is financially material to the company.
In other words, the industry standard should not be interpreted as either a “floor” or a “ceiling” for the company’s sustainability disclosure to investors, but instead as a useful guide. For example, the SASB disclosure topic related to genetically modified organisms in the Chemicals industry may be irrelevant to a company that operates exclusively in the commodity and specialty segments of the industry (i.e., with no exposure to the agricultural segment). Likewise, in the Electric Utilities & Power Generators industry, SASB metrics related to direct (Scope 1) greenhouse gas emissions may be less relevant to a power company that sources—but doesn’t generate—energy.
Similarly, companies may find that additional sustainability topics not included in the SASB Standard are relevant to their business strategy based on their specific facts and circumstances. This is especially true for companies with hybrid or unique business models, or for companies in industries where business models vary significantly around the world.
Ultimately, companies are responsible for determining which disclosure topics represent financially material risks and opportunities for their business and which associated metrics to disclose, taking the company’s business model, business strategy, and relevant legal requirements into account.
Questions to Consider:
✓ Which SASB disclosure topics from which industries appear to be relevant to the company’s long-term financial performance?
✓ What sustainability topics have been identified in previous materiality assessments the company may have undertaken? Do the SASB disclosure topics align with previous sustainability-related materiality assessments?
✓ Do the SASB disclosure topics align with the key risks identified in the company’s Enterprise Risk Management (ERM) processes? Are there risks identified in the ERM processes that are not in the SASB Standards?
✓ Do the SASB disclosure topics align with the key risks identified in the company’s existing risk factor disclosures to investors? Are there risks identified in the risk factors that are not in the SASB Standards? Which sustainability topics do investors most often ask the company to discuss or disclose?
✓ What sustainability matters that are not included in the SASB Standard might the company wish to consider disclosing?
Both financial reporting professionals and sustainability reporting professionals commonly use a concept they call “materiality” to help determine what information should—or should not—be disclosed in their public reporting. However, these two groups may not always be speaking the same language. Where financial reporting teams have traditionally relied on legal and/or regulatory definitions of materiality to guide their reporting efforts, sustainability practitioners have often taken up specialized definitions established by sustainability reporting initiatives. In establishing a cross-functional team to implement SASB Standards, it is important for an organization to ensure all internal parties share a common understanding of key terms like this one.
For example, the widely used Global Reporting Initiative’s (GRI) Materiality Principle states that a sustainability report should include information that “reflect[s] the organization’s significant economic, environmental, and social impacts” or “substantively influence[s] the assessments and decisions of stakeholders.” This emphasis on external impacts and a broad set of stakeholders differs from the definition of materiality typically used to guide financial reporting (as well as the development of SASB Standards), which is focused on financial impacts of interest to investors.
As they implement SASB Standards, companies are likely to bring together key internal functions that have traditionally used these (or other) conceptions of materiality, resulting in the potential for misunderstanding. Thus, an important early step may be to review and align on foundational concepts and terminology to ensure clear communication.
What to Do If Multiple Industries Apply
Some organizations are “pure play” companies focused on a single line of business that is neatly captured by SASB’s industry classification system. Others’ operations are integrated horizontally across industries or vertically through the value chain straddling multiple industries. For such companies, multiple industry standards may be required to address the full array of sustainability topics reasonably likely to impact a firm’s financial condition and/or operating performance. For example:
- If a company’s consolidated operations span multiple industries, SASB recommends reviewing multiple industry standards to identify topics beyond those defined in its primary industry standard that may warrant disclosure to investors.
- If a company has a unique business model that defies traditional industry classifications, it may wish to consider disclosure topics (and associated metrics) from an array of industries that have similar activities, choosing those disclosure topics most likely to communicate material information to investors. Some companies with very unique business models, such as emerging technology-based business models, may need to create a custom “SASB template” based on disclosure topics from multiple industries.
Companies seeking to implement SASB Standards and whose activities fall across multiple SICS® industries may wish to review the following examples of reports that leverage multiple SASB Standards:
- 2018 Bloomberg Impact Report – Uses the Internet & Media Services, Media & Entertainment, and Professional & Commercial Services standards
- Goldman Sachs 2018 SASB Index – Uses the Asset Management & Custody Activities, Investment Banking & Brokerage, and Commercial Banks standards
- Kinder Morgan 2018 Environmental, Social, and Governance Report – Uses the Oil & Gas – Midstream, Oil & Gas – Exploration & Production, Oil & Gas – Refining & Marketing, Marine Transportation, and Rail Transportation standards
- MOL Group 2018 Integrated Annual Report – Uses the Oil & Gas – Exploration & Production, Oil & Gas – Refining & Marketing, and Chemicals standards
- Morgan Stanley 2018 Sustainability Report – Uses the Investment Banking & Brokerage, Commercial Banks, and Asset Management & Custody Activities standards
SASB has developed a unique sustainability accounting standard for each of 77 SICS® industries. Thus, for companies that are vertically or horizontally integrated across more than one industry, reporting with SASB standards may initially appear challenging. Companies that have faced similar challenges can provide helpful guidance on how to best overcome this perceived hurdle. For example, Roger Seabrook, Vice President of Finance, Marketing & Sustainability at Unilever, has shared his insights as a member of SASB’s Standards Advisory Group (SAG). About his company, he notes, “our portfolio includes diverse products such as ice cream, tea, deodorant and soap, so we don’t fit neatly” into one industry or another. That being said, he suggests, you can’t become paralyzed by the range of standards that may apply to your company’s operations. “You’ve got to start somewhere,” Seabrook says. “Focus on one area that is really important to the business” and go from there.
Kristin Peterson, Director of Corporate Compliance at Kinder Morgan, agrees. Her company operates in a range of extractive and transportation industries, so “when we pulled all the metrics together from five to six standards, it looked overwhelming at first.” She recommends a methodical approach: determining which industries are applicable, consolidating the metrics from those industries, then looking for overlap—including where related metrics are consistent or not. By using the company’s subject matter experts to help assess the SASB metrics, identify those already being collected, and formulate plans for the rest, “we were able to wean down the list to something considerably more manageable” and make progress, she says.
Many companies that have implemented SASB standards have used multiple industry standards to provide investors with a complete picture of their performance on financially material sustainability issues. Feedback from several companies suggests that the following approach may be helpful when assessing which industry standards apply, and subsequently in using those standards to disclose information:
- Map the company’s activities to the applicable SICS® industries
- For applicable SICS® industries, evaluate the topics in each industry standard to determine which are applicable
- Prioritize reporting of these topics based on the informational needs of investors as well as the cost-effectiveness of obtaining and reporting the associated data
- Prioritize reporting of topics based on relative size of business segments and/or relative risk (e.g., relatively small business segments can have outsize contributions to risk)
Your Company, Your Call
SASB Standards are intended for use in communications to investors regarding sustainability issues that are likely to impact corporate ability to create long-term shareholder value. However, reporting with SASB Standards is not an “all or nothing” proposition. A company determines for itself which standard or standards are relevant to the company, which disclosure topics are financially material to its business, and which associated metrics to report, taking relevant legal requirements into account. To ensure investors understand the thought process behind your disclosures, SASB recommends that you clearly explain why you omitted or modified SASB topics or metrics in your disclosures. This is covered in more detail in “Develop Your Disclosures,” as well as in SASB’s Standards Application Guidance.
Summary and Worksheet
- Gain an understanding of SASB terminology and the structure of SASB Standards
- Determine which industry standard or standards apply
- Determine which disclosure topics are applicable